<PAGE>
As filed with the Securities and Exchange Commission on December 29, 1998
1933 Act Registration No. 33-68704
1949 Act Registration No. 811-8006
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 20 /x/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 / /
Amendment No. 22 /x/
(Check appropriate box or boxes)
MORGAN GRENFELL INVESTMENT TRUST
(Exact name of registrant as specified in Charter)
885 Third Avenue
New York, New York 10022
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER.
including Area Code: 212-230-2600
Copy to:
James E. Minnick Ernest V. Klein, Esq.
Morgan Grenfell Inc. Hale and Dorr
885 Third Avenue Sixty State Street
New York, New York 10022 Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X March 1, 1999 pursuant to paragraph (a) of Rule 485
- --
Title of Securities Being Registered: Shares of Beneficial Interest.
<PAGE>
MORGAN GRENFELL
INVESTMENT TRUST
Prospectus March 1, 1999
[MAP]
International Mutual Funds
Institutional Shares
The Securities and Exchange Commission has not approved any fund's shares as
an investment or determined whether this prospectus is accurate or complete.
Any statement to the contrary is a crime.
<PAGE>
MORGAN GRENFELL
INVESTMENT TRUST
INSTITUTIONAL SHARES
CONTENTS
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTING IN MORGAN GRENFELL INTERNATIONAL
MUTUAL FUNDS
<S> <C> <C>
FUND DESCRIPTIONS
INTERNATIONAL EQUITY FUNDS
International Equity........................ 2
Global Equity............................... 4
European Equity Growth...................... 6
New Asia.................................... 8
International Small Cap Equity.............. 10
Japanese Small Cap Equity................... 12
European Small Cap Equity................... 14
Emerging Markets Equity..................... 16
A FUND BY FUND LOOK AT INVESTMENT OBJECTIVES AND
STRATEGIES, RISKS AND EXPENSES.
INTERNATIONAL FIXED INCOME FUNDS
Core Global Fixed Income.................... 18
Global Fixed Income......................... 20
International Fixed Income.................. 22
Emerging Markets Debt....................... 24
Emerging Local Currency Debt................ 26
MORE ABOUT RISK............................... 28
AN OVERVIEW OF SECURITIES THAT MAY BE PURCHASED
AND INVESTMENT TECHNIQUES THAT MAY BE USED BY THE
FUNDS AND THEIR RISKS. INVESTMENT ADVISER
Portfolio Management........................ 30
MANAGING YOUR INVESTMENT
BUYING AND SELLING SHARES
Through a Plan.............................. 31
Through a Broker............................ 31
Directly.................................... 31
How Shares are Priced....................... 32
Payment of Redemption Proceeds.............. 32
HOLDING SHARES
Exchanging.................................. 33
Dividends and Distributions................. 33
Tax Considerations.......................... 33
FINANCIAL HIGHLIGHTS.......................... 34
POLICIES AND INSTRUCTIONS FOR OPENING, MAINTAINING
AND CLOSING AN ACCOUNT IN ANY FUND.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus - International Mutual Funds
<PAGE>
WITH MORE THAN $150 BILLION IN ASSETS UNDER MANAGEMENT,
INCLUDING $29 BILLION MANAGED FOR NORTH AMERICAN CLIENTS,
MORGAN GRENFELL ASSET MANAGEMENT IS ONE OF THE WORLD'S
FOREMOST INVESTMENT MANAGEMENT ORGANIZATIONS. WE COVER ALL
MAJOR INVESTMENT REGIONS, LEVERAGING THE EXPERTISE OF 250
PORTFOLIO MANAGERS AND ANALYSTS ACROSS THE GLOBE.
WHO MAY WANT TO INVEST
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST IN THE EQUITY FUNDS:
- - those who are pursuing a long-term goal
- - those who are seeking an investment with the potential to outpace inflation
- - those who are seeking to diversify their portfolio through international
investing
WHO MAY NOT WANT TO INVEST IN THE EQUITY FUNDS:
- - those who are pursuing a short-term goal or are investing their emergency
funds
- - those who require regular income or stability of principal
- - those who do not feel comfortable with the higher price volatility and
currency fluctuations associated with investments in international securities
WHO MAY WANT TO INVEST IN THE FIXED INCOME FUNDS:
- - those who are investing for income
- - those who want higher potential returns than a money market fund
- - those who are seeking to diversify their personal investment portfolio
through international investing
WHO MAY NOT WANT TO INVEST IN THE FIXED INCOME FUNDS:
- - those who are investing their sole source of investment income
- - those who are making short-term investments
- - those who do not feel comfortable with the higher price volatility and
currency fluctuations associated with investments in international securities
An investment in a fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
- --------------------------------------------------------------------------------
1 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of foreign issuers.
The portfolio management team generally uses a "bottom-up" approach to picking
stocks. This approach focuses on individual stock selection rather than country
selection. The team uses an active process which emphasizes fundamental company
research through financial analysis and company visits. The team also uses a
risk-controlled asset allocation process to add value at the regional level.
The portfolio will consist of a focused list of 30 to 40 international stocks
offering the greatest upside potential on a 12 month view. The fund seeks
companies with above average earnings growth, below average price-to-earnings
ratios, leading or dominant positions in their particular markets and high
quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of foreign companies. Up to 35% of the fund's total assets
may include cash, short-term securities and stocks of U.S. companies. The fund
may invest more than 25% of its assets in securities of companies located in
each of Japan and the United Kingdom.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock. The fund typically invests in between 30 to 40 companies. Thus, an
adverse event affecting a particular company may hurt the fund's performance
more than if it had invested in a larger number of companies.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
focus its investments in Japan and the United Kingdom, it could be particularly
susceptible to the effects of political and economic developments in these
regions.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
2 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
Morgan Stanley EAFE Index. How the fund has performed in the past is not
necessarily an indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
3 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
GLOBAL EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of companies located throughout the world.
The portfolio management team will generally use a "bottom-up" approach to
picking stocks. This approach will focus on individual stock selection rather
than country selection. The team will use an active process which will emphasize
fundamental company research through financial analysis and company visits. The
team will also use a risk-controlled asset allocation process to add value at
the regional level.
The team will seek companies with above average earnings growth, below average
price-to-earnings ratios, leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of companies located throughout the world. Up to 35% of
the fund's total assets may include cash and short-term securities. The fund may
invest more than 25% of its assets in securities of companies located in each of
Japan, the United States and the United Kingdom.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
focus its investments in Japan, the United States and the United Kingdom, it
could be particularly susceptible to the effects of political and economic
developments in these regions.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
4 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
GLOBAL EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
5 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EUROPEAN EQUITY GROWTH FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of companies located in Europe.
The portfolio management team generally uses a "bottom-up" approach to picking
stocks. This approach focuses on individual stock selection rather than country
selection. The team uses an active process which emphasizes fundamental company
research through financial analysis and company visits. The team also uses a
risk-controlled asset allocation process to add value at the regional level.
The team seeks companies with above average earnings growth, below average
price-to-earnings ratios, leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its assets in the
equity securities of European companies. Up to 35% of the fund's total assets
may include cash, short-term securities and securities of non-European issuers
(including the U.S.). The fund may invest more than 25% of its assets in
securities denominated in the euro, as well as in the United Kingdom.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
concentrate its investments in euro denominated issues, as well as in the United
Kingdom, the fund could be particularly susceptible to the effects of political
and economic developments in these regions.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
6 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EUROPEAN EQUITY GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
MSCI European Region Index. How the fund has performed in the past is not
necessarily an indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
7 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
NEW ASIA FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in the equity securities of companies located in the Pacific Basin,
excluding Japan.
The portfolio management team will generally use a "bottom-up" approach to
picking stocks. This approach will focus on individual stock selection rather
than country selection. The team will use an active process which emphasizes
fundamental company research through financial analysis and company visits. The
team will also use a risk-controlled asset allocation process to add value at
the regional level.
The team will seek companies with above average earnings growth, below average
price-to-earnings ratios, leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of companies located in the Asian Pacific Basin, excluding
Japan. While the fund will own mostly foreign securities, it may also hold cash,
short-term securities and stocks of companies located outside the Pacific Basin
(including the U.S. and Japan). The fund may invest more than 25% of its assets
in securities of companies located in Hong Kong.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund
focuses its invest investments in the Pacific Basin, and Hong Kong in
particular, it could be particularly susceptible to the effects of political and
economic developments in the Pacific Basin, especially Hong Kong.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
8 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
NEW ASIA FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees.................................... x.xx%
Distribution (12b-1) and/or Service Fees......... None
Other Expenses................................... x.xx%
Reimbursements...................................
Total Annual Fund Operating Expenses............. x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
9 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL SMALL CAP EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of small capitalization companies located in
countries other than the United States.
The portfolio management team generally uses a "bottom-up" approach to picking
stocks. This approach focuses on individual stock selection rather than country
selection. The team uses an active process which emphasizes fundamental company
research through financial analysis and company visits. The team also uses a
risk-controlled asset allocation process to add value at the regional level.
The team seeks companies with above average earnings growth, below average
price-to-earnings ratios, leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of small capitalization companies located in countries
other than the United States. Small capitalization companies are ranked in the
bottom 25% of companies in terms of market capitalization. The fund will focus
on companies located in countries which make up the NatWest Euro Pacific Index.
The fund, however, may invest in stocks that are not constituents of the index.
Up to 35% of the fund's total assets may include cash, short-term securities and
equity securities of large and medium capitalization companies located outside
the U.S. and companies of any size located in the U.S. The fund may invest more
than 25% of its assets in securities of companies located in each of Japan and
the United Kingdom.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF SMALL CAP INVESTING. Small capitalization companies generally have
less potential for growth, a lower degree of liquidity in the market and a
greater sensitivity to changing economic conditions in their geographic regions
than larger capitalization companies.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
focus its investments in Japan and the United Kingdom, it could be particularly
susceptible to the effects of political and economic developments in these
regions.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
10 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL SMALL CAP EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
NatWest Euro Pacific Small Cap Index. How the fund has performed in the past is
not necessarily an indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........ None
Maximum Deferred Sales Charge......... None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees......................... x.xx%
Distribution (12b-1) and/or Service
Fees.................................. None
Other Expenses........................ x.xx%
Total Annual Fund Operating
Expenses.............................. x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees................................... x.xx%
Distribution (12b-1) and/or Service Fees........ None
Other Expenses.................................. x.xx%
Reimbursements..................................
Total Annual Fund Operating Expenses............ x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
11 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
JAPANESE SMALL CAP EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of small capitalization companies located in
Japan.
The portfolio management team will generally use a "bottom-up" approach to
picking stocks. This approach will focus on individual stock selection rather
than country selection. The team will use an active process which emphasizes
fundamental company research through financial analysis and company visits. The
team will also use a risk-controlled asset allocation process to add value at
the regional level.
The team will seek companies with above average earnings growth, below average
price-to-earnings ratios, a leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of small capitalization companies located in Japan. Small
capitalization companies are ranked in the bottom 20% of companies in terms of
market capitalization. Up to 35% of the fund's total assets may include cash,
short-term securities and equity securities of large and medium capitalization
companies located in Japan, and companies of any size located outside of Japan.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund
focuses its invest investments in Japan, it could be particularly susceptible to
the effects of political and economic developments within Japan.
RISKS OF SMALL CAP INVESTING. Small capitalization companies generally have
less potential for growth, a lower degree of liquidity in the market and a
greater sensitivity to changing economic conditions in their geographic regions
than larger capitalization companies.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
12 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
JAPANESE SMALL CAP EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........ None
Maximum Deferred Sales Charge......... None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees......................... x.xx%
Distribution (12b-1) and/or Service
Fees.................................. None
Other Expenses........................ x.xx%
Total Annual Fund Operating
Expenses.............................. x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees................................... x.xx%
Distribution (12b-1) and/or Service Fees........ None
Other Expenses.................................. x.xx%
Reimbursements..................................
Total Annual Fund Operating Expenses............ x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
13 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EUROPEAN SMALL CAP EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of small capitalization companies located in
Europe.
The portfolio management team generally uses a "bottom-up" approach to picking
stocks. This approach focuses on individual stock selection rather than country
selection. The team uses an active process which emphasizes fundamental company
research through financial analysis and company visits. The team also uses a
risk-controlled asset allocation process to add value at the regional level.
The team seeks companies with above average earnings growth, below average
price-to-earnings ratios, leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of small capitalization companies located in Europe. Small
capitalization companies are ranked in the bottom 25% of companies in terms of
market capitalization. Up to 35% of the fund's total assets may be invested in
cash, short-term securities, and equity securities of medium and large
capitalization companies located in Europe and companies of any size located
outside of Europe (including the U.S.). The fund may invest more than 25% of its
assets in securities denominated in the euro, as well as in the United Kingdom.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF SMALL CAP INVESTING. Small capitalization companies generally have
less potential for growth, a lower degree of liquidity in the market and a
greater sensitivity to changing economic conditions in their geographic regions
than larger capitalization companies.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
focus its investments in euro denominated issues, as well as in the United
Kingdom, it could be particularly susceptible to the effects of political and
economic developments in these regions.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
14 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EUROPEAN SMALL CAP EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
NatWest Euro Small Cap Index. How the fund has performed in the past is not
necessarily an indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
15 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING MARKETS EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of companies located in emerging securities
markets.
The portfolio management team generally uses a "bottom-up" approach to picking
stocks. This approach focuses on individual stock selection rather than country
selection. The team uses an active process which emphasizes fundamental company
research through financial analysis and company visits. The team also uses a
risk-controlled asset allocation process attempts also to add value at the
regional level.
The fund focuses on undervalued stocks with fast-growing earnings and superior
near-to-intermediate term performance potential.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of growth-oriented companies located in emerging
securities markets. Up to 35% of the fund's total assets may include cash,
short-term securities and equity securities traded in developed markets
(including the U.S.). The fund may invest more than 25% of its assets in
securities of Mexican and Brazilian companies.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
focus its investments in Brazil and Mexico, the fund could be particularly
susceptible to the effects of political and economic developments in these
regions.
RISKS OF EMERGING SECURITIES MARKETS. Emerging markets generally have economic
structures that are less mature, they have less stable political systems and may
have rapidly changing interest rates. Regulators in emerging markets are more
likely to impose capital controls than is the case in developed markets. These
markets are highly volatile and subject to change with political or economic
developments.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
DUE TO THE SIGNIFICANT RISKS INVOLVED IN INVESTING IN EMERGING MARKETS, THIS
FUND IS DESIGNED FOR AGGRESSIVE INVESTORS.
- --------------------------------------------------------------------------------
16 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING MARKETS EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
MSCI Emerging Markets Free Index. How the fund has performed in the past is not
necessarily an indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
17 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
CORE GLOBAL FIXED INCOME FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return, emphasizing current income and, to a lesser extent,
opportunities for growth of capital consistent with reasonable investment risk.
To pursue this objective, the fund invests in investment grade fixed income
securities of issuers throughout the world.
In managing the fund, the portfolio management team uses a "top-down" approach.
This approach focuses on country selection and currency management rather than
individual security selection. The team considers macro-economic factors such as
inflation, interest rates, monetary and fiscal policies, taxation and political
climate.
The currency portion of the fund's position in fixed income securities is
generally designed to enhance returns during periods of relative U.S. dollar
weakness and to protect returns during periods of relative U.S. dollar strength.
The team may take a position in a country's currency, without owning securities
within the market.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the fixed income securities of issuers located throughout the world. The fund
invests in investment grade instruments or in unrated securities considered
equivalent in rating by the adviser. Up to 35% of the fund's total assets may be
invested in domestic and foreign cash equivalents. The fund may invest more than
25% of its total assets in securities denominated in the euro, as well as in
Japan, the United States, and the United Kingdom.
The fund uses forward contracts and currency options to control volatility and
achieve desired currency weightings in a cost-effective manner.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE AND PREPAYMENT RISK. The value of your investment will fluctuate
in response to interest rate changes. Generally, if rates rise, the value of
debt securities falls; if rates fall, the value of debt securities rises. When
rates increase, slower than expected principal payments for a longer period may
permit issuers to extend the average life of securities, locking in below-market
interest rates and reducing the value of these securities. As interest rates
decline, some issuers may prepay principal earlier than scheduled, forcing the
fund to reinvest in lower yielding securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the Fund may
focus its investments in euro denominated issues, as well as in Japan, the
United States and the United Kingdom, the fund could be particularly susceptible
to the effects of political and economic developments in these regions.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
18 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
CORE GLOBAL FIXED INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
19 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
GLOBAL FIXED INCOME FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return, with an emphasis on current income and, to a lesser
extent, opportunities for capital growth consistent with reasonable investment
risk. To pursue this objective, the fund invests primarily in investment grade
fixed income securities of issuers throughout the world.
In managing the fund, the portfolio management team uses a "top-down" approach.
This approach focuses on country selection and currency management rather than
individual security selection. The team considers macro-economic factors such as
inflation, interest rates, monetary and fiscal policies, taxation and political
climate.
The currency portion of the fund's position in fixed income securities is
generally designed to enhance returns during periods of relative U.S. dollar
weakness and to protect returns during periods of relative U.S. dollar strength.
The team may take a position in a country's currency, without owning securities
within that market.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the fixed income securities of issuers located throughout the world. The fund
invests primarily in investment grade instruments or in unrated securities that
are considered equivalent in rating by the investment adviser. Up to 35% of the
fund's total assets may be invested in domestic and foreign cash equivalents.
The fund may invest more than 25% of its total assets in securities denominated
in the euro, as well as in Japan, the United States, and the United Kingdom. The
fund may invest up to 15% of its total assets in securities rated below
investment grade, including the securities of issuers in emerging markets.
The fund uses forward contracts and currency options to control volatility and
achieve desired currency weightings in a cost-effective manner.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE, PREPAYMENT, AND EXTENSION RISK. The value of your investment
will fluctuate in response to interest rate changes. Generally, if rates rise,
the value of debt securities falls; if rates fall, the value of debt securities
rises. When rates increase, slower than expected principal payments for a longer
period may permit issuers to extend the average life of securities, locking in
below-market interest rates and reducing the value of these securities. As
interest rates decline, some issuers may prepay principal earlier than
scheduled, forcing the fund to reinvest in lower yielding securities. There is a
greater risk that the fund will lose money due to prepayment and extension risks
because the fund invests heavily in mortgage-related securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Securities with low credit quality involve greater price volatility
and risk of loss of principal and income and are highly speculative in nature.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the Fund may
focus its investments in euro denominated issues, as well as in Japan, the
United States, and the United Kingdom, the fund could be particularly
susceptible to the effects of political and economic developments in these
regions.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
20 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
GLOBAL FIXED INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
Salomon WGBI Index. How the fund has performed in the past is not necessarily an
indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
21 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL FIXED INCOME FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return, with an emphasis on current income and, to a lesser
extent, opportunities for capital growth consistent with reasonable investment
risk. To pursue this objective, the fund invests in investment grade fixed
income securities of issuers in countries other than the United States.
In managing the fund, the portfolio management team uses a "top-down" approach.
This approach focuses on country selection and currency management rather than
individual security selection. The team considers macro-economic factors such as
inflation, interest rates, monetary and fiscal policies, taxation and political
climate.
The currency portion of the fund's position in fixed income securities is
generally designed to enhance returns during periods of relative U.S. dollar
weakness and to protect returns during periods of relative U.S. dollar strength.
The team may take a position in a country's currency, without owning securities
within that market.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the fixed income securities of foreign issuers. The fund invests in investment
grade debt or in unrated securities that are considered equivalent in rating by
the adviser. Up to 35% of the fund's total assets may be invested in domestic
and foreign cash equivalents and in U.S. fixed income securities. The fund may
invest more than 25% of its total assets in securities denominated in the euro,
as well as in Japan and the United Kingdom.
The fund uses forward contracts and currency options to control volatility and
achieve desired currency weightings in a cost-effective manner.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE AND PREPAYMENT RISK. The value of your investment will fluctuate
in response to interest rate changes. Generally, if rates rise, the value of
debt securities falls; if rates fall, the value of debt securities rises. When
rates increase, slower than expected principal payments for a longer period may
permit issuers to extend the average life of securities, locking in below-market
interest rates and reducing the value of these securities. As interest rates
decline, some issuers may prepay principal earlier than scheduled, forcing the
fund to reinvest in lower yielding securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the Fund may
focus its investments in euro denominated issues, as well as in Japan and the
United Kingdom, the fund could be particularly susceptible to the effects of
political and economic developments in these regions.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
22 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL FIXED INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
Salomon WGBI Non-US Index. How the fund has performed in the past is not
necessarily an indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
23 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING MARKETS DEBT FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return. To pursue this objective, the fund invests
primarily in fixed income securities of issuers in countries with new or
emerging securities markets.
In managing the fund, the portfolio management team uses a "top-down" approach.
This approach focuses on country selection, but security selection is an
important source of value.
Countries are selected according to macro-economic factors such as inflation,
interest rates, monetary and fiscal policies and the political climate. Short
term factors such as market sentiment, capital flows and new issue programs are
also evaluated.
PRINCIPAL HOLDINGS
Under normal circumstances, the fund invests at least 65% of its total assets in
the fixed income securities of issuers located in countries with new or emerging
securities markets. These include performing and non-performing loans,
Eurobonds, Brady Bonds (dollar denominated securities used to refinance foreign
government bank loans) and other fixed income securities of foreign governments
and their agencies as well as some corporate debt instruments. Up to 35% of the
fund's total assets may be invested in U.S. fixed income securities. The fund
may invest more than 25% of its total assets in Argentina, Brazil and Mexico.
Fixed income securities in which the fund may invest may be of any credit
quality, including securities not paying interest currently, zero coupon bonds,
pay-in-kind securities and securities in default. The loans and debt instruments
in which the fund may invest may be denominated in a major currency or in a
local currency.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE AND PREPAYMENT RISK. The value of your investment will fluctuate
in response to interest rate changes. Generally, if rates rise, the value of
debt securities falls; if rates fall, the value of debt securities rises. When
rates increase, slower than expected principal payments for a longer period may
permit issuers to extend the average life of securities, locking in below-market
interest rates and reducing the value of these securities. As interest rates
decline, some issuers may prepay principal earlier than scheduled, forcing the
fund to reinvest in lower yielding securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Securities with low credit quality involve greater price volatility
and risk of loss of principal and income and are highly speculative in nature.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Focusing the fund's
investments in Argentina, Brazil and Mexico will cause the fund to be
particularly susceptible to the effects of political and economic developments
in these regions.
RISKS OF EMERGING SECURITIES MARKETS. Emerging markets generally have economic
structures that are less mature, they have less stable political systems and may
have rapidly changing interest rates. Regulators in emerging markets are more
likely to impose capital controls than is the case in developed markets. These
markets are highly volatile and subject to change with political or economic
developments.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
DUE TO THE SIGNIFICANT RISKS INVOLVED, THIS FUND IS DESIGNED FOR AGGRESSIVE
INVESTORS.
- ---------------------------------------------------
- --------------------------------------------------------------------------------
24 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING MARKETS DEBT FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
JP Morgan EMBI+ Index. How the fund has performed in the past is not necessarily
an indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........ None
Maximum Deferred Sales Charge......... None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees......................... x.xx%
Distribution (12b-1) and/or Service
Fees.................................. None
Other Expenses........................ x.xx%
Total Annual Fund Operating
Expenses.............................. x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees................................... x.xx%
Distribution (12b-1) and/or Service Fees........ None
Other Expenses.................................. x.xx%
Reimbursements..................................
Total Annual Fund Operating Expenses............ x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
25 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING LOCAL CURRENCY DEBT FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return. To pursue this objective, the fund invests
primarily in fixed income securities denominated in currencies of emerging
markets countries.
When managing the fund, the portfolio management team will use a "top-down"
approach. This approach will focus on country selection and currency management
rather than individual security selection. The team will consider macro-economic
factors such as inflation, interest rates, monetary and fiscal policies,
taxation and the political climate.
In making investments for the fund, the portfolio management team will give
primary emphasis to the attractiveness of the local currencies in which
investments are denominated. The fund will generally not attempt to hedge
foreign currency exchange rate risks.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
debt instruments denominated in currencies of issuers located in emerging
markets countries. Fixed income securities in which the fund invests may be of
any credit quality, including securities not paying interest currently, zero
coupon bonds, pay-in-kind securities and securities in default. Up to 35% of the
fund's total assets may be invested in short-term debt instruments denominated
in U.S. dollars. The fund may invest more than 25% of its total assets in
Mexico.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE AND PREPAYMENT RISK. The value of your investment will fluctuate
in response to interest rate changes. Generally, if rates rise, the value of
debt securities falls; if rates fall, the value of debt securities rises. When
rates increase, slower than expected principal payments for a longer period may
permit issuers to extend the average life of securities, locking in below-market
interest rates and reducing the value of these securities. As interest rates
decline, some issuers may prepay principal earlier than scheduled, forcing the
fund to reinvest in lower yielding securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Securities with low credit quality involve greater price volatility
and risk of loss of principal and income and are highly speculative in nature.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Focusing the fund's
investments in Mexico will cause the fund to be particularly susceptible to the
effects of political and economic developments in Mexico.
RISKS OF EMERGING SECURITIES MARKETS. Emerging markets generally have economic
structures that are less mature, they have less stable political systems and may
have rapidly changing interest rates. Regulators in emerging markets are more
likely to impose capital controls than is the case in developed markets. These
markets are highly volatile and subject to change with political or economic
developments.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
Because the fund generally does not hedge foreign currency exchange rate risk,
the fund's return may be more dependent on the portfolio management team's
judgment as to the relative attractiveness of the local currencies in which the
fund's investments are denominated.
DUE TO THE SIGNIFICANT RISKS INVOLVED, THIS FUND IS DESIGNED FOR AGGRESSIVE
INVESTORS.
- ---------------------------------------------------
- --------------------------------------------------------------------------------
26 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING LOCAL CURRENCY DEBT FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
27 Prospectus - International Mutual Funds
<PAGE>
MORE ABOUT RISK
- ----------------------------------------
When you invest in mutual funds you are taking the risk that your investment
will lose money or not earn as much as you expect. Past returns are not an
indication of future performance and there is no guarantee that the fund will
meet its investment objective.
The Board of Trustees may change each fund's investment objective without
obtaining the approval of the shareholders.
ACTIVE MANAGEMENT
The funds' investment advisers actively seek stocks in which to invest, rather
than investing in a predetermined basket of stocks such as an index. A fund may
underperform relative to its stated benchmark, due to the investment adviser's
securities choices and choices in asset allocation.
CURRENCY EXCHANGE RATES
Currency exchange rates are the rate at which a foreign currency is converted to
the U.S. dollar. Currency exchange rate movements could reduce gains or create
losses for a fund.
CROSS-HEDGING
The funds may engage in the practice of selling a currency forward into a
different foreign currency. This is done to diversify a fund's total currency
exposure or gain exposure to a foreign currency that is expected to appreciate.
The anticipated correlation between the securities may disappear over time.
DEFENSIVE INVESTING
Each fund may depart from its principal investment strategies by taking
temporary defensive positions in response to adverse market, economic or
political conditions. If a fund takes a temporary defensive position, it may be
unable to achieve its investment objective.
DEPOSITORY RECEIPTS
The funds may invest in American, European or Global Depository Receipts (ADRs,
EDRs, and GDRs respectively) are stocks traded on exchanges outside the
company's domicile. They are typically issued by banks or trust companies. A
depository receipt may be denominated in a currency different from the currency
in which the underlying foreign security is denominated.
DERIVATIVES
Each fund may use derivatives. Derivatives are financial instruments whose value
derives from another security or an index. Futures, options and foreign currency
forward contracts are types of derivatives. Derivatives used for hedging may not
fully offset the underlying positions. Derivatives used for risk management may
not have the intended effects and may result in losses or missed opportunities.
Derivatives that involve leverage may magnify losses. In addition, there is a
risk that a counterparty will fail to honor a contract's terms resulting in a
loss for the fund.
EMERGING MARKETS SECURITIES
The funds may invest in emerging markets securities. Developing markets have
economic structures that are less mature, have less stable political systems and
may have high inflation, rapidly changing interest and currency exchange rates.
Emerging markets may lack the social, political and economic stability
characteristics of more developed countries. Investments generally tend to be
more illiquid (more difficult to trade) and more volatile than those of other
foreign investments.
EQUITY AND EQUITY RELATED SECURITIES
The funds may invest in common stock, preferred stock, warrants, purchased call
options and other rights to acquire stock. The market value of an equity
security will increase or decrease depending on market conditions. This affects
the value of the shares of a fund, and the value of your investment.
EURO DENOMINATED SECURITIES
On January 1, 1999, the currencies of the following countries will convert into
one common currency: Austria, Belgium, Finland, France, Germany, Ireland,
Luxembourg, Italy, the Netherlands, Portugal, and Spain. There is a risk that
the conversion may not go as anticipated and that a fund may be affected by
pricing errors and adverse tax consequences.
FIXED INCOME SECURITIES (BONDS)
The funds may invest in government securities, corporate fixed income securities
and obligations to repay borrowed money within a certain time with or without
interest. The value of a fund's bonds could rise in value when interest rates
fall and decline when interest rates rise. The longer a bond's duration and the
lower its credit quality, the more its value typically falls. A less significant
risk is default by the bond issuer on principal or interest payments. A
security's credit rating may be downgraded at any time.
- --------------------------------------------------------------------------------
28 Prospectus - International Mutual Funds
<PAGE>
MORE ABOUT RISK (CONTINUED)
- --------------------------------------------------------------------------------
FOREIGN SECURITIES
The risks of investing in foreign securities are generally higher than investing
in domestic securities. A foreign government could expropriate or nationalize
assets, impose withholding or other taxes on dividend or interest payments or
capital gains, and prohibit transactions in the country's currency. Foreign
companies may not be subject to the same accounting, auditing and financial
reporting standards and requirements as U.S. companies. Foreign brokerage
commissions and custodian fees are generally higher than those in the United
States. In many foreign countries, securities markets are less liquid, more
volatile, and subject to less government regulation than U.S. securities
markets.
FOREIGN CURRENCY FORWARD CONTRACTS
A foreign currency forward contract is an obligation to buy or sell a given
currency on a future date and at a set price. See "Derivatives."
FUTURES CONTRACTS
A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date or to make or receive a cash payment
based on the value of a securities index. See "Derivatives."
HEDGING
Hedging involves the attempt to offset a potential loss in one position by
establishing an interest in an opposite position. See "Derivatives."
ILLIQUID SECURITIES
The funds may invest in securities that cannot be sold quickly at a reasonable
price, or that cannot be sold on the open market. These include restricted
securities and private placements. A fund could have difficulty valuing these
holdings. A fund could be unable to sell these holdings at the time or price it
desires. Securities that were liquid when purchased may become illiquid in down
markets.
LENDING SECURITIES
Each fund may lend its securities to brokers-dealers for the purpose of
receiving income. There is a potential for default from the borrower.
OPTIONS CONTRACTS
An option is the right to buy or sell securities that is granted in exchange for
an agreed upon sum. See "Derivatives."
PORTFOLIO TURNOVER
Each fund's management approach, which may include short-term trading, could
cause the fund's portfolio turnover rate to be above average for a stock fund.
High turnover will increase the fund's transaction costs and may result in net
gains which, when distributed, could increase your tax liability.
REPURCHASE AGREEMENTS
The funds may buy a security from a bank or a dealer who must buy it back at a
fixed price on a specific day. If the seller is unable to honor its commitment
to repurchase the securities, a fund could lose money.
SHORT-TERM TRADING
The funds may sell a security shortly after buying it. Increased trading could
raise the fund's brokerage and related costs. Increased short-term capital gains
distributions would raise shareholders' income tax.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The funds may purchase or sell of a security at a future date for a
predetermined price. The market value of the securities may change before
delivery.
YEAR 2000 PROBLEM
Many computer systems today cannot distinguish the year 2000 from the year 1900
because of the way dates are encoded and calculated. The investment adviser is
taking steps designed to address the Year 2000 problem and to obtain reasonable
assurances that comparable steps are being taken by the funds' other major
service providers. Although there can be no assurance that these systems will be
properly adapted in time for the Year 2000, the adviser expects that they will
be.
ZERO COUPON SECURITIES, PAY-IN-KIND SECURITIES, DISCOUNT OBLIGATIONS, MORTGAGE
AND ASSET-BACKED SECURITIES, CONVERTIBLE SECURITIES AND HIGH YIELD SECURITIES
The fund may invest in obligations to repay borrowed money within a certain time
with or without interest. Debt securities are affected by changes in interest
rates. In general, when interest rates go up, the value of a debt security
decreases; when interest rates go down, the value of a debt security increases.
There is the risk that the borrower will not be able to fulfill its obligation
resulting in a loss, or a lower price than anticipated.
- --------------------------------------------------------------------------------
29 Prospectus - International Mutual Funds
<PAGE>
INVESTMENT ADVISER
- ----------------------------------------
The day-to-day operations of the funds, including investment decisions, have
been delegated to the adviser, Morgan Grenfell Investment Services (MGIS or the
adviser). MGIS is located at 20 Finsbury Circus, London, England. MGIS provides
a full range of international investment advisory services to institutional
clients, and as of October 31, 1998, managed approximately $12.1 billion in
assets. 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 and for negotiating brokerage commissions and
dealer charges.
As previously mentioned, the adviser has voluntarily agreed to reduce its
advisory fee and to make arrangements to limit certain other expenses of each
fund in order to limit the fund's operating expenses. For the fiscal period
ended October 31, 1998, the funds paid the following investment adviser fees:
Morgan Grenfell Emerging Markets Equity Fund
Morgan Grenfell European Equity Growth Fund
Morgan Grenfell European Small Cap Equity Fund
Morgan Grenfell International Equity Fund
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Emerging Markets Debt Fund
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Core Global Fixed Income Fund
MGIS is a subsidiary of Morgan Grenfell Asset Management, Ltd. (MGAM), which is
a wholly-owned subsidiary of Deutsche Bank AG, an international commercial and
investment banking group.
PORTFOLIO MANAGEMENT
A committee made up of investment professionals and analysts employed by the
adviser makes all of the funds' investment decisions.
- --------------------------------------------------------------------------------
30 Prospectus - International Mutual Funds
<PAGE>
Managing Your Investment
BUYING AND SELLING SHARES
- ----------------------------------------
BUYING AND SELLING SHARES THROUGH A PLAN
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
BUYING AND SELLING SHARES THROUGH A BROKER
Each fund has authorized brokers to accept purchase and redemption orders on
behalf of the fund. If you invest through a broker, you may be subject to
minimums established by the broker. Also, you may be subject to transaction fees
for buying or selling shares. When you buy or sell shares through a broker, it
is the responsibility of the broker to forward the request to us. If we do not
receive the request in a timely manner, you may not receive that day's NAV. Your
financial professional will be able to assist you in establishing your fund
account, buying and selling shares, and monitoring your investment.
To open an account without the help of a financial professional, please use the
instructions on these pages.
BUYING AND SELLING SHARES DIRECTLY
SALES CHARGE. There is no sales charge for buying institutional shares of the
funds listed in this prospectus.
MINIMUM INITIAL INVESTMENT. The minimum initial investment is $250,000. We
reserve the right to vary the initial investment amount at any time. We also
reserve the right to waive the minimum initial investment amount at any time.
MINIMUM ADDITIONAL INVESTMENT. There is no minimum additional investment
amount. We reserve the right to establish minimums for additional investments at
any time.
Buying Shares for the First Time
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
BY MAIL. Complete the enclosed account application and mail it with a check to
Morgan Grenfell Investment Trust.
BY WIRE. You must have an account with a commercial bank that is a member of
the Federal Reserve System. We do not charge a wire fee, but your bank might.
- - First, telephone 1-800-407-7301 to be assigned an account number.
- - Even if you are purchasing shares by wire, you must promptly complete the
account application accompanying this prospectus and send it to Morgan
Grenfell Investment Trust.
- - Specify your name, account number, taxpayer identification or social security
number and address in the wire. Have the wire sent to:
United Missouri Bank, N.A.
ABA No. 10-10-00695
For: Account Number 98-7052-395-7
Further Credit: [appropriate fund name]
Buying Additional Shares
BY MAIL. Send a check along with either an order form or a letter stating the
amount of investment to be made, the name of the fund you want to invest in, and
your account number to Morgan Grenfell Investment Trust.
BY WIRE. We do not charge a wire fee, but your bank might. Specify your name,
account number, taxpayer identification or social security number and address in
the wire. Have the wire sent to:
United Missouri Bank, N.A.
ABA No. 10-10-00695
For: Account Number 98-7052-395-7
Further Credit: [appropriate fund name]
Selling Shares
BY MAIL. Specify the number of institutional shares you wish to sell, the name
of the fund from which institutional shares are being redeemed, your account
number, payment instructions, and the exact registration on the account. Send
the information to Morgan Grenfell Investment Trust. Make sure you sign your
letter. Additional information, such as a signature guarantee, may be required.
BY PHONE. If you have selected the optional telephone redemption privilege on
your account application, you may redeem institutional shares of any fund,
without charge, by calling 1-800-407-7301. Requests must be made before 4:00
p.m. Eastern Standard Time. After your request has been
<TABLE>
<CAPTION>
ALL CORRESPONDENCE SHOULD BE SENT TO:
BY REGULAR MAIL BY OVERNIGHT MAIL
<S> <C>
Morgan Grenfell Morgan Grenfell
Investment Trust Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO CT-8 Tower
64141-6165 330 West 9th Street
Kansas City, MO 64105
</TABLE>
- --------------------------------------------------------------------------------
31 Prospectus - International Mutual Funds
<PAGE>
Managing Your Investment
BUYING AND SELLING SHARES (CONTINUED)
- --------------------------------------------------------------------------------
verified, a check for the net amount will be mailed to the registered owner(s)
at the address of record. It may be difficult to implement telephone redemptions
in times of dramatic economic or market changes.
You may be asked to provide certain information that is unique to your account,
in order for us to verify the authenticity of your phone call.
HOW SHARES ARE PRICED
The price you pay when you buy, or receive when you sell, is based upon the net
asset value (NAV) of your fund. The NAV is calculated by dividing the net assets
(total assets minus liabilities) of each fund class by the number of shares of
that class outstanding. The NAV is calculated at the close of regular trading
every day the New York Stock Exchange (NYSE) is open for business (generally
4:00 p.m., Eastern time). If the NYSE closes early, the fund will accelerate the
calculation of NAV and transaction deadlines to the actual closing time. Shares
will not be priced on holidays or other days on which the NYSE is closed for
trading.
The fund uses a forward pricing procedure. Therefore, the price at which you buy
or sell shares is based on the next calculation of the NAV after the order is
received.
Certain shares held by the funds are listed on foreign exchanges and trade at
times and on days when the New York Stock Exchange is closed. As a result, the
net asset value of each class of each fund may be significantly affected by such
trading and at times and on days when you have no ability to redeem shares of
the fund.
If the adviser believes that an asset's market value does not reflect its fair
value, then the Board of Trustees, in good faith, will determine fair market
value.
PAYMENT OF REDEMPTION PROCEEDS
BY MAIL. When you sell shares, the proceeds will be wired to the bank account
you designated on the account application, unless payment by check has been
requested. Normally, redemption proceeds will be wired no more than seven days
after the transfer agent receives the appropriate redemption request documents,
including any additional documentation we may ask for, to verify the
authenticity of your request. Frequently, the proceeds will be wired on the next
Business Day after receipt of such documents.
BY WIRE. You may receive your redemption proceeds by Federal Reserve wire or
Automated Clearing House (ACH) wire. Redemption requests by federal wire cannot
be made on federal holidays. Transactions made by ACH will not be posted to a
shareholder's bank account until the second business day following the
transaction. We do not charge a wire fee, but your bank might.
If you wish to change the bank designated to receive redemption proceeds, you or
an authorized representative must send a signed written request to the transfer
agent. The signature must be guaranteed by a bank, a member of a national stock
exchange, or another eligible institution. The transfer agent may require
additional documentation in connection with your request. Please contact the
transfer agent for more information.
The payment of redemption proceeds for shares of a fund recently purchased by
check may be delayed for up to 15 calendar days while we wait for your check to
clear.
You may redeem shares in cash up to the lesser of $250,000 or 1% of the net
asset value of the fund during any 90 day period. Redemptions in excess of this
limitation may be made in-kind. Please see the SAI for more information.
<TABLE>
<CAPTION>
ALL CORRESPONDENCE SHOULD BE SENT TO:
BY REGULAR MAIL BY OVERNIGHT MAIL
<S> <C>
Morgan Grenfell Morgan Grenfell
Investment Trust Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO CT-8 Tower
64141-6165 330 West 9th Street
Kansas City, MO 64105
</TABLE>
- --------------------------------------------------------------------------------
32 Prospectus - International Mutual Funds
<PAGE>
Managing Your Investment
HOLDING SHARES
- ----------------------------------------
EXCHANGING SHARES
Institutional shares of one fund can be exchanged for institutional shares of
any other Morgan Grenfell fund in amounts as low as $50,000. Be sure to read the
prospectus relating to the institutional shares of the fund you wish to acquire
and consider its investment objective, policies and fees before making an
exchange into that fund.
An exchange of a fund's shares for shares of another fund will be treated as a
sale of the fund's shares and a gain on the transaction may be subject to
federal income tax.
BY MAIL. Send a written request to Morgan Grenfell Investment Trust.
BY PHONE. Telephone 1-800-550-6426 to speak to a Representative.
DIVIDENDS AND DISTRIBUTIONS
Each of the funds described in this prospectus pays dividends from net
investment income and net capital gains to shareholders, at least annually. Your
share of the income and capital gains the fund distributes is based on the
number of shares you own. You can receive your distributions in cash or reinvest
them in the same fund. You may change this preference at any time by notifying
us in writing. If no election is made, all dividends and capital gain
distributions will be reinvested in the same fund.
The fund's distributions, whether received in cash or reinvested in additional
shares of the fund, may be subject to federal, state and local tax.
TAX CONSIDERATIONS
This tax information is general in nature and may not apply to certain
tax-deferred accounts or other non-taxable entities. You should consult your tax
adviser to discuss how investing in the funds described in this prospectus will
affect your personal tax situation.
As a shareholder, you will generally pay taxes on the dividends and
distributions you receive, whether they are received in cash or reinvested.
Selling or exchanging shares or receiving dividends and distributions will
create tax liability. The following demonstrates how various transactions are
taxed for federal income tax purposes.
<TABLE>
<CAPTION>
DISTRIBUTION
RECEIVED: TREATED AS:
<S> <C>
Income Dividends and Ordinary income
Short-term capital
gains distributions
Long-term capital Capital gains (generally
gains distributions taxed at a maximum of 20%)
(over 12 months)
Selling or exchanging Generally, capital gains or
shares owned more losses
than a year
Selling or exchanging For gains: short-term
shares owned one year capital gains; For losses:
or less than a year special rules apply. Please
consult your tax adviser or
see the SAI.
</TABLE>
If you buy shares of a fund right before it makes a taxable dividend or
distribution, part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax-deferred account, such as an
IRA, this is not to your advantage since you will pay tax on the dividend but
will not have shared in the increase in NAV of the fund.
If you sell shares at a loss for tax purposes and invest in a substantially
similar investment within a 61 day period beginning 30 days before and ending 30
days after the sale date, the sale is generally considered a "wash sale" and you
will be unable to claim a tax loss.
Every year, the fund will send you information detailing the amount of income
and capital gains distributed to you for the previous year and the proceeds of
your redemptions (including exchanges).
If you fail to furnish your correct taxpayer identification number and required
certifications, you may be subject to a 31% backup withholding tax.
Foreign investors are subject to different tax rules and may be subject to
non-resident alien withholding tax at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends. Unless a
current IRS Form W-8 or acceptable substitute is on file, backup withholding on
certain other payments may apply as well.
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
- --------------------------------------------------------------------------------
33 Prospectus - International Mutual Funds
<PAGE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------
The financial highlights table is intended to help you understand the funds'
financial performance for the past 5 years, or, if shorter, the period of the
funds' operations. Certain information reflects financial results for a single
fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the funds' financial
statements, are included in the Statement of Additional Information (SAI) and
annual report, which is available on request.
[Copy to come]
- --------------------------------------------------------------------------------
34 Prospectus - International Mutual Funds
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
INTERNATIONAL MUTUAL FUNDS / INSTITUTIONAL SHARES
ACCOUNT APPLICATION FORM
<TABLE>
<CAPTION>
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------------
/A/ REGISTRATION (PLEASE PRINT ALL ITEMS EXCEPT SIGNATURES)
(COMPLETE ONE) 1. -
CORPORATIONS, ------------------------------------------------------------------------ -------------------------
PARTNERSHIPS, Name of Corporation or Entity. If a trust, include Name(s) of Trustee(s) Tax I.D. Number
TRUSTS & OTHERS
LINES 1 & 2 2. Type of Registration / / Corporation / / Trust
/ / Partnership / / Other
INDIVIDUAL
USE LINE 3 3. Individual - -
------------------------------------------------------------- --------------------------
First Name Initial Last Name Social Security Number
U.S. Citizen or Resident? Yes / / No / /
JOINT ACCOUNT 4. Joint Names - -
LINES 3 & 4 ------------------------------------------------------------- ---------------------------
First Name Initial Last Name Social Security Number
U.S. Citizen or Resident? Yes / / No / /
GIFT/TRANSFER 5. Uniform Gift/Transfer to Minor as custodian for
TO MINOR ----------------------
LINES 5, 6 & 7 6. under the
------------------------------------------------------- ---------------------------------
Minor's Name Minor's Social Security Number
7. Uniform Gift/Transfer to Minors Act
-------------------------------------------------------
State
- ----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
/B/ MAILING Street or P.O. Box
ADDRESS
-----------------------------------------------------------------------------------------------------
City State Zip Code Home Telephone Daytime Telephone
-----------------------------------------------------------------------------------------------------
DUPLICATE CONFIRMATION/ Street or P.O. Box
STATEMENT SENT TO:
------------------------------------------------------------------------------------------------------
City State Zip Code Home Telephone Daytime Telephone
- -----------------------------------------------------------------------------------------------------------------------------------
/C/ FUND For each Fund in which you wish to invest, please enter the amount of your investment and check the
SELECTION & corresponding box.
INITIAL
INVESTMENT MINIMUM INVESTMENT: $250,000 PER FUND. AMOUNT
------
(350) / / Morgan Grenfell International Equity Fund $ _________
(351) / / Morgan Grenfell European Equity Growth Fund $ _________
(352) / / Morgan Grenfell International Small Cap Equity Fund $ _________
(353) / / Morgan Grenfell European Small Cap Equity Fund $ _________
(354) / / Morgan Grenfell Emerging Markets Equity Fund $ _________
(355) / / Morgan Grenfell Global Fixed Income Fund $ _________
(356) / / Morgan Grenfell Emerging Markets Debt Fund $ _________
(357) / / Morgan Grenfell International Fixed Income Fund $ _________
(991) / / Morgan Grenfell Core Global Fixed Income Fund $ _________
/ / Enclosed is my check (payable to the appropriate Fund name) Total $
----------
----------
/ / In order to obtain wiring instructions - (PLEASE CALL 1-800-407-7301 PRIOR TO SENDING)*
* An account number is necessary prior to wiring money and must be included in instructions and below.
Account Number:
---------------
- -----------------------------------------------------------------------------------------------------------------------------------
/D/ FED WIRE Check one only, if none are / / All redemption proceeds will be sent by Fed wire net of wire
& AUTOMATED checked all redemptions charges unless Morgan Grenfell Investment Trust, P.O. Box
CLEARING HOUSE will be sent by an ACH 419165, Kansas City, MO 64141-6165 is notified in writing to
("ACH") transaction. execute redemptions by ACH transaction.
INFORMATION
/ / All redemption proceeds will be executed by an ACH transaction
unless Fed wire is requested by either calling 1-800-407-7301 or
by notifying Morgan Grenfell Investment Trust, P.O. Box 419165,
Kansas City, MO 64141-6165 in writing. There is no charge for
ACH transactions.
Automated Clearing House (ACH) redemptions must be executed by telephone authorization by calling
1-800-407-7301. Generally the proceeds of redemptions will be deposited in your bank account within
three business days after your call
Shareholders purchasing shares of the Fund(s) by Fed wire must request their bank to transmit the funds
to: United Missouri Bank, N.A.; ABA #10-10-00695; For Account Number 98-7052-395-7; Further Credit
[appropriate Fund name] The shareholder's name and account number must be specified in the wire
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
/D/ (CONTINUED) All Fed wire and ACH transactions will be sent as indicated below. There will be no charge for ACH
FED WIRE redemptions. Fed wire redemptions will be sent net of wire charges. Any changes in Fed wire or ACH
& AUTOMATED transactions must be made in writing to Morgan Grenfell Investment Trust, P.O. Box 419165, Kansas
CLEARING HOUSE City, MO 64141-6165. Please allow one month for ACH instructions to be effective. All activity
("ACH") prior to ACH instructions being effective will be done by Fed wire
INFORMATION
NOTIFY YOUR BANK OF YOUR INTENT TO ESTABLISH THIS OPTION ON YOUR BANK ACCOUNT.
---------------------------------------------------------------------------------------------------------
Bank Name Branch Office (if applicable)
VOIDED PERSONAL
CHECK MUST BE ---------------------------------------------------------------------------------------------------------
ATTACHED Bank Address (Do not use P.O. Box) City State Zip Code
---------------------------------------------------------------------------------------------------------
Bank Wire Routing Number Name(s) on Your Bank Account Your Bank Account Number
- -----------------------------------------------------------------------------------------------------------------------------------
/E/ DIVIDENDS Check one only; if none / / All dividend income and capital gains reinvested
AND are checked all dividend / / All dividend income and capital gains paid by ACH transaction
CAPITAL GAINS income and capital gains, / / Capital gains paid by ACH transaction and dividend income reinvested
DISTRIBUTIONS if any, will be reinvested. / / Dividend income paid by ACH transaction and capital gains reinvested
- -----------------------------------------------------------------------------------------------------------------------------------
/F/ TELEPHONE I (We) authorize DST Systems, Inc. to act upon instructions received by telephone from me (us) to redeem
PRIVILEGE shares or to exchange for shares of other Morgan Grenfell Investment Trust. I(We) understand an
REDEMPTION'S; exchange is made by redeeming shares of one Fund and using the proceeds to buy shares of another Fund.
EXCHANGE BETWEEN If there is an exchange, the account registration for the other Fund automatically will be the same as
PORTFOLIOS set forth above. Redemptions proceeds will be sent via ACH transaction, unless I (we) have elected the
Fed wire redemption privilege (Item D).
- -----------------------------------------------------------------------------------------------------------------------------------
/G/ CLIENT 1. I (We) have full right, power, authority and legal capacity, and am (are) of legal age in my (our)
AGREEMENT state of residence to purchase shares of the Fund. I (We) affirm that I (we) have received and read the
current prospectus of the Fund and agree to its terms. I (We) understand the investment objectives and
program, and have determined that the Fund is a suitable investment, based upon my (our) investment needs
and financial situation. I (We) agree that DST Systems, Inc. or any of its affiliates, officers,
directors or employees will not be liable for any loss, expense or cost for acting upon any instructions
or inquiries believed genuine.
2. I (We) understand that the authorization(s), with respect to Wire Redemptions are subject to the
conditions and limitations set forth in the current prospectus. I (We) ratify any instructions given,
pursuant to the above authorization(s) and agree that DST Systems, Inc. or any of its affiliates,
officers, directors or employees will not be liable for any loss liability, cost or expense for acting
upon instructions, when believed to be genuine.
3. I (We) understand and acknowledge that a return on the Morgan Grenfell Investment Trust Fund(s) is
(are) not guaranteed.
4. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
5. Morgan Grenfell Inc. has full authority to purchase and redeem shares of the mutual fund portfolios
if full investment discretion has been provided to Morgan Grenfell by a separate agreement.
/ / CHECK THIS BOX IF FULL INVESTMENT DISCRETION HAS BEEN PROVIDED TO MORGAN GRENFELL BY A SEPARATE
AGREEMENT.
- -----------------------------------------------------------------------------------------------------------------------------------
/H/ SIGNATURES Taxpayer Identification Number Certification (See Appendices to Prospectus for Instructions).
AND BACK-UP Under the penalties of perjury, I certify the following:
WITHHOLDING 1. The number shown on this form is my correct taxpayer identification number.
CERTIFICATION 2. I am exempt from back-up withholding or I am not subject to backup withholding as a result of
receiving notice from the Internal Revenue Service (IRS) that such withholding applies due to a
failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to
back-up withholding.
The Internal Revenue Service does not require your consent to any provision of this document other than
certifications required to avoid backup withholding.
---------------------------------------------- --------- -------------------------------
Individual (or Custodian) Date Joint Registration, if any
---------------------------------------------- --------- -------------------------------
Corporate Officer, Partner, Trustee, etc. Date Title
* YOU MUST CROSS OUT ITEM 2 ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO
BACK-UP WITHHOLDING
- -----------------------------------------------------------------------------------------------------------------------------------
BROKER USE ONLY: DEALER NAME: DEALER NUMBER:
------------------------------------------ ---------------------------------
DEALER ADDRESS:
---------------------------------------
---------------------------------------
REPRESENTATIVE NAME: REPRESENTATIVE BRANCH:
---------------------------------- -------------------------
REPRESENTATIVE SIGNATURE:
------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
MAIL COMPLETED APPLICATION FORM TO: FOR ASSISTANCE CALL :
MORGAN GRENFELL INVESTMENT TRUST 1-800-550-MGAM
P.O. BOX 419165
KANSAS CITY, MO 64141-6165 BEFORE INVESTING, PLEASE READ PROSPECTUS CAREFULLY
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Additional information about a fund's investments is available in the fund's
annual and semi-annual reports to shareholders. In each fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the fund's performance during its last fiscal year.
The annual report also includes the report of the fund's independent
accountants.
The Statement of Additional Information (SAI) is a supplement to this
prospectus. The SAI contains further information about a fund and its investment
limitations and policies. It also includes the most recent annual report and the
independent accountant's report. A current SAI for the funds is on file with the
Securities and Exchange Commission and is incorporated by reference (is legally
part of this prospectus).
You can obtain a free copy of the current annual/semi-annual report, the SAI,
and other information and answers to questions about the funds are available by
contacting:
Morgan Grenfell Investment Trust
No-Load Open-End Funds
Institutional Shares
885 Third Avenue
New York, New York 10022
Telephone: 1-800-555-1212
Internet:
Information about a fund (including the SAI) can be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330.
Copies of information can be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009
Or you can visit the SEC Web site at: www.sec.gov
Registration Number: 811-8006
- --------------------------------------------------------------------------------
35 Prospectus - International Mutual Funds
<PAGE>
MORGAN GRENFELL
INVESTMENT TRUST
Prospectus March 1, 1999
[MAP]
International Mutual Funds
Service Shares
The Securities and Exchange Commission has not approved any fund's shares as
an investment or determined whether this prospectus is accurate or complete.
Any statement to the contrary is a crime.
<PAGE>
MORGAN GRENFELL
INVESTMENT TRUST
SERVICE SHARES
CONTENTS
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTING IN MORGAN GRENFELL INTERNATIONAL
MUTUAL FUNDS
<S> <C> <C>
FUND DESCRIPTIONS
INTERNATIONAL EQUITY FUNDS
International Equity........................ 2
Global Equity............................... 4
European Equity Growth...................... 6
New Asia.................................... 8
International Small Cap Equity.............. 10
Japanese Small Cap Equity................... 12
European Small Cap Equity................... 14
Emerging Markets Equity..................... 16
A FUND BY FUND LOOK AT INVESTMENT OBJECTIVES AND
STRATEGIES, RISKS AND EXPENSES.
INTERNATIONAL FIXED INCOME FUNDS
Core Global Fixed Income.................... 18
Global Fixed Income......................... 20
International Fixed Income.................. 22
Emerging Markets Debt....................... 24
Emerging Local Currency Debt................ 26
MORE ABOUT RISK............................... 28
AN OVERVIEW OF SECURITIES THAT MAY BE PURCHASED
AND INVESTMENT TECHNIQUES THAT MAY BE USED BY THE
FUNDS AND THEIR RISKS. INVESTMENT ADVISER
Portfolio Management........................ 30
MANAGING YOUR INVESTMENT
BUYING AND SELLING SHARES
Service Plan................................ 31
Buying and Selling Shares Through Your
Service Organization...................... 31
How Shares are Priced....................... 31
Payment of Redemption Proceeds.............. 31
HOLDING SHARES
Exchanging.................................. 32
Dividends and Distributions................. 32
Tax Considerations.......................... 32
FINANCIAL HIGHLIGHTS.......................... 33
POLICIES AND INSTRUCTIONS FOR OPENING, MAINTAINING
AND CLOSING AN ACCOUNT IN ANY FUND.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus - International Mutual Funds
<PAGE>
WITH MORE THAN $150 BILLION IN ASSETS UNDER MANAGEMENT,
INCLUDING $29 BILLION MANAGED FOR NORTH AMERICAN CLIENTS,
MORGAN GRENFELL ASSET MANAGEMENT IS ONE OF THE WORLD'S
FOREMOST INVESTMENT MANAGEMENT ORGANIZATIONS. WE COVER ALL
MAJOR INVESTMENT REGIONS, LEVERAGING THE EXPERTISE OF 250
PORTFOLIO MANAGERS AND ANALYSTS ACROSS THE GLOBE.
WHO MAY WANT TO INVEST
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST IN THE EQUITY FUNDS:
- - those who are pursuing a long-term goal
- - those who are seeking an investment with the potential to outpace inflation
- - those who are seeking to diversify their portfolio through international
investing
WHO MAY NOT WANT TO INVEST IN THE EQUITY FUNDS:
- - those who are pursuing a short-term goal or are investing their emergency
funds
- - those who require regular income or stability of principal
- - those who do not feel comfortable with the higher price volatility and
currency fluctuations associated with investments in international securities
WHO MAY WANT TO INVEST IN THE FIXED INCOME FUNDS:
- - those who are investing for income
- - those who want higher potential returns than a money market fund
- - those who are seeking to diversify their personal investment portfolio
through international investing
WHO MAY NOT WANT TO INVEST IN THE FIXED INCOME FUNDS:
- - those who are investing their sole source of investment income
- - those who are making short-term investments
- - those who do not feel comfortable with the higher price volatility and
currency fluctuations associated with investments in international securities
An investment in a fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
- --------------------------------------------------------------------------------
1 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of foreign issuers.
The portfolio management team generally uses a "bottom-up" approach to picking
stocks. This approach focuses on individual stock selection rather than country
selection. The team uses an active process which emphasizes fundamental company
research through financial analysis and company visits. The team also uses a
risk-controlled asset allocation process to add value at the regional level.
The portfolio will consist of a focused list of 30 to 40 international stocks
offering the greatest upside potential on a 12 month view. The fund seeks
companies with above average earnings growth, below average price-to-earnings
ratios, leading or dominant positions in their particular markets and high
quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of foreign companies. Up to 35% of the fund's total assets
may include cash, short-term securities and stocks of U.S. companies. The fund
may invest more than 25% of its assets in securities of companies located in
each of Japan and the United Kingdom.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock. The fund typically invests in between 30 to 40 companies. Thus, an
adverse event affecting a particular company may hurt the fund's performance
more than if it had invested in a larger number of companies.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
focus its investments in Japan and the United Kingdom, it could be particularly
susceptible to the effects of political and economic developments in these
regions.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
2 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
3 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
GLOBAL EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of companies located throughout the world.
The portfolio management team will generally use a "bottom-up" approach to
picking stocks. This approach will focus on individual stock selection rather
than country selection. The team will use an active process which will emphasize
fundamental company research through financial analysis and company visits. The
team will also use a risk-controlled asset allocation process to add value at
the regional level.
The team will seek companies with above average earnings growth, below average
price-to-earnings ratios, leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of companies located throughout the world. Up to 35% of
the fund's total assets may include cash and short-term securities. The fund may
invest more than 25% of its assets in securities of companies located in each of
Japan, the United States and the United Kingdom.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
focus its investments in Japan, the United States and the United Kingdom, it
could be particularly susceptible to the effects of political and economic
developments in these regions.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
4 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
GLOBAL EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
5 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EUROPEAN EQUITY GROWTH FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of companies located in Europe.
The portfolio management team generally uses a "bottom-up" approach to picking
stocks. This approach focuses on individual stock selection rather than country
selection. The team uses an active process which emphasizes fundamental company
research through financial analysis and company visits. The team also uses a
risk-controlled asset allocation process to add value at the regional level.
The team seeks companies with above average earnings growth, below average
price-to-earnings ratios, leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its assets in the
equity securities of European companies. Up to 35% of the fund's total assets
may include cash, short-term securities and securities of non-European issuers
(including the U.S.). The fund may invest more than 25% of its assets in
securities denominated in the euro, as well as in the United Kingdom.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
concentrate its investments in euro denominated issues, as well as in the United
Kingdom, the fund could be particularly susceptible to the effects of political
and economic developments in these regions.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
6 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EUROPEAN EQUITY GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
7 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
NEW ASIA FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in the equity securities of companies located in the Pacific Basin,
excluding Japan.
The portfolio management team will generally use a "bottom-up" approach to
picking stocks. This approach will focus on individual stock selection rather
than country selection. The team will use an active process which emphasizes
fundamental company research through financial analysis and company visits. The
team will also use a risk-controlled asset allocation process to add value at
the regional level.
The team will seek companies with above average earnings growth, below average
price-to-earnings ratios, leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of companies located in the Asian Pacific Basin, excluding
Japan. While the fund will own mostly foreign securities, it may also hold cash,
short-term securities and stocks of companies located outside the Pacific Basin
(including the U.S. and Japan). The fund may invest more than 25% of its assets
in securities of companies located in Hong Kong.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund
focuses its invest investments in the Pacific Basin, and Hong Kong in
particular, it could be particularly susceptible to the effects of political and
economic developments in the Pacific Basin, especially Hong Kong.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
8 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
NEW ASIA FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees.................................... x.xx%
Distribution (12b-1) and/or Service Fees......... .25%
Other Expenses................................... x.xx%
Reimbursements................................... x.xx%
Total Annual Fund Operating Expenses............. x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
9 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL SMALL CAP EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of small capitalization companies located in
countries other than the United States.
The portfolio management team generally uses a "bottom-up" approach to picking
stocks. This approach focuses on individual stock selection rather than country
selection. The team uses an active process which emphasizes fundamental company
research through financial analysis and company visits. The team also uses a
risk-controlled asset allocation process to add value at the regional level.
The team seeks companies with above average earnings growth, below average
price-to-earnings ratios, leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of small capitalization companies located in countries
other than the United States. Small capitalization companies are ranked in the
bottom 25% of companies in terms of market capitalization. The fund will focus
on companies located in countries which make up the NatWest Euro Pacific Index.
The fund, however, may invest in stocks that are not constituents of the index.
Up to 35% of the fund's total assets may include cash, short-term securities and
equity securities of large and medium capitalization companies located outside
the U.S. and companies of any size located in the U.S. The fund may invest more
than 25% of its assets in securities of companies located in each of Japan and
the United Kingdom.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF SMALL CAP INVESTING. Small capitalization companies generally have
less potential for growth, a lower degree of liquidity in the market and a
greater sensitivity to changing economic conditions in their geographic regions
than larger capitalization companies.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
focus its investments in Japan and the United Kingdom, it could be particularly
susceptible to the effects of political and economic developments in these
regions.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
10 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL SMALL CAP EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........ None
Maximum Deferred Sales Charge......... None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees......................... x.xx%
Distribution (12b-1) and/or Service
Fees.................................. .25%
Other Expenses........................ x.xx%
Total Annual Fund Operating
Expenses.............................. x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees................................... x.xx%
Distribution (12b-1) and/or Service Fees........ .25%
Other Expenses.................................. x.xx%
Reimbursements.................................. x.xx%
Total Annual Fund Operating Expenses............ x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
11 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
JAPANESE SMALL CAP EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of small capitalization companies located in
Japan.
The portfolio management team will generally use a "bottom-up" approach to
picking stocks. This approach will focus on individual stock selection rather
than country selection. The team will use an active process which emphasizes
fundamental company research through financial analysis and company visits. The
team will also use a risk-controlled asset allocation process to add value at
the regional level.
The team will seek companies with above average earnings growth, below average
price-to-earnings ratios, a leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of small capitalization companies located in Japan. Small
capitalization companies are ranked in the bottom 20% of companies in terms of
market capitalization. Up to 35% of the fund's total assets may include cash,
short-term securities and equity securities of large and medium capitalization
companies located in Japan, and companies of any size located outside of Japan.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund
focuses its invest investments in Japan, it could be particularly susceptible to
the effects of political and economic developments within Japan.
RISKS OF SMALL CAP INVESTING. Small capitalization companies generally have
less potential for growth, a lower degree of liquidity in the market and a
greater sensitivity to changing economic conditions in their geographic regions
than larger capitalization companies.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
12 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
JAPANESE SMALL CAP EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........ None
Maximum Deferred Sales Charge......... None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees......................... x.xx%
Distribution (12b-1) and/or Service
Fees.................................. .25%
Other Expenses........................ x.xx%
Total Annual Fund Operating
Expenses.............................. x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees................................... x.xx%
Distribution (12b-1) and/or Service Fees........ .25%
Other Expenses.................................. x.xx%
Reimbursements.................................. x.xx%
Total Annual Fund Operating Expenses............ x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
13 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EUROPEAN SMALL CAP EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of small capitalization companies located in
Europe.
The portfolio management team generally uses a "bottom-up" approach to picking
stocks. This approach focuses on individual stock selection rather than country
selection. The team uses an active process which emphasizes fundamental company
research through financial analysis and company visits. The team also uses a
risk-controlled asset allocation process to add value at the regional level.
The team seeks companies with above average earnings growth, below average
price-to-earnings ratios, leading or dominant positions in their particular
markets and high quality management.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of small capitalization companies located in Europe. Small
capitalization companies are ranked in the bottom 25% of companies in terms of
market capitalization. Up to 35% of the fund's total assets may be invested in
cash, short-term securities, and equity securities of medium and large
capitalization companies located in Europe and companies of any size located
outside of Europe (including the U.S.). The fund may invest more than 25% of its
assets in securities denominated in the euro, as well as in the United Kingdom.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF SMALL CAP INVESTING. Small capitalization companies generally have
less potential for growth, a lower degree of liquidity in the market and a
greater sensitivity to changing economic conditions in their geographic regions
than larger capitalization companies.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
focus its investments in euro denominated issues, as well as in the United
Kingdom, it could be particularly susceptible to the effects of political and
economic developments in these regions.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
14 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EUROPEAN SMALL CAP EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
15 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING MARKETS EQUITY FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of companies located in emerging securities
markets.
The portfolio management team generally uses a "bottom-up" approach to picking
stocks. This approach focuses on individual stock selection rather than country
selection. The team uses an active process which emphasizes fundamental company
research through financial analysis and company visits. The team also uses a
risk-controlled asset allocation process attempts also to add value at the
regional level.
The fund focuses on undervalued stocks with fast-growing earnings and superior
near-to-intermediate term performance potential.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of growth-oriented companies located in emerging
securities markets. Up to 35% of the fund's total assets may include cash,
short-term securities and equity securities traded in developed markets
(including the U.S.). The fund may invest more than 25% of its assets in
securities of Mexican and Brazilian companies.
The fund may purchase and sell futures and options and enter into foreign
currency transactions to lessen its exposure to changing currency exchange
rates, security prices, interest rates and other factors that affect security
values.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular company's
stock.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the fund may
focus its investments in Brazil and Mexico, the fund could be particularly
susceptible to the effects of political and economic developments in these
regions.
RISKS OF EMERGING SECURITIES MARKETS. Emerging markets generally have economic
structures that are less mature, they have less stable political systems and may
have rapidly changing interest rates. Regulators in emerging markets are more
likely to impose capital controls than is the case in developed markets. These
markets are highly volatile and subject to change with political or economic
developments.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
DUE TO THE SIGNIFICANT RISKS INVOLVED IN INVESTING IN EMERGING MARKETS, THIS
FUND IS DESIGNED FOR AGGRESSIVE INVESTORS.
- --------------------------------------------------------------------------------
16 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING MARKETS EQUITY FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
17 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
CORE GLOBAL FIXED INCOME FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return, emphasizing current income and, to a lesser extent,
opportunities for growth of capital consistent with reasonable investment risk.
To pursue this objective, the fund invests in investment grade fixed income
securities of issuers throughout the world.
In managing the fund, the portfolio management team uses a "top-down" approach.
This approach focuses on country selection and currency management rather than
individual security selection. The team considers macro-economic factors such as
inflation, interest rates, monetary and fiscal policies, taxation and political
climate.
The currency portion of the fund's position in fixed income securities is
generally designed to enhance returns during periods of relative U.S. dollar
weakness and to protect returns during periods of relative U.S. dollar strength.
The team may take a position in a country's currency, without owning securities
within the market.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the fixed income securities of issuers located throughout the world. The fund
invests in investment grade instruments or in unrated securities considered
equivalent in rating by the adviser. Up to 35% of the fund's total assets may be
invested in domestic and foreign cash equivalents. The fund may invest more than
25% of its total assets in securities denominated in the euro, as well as in
Japan, the United States, and the United Kingdom.
The fund uses forward contracts and currency options to control volatility and
achieve desired currency weightings in a cost-effective manner.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE AND PREPAYMENT RISK. The value of your investment will fluctuate
in response to interest rate changes. Generally, if rates rise, the value of
debt securities falls; if rates fall, the value of debt securities rises. When
rates increase, slower than expected principal payments for a longer period may
permit issuers to extend the average life of securities, locking in below-market
interest rates and reducing the value of these securities. As interest rates
decline, some issuers may prepay principal earlier than scheduled, forcing the
fund to reinvest in lower yielding securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the Fund may
focus its investments in euro denominated issues, as well as in Japan, the
United States and the United Kingdom, the fund could be particularly susceptible
to the effects of political and economic developments in these regions.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
18 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
CORE GLOBAL FIXED INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
19 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
GLOBAL FIXED INCOME FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return, with an emphasis on current income and, to a lesser
extent, opportunities for capital growth consistent with reasonable investment
risk. To pursue this objective, the fund invests primarily in investment grade
fixed income securities of issuers throughout the world.
In managing the fund, the portfolio management team uses a "top-down" approach.
This approach focuses on country selection and currency management rather than
individual security selection. The team considers macro-economic factors such as
inflation, interest rates, monetary and fiscal policies, taxation and political
climate.
The currency portion of the fund's position in fixed income securities is
generally designed to enhance returns during periods of relative U.S. dollar
weakness and to protect returns during periods of relative U.S. dollar strength.
The team may take a position in a country's currency, without owning securities
within that market.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the fixed income securities of issuers located throughout the world. The fund
invests primarily in investment grade instruments or in unrated securities that
are considered equivalent in rating by the investment adviser. Up to 35% of the
fund's total assets may be invested in domestic and foreign cash equivalents.
The fund may invest more than 25% of its total assets in securities denominated
in the euro, as well as in Japan, the United States, and the United Kingdom. The
fund may invest up to 15% of its total assets in securities rated below
investment grade, including the securities of issuers in emerging markets.
The fund uses forward contracts and currency options to control volatility and
achieve desired currency weightings in a cost-effective manner.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE, PREPAYMENT, AND EXTENSION RISK. The value of your investment
will fluctuate in response to interest rate changes. Generally, if rates rise,
the value of debt securities falls; if rates fall, the value of debt securities
rises. When rates increase, slower than expected principal payments for a longer
period may permit issuers to extend the average life of securities, locking in
below-market interest rates and reducing the value of these securities. As
interest rates decline, some issuers may prepay principal earlier than
scheduled, forcing the fund to reinvest in lower yielding securities. There is a
greater risk that the fund will lose money due to prepayment and extension risks
because the fund invests heavily in mortgage-related securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Securities with low credit quality involve greater price volatility
and risk of loss of principal and income and are highly speculative in nature.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the Fund may
focus its investments in euro denominated issues, as well as in Japan, the
United States, and the United Kingdom, the fund could be particularly
susceptible to the effects of political and economic developments in these
regions.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
20 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
GLOBAL FIXED INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
21 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL FIXED INCOME FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return, with an emphasis on current income and, to a lesser
extent, opportunities for capital growth consistent with reasonable investment
risk. To pursue this objective, the fund invests in investment grade fixed
income securities of issuers in countries other than the United States.
In managing the fund, the portfolio management team uses a "top-down" approach.
This approach focuses on country selection and currency management rather than
individual security selection. The team considers macro-economic factors such as
inflation, interest rates, monetary and fiscal policies, taxation and political
climate.
The currency portion of the fund's position in fixed income securities is
generally designed to enhance returns during periods of relative U.S. dollar
weakness and to protect returns during periods of relative U.S. dollar strength.
The team may take a position in a country's currency, without owning securities
within that market.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the fixed income securities of foreign issuers. The fund invests in investment
grade debt or in unrated securities that are considered equivalent in rating by
the adviser. Up to 35% of the fund's total assets may be invested in domestic
and foreign cash equivalents and in U.S. fixed income securities. The fund may
invest more than 25% of its total assets in securities denominated in the euro,
as well as in Japan and the United Kingdom.
The fund uses forward contracts and currency options to control volatility and
achieve desired currency weightings in a cost-effective manner.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE AND PREPAYMENT RISK. The value of your investment will fluctuate
in response to interest rate changes. Generally, if rates rise, the value of
debt securities falls; if rates fall, the value of debt securities rises. When
rates increase, slower than expected principal payments for a longer period may
permit issuers to extend the average life of securities, locking in below-market
interest rates and reducing the value of these securities. As interest rates
decline, some issuers may prepay principal earlier than scheduled, forcing the
fund to reinvest in lower yielding securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Since the Fund may
focus its investments in euro denominated issues, as well as in Japan and the
United Kingdom, the fund could be particularly susceptible to the effects of
political and economic developments in these regions.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
22 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
INTERNATIONAL FIXED INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
23 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING MARKETS DEBT FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return. To pursue this objective, the fund invests
primarily in fixed income securities of issuers in countries with new or
emerging securities markets.
In managing the fund, the portfolio management team uses a "top-down" approach.
This approach focuses on country selection, but security selection is an
important source of value.
Countries are selected according to macro-economic factors such as inflation,
interest rates, monetary and fiscal policies and the political climate. Short
term factors such as market sentiment, capital flows and new issue programs are
also evaluated.
PRINCIPAL HOLDINGS
Under normal circumstances, the fund invests at least 65% of its total assets in
the fixed income securities of issuers located in countries with new or emerging
securities markets. These include performing and non-performing loans,
Eurobonds, Brady Bonds (dollar denominated securities used to refinance foreign
government bank loans) and other fixed income securities of foreign governments
and their agencies as well as some corporate debt instruments. Up to 35% of the
fund's total assets may be invested in U.S. fixed income securities. The fund
may invest more than 25% of its total assets in Argentina, Brazil and Mexico.
Fixed income securities in which the fund may invest may be of any credit
quality, including securities not paying interest currently, zero coupon bonds,
pay-in-kind securities and securities in default. The loans and debt instruments
in which the fund may invest may be denominated in a major currency or in a
local currency.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE AND PREPAYMENT RISK. The value of your investment will fluctuate
in response to interest rate changes. Generally, if rates rise, the value of
debt securities falls; if rates fall, the value of debt securities rises. When
rates increase, slower than expected principal payments for a longer period may
permit issuers to extend the average life of securities, locking in below-market
interest rates and reducing the value of these securities. As interest rates
decline, some issuers may prepay principal earlier than scheduled, forcing the
fund to reinvest in lower yielding securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Securities with low credit quality involve greater price volatility
and risk of loss of principal and income and are highly speculative in nature.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Focusing the fund's
investments in Argentina, Brazil and Mexico will cause the fund to be
particularly susceptible to the effects of political and economic developments
in these regions.
RISKS OF EMERGING SECURITIES MARKETS. Emerging markets generally have economic
structures that are less mature, they have less stable political systems and may
have rapidly changing interest rates. Regulators in emerging markets are more
likely to impose capital controls than is the case in developed markets. These
markets are highly volatile and subject to change with political or economic
developments.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
The value of the fund's shares depends in part on the adviser's ability to
assess economic conditions and investment opportunities.
DUE TO THE SIGNIFICANT RISKS INVOLVED, THIS FUND IS DESIGNED FOR AGGRESSIVE
INVESTORS.
- ---------------------------------------------------
- --------------------------------------------------------------------------------
24 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING MARKETS DEBT FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
JP Morgan EMBI+ Index. How the fund has performed in the past is not necessarily
an indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........ None
Maximum Deferred Sales Charge......... None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees......................... x.xx%
Distribution (12b-1) and/or Service
Fees.................................. .25%
Other Expenses........................ x.xx%
Total Annual Fund Operating
Expenses.............................. x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees................................... x.xx%
Distribution (12b-1) and/or Service Fees........ .25%
Other Expenses.................................. x.xx%
Reimbursements.................................. x.xx%
Total Annual Fund Operating Expenses............ x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
25 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING LOCAL CURRENCY DEBT FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return. To pursue this objective, the fund invests
primarily in fixed income securities denominated in currencies of emerging
markets countries.
When managing the fund, the portfolio management team will use a "top-down"
approach. This approach will focus on country selection and currency management
rather than individual security selection. The team will consider macro-economic
factors such as inflation, interest rates, monetary and fiscal policies,
taxation and the political climate.
In making investments for the fund, the portfolio management team will give
primary emphasis to the attractiveness of the local currencies in which
investments are denominated. The fund will generally not attempt to hedge
foreign currency exchange rate risks.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
debt instruments denominated in currencies of issuers located in emerging
markets countries. Fixed income securities in which the fund invests may be of
any credit quality, including securities not paying interest currently, zero
coupon bonds, pay-in-kind securities and securities in default. Up to 35% of the
fund's total assets may be invested in short-term debt instruments denominated
in U.S. dollars. The fund may invest more than 25% of its total assets in
Mexico.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE AND PREPAYMENT RISK. The value of your investment will fluctuate
in response to interest rate changes. Generally, if rates rise, the value of
debt securities falls; if rates fall, the value of debt securities rises. When
rates increase, slower than expected principal payments for a longer period may
permit issuers to extend the average life of securities, locking in below-market
interest rates and reducing the value of these securities. As interest rates
decline, some issuers may prepay principal earlier than scheduled, forcing the
fund to reinvest in lower yielding securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Securities with low credit quality involve greater price volatility
and risk of loss of principal and income and are highly speculative in nature.
RISKS OF FOREIGN INVESTING. Foreign investing involves higher risks than
investing in U.S. markets because the value of the fund depends in part upon
currency exchange rates, political and regulatory environments and overall
economic factors in the countries in which the fund invests. Focusing the fund's
investments in Mexico will cause the fund to be particularly susceptible to the
effects of political and economic developments in Mexico.
RISKS OF EMERGING SECURITIES MARKETS. Emerging markets generally have economic
structures that are less mature, they have less stable political systems and may
have rapidly changing interest rates. Regulators in emerging markets are more
likely to impose capital controls than is the case in developed markets. These
markets are highly volatile and subject to change with political or economic
developments.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
Because the fund generally does not hedge foreign currency exchange rate risk,
the fund's return may be more dependent on the portfolio management team's
judgment as to the relative attractiveness of the local currencies in which the
fund's investments are denominated.
DUE TO THE SIGNIFICANT RISKS INVOLVED, THIS FUND IS DESIGNED FOR AGGRESSIVE
INVESTORS.
- ---------------------------------------------------
- --------------------------------------------------------------------------------
26 Prospectus - International Mutual Funds
<PAGE>
Fund Descriptions
EMERGING LOCAL CURRENCY DEBT FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
27 Prospectus - International Mutual Funds
<PAGE>
MORE ABOUT RISK
- ----------------------------------------
When you invest in mutual funds you are taking the risk that your investment
will lose money or not earn as much as you expect. Past returns are not an
indication of future performance and there is no guarantee that the fund will
meet its investment objective.
The Board of Trustees may change each fund's investment objective without
obtaining the approval of the shareholders.
ACTIVE MANAGEMENT
The funds' investment advisers actively seek stocks in which to invest, rather
than investing in a predetermined basket of stocks such as an index. A fund may
underperform relative to its stated benchmark, due to the investment adviser's
securities choices and choices in asset allocation.
CURRENCY EXCHANGE RATES
Currency exchange rates are the rate at which a foreign currency is converted to
the U.S. dollar. Currency exchange rate movements could reduce gains or create
losses for a fund.
CROSS-HEDGING
The funds may engage in the practice of selling a currency forward into a
different foreign currency. This is done to diversify a fund's total currency
exposure or gain exposure to a foreign currency that is expected to appreciate.
The anticipated correlation between the securities may disappear over time.
DEFENSIVE INVESTING
Each fund may depart from its principal investment strategies by taking
temporary defensive positions in response to adverse market, economic or
political conditions. If a fund takes a temporary defensive position, it may be
unable to achieve its investment objective.
DEPOSITORY RECEIPTS
The funds may invest in American, European or Global Depository Receipts (ADRs,
EDRs, and GDRs respectively) are stocks traded on exchanges outside the
company's domicile. They are typically issued by banks or trust companies. A
depository receipt may be denominated in a currency different from the currency
in which the underlying foreign security is denominated.
DERIVATIVES
Each fund may use derivatives. Derivatives are financial instruments whose value
derives from another security or an index. Futures, options and foreign currency
forward contracts are types of derivatives. Derivatives used for hedging may not
fully offset the underlying positions. Derivatives used for risk management may
not have the intended effects and may result in losses or missed opportunities.
Derivatives that involve leverage may magnify losses. In addition, there is a
risk that a counterparty will fail to honor a contract's terms resulting in a
loss for the fund.
EMERGING MARKETS SECURITIES
The funds may invest in emerging markets securities. Developing markets have
economic structures that are less mature, have less stable political systems and
may have high inflation, rapidly changing interest and currency exchange rates.
Emerging markets may lack the social, political and economic stability
characteristics of more developed countries. Investments generally tend to be
more illiquid (more difficult to trade) and more volatile than those of other
foreign investments.
EQUITY AND EQUITY RELATED SECURITIES
The funds may invest in common stock, preferred stock, warrants, purchased call
options and other rights to acquire stock. The market value of an equity
security will increase or decrease depending on market conditions. This affects
the value of the shares of a fund, and the value of your investment.
EURO DENOMINATED SECURITIES
On January 1, 1999, the currencies of the following countries will convert into
one common currency: Austria, Belgium, Finland, France, Germany, Ireland,
Luxembourg, Italy, the Netherlands, Portugal, and Spain. There is a risk that
the conversion may not go as anticipated and that a fund may be affected by
pricing errors and adverse tax consequences.
FIXED INCOME SECURITIES (BONDS)
The funds may invest in government securities, corporate fixed income securities
and obligations to repay borrowed money within a certain time with or without
interest. The value of a fund's bonds could rise in value when interest rates
fall and decline when interest rates rise. The longer a bond's duration and the
lower its credit quality, the more its value typically falls. A less significant
risk is default by the bond issuer on principal or interest payments. A
security's credit rating may be downgraded at any time.
- --------------------------------------------------------------------------------
28 Prospectus - International Mutual Funds
<PAGE>
MORE ABOUT RISK (CONTINUED)
- --------------------------------------------------------------------------------
FOREIGN SECURITIES
The risks of investing in foreign securities are generally higher than investing
in domestic securities. A foreign government could expropriate or nationalize
assets, impose withholding or other taxes on dividend or interest payments or
capital gains, and prohibit transactions in the country's currency. Foreign
companies may not be subject to the same accounting, auditing and financial
reporting standards and requirements as U.S. companies. Foreign brokerage
commissions and custodian fees are generally higher than those in the United
States. In many foreign countries, securities markets are less liquid, more
volatile, and subject to less government regulation than U.S. securities
markets.
FOREIGN CURRENCY FORWARD CONTRACTS
A foreign currency forward contract is an obligation to buy or sell a given
currency on a future date and at a set price. See "Derivatives."
FUTURES CONTRACTS
A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date or to make or receive a cash payment
based on the value of a securities index. See "Derivatives."
HEDGING
Hedging involves the attempt to offset a potential loss in one position by
establishing an interest in an opposite position. See "Derivatives."
ILLIQUID SECURITIES
The funds may invest in securities that cannot be sold quickly at a reasonable
price, or that cannot be sold on the open market. These include restricted
securities and private placements. A fund could have difficulty valuing these
holdings. A fund could be unable to sell these holdings at the time or price it
desires. Securities that were liquid when purchased may become illiquid in down
markets.
LENDING SECURITIES
Each fund may lend its securities to brokers-dealers for the purpose of
receiving income. There is a potential for default from the borrower.
OPTIONS CONTRACTS
An option is the right to buy or sell securities that is granted in exchange for
an agreed upon sum. See "Derivatives."
PORTFOLIO TURNOVER
Each fund's management approach, which may include short-term trading, could
cause the fund's portfolio turnover rate to be above average for a stock fund.
High turnover will increase the fund's transaction costs and may result in net
gains which, when distributed, could increase your tax liability.
REPURCHASE AGREEMENTS
The funds may buy a security from a bank or a dealer who must buy it back at a
fixed price on a specific day. If the seller is unable to honor its commitment
to repurchase the securities, a fund could lose money.
SHORT-TERM TRADING
The funds may sell a security shortly after buying it. Increased trading could
raise the fund's brokerage and related costs. Increased short-term capital gains
distributions would raise shareholders' income tax.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The funds may purchase or sell of a security at a future date for a
predetermined price. The market value of the securities may change before
delivery.
YEAR 2000 PROBLEM
Many computer systems today cannot distinguish the year 2000 from the year 1900
because of the way dates are encoded and calculated. The investment adviser is
taking steps designed to address the Year 2000 problem and to obtain reasonable
assurances that comparable steps are being taken by the funds' other major
service providers. Although there can be no assurance that these systems will be
properly adapted in time for the Year 2000, the adviser expects that they will
be.
ZERO COUPON SECURITIES, PAY-IN-KIND SECURITIES, DISCOUNT OBLIGATIONS, MORTGAGE
AND ASSET-BACKED SECURITIES, CONVERTIBLE SECURITIES AND HIGH YIELD SECURITIES
The fund may invest in obligations to repay borrowed money within a certain time
with or without interest. Debt securities are affected by changes in interest
rates. In general, when interest rates go up, the value of a debt security
decreases; when interest rates go down, the value of a debt security increases.
There is the risk that the borrower will not be able to fulfill its obligation
resulting in a loss, or a lower price than anticipated.
- --------------------------------------------------------------------------------
29 Prospectus - International Mutual Funds
<PAGE>
INVESTMENT ADVISER
- ----------------------------------------
The day-to-day operations of the funds, including investment decisions, have
been delegated to the adviser, Morgan Grenfell Investment Services (MGIS or the
adviser). MGIS is located at 20 Finsbury Circus, London, England. MGIS provides
a full range of international investment advisory services to institutional
clients, and as of October 31, 1998, managed approximately $12.1 billion in
assets. 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 and for negotiating brokerage commissions and
dealer charges.
As previously mentioned, the adviser has voluntarily agreed to reduce its
advisory fee and to make arrangements to limit certain other expenses of each
fund in order to limit the fund's operating expenses. For the fiscal period
ended October 31, 1998, the funds paid the following investment adviser fees:
Morgan Grenfell Emerging Markets Equity Fund
Morgan Grenfell European Equity Growth Fund
Morgan Grenfell European Small Cap Equity Fund
Morgan Grenfell International Equity Fund
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Emerging Markets Debt Fund
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Core Global Fixed Income Fund
MGIS is a subsidiary of Morgan Grenfell Asset Management, Ltd. (MGAM), which is
a wholly-owned subsidiary of Deutsche Bank AG, an international commercial and
investment banking group.
PORTFOLIO MANAGEMENT
A committee made up of investment professionals and analysts employed by the
adviser makes all of the funds' investment decisions.
- --------------------------------------------------------------------------------
30 Prospectus - International Mutual Funds
<PAGE>
Managing Your Investment
BUYING AND SELLING SHARES
- ----------------------------------------
You may only purchase service shares of a fund if you have a shareholder account
set up with a service organization such as a financial planner, investment
adviser, broker-dealer or other institution.
SERVICE PLAN
Each fund has adopted a service plan for its service shares. Under the plan,
each fund pays service fees at an aggregate annual rate of up to 0.25% of the
fund's average daily net assets for its service shares. The fees are
compensation to service organizations for providing personal services and/or
account maintenance services to their customers. In the event that your service
plan is terminated, your shares will be converted to institutional shares of the
same fund.
BUYING AND SELLING SHARES THROUGH YOUR SERVICE ORGANIZATION
In order to make an initial investment in service shares of a fund, you must
first establish an account with your service organization. Each fund has
authorized service organizations to accept purchase and redemption orders on
behalf of the fund. You may be subject to minimums established by your service
organization for the purchase of shares. Payment for share purchases should be
made directly to your service organization.
There is no sales charge for buying or selling shares of the fund. However, your
service organization may charge you transaction fees for buying or selling
shares.
When you buy or sell shares through a service organization, it is the service
organization's responsibility to forward the request to us. If we do not receive
the request in a timely manner, you may not receive that day's NAV.
Your financial professional will be able to assist you in establishing your fund
account, buying and selling shares and monitoring your investment.
HOW SHARES ARE PRICED
The price you pay when you buy, or receive when you sell, is based upon the net
asset value (NAV) of the fund. The NAV is calculated by dividing the net assets
(total assets minus liabilities) of each fund class by the number of shares of
that class outstanding. The NAV is calculated at the close of regular trading
every day the New York Stock Exchange (NYSE) is open for business (generally
4:00 p.m., Eastern time). If the NYSE closes early, the fund will accelerate the
calculation of NAV and transaction dealings to the actual closing time. Shares
will not be priced on holidays or other days on which the NYSE is closed for
trading.
The fund uses a forward pricing procedure. Therefore, the price at which you buy
or sell shares is based on the next calculation of the NAV after the order is
received.
Certain securities held by the funds are listed on foreign exchanges and trade
at times and on days when the New York Stock Exchange is closed. As a result,
the net asset value of each class of each fund may be significantly affected by
such trading and at times and on days when you have no ability to redeem shares
of the fund.
If the adviser believes that an asset's market value does not reflect its fair
value, then the Board of Trustees, in good faith, will determine fair market
value.
PAYMENT OF REDEMPTION PROCEEDS
When you sell shares, the proceeds will be sent directly to your service
organization. Normally, redemption proceeds will be wired no more than seven
days after the transfer agent receives the appropriate redemption request
documents, including any additional documentation we may ask for, to verify the
authenticity of your request. Frequently, the proceeds will be wired on the next
Business Day after receipt of such documents. Once we have sent the redemption
proceeds, we do not assume any further responsibility for the service
organization or for other intermediaries. If a problem arises, you should
contact your service organization directly.
You may redeem shares in cash up to the lesser of $250,000 or 1% of the net
asset value of the fund during any 90 day period. Redemptions in excess of this
limitation may be made in-kind. Please see the SAI for more information.
- --------------------------------------------------------------------------------
31 Prospectus - International Mutual Funds
<PAGE>
Managing Your Investment
HOLDING SHARES
- ----------------------------------------
EXCHANGING SHARES
Service shares of one fund can be exchanged for service shares of any other
Morgan Grenfell fund, if your plan allows for exchanges. Be sure to read the
prospectus relating to the service shares of the fund you wish to acquire and
consider its investment objective, policies and fees before making an exchange
into that fund.
An exchange of a fund's shares for shares of another fund will be treated as a
sale of the fund's shares and a gain on the transaction may be subject to
federal income tax.
DIVIDENDS AND DISTRIBUTIONS
Each of the funds described in this prospectus pays dividends from net
investment income and net capital gains to shareholders, at least annually. Your
share of the income and capital gains the fund distributes is based on the
number of shares you own. You can receive your distributions in cash or reinvest
them in the same fund. You may change this preference at any time by notifying
your service provider in writing. If no election is made, all dividends and
capital gain distributions will be reinvested in the same fund. Please contact
your service organization for more information.
The fund's distributions, whether received in cash or reinvested in additional
shares of the fund, may be subject to federal, state and local tax.
TAX CONSIDERATIONS
This tax information is general in nature and may not apply to certain
tax-deferred accounts or other non-taxable entities. You should consult your tax
adviser to discuss how investing in the funds described in this prospectus will
affect your personal tax situation.
As a shareholder, you will generally pay taxes on the dividends and
distributions you receive, whether they are received in cash or reinvested.
Selling or exchanging shares or receiving dividends and distributions will
create tax liability. The following explains how various transactions are taxed
for federal income tax purposes.
<TABLE>
<CAPTION>
DISTRIBUTION RECEIVED: TREATED AS:
<S> <C>
Income Dividends and Ordinary income
Short-term capital gains
distributions
Long-term capital gains Capital gains
distributions (over 12 (generally taxed at a
months) maximum of 20%)
Selling or exchanging Generally capital gains
shares owned more than a or losses
year
Selling or exchanging For gains: short-term
shares owned one year or capital gains; For
less than a year losses: special rules
apply. Please consult
your tax adviser or see
the SAI.
</TABLE>
If you buy shares of a fund right before it makes a taxable dividend or
distribution, part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax-deferred account, such as an
IRA, this is not to your advantage since you will pay tax on the dividend or
distribution but will not have shared in the increase in NAV of the fund.
If you sell shares at a loss for tax purposes and invest in a substantially
similar investment within a 61 day period beginning 30 days before and ending 30
days after the sale date, the sale is generally considered a "wash sale" and you
will be unable to claim a tax loss.
Every year, the fund will send you information detailing the amount of income
and capital gains distributed to you for the previous year and the proceeds of
redemptions (including exchanges).
If you fail to furnish your correct taxpayer identification number and required
certifications, you may be subject to a 31% backup withholding tax.
Foreign investors are subject to different tax rules and may be subject to
non-resident alien withholding tax at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends. Unless a
current IRS Form W-8 or acceptable substitute is on file, backup withholding on
certain other payments may apply as well.
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
- --------------------------------------------------------------------------------
32 Prospectus - International Mutual Funds
<PAGE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------
The financial highlights table is intended to help you understand the funds'
financial performance for the past 5 years, or, if shorter, the period of the
funds' operations. Certain information reflects financial results for a single
fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the funds' financial
statements, are included in the Statement of Additional Information (SAI) and
annual report, which is available on request.
[Copy to come]
- --------------------------------------------------------------------------------
33 Prospectus - International Mutual Funds
<PAGE>
Additional information about a fund's investments is available in the fund's
annual and semi-annual reports to shareholders. In each fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the fund's performance during its last fiscal year.
The annual report also includes the report of the fund's independent
accountants.
The Statement of Additional Information (SAI) is a supplement to this
prospectus. The SAI contains further information about a fund and its investment
limitations and policies. It also includes the most recent annual report and the
independent accountant's report. A current SAI for the funds is on file with the
Securities and Exchange Commission and is incorporated by reference (is legally
part of this prospectus).
You can obtain a free copy of the current annual/semi-annual report, the SAI,
and other information and answers to questions about the funds are available by
contacting:
Morgan Grenfell Investment Trust
No-Load Open-End Funds
Service Shares
885 Third Avenue
New York, New York 10022
Telephone: 1-800-555-1212
Internet:
Information about a fund (including the SAI) can be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330.
Copies of information can be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009
Or you can visit the SEC Web site at: www.sec.gov
Registration Number: 811-8006
- --------------------------------------------------------------------------------
34 Prospectus - International Mutual Funds
<PAGE>
MORGAN GRENFELL
INVESTMENT TRUST
Prospectus March 1, 1999
[MAP]
Institutional Shares
The Securities and Exchange Commission has not approved any fund's shares as
an investment or determined whether this prospectus is accurate or complete.
Any statement to the contrary is a crime.
<PAGE>
MORGAN GRENFELL
INVESTMENT TRUST
INSTITUTIONAL SHARES
CONTENTS
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTING IN MORGAN GRENFELL
MUTUAL FUNDS
<S> <C> <C>
FUND DESCRIPTIONS
FIXED INCOME FUNDS
Fixed Income................................ 2
Short-Term Fixed Income..................... 4
Municipal Bond.............................. 6
Short-Term Municipal Bond................... 8
Total Return Bond........................... 10
High Yield Bond............................. 12
A FUND BY FUND LOOK AT INVESTMENT OBJECTIVES AND
STRATEGIES, RISKS AND EXPENSES.
EQUITY FUNDS
Smaller Companies........................... 14
Microcap.................................... 16
Large Cap Growth............................ 18
MORE ABOUT RISK............................... 20
AN OVERVIEW OF SECURITIES THAT MAY BE PURCHASED
AND INVESTMENT TECHNIQUES THAT MAY BE USED BY THE
FUNDS AND THEIR RISKS. INVESTMENT ADVISER
Portfolio Management........................ 22
MANAGING YOUR INVESTMENT
BUYING AND SELLING SHARES
Through a Plan.............................. 23
Through a Broker............................ 23
Directly.................................... 23
How Shares are Priced....................... 24
Payment of Redemption Proceeds.............. 24
HOLDING SHARES
Exchanging.................................. 25
Dividends and Distributions................. 25
Tax Considerations.......................... 25
FINANCIAL HIGHLIGHTS.......................... 26
POLICIES AND INSTRUCTIONS FOR OPENING, MAINTAINING
AND CLOSING AN ACCOUNT IN ANY FUND.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus - Mutual Funds
<PAGE>
WITH MORE THAN $150 BILLION IN ASSETS UNDER MANAGEMENT,
INCLUDING $29 BILLION MANAGED FOR NORTH AMERICAN CLIENTS,
MORGAN GRENFELL ASSET MANAGEMENT IS ONE OF THE WORLD'S
FOREMOST INVESTMENT MANAGEMENT ORGANIZATIONS. WE COVER ALL
MAJOR INVESTMENT REGIONS, LEVERAGING THE EXPERTISE OF 250
PORTFOLIO MANAGERS AND ANALYSTS ACROSS THE GLOBE.
WHO MAY WANT TO INVEST
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST IN THE FIXED INCOME FUNDS:
- - those who are investing for income
- - those who want higher potential returns than a money market fund
WHO MAY NOT WANT TO INVEST IN THE FIXED INCOME FUNDS:
- - those who are making short-term investments
- - those who are not willing to accept more risk than a money market fund
WHO MAY WANT TO INVEST IN THE EQUITY FUNDS:
- - those who are pursuing a long-term goal
- - those who are seeking an investment with the potential to outpace inflation
WHO MAY NOT WANT TO INVEST IN THE EQUITY FUNDS:
- - those who require regular income or stability of principal
- - those who are pursuing a short-term goal or are investing their emergency
funds
An investment in a fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
- --------------------------------------------------------------------------------
1 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
FIXED INCOME FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks a high level of income consistent with the preservation of
capital. To pursue this objective, the fund invests primarily in investment
grade fixed income securities.
In managing the fund, the portfolio management team generally uses a "bottom-up"
approach. The team focuses on the securities and sectors it believes are
undervalued relative to the market, rather than relying on interest rate
forecasts. The team uses an active process which relies heavily on individual
issue selection.
- - The team assigns a relative value, based on creditworthiness, cash flow and
price, to each bond.
- - The intrinsic value of each issue is determined by examining credit,
structure, option value and liquidity risk. The fund looks to exploit any
inefficiencies between intrinsic value and market trading price.
- - The team uses credit analysis to determine the issuer's ability to fulfill its
contracts.
- - The fund subordinates sector weightings to individual bonds that may add
above-market value.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of five to ten years.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 80% of its assets in
intermediate-term U.S. Treasury, corporate, mortgage-backed, asset-backed,
taxable municipal and tax-exempt municipal bonds. The fund invests primarily in
high quality debt securities and may invest up to 15% in fixed income securities
rated lower investment grade by one of the major independent agencies, or
considered equivalent in rating by the investment adviser. The fund may invest
up to 25% of its total assets in U.S. dollar-denominated securities of foreign
issuers. The fund may hold up to 20% of its total assets in cash or money market
instruments in order to maintain liquidity, or in the event that the adviser
determines that securities meeting the fund's investment objective are not
otherwise readily available for purchase.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE, PREPAYMENT AND EXTENSION RISK. As with most bond funds, the
value of your investment will fluctuate with changes in interest rates.
Typically, a rise in interest rates causes a decline in the market value of
fixed income securities. Also, as interest rates decline, the issuers of
securities held by the fund may prepay principal earlier than scheduled, forcing
the fund to reinvest in lower yielding securities. As interest rates increase,
slower than expected principal payments may extend the average life of fixed
income securities, locking in below-market interest rates and reducing the value
of these securities. There is a greater risk that the fund will lose money due
to prepayment and extension risks because the fund invests in mortgage-related
securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Adverse economic conditions or changing circumstances are more
likely to affect the ability of a lower grade to pay principal and interest than
a higher grade bond.
DURATION RISK. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
2 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
FIXED INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
Lehman Aggregate Bond Index. How the fund has performed in the past is not
necessarily an indication of how the fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1994 4.79
<S> <C>
1995 21.44
1996 11.93
1997 -4.7
1998 3.9
This is sample data, waiting
for
actual data points.
</TABLE>
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
3 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SHORT-TERM FIXED INCOME FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks a high level of income consistent with the preservation of
capital. To pursue this objective, the fund invests primarily in investment
grade short-term fixed income securities.
In managing the fund, the portfolio management team uses a "bottom-up" approach.
The team focuses on the securities and sectors it believes are undervalued
relative to the market, rather than relying on interest rate forecasts. The team
uses an active process which relies heavily on individual issue selection.
- - The team assigns a relative value, based on creditworthiness, cash flow and
price, to each bond.
- - The intrinsic value of each issue is determined by examining credit,
structure, option value and liquidity risk. The fund looks to exploit any
inefficiencies between intrinsic value and market trading price.
- - The team uses credit analysis to determine the issuer's ability to fulfill its
contracts.
- - The fund subordinates sector weightings to individual bonds that may add
above-market value.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of no longer than three years.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 80% of its assets in
short-term U.S. Treasury, corporate, mortgage-backed, asset-backed, taxable
municipal and tax-exempt municipal bonds. The fund invests primarily in high
quality debt securities and may invest up to 15% in fixed income securities
rated lower investment grade by one of the major independent agencies, or
considered equivalent in rating by the investment adviser. The fund may invest
up to 25% of its total assets in U.S. dollar-denominated securities of foreign
issuers. The fund may hold up to 20% of its total assets in cash or money market
instruments in order to maintain liquidity, or in the event that the adviser
determines that securities meeting the fund's investment objective are not
otherwise readily available for purchase.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE, PREPAYMENT AND EXTENSION RISK. As with most bond funds, the
value of your investment will fluctuate with changes in interest rates.
Typically, a rise in interest rates causes a decline in the market value of
fixed income securities. Also, as interest rates decline, the issuers of
securities held by the fund may prepay principal earlier than scheduled, forcing
the fund to reinvest in lower yielding securities. As interest rates increase,
slower than expected principal payments may extend the average life of fixed
income securities, locking in below-market interest rates and reducing the value
of these securities. There is a greater risk that the fund will lose money due
to prepayment and extension risks because the fund invests in mortgage-related
securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Adverse economic conditions or changing circumstances are more
likely to affect the ability of a lower grade to pay principal and interest than
a higher grade bond.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
4 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SHORT-TERM FIXED INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
Merrill Lynch 6 month T-Bill Index. How the fund has performed in the past is
not necessarily an indication of how the fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1994 4.79
<S> <C>
1995 21.44
1996 11.93
1997 -4.7
1998 3.9
This is sample data, waiting
for
actual data points.
</TABLE>
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
5 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
MUNICIPAL BOND FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks a high level of income exempt from regular federal income tax,
consistent with the preservation of capital. To pursue this objective, the fund
invests primarily in investment grade fixed income securities that pay interest
exempt from federal income tax.
In managing the fund, the portfolio management team generally uses a "bottom-up"
approach. This approach focuses on individual security selection, rather than
relying on interest rate forecasts. The team uses an active process in selecting
securities.
- - The team assigns a relative value, based on creditworthiness, cash flow and
price, to each bond.
- - The team uses credit analysis to determine the issuer's ability to fulfill its
contracts.
- - Each bond is compared with a U.S. Treasury instrument to develop a theoretical
intrinsic value. The team looks to exploit any inefficiencies between
intrinsic value and market trading price.
- - The fund subordinates sector weightings to individual bonds that may add
above-market value.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of five to ten years.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 80% of net assets in
municipal securities which pay interest exempt from federal income tax and at
least 65% of total assets in municipal bonds. Certain of these securities have
variable and floating rates of interest or include "put" features providing the
fund the right to sell the securities at face value prior to maturity. This
could shorten the fund's dollar weighted average portfolio maturity. The fund
may invest 25% or more of its total assets in private activity and industrial
development bonds if the interest paid on them is exempt from regular federal
income tax. The fund invests primarily in high quality bonds and may invest in
bonds which are considered lower investment grade by one of the major rating
agencies, or considered equivalent in rating by the investment adviser. Up to
20% of the fund's total assets may be invested in certain taxable securities in
order to maintain liquidity. Securities may be purchased on a when-issued basis.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE RISKS As with most bond funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities. Also, as
interest rates decline, the issuers of securities held by the fund may prepay
principal earlier than scheduled, forcing the fund to reinvest in lower yielding
securities. As interest rates increase, slower than expected principal payments
may extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Adverse economic conditions or changing circumstances are more
likely to affect the ability of a lower grade bond to pay principal and interest
than a higher grade bond.
DURATION RISK. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.
TAX LIABILITY RISK. Distributions by a fund that are derived from income from
taxable securities held by the fund will generally be taxable to shareholders as
ordinary income. There is a risk that a greater percentage of the fund's
investments will produce taxable income, resulting in a lower tax-adjusted
return. New federal or state legislation could adversely affect the tax-exempt
status of securities held by the fund, resulting in higher tax liability for
shareholders. In addition, distribution of the fund's income and gains will
generally be subject to state taxation.
PRIVATE ACTIVITY AND INDUSTRIAL DEVELOPMENT BOND RISKS. The payment of principal
and interest on these bonds is generally dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property financed as security for such payment.
WHEN-ISSUED SECURITIES. The market value of the securities purchased on a
when-issued basis may change before the securities are delivered.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
6 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
MUNICIPAL BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
Lehman 5 year G.O. Index. How the fund has performed in the past is not
necessarily an indication of how the fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1994 4.79
<S> <C>
1995 21.44
1996 11.93
1997 -4.7
1998 3.9
This is sample data, waiting
for
actual data points.
</TABLE>
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
7 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SHORT-TERM MUNICIPAL BOND FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks a high level of income exempt from regular federal income tax,
consistent with the preservation of capital. To pursue this objective, the fund
invests primarily in investment grade short-term fixed income securities that
pay interest exempt from federal income tax.
In managing the fund, the portfolio management team generally uses a "bottom-up"
approach. This approach focuses on individual security selection, rather than
relying on interest rate forecasts. The team uses an active process in selecting
securities.
- - The team assigns a relative value, based on creditworthiness, cash flow and
price, to each bond.
- - The team uses credit analysis to determine the issuer's ability to fulfill its
contracts.
- - Each bond is compared with a U.S. Treasury instrument to develop a theoretical
intrinsic value. The team looks to exploit any inefficiencies between
intrinsic value and market trading price.
- - The fund subordinates sector weightings to individual bonds that may add
above-market value.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of no longer than three years.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 80% of net assets in
short-term municipal securities which pay interest exempt from federal income
taxes and at least 65% of total assets in municipal bonds. Certain of these
securities have variable and floating rates of interest or include "put"
features providing the fund the right to sell the securities at face value prior
to maturity. This could shorten the fund's dollar weighted average portfolio
maturity. The fund may invest 25% or more of its total assets in private
activity and industrial development bonds if the interest paid on them is exempt
from regular federal income tax. The fund invests primarily in high quality
bonds and may invest in bonds which are considered lower investment grade by one
of the major rating agencies, or considered equivalent in rating by the
investment adviser. Up to 20% of the fund's total assets may be invested in
certain taxable securities in order to maintain liquidity. Securities may be
purchased on a when-issued basis.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE RISKS. As with most bond funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities. Also, as
interest rates decline, the issuers of securities held by the fund may prepay
principal earlier than scheduled, forcing the fund to reinvest in lower yielding
securities. As interest rates increase, slower than expected principal payments
may extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Adverse economic conditions or changing circumstances are more
likely to affect the ability of a lower grade bond to pay principal and interest
than a higher grade bond.
TAX LIABILITY RISK. Distributions by a fund that are derived from income from
taxable securities held by the fund will generally be taxable to shareholders as
ordinary income. There is a risk that a greater percentage of the fund's
investments will produce taxable income, resulting in a lower tax-adjusted
return. New federal or state legislation could adversely affect the tax-exempt
status of securities held by the fund, resulting in higher tax liability for
shareholders. In addition, distribution of the fund's income and gains will
generally be subject to state taxation.
PRIVATE ACTIVITY AND INDUSTRIAL DEVELOPMENT BOND RISKS. The payment of principal
and interest on these bonds is generally dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property financed as security for such payment.
WHEN-ISSUED SECURITIES. The market value of the securities purchased on a
when-issued basis may change before the securities are delivered.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
8 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SHORT-TERM MUNICIPAL BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
IBC Financial All Tax-Free Average Index. How the fund has performed in the past
is not necessarily an indication of how the fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1994 4.79
<S> <C>
1995 21.44
1996 11.93
1997 -4.7
1998 3.9
This is sample data, waiting
for
actual data points.
</TABLE>
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees.................................... x.xx%
Distribution (12b-1) and/or Service Fees......... None
Other Expenses................................... x.xx%
Reimbursements...................................
Total Annual Fund Operating Expenses............. x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
9 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
TOTAL RETURN BOND FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return consistent with the preservation of capital. To
pursue this objective, the fund invests primarily in U.S. dollar-denominated
investment grade bonds of domestic and foreign issuers.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of between five and ten years.
PRINCIPAL HOLDINGS
Under normal circumstances, the fund invests at least 65% of its total assets in
U.S. dollar-denominated domestic and foreign investment grade bonds. Up to 35%
of its total assets may be invested in cash, money market instruments and
foreign bonds including issuers from emerging securities markets and below
investment grade bonds. No more than 30% of the fund's total assets will be
invested in foreign currency-denominated bonds. No more than 15% of the fund's
assets may be invested in below investment grade bonds and no more than 10% may
be invested in below investment grade bonds of issuers located in countries with
emerging securities markets.
The fund may use certain techniques, including forward foreign currency exchange
contracts, options and futures on currencies and currency swaps, to manage its
exposure to fluctuations in currency exchange rates and, in some circumstances,
to seek to profit from exchange rate fluctuations.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE RISKS. As with most bond funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities. Also, as
interest rates decline, the issuers of securities held by the fund may prepay
principal earlier than scheduled, forcing the fund to reinvest in lower yielding
securities. As interest rates increase, slower than expected principal payments
may extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. In addition, the lower rated debt securities in which the fund
invests are considered highly speculative and subject to greater volatility and
risk of loss than investment grade securities, particularly in deteriorating
economic periods.
DURATION RISK. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.
FOREIGN RISKS. To the extent that the fund invests in the securities of foreign
companies, it will be subject to the additional risks of foreign investing.
Prices of foreign securities may go down because of unfavorable changes in
foreign currency exchange rates, foreign government actions, political
instability or the more limited availability of accurate information about
foreign companies. A decline in the value of foreign currencies relative to the
U.S. dollar will reduce the unhedged value of securities denominated in those
currencies. Foreign securities are sometimes less liquid and harder to value
than securities of U.S. issuers. These risks are more severe for securities of
issuers in emerging securities markets.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
10 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
TOTAL RETURN BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees.................................... x.xx%
Distribution (12b-1) and/or Service Fees......... None
Other Expenses................................... x.xx%
Reimbursements...................................
Total Annual Fund Operating Expenses............. x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
11 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
HIGH YIELD BOND FUND
- ----------------------------------------
INVESTMENT OBJECTIVES AND STRATEGY
The fund seeks high current income and, as a secondary objective, capital
appreciation. To pursue these objectives, the fund invests primarily in U.S.
dollar-denominated high yield bonds of domestic and foreign issuers.
In managing the fund, the portfolio manager generally uses a "top-down" approach
to picking securities. This approach focuses on neutral yield curve
distribution, careful cash flow and total return analysis, and broad
diversification among countries, sectors, industries and individual issuers in
an effort to provide higher income and manage risk. The portfolio manager uses
an active process which emphasizes relative value in a global environment,
managing on a total return basis, and using intensive research to identify
stable to improving credit situations that may provide yield compensation for
the risk of investing in below investment grade bonds.
- - The portfolio manager analyzes economic conditions for improving or
undervalued sectors and industries.
- - The fund uses independent credit research and on-site management visits to
evaluate individual issues' debt service, growth rate, and both downside and
upgrade potential.
- - The portfolio manager assesses new issues versus secondary market
opportunities.
- - The fund seeks issues within attractive industry sectors and with strong
long-term fundamentals and improving credits.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of five to ten years.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
U.S. dollar-denominated domestic and foreign convertible and non-convertible
fixed income securities. These securities may include U.S. Treasury, corporate,
mortgage-backed, taxable municipal and tax-exempt municipal bonds. The fund's
investments in these securities may be of any credit quality and may include
securities not paying interest currently, zero coupon bonds, pay in-kind
securities and securities in default. The fund may invest up to 35% of its total
assets in cash or money market instruments in order to maintain liquidity, or in
the event that the portfolio manager determines that securities meeting the
fund's investment objectives are not otherwise readily available for purchase.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE RISKS. As with most bond funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities. Also, as
interest rates decline, the issuers of securities held by the fund may prepay
principal earlier than scheduled, forcing the fund to reinvest in lower yielding
securities. As interest rates increase, slower than expected principal payments
may extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. In addition, the lower rated debt securities in which the fund
invests are considered highly speculative and subject to greater volatility and
risk of loss than investment grade securities, particularly in deteriorating
economic periods.
DURATION RISK. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.
FOREIGN RISKS. The fund is subject to the additional risks of foreign
investing, even though the fund only buys U.S. dollar-denominated foreign
securities. Prices of foreign securities may go down because of foreign
government actions, political instability or the more limited availability of
accurate information about foreign companies. These risks are more severe for
securities of issuers in emerging securities markets.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
PORTFOLIO MANAGEMENT
The fund is managed by Curtiss O. Barrows. Prior to joining Morgan Grenfell Inc.
in March 1998, Mr. Barrows managed the Phoenix High-Yield Fund at Phoenix Duff &
Phelps for the past 13 years.
- --------------------------------------------------------------------------------
12 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
HIGH YIELD BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........ None
Maximum Deferred Sales Charge......... None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees......................... x.xx%
Distribution (12b-1) and/or Service
Fees.................................. None
Other Expenses........................ x.xx%
Total Annual Fund Operating
Expenses.............................. x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees................................... x.xx%
Distribution (12b-1) and/or Service Fees........ None
Other Expenses.................................. x.xx%
Reimbursements..................................
Total Annual Fund Operating Expenses............ x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
13 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SMALLER COMPANIES FUND
- ----------------------------------------
INVESTMENT OBJECTIVES AND STRATEGY
The fund seeks capital appreciation, with current income as a secondary
objective. To pursue these objectives, the fund invests primarily in equity
securities of U.S. small capitalization companies.
In managing the fund, the portfolio management team generally uses a "bottom-up"
approach to picking stocks. This approach focuses on individual stock selection
rather than industry selection. The team uses an active process which combines
financial analysis with company visits to evaluate management and strategies.
- - The team focuses on undervalued stocks with fast-growing earnings and superior
near-to-intermediate term performance potential.
- - The team emphasizes individual selection of smaller stocks across all economic
sectors, early in their growth cycles and with the potential to be the blue
chips of the future.
- - The team generally seeks companies with a leading or dominant position in
their niche markets, a high rate of return on invested capital and the ability
to finance a major part of future growth from internal sources.
- - The team screens the bottom 20% of the total domestic equity market
capitalization for smaller companies with growth and profitability.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of U.S. small capitalization companies. Morgan Grenfell
defines the small capitalization equity securities universe as the bottom 20% of
the total domestic equity market capitalization, using a minimum market
capitalization of $10 million. Up to 35% of the fund's total assets may be
invested in investment grade fixed income securities, securities of medium and
large capitalization companies and in cash. Up to 5% of the fund's net assets
may be invested in the securities of foreign issuers.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. Stocks may decline
significantly in price over short or extended periods of time. Price changes may
affect the market as a whole, or a particular company, industry or sector of the
market. An adverse event, such as an unfavorable earnings report, may affect the
value of a particular company's stock. In addition, performance may be affected
because the stocks of smaller cap companies may be out of favor with investors
who prefer value stocks or large capitalization stocks.
SMALL CAP RISKS. The fund's performance may be more volatile because it invests
primarily in small capitalization stocks. Smaller companies may have limited
product lines, markets and financial resources. They may also have shorter
operating histories and more volatile businesses. Small cap stocks tend to trade
in a wider price range than larger cap stocks. In addition, it may be harder to
sell these stocks, particularly in large blocks, which can reduce their selling
price.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
14 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SMALLER COMPANIES FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
S&P 600 Index. How the fund has performed in the past is not necessarily an
indication of how the fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1994 4.79
<S> <C>
1995 21.44
1996 11.93
1997 -4.7
1998 3.9
This is sample data, waiting
for
actual data points.
</TABLE>
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........ None
Maximum Deferred Sales Charge......... None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees......................... x.xx%
Distribution (12b-1) and/or Service
Fees.................................. None
Other Expenses........................ x.xx%
Total Annual Fund Operating
Expenses.............................. x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees................................... x.xx%
Distribution (12b-1) and/or Service Fees........ None
Other Expenses.................................. x.xx%
Reimbursements..................................
Total Annual Fund Operating Expenses............ x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
15 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
MICROCAP FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of U.S. micro capitalization growth-oriented
companies.
In managing the fund, the portfolio management team generally uses a "bottom-up"
approach to picking stocks. This approach focuses on individual stock selection
rather than industry selection. The team uses an active process which combines
financial analysis with company visits to evaluate management and strategies.
- - The team focuses on undervalued stocks with fast-growing earnings and superior
near-to-intermediate performance potential.
- - The team emphasizes individual selection of smaller stocks across all economic
sectors, early in their growth cycles and with the potential to be the blue
chips of the future.
- - The team generally seeks companies with a leading or dominant position in
their niche markets, a high rate of return on invested capital and the ability
to finance a major part of future growth from internal sources.
- - The team screens the bottom 5% of the total domestic equity market
capitalization for micro cap companies with growth profitability.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of U.S. micro capitalization companies and securities
convertible into such stocks. Micro capitalization companies are ranked in the
bottom 5% of the U.S. equity market in terms of market capitalization (at the
time of investment). Up to 25% of the fund's total assets may be invested in the
securities of foreign companies that would be considered in the bottom 5% in
terms of market capitalization in the U.S. equity market. The fund may invest up
to 35% of its assets in high quality debt instruments and money market
instruments with remaining maturities of one year or less, including repurchase
agreements. In addition, the fund may invest up to 5% of its net assets in
non-convertible bonds and preferred stocks that are considered high quality. To
the extent that the fund invests in foreign securities, it may enter into
forward currency exchange contracts and buy and sell currency options to hedge
against currency exchange rate fluctuations.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. Stocks may decline
significantly in price over short or extended periods of time. Price changes may
affect the market as a whole, or a particular company, industry or sector of the
market. An adverse event, such as an unfavorable earnings report, may affect the
value of a particular company's stock. In addition, the stocks of micro cap
companies may be out of favor with investors who prefer value stocks or larger
capitalization stocks.
MICRO CAP RISKS. The fund's performance may be significantly more volatile
because it invests primarily in micro capitalization stocks. Small and micro
capitalization companies may have limited product lines, markets and financial
resources. They may also have shorter operating histories and more volatile
businesses. Such stocks tend to trade in a wider price range than larger cap
stocks. In addition, it may be harder to sell these stocks, particularly in
large blocks, which can reduce their selling price.
FOREIGN RISKS. To the extent that the fund invests in the securities of foreign
companies, it will be subject to the additional risks of foreign investing.
Prices of foreign securities may go down because of unfavorable changes in
foreign currency exchange rates, foreign government actions, political
instability or the more limited availability of accurate information about
foreign companies. A decline in the value of foreign currencies relative to the
U.S. dollar will reduce the unhedged value of securities denominated in those
currencies. Foreign securities are sometimes less liquid and harder to value
than securities of U.S. issuers. These risks are more severe for securities of
issuers in emerging securities markets.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
16 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
MICROCAP FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
Russell 2000 Index. How the fund has performed in the past is not necessarily an
indication of how the fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1994 4.79
<S> <C>
1995 21.44
1996 11.93
1997 -4.7
1998 3.9
This is sample data, waiting
for
actual data points.
</TABLE>
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
17 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
LARGE CAP GROWTH FUND
- ----------------------------------------
INVESTMENT OBJECTIVES AND STRATEGY
The fund seeks capital appreciation, with current income as a secondary
objective. To pursue these objectives, the fund invests primarily in equity
securities of U.S. large capitalization companies.
When managing the fund, the portfolio management team will generally use a
"bottom-up" approach to picking stocks. This approach will focus on individual
stock selection rather than industry selection. The team uses an active process
which combines financial analysis with company visits to evaluate management and
strategies.
- - The team seeks companies that offer significant potential for capital growth,
but with less risk than investments in smaller capitalization companies.
- - The team looks for companies whose earnings it believes will grow both faster
than inflation and faster than the economy in general.
- - The team considers a number of company-specific factors, including quality of
management, a leading or dominant position in a major product line, a sound
financial position, and a relatively high rate of return on invested capital
so that future growth can be financed from internal sources.
- - The team considers a company's record of dividend payments and the likelihood
that the company will pay dividends in the future.
PRINCIPAL INVESTMENTS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of U.S. large capitalization companies. Large
capitalization companies are those ranked in the top 60% of the total U.S.
equity market capitalization. Up to 35% of the fund's total assets may be
invested in investment grade fixed income securities, equity securities of small
and medium capitalization companies, and cash. The fund may invest up to 5% of
its net assets in the securities of foreign companies.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. Stocks may decline
significantly in price over short or extended periods of time. Price changes may
affect the market as a whole, or a particular company, industry or sector of the
market. An adverse event, such as an unfavorable earnings report, may affect the
value of a particular company's stock.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
18 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
LARGE CAP GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... None
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... None
Other Expenses..................................... x.xx%
Reimbursements.....................................
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
19 Prospectus - Mutual Funds
<PAGE>
MORE ABOUT RISK
- ----------------------------------------
EQUITY SECURITIES
Equity securities include exchange-traded and over-the-counter (OTC) common and
preferred stocks, warrants, rights, investment grade convertible securities,
depositary receipts and shares, trust certificates, limited partnership
interests, shares of other investment companies, real estate investment trusts
and equity participations.
FIXED INCOME SECURITIES (BONDS)
Fixed income investments include bonds, notes (including structured notes),
mortgage-related securities, asset-backed securities, convertible securities,
eurodollar and Yankee dollar instruments, preferred stocks and money market
instruments.
Fixed income securities may be issued by U.S. and foreign corporations or
entities; U.S. and foreign banks; the U.S. government, its agencies,
authorities, instrumentalities or sponsored enterprises; state and municipal
governments; supranational organizations; and foreign governments and their
subdivisions.
These securities may have all types of interest rate payment and reset terms,
including fixed rate, adjustable rate, zero coupon, contingent, deferred,
payment in-kind and auction rate features.
Money market securities include commercial paper, certificates of deposit,
banker's acceptances, repurchase agreements and other short-term debt
securities.
The payment of principal and interest on a private activity or industrial
development bond is generally dependent solely on the ability of the facility's
user to meet its financial obligations and the pledge, if any, of real and
personal property financed as security for such payment.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES
Mortgage-related securities may be issued by private companies or by agencies of
the U.S. government. Mortgage-related securities represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property.
The funds may use mortgage dollar rolls to finance the purchase of additional
investments. Dollar rolls expose a fund to the risk that it will lose money if
the additional investments do not produce enough income to cover the fund's
dollar roll obligations.
For mortgage derivatives and structured securities that have imbedded leverage
features, small changes in interest or prepayment rates may cause large and
sudden price movements. Mortgage derivatives can also become illiquid and hard
to value in declining markets.
Asset-backed securities represent participations in, or are secured by and
payable from, assets such as installment sales or loan contracts, leases, credit
card receivables and other categories or receivables.
Mortgage-related and asset-backed securities are especially sensitive to
prepayment and extension risk. At times, the Fixed Income Fund and the
Short-Term Fixed Income Fund invest a large percentage of assets in
mortgage-backed and asset-backed securities.
CREDIT QUALITY
Fixed Income securities are investment grade if:
- - They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
- - They have received a comparable short-term or other rating.
- - They are unrated securities that the adviser believes to be of comparable
quality to rated investment grade securities.
If a security receives different ratings, a fund will treat the security as
being rated in the highest rating category. A fund may choose not to sell
securities that are downgraded after their purchase below the fund's minimum
acceptable credit rating. Each fund's credit standards also apply to
counterparties of OTC derivative contracts.
DERIVATIVE CONTRACTS
The funds may, but are not required to, use derivative contracts for any of the
following purposes:
- - To hedge against adverse changes in the market value of securities held by or
to be bought for a fund. These changes may be caused by changing interest
rates, stock market prices or currency exchange rates.
- - As a substitute for purchasing or selling securities or foreign currencies.
- - To shorten or lengthen the effective maturity or duration of a fund's fixed
income portfolio.
- - In non-hedging situations, to attempt to profit from anticipated market
developments.
A derivative contract will obligate or entitle a fund to deliver or receive an
asset or a cash payment that is based on the change in value of a designated
security, index or currency. Examples of derivative contracts are futures
contracts, options, forward contracts, swaps, caps, collars and floors.
- --------------------------------------------------------------------------------
20 Prospectus - Mutual Funds
<PAGE>
MORE ABOUT RISK (CONTINUED)
- --------------------------------------------------------------------------------
Even a small investment in derivative contracts can have a big impact on stock
market, currency and interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when stock
prices, currency rates or interest rates are changing. Counterparties to OTC
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
LEVERAGE RISKS. Because of borrowing or investments in derivative contracts, a
fund may suffer disproportionately heavy losses relative to the amount of its
investment. Leverage can magnify the impact of poor asset allocation or
investment decisions.
CORRELATION RISKS. Changes in the value of derivative contracts or other
hedging instruments may not match or fully offset changes in the value of the
hedged portfolio securities.
FOREIGN SECURITIES
Each of the funds, other than the Municipal Funds, may invest in foreign
securities. The risks of investing in foreign securities are generally higher
than investing in domestic securities. A foreign government could expropriate or
nationalize assets, impose withholding or other taxes on dividend, interest or
other payments and prohibit transactions in the country's currency. In many
foreign countries, securities markets are less liquid, more volatile and subject
to less government regulation than U.S. securities markets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each of the funds may purchase or sell a security at a future date for a
predetermined price. The market value of the securities may change before
delivery.
DEFENSIVE INVESTING
Each fund may depart from its principal investment strategies by taking
temporary defensive positions in response to adverse market, economic or
political conditions. If a fund takes a temporary defensive position, it may be
unable to achieve its investment objectives.
LENDING SECURITIES
Each fund may lend its securities to broker-dealers for the purpose of receiving
income. There is a potential for default from the borrower.
THE FUND'S INVESTMENT OBJECTIVES
The fund's board of trustees may change each fund's investment objectives
without obtaining the approval of the fund's shareholders. A fund might not
succeed in achieving its objectives.
PORTFOLIO TURNOVER
Each fund may engage in active and frequent trading to achieve its principal
investment strategies. This may lead to the realization and distribution to
shareholders of higher capital gains, which would increase their tax costs,
which could detract from a fund's performance.
YEAR 2000 PROBLEM
Many computer systems today cannot distinguish the year 2000 from the year 1900
because of the way dates are encoded and calculated. The investment adviser is
taking steps designed to address the Year 2000 problem and to obtain reasonable
assurances that comparable steps are being taken by the funds' other major
service providers. Although there can be no assurance that these systems will be
properly adapted in time for the Year 2000, the adviser expects that they will
be.
- --------------------------------------------------------------------------------
21 Prospectus - Mutual Funds
<PAGE>
INVESTMENT ADVISER
- ----------------------------------------
ADVISER
The day-to-day operations of the funds, including investment decisions, have
been delegated to the adviser, Morgan Grenfell Inc. located at 885 Third Avenue,
New York, New York. Morgan Grenfell Inc. provides a full range of investment
advisory services to institutional clients, and as of October 31, 1998, managed
approximately 10.5 billion in assets. 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 and for
negotiating brokerage commissions and dealer charges.
As previously mentioned, the adviser has voluntarily agreed to reduce its
advisory fee and to make arrangements to limit certain other expenses of each
fund in order to limit the fund's operating expenses. For the fiscal period
ended October 31, 1998, the funds paid the following investment adviser fees:
Morgan Grenfell Fixed Income Fund
Morgan Grenfell Short-Term Fixed Income Fund
Morgan Grenfell Municipal Bond Fund
Morgan Grenfell Short-Term Municipal Bond Fund
Morgan Grenfell Total Return Bond Fund
Morgan Grenfell High Yield Bond Fund
Morgan Grenfell Smaller Companies Fund
Morgan Grenfell Microcap Fund
Morgan Grenfell Large Cap Growth Fund
SUBADVISER
The Total Return Bond Fund is subadvised by Morgan Grenfell Investment Services
Limited (MGIS), located at 20 Finsbury Circus, London, England. MGIS provides a
full range of international investment advisory services to institutional
clients, and as of October 31, 1998, managed approximately $12.1 billion in
assets. The adviser pays the subadviser for its services, not the fund.
Morgan Grenfell Inc. and MGIS are subsidiaries of Morgan Grenfell Asset
Management, Ltd. (MGAM), which is a wholly-owned subsidiary of Deutsche Bank AG,
an international commercial and investment banking group.
PORTFOLIO MANAGEMENT
Each of the funds, except for the High Yield Bond Fund, is managed by a
committee made up of investment professionals and analysts employed by the
adviser. These committees make all of the funds' investment decisions.
- --------------------------------------------------------------------------------
22 Prospectus - Mutual Funds
<PAGE>
Managing Your Investment
BUYING AND SELLING SHARES
- ----------------------------------------
BUYING AND SELLING SHARES THROUGH A PLAN
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
BUYING AND SELLING SHARES THROUGH A BROKER
Each fund has authorized brokers to accept purchase and redemption orders on
behalf of the fund. If you invest through a broker, you may be subject to
minimums established by the broker. Also, you may be subject to transaction fees
for buying or selling shares. When you buy or sell shares through a broker, it
is the responsibility of the broker to forward the request to us. If we do not
receive the request in a timely manner, you may not receive that day's NAV. Your
financial professional will be able to assist you in establishing your fund
account, buying and selling shares, and monitoring your investment.
To open an account without the help of a financial professional, please use the
instructions on these pages.
BUYING AND SELLING SHARES DIRECTLY
SALES CHARGE. There is no sales charge for buying institutional shares of the
funds listed in this prospectus.
MINIMUM INITIAL INVESTMENT. The minimum initial investment is $250,000. We
reserve the right to vary the initial investment amount at any time. We also
reserve the right to waive the minimum initial investment amount at any time.
MINIMUM ADDITIONAL INVESTMENT. There is no minimum additional investment
amount. We reserve the right to establish minimums for additional investments at
any time.
Buying Shares for the First Time
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
BY MAIL. Complete the enclosed account application and mail it with a check to
Morgan Grenfell Investment Trust.
BY WIRE. You must have an account with a commercial bank that is a member of
the Federal Reserve System. We do not charge a wire fee, but your bank might.
- - First, telephone 1-800-407-7301 to be assigned an account number.
- - Even if you are purchasing shares by wire, you must promptly complete the
account application accompanying this prospectus and send it to Morgan
Grenfell Investment Trust.
- - Specify your name, account number, taxpayer identification or social security
number and address in the wire. Have the wire sent to:
United Missouri Bank, N.A.
ABA No. 10-10-00695
For: Account Number 98-7052-395-7
Further Credit: [appropriate fund name]
Buying Additional Shares
BY MAIL. Send a check along with either an order form or a letter stating the
amount of investment to be made, the name of the fund you want to invest in, and
your account number to Morgan Grenfell Investment Trust.
BY WIRE. We do not charge a wire fee, but your bank might. Specify your name,
account number, taxpayer identification or social security number and address in
the wire. Have the wire sent to:
United Missouri Bank, N.A.
ABA No. 10-10-00695
For: Account Number 98-7052-395-7
Further Credit: [appropriate fund name]
Selling Shares
BY MAIL. Specify the number of institutional shares you wish to sell, the name
of the fund from which institutional shares are being redeemed, your account
number, payment instructions, and the exact registration on the account. Send
the information to Morgan Grenfell Investment Trust. Make sure you sign your
letter. Additional information, such as a signature guarantee, may be required.
BY PHONE. If you have selected the optional telephone redemption privilege on
your account application, you may redeem institutional shares of any fund,
without charge, by calling 1-800-407-7301. Requests must be made before 4:00
p.m. Eastern Standard Time. After your request has been
<TABLE>
<CAPTION>
ALL CORRESPONDENCE SHOULD BE SENT TO:
BY REGULAR MAIL BY OVERNIGHT MAIL
<S> <C>
Morgan Grenfell Morgan Grenfell
Investment Trust Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO CT-8 Tower
64141-6165 330 West 9th Street
Kansas City, MO 64105
</TABLE>
- --------------------------------------------------------------------------------
23 Prospectus - Mutual Funds
<PAGE>
Managing Your Investment
BUYING AND SELLING SHARES (CONTINUED)
- --------------------------------------------------------------------------------
verified, a check for the net amount will be mailed to the registered owner(s)
at the address of record. It may be difficult to implement telephone redemptions
in times of dramatic economic or market changes.
You may be asked to provide certain information that is unique to your account,
in order for us to verify the authenticity of your phone call.
HOW SHARES ARE PRICED
The price you pay when you buy, or receive when you sell, is based upon the net
asset value (NAV) of your fund. The NAV is calculated by dividing the net assets
(total assets minus liabilities) of each fund class by the number of shares of
that class outstanding. The NAV is calculated at the close of regular trading
every day the New York Stock Exchange (NYSE) is open for business (generally
4:00 p.m., Eastern time). If the NYSE closes early, the fund will accelerate the
calculation of NAV and transaction deadlines to the actual closing time. Shares
will not be priced on holidays or other days on which the NYSE is closed for
trading.
The fund uses a forward pricing procedure. Therefore, the price at which you buy
or sell shares is based on the next calculation of the NAV after the order is
received.
Certain shares held by the funds are listed on foreign exchanges and trade at
times and on days when the New York Stock Exchange is closed. As a result, the
net asset value of each class of each fund may be significantly affected by such
trading and at times and on days when you have no ability to redeem shares of
the fund.
If the adviser believes that an asset's market value does not reflect its fair
value, then the Board of Trustees, in good faith, will determine fair market
value.
PAYMENT OF REDEMPTION PROCEEDS
BY MAIL. When you sell shares, the proceeds will be wired to the bank account
you designated on the account application, unless payment by check has been
requested. Normally, redemption proceeds will be wired no more than seven days
after the transfer agent receives the appropriate redemption request documents,
including any additional documentation we may ask for, to verify the
authenticity of your request. Frequently, the proceeds will be wired on the next
Business Day after receipt of such documents.
BY WIRE. You may receive your redemption proceeds by Federal Reserve wire or
Automated Clearing House (ACH) wire. Redemption requests by federal wire cannot
be made on federal holidays. Transactions made by ACH will not be posted to a
shareholder's bank account until the second business day following the
transaction. We do not charge a wire fee, but your bank might.
If you wish to change the bank designated to receive redemption proceeds, you or
an authorized representative must send a signed written request to the transfer
agent. The signature must be guaranteed by a bank, a member of a national stock
exchange, or another eligible institution. The transfer agent may require
additional documentation in connection with your request. Please contact the
transfer agent for more information.
The payment of redemption proceeds for shares of a fund recently purchased by
check may be delayed for up to 15 calendar days while we wait for your check to
clear.
You may redeem shares in cash up to the lesser of $250,000 or 1% of the net
asset value of the fund during any 90 day period. Redemptions in excess of this
limitation may be made in-kind. Please see the SAI for more information.
<TABLE>
<CAPTION>
ALL CORRESPONDENCE SHOULD BE SENT TO:
BY REGULAR MAIL BY OVERNIGHT MAIL
<S> <C>
Morgan Grenfell Morgan Grenfell
Investment Trust Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO CT-8 Tower
64141-6165 330 West 9th Street
Kansas City, MO 64105
</TABLE>
- --------------------------------------------------------------------------------
24 Prospectus - Mutual Funds
<PAGE>
Managing Your Investment
HOLDING SHARES
- ----------------------------------------
EXCHANGING SHARES
Institutional shares of one fund can be exchanged for institutional shares of
any other Morgan Grenfell fund in amounts as low as $50,000. Be sure to read the
prospectus relating to the institutional shares of the fund you wish to acquire
and consider its investment objective, policies and fees before making an
exchange into that fund.
An exchange of a fund's shares for shares of another fund will be treated as a
sale of the fund's shares and a gain on the transaction may be subject to
federal income tax.
BY MAIL. Send a written request to Morgan Grenfell Investment Trust.
BY PHONE. Telephone 1-800-550-6426 to speak to a Representative.
DIVIDENDS AND DISTRIBUTIONS
Each of the funds described in this prospectus pays dividends from net
investment income and net capital gains to shareholders, at least annually. Your
share of the income and capital gains the fund distributes is based on the
number of shares you own. You can receive your distributions in cash or reinvest
them in the same fund. You may change this preference at any time by notifying
us in writing. If no election is made, all dividends and capital gain
distributions will be reinvested in the same fund.
The fund's distributions, whether received in cash or reinvested in additional
shares of the fund, may be subject to federal, state and local tax.
TAX CONSIDERATIONS
This tax information is general in nature and may not apply to certain
tax-deferred accounts or other non-taxable entities. You should consult your tax
adviser to discuss how investing in the funds described in this prospectus will
affect your personal tax situation.
As a shareholder, you will generally pay taxes on the dividends and
distributions you receive, whether they are received in cash or reinvested.
Selling or exchanging shares or receiving dividends and distributions will
create tax liability. The following demonstrates how various transactions are
taxed for federal income tax purposes.
<TABLE>
<CAPTION>
DISTRIBUTION
RECEIVED: TREATED AS:
<S> <C>
Income Dividends and Ordinary income
Short-term capital
gains distributions
Long-term capital Capital gains (generally
gains distributions taxed at a maximum of 20%)
(over 12 months)
Selling or exchanging Generally, capital gains or
shares owned more losses
than a year
Selling or exchanging For gains: short-term
shares owned one year capital gains; For losses:
or less than a year special rules apply. Please
consult your tax adviser or
see the SAI.
</TABLE>
The Municipal Bond Fund intends to distribute the tax-exempt interest it earns
as "exempt-interest dividends," which are excluded from gross income for federal
income tax purposes but may be subject to state and local tax. The fund will
also at times distribute dividends from taxable interest and other sources which
would be taxable as described above.
If you buy shares of a fund right before it makes a taxable dividend or
distribution, part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax-deferred account, such as an
IRA, this is not to your advantage since you will pay tax on the dividend but
will not have shared in the increase in NAV of the fund.
If you sell shares at a loss for tax purposes and invest in a substantially
similar investment within a 61 day period beginning 30 days before and ending 30
days after the sale date, the sale is generally considered a "wash sale" and you
will be unable to claim a tax loss.
Every year, the fund will send you information detailing the amount of income
and capital gains distributed to you for the previous year and the proceeds of
your redemptions (including exchanges).
If you fail to furnish your correct taxpayer identification number and required
certifications, you may be subject to a 31% backup withholding tax.
Foreign investors are subject to different tax rules and may be subject to
non-resident alien withholding tax at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends. Unless a
current IRS Form W-8 or acceptable substitute is on file, backup withholding on
certain other payments may apply as well.
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
- --------------------------------------------------------------------------------
25 Prospectus - Mutual Funds
<PAGE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------
The financial highlights table is intended to help you understand the funds'
financial performance for the past 5 years, or, if shorter, the period of the
funds' operations. Certain information reflects financial results for a single
fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the funds' financial
statements, are included in the Statement of Additional Information (SAI) and
annual report, which is available on request.
[Copy to come]
- --------------------------------------------------------------------------------
26 Prospectus - Mutual Funds
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
MUTUAL FUNDS / INSTITUTIONAL SHARES
ACCOUNT APPLICATION FORM
<TABLE>
<CAPTION>
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------------
/A/ REGISTRATION (PLEASE PRINT ALL ITEMS EXCEPT SIGNATURES)
(COMPLETE ONE) 1. -
CORPORATIONS, ------------------------------------------------------------------------ -------------------------
PARTNERSHIPS, Name of Corporation or Entity. If a trust, include Name(s) of Trustee(s) Tax I.D. Number
TRUSTS & OTHERS
LINES 1 & 2 2. Type of Registration / / Corporation / / Trust
/ / Partnership / / Other
INDIVIDUAL
USE LINE 3 3. Individual - -
------------------------------------------------------------- --------------------------
First Name Initial Last Name Social Security Number
U.S. Citizen or Resident? Yes / / No / /
JOINT ACCOUNT 4. Joint Names - -
LINES 3 & 4 ------------------------------------------------------------- ---------------------------
First Name Initial Last Name Social Security Number
U.S. Citizen or Resident? Yes / / No / /
GIFT/TRANSFER 5. Uniform Gift/Transfer to Minor as custodian for
TO MINOR ----------------------
LINES 5, 6 & 7 6. under the
------------------------------------------------------- ---------------------------------
Minor's Name Minor's Social Security Number
7. Uniform Gift/Transfer to Minors Act
-------------------------------------------------------
State
- ----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
/B/ MAILING Street or P.O. Box
ADDRESS
-----------------------------------------------------------------------------------------------------
City State Zip Code Home Telephone Daytime Telephone
-----------------------------------------------------------------------------------------------------
DUPLICATE CONFIRMATION/ Street or P.O. Box
STATEMENT SENT TO:
------------------------------------------------------------------------------------------------------
City State Zip Code Home Telephone Daytime Telephone
- -----------------------------------------------------------------------------------------------------------------------------------
/C/ FUND For each Fund in which you wish to invest, please enter the amount of your investment and check the
SELECTION & corresponding box.
INITIAL
INVESTMENT MINIMUM INVESTMENT: $250,000 PER FUND. AMOUNT
------
(361) / / Morgan Grenfell Fixed Income Fund $ _________
(360) / / Morgan Grenfell Municipal Bond Fund $ _________
(358) / / Morgan Grenfell Short-Term Fixed Income Fund $ _________
(359) / / Morgan Grenfell Short-Term Municipal Bond Fund $ _________
(362) / / Morgan Grenfell Smaller Companies Fund $ _________
(363) / / Morgan Grenfell Microcap Fund $ _________
(990) / / Morgan Grenfell High Yield Bond Fund $ _________
(993) / / Morgan Grenfell Total Return Bond Fund $ _________
/ / Enclosed is my check (payable to the appropriate Fund name) Total $
----------
----------
/ / In order to obtain wiring instructions - (PLEASE CALL 1-800-407-7301 PRIOR TO SENDING)*
* An account number is necessary prior to wiring money and must be included in instructions and below.
Account Number:
---------------
- -----------------------------------------------------------------------------------------------------------------------------------
/D/ FED WIRE Check one only, if none are / / All redemption proceeds will be sent by Fed wire net of wire
& AUTOMATED checked all redemptions charges unless Morgan Grenfell Investment Trust, P.O. Box
CLEARING HOUSE will be sent by an ACH 419165, Kansas City, MO 64141-6165 is notified in writing to
("ACH") transaction. execute redemptions by ACH transaction.
INFORMATION
/ / All redemption proceeds will be executed by an ACH transaction
unless Fed wire is requested by either calling 1-800-407-7301 or
by notifying Morgan Grenfell Investment Trust, P.O. Box 419165,
Kansas City, MO 64141-6165 in writing. There is no charge for
ACH transactions.
Automated Clearing House (ACH) redemptions must be executed by telephone authorization by calling
1-800-407-7301. Generally the proceeds of redemptions will be deposited in your bank account within
three business days after your call
Shareholders purchasing shares of the Fund(s) by Fed wire must request their bank to transmit the funds
to: United Missouri Bank, N.A.; ABA #10-10-00695; For Account Number 98-7052-395-7; Further Credit
[appropriate Fund name] The shareholder's name and account number must be specified in the wire
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
/D/ (CONTINUED) All Fed wire and ACH transactions will be sent as indicated below. There will be no charge for ACH
FED WIRE redemptions. Fed wire redemptions will be sent net of wire charges. Any changes in Fed wire or ACH
& AUTOMATED transactions must be made in writing to Morgan Grenfell Investment Trust, P.O. Box 419165, Kansas
CLEARING HOUSE City, MO 64141-6165. Please allow one month for ACH instructions to be effective. All activity
("ACH") prior to ACH instructions being effective will be done by Fed wire
INFORMATION
NOTIFY YOUR BANK OF YOUR INTENT TO ESTABLISH THIS OPTION ON YOUR BANK ACCOUNT.
---------------------------------------------------------------------------------------------------------
Bank Name Branch Office (if applicable)
VOIDED PERSONAL
CHECK MUST BE ---------------------------------------------------------------------------------------------------------
ATTACHED Bank Address (Do not use P.O. Box) City State Zip Code
---------------------------------------------------------------------------------------------------------
Bank Wire Routing Number Name(s) on Your Bank Account Your Bank Account Number
- -----------------------------------------------------------------------------------------------------------------------------------
/E/ DIVIDENDS Check one only; if none / / All dividend income and capital gains reinvested
AND are checked all dividend / / All dividend income and capital gains paid by ACH transaction
CAPITAL GAINS income and capital gains, / / Capital gains paid by ACH transaction and dividend income reinvested
DISTRIBUTIONS if any, will be reinvested. / / Dividend income paid by ACH transaction and capital gains reinvested
- -----------------------------------------------------------------------------------------------------------------------------------
/F/ TELEPHONE I (We) authorize DST Systems, Inc. to act upon instructions received by telephone from me (us) to redeem
PRIVILEGE shares or to exchange for shares of other Morgan Grenfell Investment Trust. I(We) understand an
REDEMPTION'S; exchange is made by redeeming shares of one Fund and using the proceeds to buy shares of another Fund.
EXCHANGE BETWEEN If there is an exchange, the account registration for the other Fund automatically will be the same as
PORTFOLIOS set forth above. Redemptions proceeds will be sent via ACH transaction, unless I (we) have elected the
Fed wire redemption privilege (Item D).
- -----------------------------------------------------------------------------------------------------------------------------------
/G/ CLIENT 1. I (We) have full right, power, authority and legal capacity, and am (are) of legal age in my (our)
AGREEMENT state of residence to purchase shares of the Fund. I (We) affirm that I (we) have received and read the
current prospectus of the Fund and agree to its terms. I (We) understand the investment objectives and
program, and have determined that the Fund is a suitable investment, based upon my (our) investment needs
and financial situation. I (We) agree that DST Systems, Inc. or any of its affiliates, officers,
directors or employees will not be liable for any loss, expense or cost for acting upon any instructions
or inquiries believed genuine.
2. I (We) understand that the authorization(s), with respect to Wire Redemptions are subject to the
conditions and limitations set forth in the current prospectus. I (We) ratify any instructions given,
pursuant to the above authorization(s) and agree that DST Systems, Inc. or any of its affiliates,
officers, directors or employees will not be liable for any loss liability, cost or expense for acting
upon instructions, when believed to be genuine.
3. I (We) understand and acknowledge that a return on the Morgan Grenfell Investment Trust Fund(s) is
(are) not guaranteed.
4. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
5. Morgan Grenfell Inc. has full authority to purchase and redeem shares of the mutual fund portfolios
if full investment discretion has been provided to Morgan Grenfell by a separate agreement.
/ / CHECK THIS BOX IF FULL INVESTMENT DISCRETION HAS BEEN PROVIDED TO MORGAN GRENFELL BY A SEPARATE
AGREEMENT.
- -----------------------------------------------------------------------------------------------------------------------------------
/H/ SIGNATURES Taxpayer Identification Number Certification (See Appendices to Prospectus for Instructions).
AND BACK-UP Under the penalties of perjury, I certify the following:
WITHHOLDING 1. The number shown on this form is my correct taxpayer identification number.
CERTIFICATION 2. I am exempt from back-up withholding or I am not subject to backup withholding as a result of
receiving notice from the Internal Revenue Service (IRS) that such withholding applies due to a
failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to
back-up withholding.
The Internal Revenue Service does not require your consent to any provision of this document other than
certifications required to avoid backup withholding.
---------------------------------------------- --------- -------------------------------
Individual (or Custodian) Date Joint Registration, if any
---------------------------------------------- --------- -------------------------------
Corporate Officer, Partner, Trustee, etc. Date Title
* YOU MUST CROSS OUT ITEM 2 ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO
BACK-UP WITHHOLDING
- -----------------------------------------------------------------------------------------------------------------------------------
BROKER USE ONLY: DEALER NAME: DEALER NUMBER:
------------------------------------------ ---------------------------------
DEALER ADDRESS:
---------------------------------------
---------------------------------------
REPRESENTATIVE NAME: REPRESENTATIVE BRANCH:
---------------------------------- -------------------------
REPRESENTATIVE SIGNATURE:
------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
MAIL COMPLETED APPLICATION FORM TO: FOR ASSISTANCE CALL :
MORGAN GRENFELL INVESTMENT TRUST 1-800-550-MGAM
P.O. BOX 419165
KANSAS CITY, MO 64141-6165 BEFORE INVESTING, PLEASE READ PROSPECTUS CAREFULLY
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Additional information about a fund's investments is available in the fund's
annual and semi-annual reports to shareholders. In each fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the fund's performance during its last fiscal year.
The annual report also includes the report of the fund's independent
accountants.
The Statement of Additional Information (SAI) is a supplement to this
prospectus. The SAI contains further information about a fund and its investment
limitations and policies. It also includes the most recent annual report and the
independent accountant's report. A current SAI for the funds is on file with the
Securities and Exchange Commission and is incorporated by reference (is legally
part of this prospectus).
You can obtain a free copy of the current annual/semi-annual report, the SAI,
and other information and answers to questions about the funds are available by
contacting:
Morgan Grenfell Investment Trust
No-Load Open-End Funds
Institutional Shares
885 Third Avenue
New York, New York 10022
Telephone: 1-800-555-1212
Internet:
Information about a fund (including the SAI) can be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330.
Copies of information can be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009
Or you can visit the SEC Web site at: www.sec.gov
Registration Number: 811-8006
- --------------------------------------------------------------------------------
27 Prospectus - Mutual Funds
<PAGE>
MORGAN GRENFELL
INVESTMENT TRUST
Prospectus March 1, 1999
[MAP]
Service Shares
The Securities and Exchange Commission has not approved any fund's shares as
an investment or determined whether this prospectus is accurate or complete.
Any statement to the contrary is a crime.
<PAGE>
MORGAN GRENFELL
INVESTMENT TRUST
CONTENTS
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTING IN MORGAN GRENFELL
MUTUAL FUNDS
<S> <C> <C>
FUND DESCRIPTIONS
FIXED INCOME FUNDS
Fixed Income................................ 2
Short-Term Fixed Income..................... 4
Municipal Bond.............................. 6
Short-Term Municipal Bond................... 8
Total Return Bond........................... 10
High Yield Bond............................. 12
A FUND BY FUND LOOK AT INVESTMENT OBJECTIVES AND
STRATEGIES, RISKS AND EXPENSES.
EQUITY FUNDS
Smaller Companies........................... 14
Microcap.................................... 16
Large Cap Growth............................ 18
MORE ABOUT RISK............................... 20
AN OVERVIEW OF SECURITIES THAT MAY BE PURCHASED
AND INVESTMENT TECHNIQUES THAT MAY BE USED BY THE
FUNDS AND THEIR RISKS. INVESTMENT ADVISER
Portfolio Management........................ 22
MANAGING YOUR INVESTMENT
BUYING AND SELLING SHARES
Service Plan................................ 23
Buying and Selling Shares Through Your
Service Organization...................... 23
How Shares are Priced....................... 23
Payment of Redemption Proceeds.............. 23
HOLDING SHARES
Exchanging.................................. 24
Dividends and Distributions................. 24
Tax Considerations.......................... 24
FINANCIAL HIGHLIGHTS.......................... 25
POLICIES AND INSTRUCTIONS FOR OPENING, MAINTAINING
AND CLOSING AN ACCOUNT IN ANY FUND.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus - Mutual Funds
<PAGE>
WITH MORE THAN $150 BILLION IN ASSETS UNDER MANAGEMENT,
INCLUDING $29 BILLION MANAGED FOR NORTH AMERICAN CLIENTS,
MORGAN GRENFELL ASSET MANAGEMENT IS ONE OF THE WORLD'S
FOREMOST INVESTMENT MANAGEMENT ORGANIZATIONS. WE COVER ALL
MAJOR INVESTMENT REGIONS, LEVERAGING THE EXPERTISE OF 250
PORTFOLIO MANAGERS AND ANALYSTS ACROSS THE GLOBE.
WHO MAY WANT TO INVEST
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST IN THE FIXED INCOME FUNDS:
- - those who are investing for income
- - those who want higher potential returns than a money market fund
WHO MAY NOT WANT TO INVEST IN THE FIXED INCOME FUNDS:
- - those who are making short-term investments
- - those who are not willing to accept more risk than a money market fund
WHO MAY WANT TO INVEST IN THE EQUITY FUNDS:
- - those who are pursuing a long-term goal
- - those who are seeking an investment with the potential to outpace inflation
WHO MAY NOT WANT TO INVEST IN THE EQUITY FUNDS:
- - those who require regular income or stability of principal
- - those who are pursuing a short-term goal or are investing their emergency
funds
An investment in a fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
- --------------------------------------------------------------------------------
1 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
FIXED INCOME FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks a high level of income consistent with the preservation of
capital. To pursue this objective, the fund invests primarily in investment
grade fixed income securities.
In managing the fund, the portfolio management team generally uses a "bottom-up"
approach. The team focuses on the securities and sectors it believes are
undervalued relative to the market, rather than relying on interest rate
forecasts. The team uses an active process which relies heavily on individual
issue selection.
- - The team assigns a relative value, based on creditworthiness, cash flow and
price, to each bond.
- - The intrinsic value of each issue is determined by examining credit,
structure, option value and liquidity risk. The fund looks to exploit any
inefficiencies between intrinsic value and market trading price.
- - The team uses credit analysis to determine the issuer's ability to fulfill its
contracts.
- - The fund subordinates sector weightings to individual bonds that may add
above-market value.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of five to ten years.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 80% of its assets in
intermediate-term U.S. Treasury, corporate, mortgage-backed, asset-backed,
taxable municipal and tax-exempt municipal bonds. The fund invests primarily in
high quality debt securities and may invest up to 15% in fixed income securities
rated lower investment grade by one of the major independent agencies, or
considered equivalent in rating by the investment adviser. The fund may invest
up to 25% of its total assets in U.S. dollar-denominated securities of foreign
issuers. The fund may hold up to 20% of its total assets in cash or money market
instruments in order to maintain liquidity, or in the event that the adviser
determines that securities meeting the fund's investment objective are not
otherwise readily available for purchase.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE, PREPAYMENT AND EXTENSION RISK. As with most bond funds, the
value of your investment will fluctuate with changes in interest rates.
Typically, a rise in interest rates causes a decline in the market value of
fixed income securities. Also, as interest rates decline, the issuers of
securities held by the fund may prepay principal earlier than scheduled, forcing
the fund to reinvest in lower yielding securities. As interest rates increase,
slower than expected principal payments may extend the average life of fixed
income securities, locking in below-market interest rates and reducing the value
of these securities. There is a greater risk that the fund will lose money due
to prepayment and extension risks because the fund invests in mortgage-related
securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Adverse economic conditions or changing circumstances are more
likely to affect the ability of a lower grade to pay principal and interest than
a higher grade bond.
DURATION RISK. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
2 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
FIXED INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
3 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SHORT-TERM FIXED INCOME FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks a high level of income consistent with the preservation of
capital. To pursue this objective, the fund invests primarily in investment
grade short-term fixed income securities.
In managing the fund, the portfolio management team uses a "bottom-up" approach.
The team focuses on the securities and sectors it believes are undervalued
relative to the market, rather than relying on interest rate forecasts. The team
uses an active process which relies heavily on individual issue selection.
- - The team assigns a relative value, based on creditworthiness, cash flow and
price, to each bond.
- - The intrinsic value of each issue is determined by examining credit,
structure, option value and liquidity risk. The fund looks to exploit any
inefficiencies between intrinsic value and market trading price.
- - The team uses credit analysis to determine the issuer's ability to fulfill its
contracts.
- - The fund subordinates sector weightings to individual bonds that may add
above-market value.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of no longer than three years.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 80% of its assets in
short-term U.S. Treasury, corporate, mortgage-backed, asset-backed, taxable
municipal and tax-exempt municipal bonds. The fund invests primarily in high
quality debt securities and may invest up to 15% in fixed income securities
rated lower investment grade by one of the major independent agencies, or
considered equivalent in rating by the investment adviser. The fund may invest
up to 25% of its total assets in U.S. dollar-denominated securities of foreign
issuers. The fund may hold up to 20% of its total assets in cash or money market
instruments in order to maintain liquidity, or in the event that the adviser
determines that securities meeting the fund's investment objective are not
otherwise readily available for purchase.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE, PREPAYMENT AND EXTENSION RISK. As with most bond funds, the
value of your investment will fluctuate with changes in interest rates.
Typically, a rise in interest rates causes a decline in the market value of
fixed income securities. Also, as interest rates decline, the issuers of
securities held by the fund may prepay principal earlier than scheduled, forcing
the fund to reinvest in lower yielding securities. As interest rates increase,
slower than expected principal payments may extend the average life of fixed
income securities, locking in below-market interest rates and reducing the value
of these securities. There is a greater risk that the fund will lose money due
to prepayment and extension risks because the fund invests in mortgage-related
securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Adverse economic conditions or changing circumstances are more
likely to affect the ability of a lower grade to pay principal and interest than
a higher grade bond.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
4 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SHORT-TERM FIXED INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
5 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
MUNICIPAL BOND FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks a high level of income exempt from regular federal income tax,
consistent with the preservation of capital. To pursue this objective, the fund
invests primarily in investment grade fixed income securities that pay interest
exempt from federal income tax. In managing the fund, the portfolio management
team generally uses a "bottom-up" approach. This approach focuses on individual
security selection, rather than relying on interest rate forecasts. The team
uses an active process in selecting securities.
- - The team assigns a relative value, based on creditworthiness, cash flow and
price, to each bond.
- - The team uses credit analysis to determine the issuer's ability to fulfill its
contracts.
- - Each bond is compared with a U.S. Treasury instrument to develop a theoretical
intrinsic value. The team looks to exploit any inefficiencies between
intrinsic value and market trading price.
- - The fund subordinates sector weightings to individual bonds that may add
above-market value.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of five to ten years.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 80% of net assets in
municipal securities which pay interest exempt from federal income tax and at
least 65% of total assets in municipal bonds. Certain of these securities have
variable and floating rates of interest or include "put" features providing the
fund the right to sell the securities at face value prior to maturity. This
could shorten the fund's dollar weighted average portfolio maturity. The fund
may invest 25% or more of its total assets in private activity and industrial
development bonds if the interest paid on them is exempt from regular federal
income tax. The fund invests primarily in high quality bonds and may invest in
bonds which are considered lower investment grade by one of the major rating
agencies, or considered equivalent in rating by the investment adviser. Up to
20% of the fund's total assets may be invested in certain taxable securities in
order to maintain liquidity. Securities may be purchased on a when-issued basis.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE RISKS. As with most bond funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities. Also, as
interest rates decline, the issuers of securities held by the fund may prepay
principal earlier than scheduled, forcing the fund to reinvest in lower yielding
securities. As interest rates increase, slower than expected principal payments
may extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Adverse economic conditions or changing circumstances are more
likely to affect the ability of a lower grade bond to pay principal and interest
than a higher grade bond.
DURATION RISK. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.
TAX LIABILITY RISK. Distributions by a fund that are derived from income from
taxable securities held by the fund will generally be taxable to shareholders as
ordinary income. There is a risk that a greater percentage of the fund's
investments will produce taxable income, resulting in a lower tax-adjusted
return. New federal or state legislation could adversely affect the tax-exempt
status of securities held by the fund, resulting in higher tax liability for
shareholders. In addition, distribution of the fund's income and gains will
generally be subject to state taxation.
PRIVATE ACTIVITY AND INDUSTRIAL DEVELOPMENT BOND RISKS. The payment of principal
and interest on these bonds is generally dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property financed as security for such payment.
WHEN-ISSUED SECURITIES. The market value of the securities purchased on a
when-issued basis may change before the securities are delivered.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
6 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
MUNICIPAL BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
Lehman 5 year G.O. Index 2. How the fund has performed in the past is not
necessarily an indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
7 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SHORT-TERM MUNICIPAL FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks a high level of income exempt from regular federal income tax,
consistent with the preservation of capital. To pursue this objective, the fund
invests primarily in investment grade short-term fixed income securities that
pay interest exempt from federal income tax.
In managing the fund, the portfolio management team generally uses a "bottom-up"
approach. This approach focuses on individual security selection, rather than
relying on interest rate forecasts. The team uses an active process in selecting
securities.
- - The team assigns a relative value, based on creditworthiness, cash flow and
price, to each bond.
- - The team uses credit analysis to determine the issuer's ability to fulfill its
contracts.
- - Each bond is compared with a U.S. Treasury instrument to develop a theoretical
intrinsic value. The team looks to exploit any inefficiencies between
intrinsic value and market trading price.
- - The fund subordinates sector weightings to individual bonds that may add
above-market value.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of no longer than three years.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 80% of net assets in
short-term municipal securities which pay interest exempt from federal income
taxes and at least 65% of total assets in municipal bonds. Certain of these
securities have variable and floating rates of interest or include "put"
features providing the fund the right to sell the securities at face value prior
to maturity. This could shorten the fund's dollar weighted average portfolio
maturity. The fund may invest 25% or more of its total assets in private
activity and industrial development bonds if the interest paid on them is exempt
from regular federal income tax. The fund invests primarily in high quality
bonds and may invest in bonds which are considered lower investment grade by one
of the major rating agencies, or considered equivalent in rating by the
investment adviser. Up to 20% of the fund's total assets may be invested in
certain taxable securities in order to maintain liquidity. Securities may be
purchased on a when-issued basis.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE RISKS. As with most bond funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities. Also, as
interest rates decline, the issuers of securities held by the fund may prepay
principal earlier than scheduled, forcing the fund to reinvest in lower yielding
securities. As interest rates increase, slower than expected principal payments
may extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. Adverse economic conditions or changing circumstances are more
likely to affect the ability of a lower grade bond to pay principal and interest
than a higher grade bond.
TAX LIABILITY RISK. Distributions by a fund that are derived from income from
taxable securities held by the fund will generally be taxable to shareholders as
ordinary income. There is a risk that a greater percentage of the fund's
investments will produce taxable income, resulting in a lower tax-adjusted
return. New federal or state legislation could adversely affect the tax-exempt
status of securities held by the fund, resulting in higher tax liability for
shareholders. In addition, distribution of the fund's income and gains will
generally be subject to state taxation.
PRIVATE ACTIVITY AND INDUSTRIAL DEVELOPMENT BOND RISKS. The payment of principal
and interest on these bonds is generally dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property financed as security for such payment.
WHEN-ISSUED SECURITIES. The market value of the securities purchased on a
when-issued basis may change before the securities are delivered.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
8 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SHORT-TERM MUNICIPAL FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
IBC All Tax-Free Average Index. How the fund has performed in the past is not
necessarily an indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........ None
Maximum Deferred Sales Charge......... None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees......................... x.xx%
Distribution (12b-1) and/or Service
Fees.................................. .25%
Other Expenses........................ x.xx%
Total Annual Fund Operating Expenses.. x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees................................... x.xx%
Distribution (12b-1) and/or Service Fees........ .25%
Other Expenses.................................. x.xx%
Reimbursements..................................
Total Annual Fund Operating Expenses............ x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
9 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
TOTAL RETURN BOND FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks total return consistent with the preservation of capital. To
pursue this objective, the fund invests primarily in U.S. dollar-denominated
investment grade bonds of domestic and foreign issuers.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of between five and ten years.
PRINCIPAL HOLDINGS
Under normal circumstances, the fund invests at least 65% of its total assets in
U.S. dollar-denominated domestic and foreign investment grade bonds. Up to 35%
of its total assets may be invested in cash, money market instruments and
foreign bonds including issuers from emerging securities markets and below
investment grade bonds. No more than 30% of the fund's total assets will be
invested in foreign currency-denominated bonds. No more than 15% of the fund's
assets may be invested in below investment grade bonds and no more than 10% may
be invested in below investment grade bonds of issuers located in countries with
emerging securities markets.
The fund may use certain techniques, including forward foreign currency exchange
contracts, options and futures on currencies and currency swaps, to manage its
exposure to fluctuations in currency exchange rates and, in some circumstances,
to seek to profit from exchange rate fluctuations.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE RISKS. As with most bond funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities. Also, as
interest rates decline, the issuers of securities held by the fund may prepay
principal earlier than scheduled, forcing the fund to reinvest in lower yielding
securities. As interest rates increase, slower than expected principal payments
may extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. In addition, the lower rated debt securities in which the fund
invests are considered highly speculative and subject to greater volatility and
risk of loss than investment grade securities, particularly in deteriorating
economic periods.
DURATION RISK. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.
FOREIGN RISKS. To the extent that the fund invests in the securities of foreign
companies, it will be subject to the additional risks of foreign investing.
Prices of foreign securities may go down because of unfavorable changes in
foreign currency exchange rates, foreign government actions, political
instability or the more limited availability of accurate information about
foreign companies. A decline in the value of foreign currencies relative to the
U.S. dollar will reduce the unhedged value of securities denominated in those
currencies. Foreign securities are sometimes less liquid and harder to value
than securities of U.S. issuers. These risks are more severe for securities of
issuers in emerging securities markets.
NON-DIVERSIFIED STATUS. The fund is non-diversified. Compared with other funds,
the fund may invest a greater percentage of its assets in a particular issuer.
This will cause the fund to be more susceptible to developments affecting any
single issuer of portfolio securities.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
10 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
TOTAL RETURN BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........ None
Maximum Deferred Sales Charge......... None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees......................... x.xx%
Distribution (12b-1) and/or Service
Fees.................................. .25%
Other Expenses........................ x.xx%
Total Annual Fund Operating Expenses.. x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees................................... x.xx%
Distribution (12b-1) and/or Service Fees........ .25%
Other Expenses.................................. x.xx%
Reimbursements.................................. x.xx%
Total Annual Fund Operating Expenses............ x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
11 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
HIGH YIELD BOND FUND
- ----------------------------------------
INVESTMENT OBJECTIVES AND STRATEGY
The fund seeks high current income and, as a secondary objective, capital
appreciation. To pursue these objectives, the fund invests primarily in U.S.
dollar-denominated high yield bonds of domestic and foreign issuers.
In managing the fund, the portfolio manager generally uses a "top-down" approach
to picking securities. This approach focuses on neutral yield curve
distribution, careful cash flow and total return analysis, and broad
diversification among countries, sectors, industries and individual issuers in
an effort to provide higher income and manage risk. The portfolio manager uses
an active process which emphasizes relative value in a global environment,
managing on a total return basis, and using intensive research to identify
stable to improving credit situations that may provide yield compensation for
the risk of investing in below investment grade bonds.
- - The portfolio manager analyzes economic conditions for improving or
undervalued sectors and industries.
- - The fund uses independent credit research and on-site management visits to
evaluate individual issues' debt service, growth rate, and both downside and
upgrade potential.
- - The portfolio manager assesses new issues versus secondary market
opportunities.
- - The fund seeks issues within attractive industry sectors and with strong
long-term fundamentals and improving credits.
PORTFOLIO MATURITY
The team intends to maintain a dollar weighted effective average portfolio
maturity of five to ten years.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
U.S. dollar-denominated domestic and foreign convertible and non-convertible
fixed income securities. These securities may include U.S. Treasury, corporate,
mortgage-backed, taxable municipal and tax-exempt municipal bonds. The fund's
investments in these securities may be of any credit quality and may include
securities not paying interest currently, zero coupon bonds, pay in-kind
securities and securities in default. The fund may invest up to 35% of its total
assets in cash or money market instruments in order to maintain liquidity, or in
the event that the portfolio manager determines that securities meeting the
fund's investment objectives are not otherwise readily available for purchase.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
INTEREST RATE RISKS. As with most bond funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities. Also, as
interest rates decline, the issuers of securities held by the fund may prepay
principal earlier than scheduled, forcing the fund to reinvest in lower yielding
securities. As interest rates increase, slower than expected principal payments
may extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities.
CREDIT RISK. The issuer of a security owned by the fund may default on its
obligation to pay principal and/or interest or may have its credit rating
downgraded. In addition, the lower rated debt securities in which the fund
invests are considered highly speculative and subject to greater volatility and
risk of loss than investment grade securities, particularly in deteriorating
economic periods.
DURATION RISK. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.
FOREIGN RISKS. The fund is subject to the additional risks of foreign
investing, even though the fund only buys U.S. dollar-denominated foreign
securities. Prices of foreign securities may go down because of foreign
government actions, political instability or the more limited availability of
accurate information about foreign companies. These risks are more severe for
securities of issuers in emerging securities markets.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
PORTFOLIO MANAGEMENT
The fund is managed by Curtiss O. Barrows. Prior to joining Morgan Grenfell Inc.
in March 1998, Mr. Barrows managed the Phoenix High-Yield Fund at Phoenix Duff &
Phelps for the past 13 years.
- --------------------------------------------------------------------------------
12 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
HIGH YIELD BOND FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
13 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SMALLER COMPANIES FUND
- ----------------------------------------
INVESTMENT OBJECTIVES AND STRATEGY
The fund seeks capital appreciation, with current income as a secondary
objective. To pursue these objectives, the fund invests primarily in equity
securities of U.S. small capitalization companies.
In managing the fund, the portfolio management team generally uses a "bottom-up"
approach to picking stocks. This approach focuses on individual stock selection
rather than industry selection. The team uses an active process which combines
financial analysis with company visits to evaluate management and strategies.
- - The team focuses on undervalued stocks with fast-growing earnings and superior
near-to-intermediate term performance potential.
- - The team emphasizes individual selection of smaller stocks across all economic
sectors, early in their growth cycles and with the potential to be the blue
chips of the future.
- - The team generally seeks companies with a leading or dominant position in
their niche markets, a high rate of return on invested capital and the ability
to finance a major part of future growth from internal sources.
- - The team screens the bottom 20% of the total domestic equity market
capitalization for smaller companies with growth and profitability.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of U.S. small capitalization companies. Morgan Grenfell
defines the small capitalization equity securities universe as the bottom 20% of
the total domestic equity market capitalization, using a minimum market
capitalization of $10 million. Up to 35% of the fund's total assets may be
invested in investment grade fixed income securities, securities of medium and
large capitalization companies and in cash. Up to 5% of the fund's net assets
may be invested in the securities of foreign issuers.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. Stocks may decline
significantly in price over short or extended periods of time. Price changes may
affect the market as a whole, or a particular company, industry or sector of the
market. An adverse event, such as an unfavorable earnings report, may affect the
value of a particular company's stock. In addition, performance may be affected
because the stocks of smaller cap companies may be out of favor with investors
who prefer value stocks or large capitalization stocks.
SMALL CAP RISKS. The fund's performance may be more volatile because it invests
primarily in small capitalization stocks. Smaller companies may have limited
product lines, markets and financial resources. They may also have shorter
operating histories and more volatile businesses. Small cap stocks tend to trade
in a wider price range than larger cap stocks. In addition, it may be harder to
sell these stocks, particularly in large blocks, which can reduce their selling
price.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
14 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
SMALLER COMPANIES FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
S&P 600 Index. How the fund has performed in the past is not necessarily an
indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
15 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
MICROCAP FUND
- ----------------------------------------
INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks capital appreciation. To pursue this objective, the fund invests
primarily in equity securities of U.S. micro capitalization growth-oriented
companies.
In managing the fund, the portfolio management team generally uses a "bottom-up"
approach to picking stocks. This approach focuses on individual stock selection
rather than industry selection. The team uses an active process which combines
financial analysis with company visits to evaluate management and strategies.
- - The team focuses on undervalued stocks with fast-growing earnings and superior
near-to-intermediate performance potential.
- - The team emphasizes individual selection of smaller stocks across all economic
sectors, early in their growth cycles and with the potential to be the blue
chips of the future.
- - The team generally seeks companies with a leading or dominant position in
their niche markets, a high rate of return on invested capital and the ability
to finance a major part of future growth from internal sources.
- - The team screens the bottom 5% of the total domestic equity market
capitalization for micro cap companies with growth and profitability.
PRINCIPAL HOLDINGS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of U.S. micro capitalization companies and securities
convertible into such stocks. Micro capitalization companies are ranked in the
bottom 5% of the U.S. equity market in terms of market capitalization (at the
time of investment). Up to 25% of the fund's total assets may be invested in the
securities of foreign companies that would be considered in the bottom 5% in
terms of market capitalization in the U.S. equity market. The fund may invest up
to 35% of its assets in high quality debt instruments and money market
instruments with remaining maturities of one year or less, including repurchase
agreements. In addition, the fund may invest up to 5% of its net assets in
non-convertible bonds and preferred stocks that are considered high quality. To
the extent that the fund invests in foreign securities, it may enter into
forward currency exchange contracts and buy and sell currency options to hedge
against currency exchange rate fluctuations.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. Stocks may decline
significantly in price over short or extended periods of time. Price changes may
affect the market as a whole, or a particular company, industry or sector of the
market. An adverse event, such as an unfavorable earnings report, may affect the
value of a particular company's stock. In addition, the stocks of micro cap
companies may be out of favor with investors who prefer value stocks or larger
capitalization stocks.
MICRO CAP RISKS. The fund's performance may be significantly more volatile
because it invests primarily in micro capitalization stocks. Small and micro
capitalization companies may have limited product lines, markets and financial
resources. They may also have shorter operating histories and more volatile
businesses. Such stocks tend to trade in a wider price range than larger cap
stocks. In addition, it may be harder to sell these stocks, particularly in
large blocks, which can reduce their selling price.
FOREIGN RISKS. To the extent that the fund invests in the securities of foreign
companies, it will be subject to the additional risks of foreign investing.
Prices of foreign securities may go down because of unfavorable changes in
foreign currency exchange rates, foreign government actions, political
instability or the more limited availability of accurate information about
foreign companies. A decline in the value of foreign currencies relative to the
U.S. dollar will reduce the unhedged value of securities denominated in those
currencies. Foreign securities are sometimes less liquid and harder to value
than securities of U.S. issuers. These risks are more severe for securities of
issuers in emerging securities markets.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
16 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
MICROCAP FUND (CONTINUED)
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart indicates the risks of investing in the fund by showing changes in
the fund's performance from year to year. The table shows how the fund's average
annual total returns for different calendar years compare to the return of the
Russell 2000 Index. How the fund has performed in the past is not necessarily an
indication of how the fund will perform in the future.
[BAR CHART]
The bar chart shows the changes in the performance of the fund for each full
calendar year since inception.
Quarterly returns:
Highest: % in quarter 199
Lowest: % in quarter 199
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
PAST SINCE
ONE PAST 5 INCEPT-
YEAR YEARS ION
<S> <C> <C> <C>
Fund
Index
</TABLE>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
17 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
LARGE CAP GROWTH FUND
- ----------------------------------------
INVESTMENT OBJECTIVES AND STRATEGY
The fund seeks capital appreciation, with current income as a secondary
objective. To pursue these objectives, the fund invests primarily in equity
securities of U.S. large capitalization companies.
When managing the fund, the portfolio management team will generally use a
"bottom-up" approach to picking stocks. This approach will focus on individual
stock selection rather than industry selection. The team uses an active process
which combines financial analysis with company visits to evaluate management and
strategies.
- - The team seeks companies that offer significant potential for capital growth,
but with less risk than investments in smaller capitalization companies.
- - The team looks for companies whose earnings it believes will grow both faster
than inflation and faster than the economy in general.
- - The team considers a number of company-specific factors, including quality of
management, a leading or dominant position in a major product line, a sound
financial position, and a relatively high rate of return on invested capital
so that future growth can be financed from internal sources.
- - The team considers a company's record of dividend payments and the likelihood
that the company will pay dividends in the future.
PRINCIPAL INVESTMENTS
Under normal conditions, the fund invests at least 65% of its total assets in
the equity securities of U.S. large capitalization companies. Large
capitalization companies are those ranked in the top 60% of the total U.S.
equity market capitalization. Up to 35% of the fund's total assets may be
invested in investment grade fixed income securities, equity securities of small
and medium capitalization companies, and cash. The fund may invest up to 5% of
its net assets in the securities of foreign companies.
INVESTMENT RISKS
You could lose money on your investment in the fund or the fund may not perform
as well as other investments due to the following:
STOCK MARKET RISK. As with any equity growth fund, the value of your investment
will fluctuate in response to stock market movements. Stocks may decline
significantly in price over short or extended periods of time. Price changes may
affect the market as a whole, or a particular company, industry or sector of the
market. An adverse event, such as an unfavorable earnings report, may affect the
value of a particular company's stock.
In addition, the value of the fund's shares depends in part on the adviser's
ability to assess economic conditions and investment opportunities.
- --------------------------------------------------------------------------------
18 Prospectus - Mutual Funds
<PAGE>
Fund Descriptions
LARGE CAP GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<TABLE>
<S> <C>
Shareholder Fees (% of offering price)
Maximum Front-End Sales Charge........... None
Maximum Deferred Sales Charge............ None
Annual Fund Operating Expenses
(% of average net assets)
Advisory Fees............................ x.xx%
Distribution (12b-1) and/or Service
Fees..................................... .25%
Other Expenses........................... x.xx%
Total Annual Fund Operating Expenses..... x.xx%
</TABLE>
BECAUSE WE PLACE A LIMITATION ON THE FUNDS OPERATING EXPENSES AND REIMBURSE THE
FUNDS FOR ANY EXPENSES INCURRED IN ADDITION TO THE LIMITATION, ACTUAL EXPENSES
WERE:
<TABLE>
<S> <C>
Annual Fund Operating Expense (% of average net assets)
Advisory Fees...................................... x.xx%
Distribution (12b-1) and/or Service Fees........... .25%
Other Expenses..................................... x.xx%
Reimbursements..................................... x.xx%
Total Annual Fund Operating Expenses............... x.xx%
</TABLE>
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the time periods indicated;
- - You redeem at the end of each period;
- - Your investment has a 5% return each year;
- - The example also assumes that your investment has a 5% return each year; and
- - The fund's operating expenses remain the same.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you redeem your
shares - - - -
If you do not redeem
your shares - - - -
</TABLE>
- --------------------------------------------------------------------------------
19 Prospectus - Mutual Funds
<PAGE>
MORE ABOUT RISK
- ----------------------------------------
EQUITY SECURITIES
Equity securities include exchange-traded and over-the-counter (OTC) common and
preferred stocks, warrants, rights, investment grade convertible securities,
depositary receipts and shares, trust certificates, limited partnership
interests, shares of other investment companies, real estate investment trusts
and equity participations.
FIXED INCOME SECURITIES (BONDS)
Fixed income investments include bonds, notes (including structured notes),
mortgage-related securities, asset-backed securities, convertible securities,
eurodollar and Yankee dollar instruments, preferred stocks and money market
instruments.
Fixed income securities may be issued by U.S. and foreign corporations or
entities; U.S. and foreign banks; the U.S. government, its agencies,
authorities, instrumentalities or sponsored enterprises; state and municipal
governments; supranational organizations; and foreign governments and their
subdivisions.
These securities may have all types of interest rate payment and reset terms,
including fixed rate, adjustable rate, zero coupon, contingent, deferred,
payment in-kind and auction rate features.
Money market securities include commercial paper, certificates of deposit,
banker's acceptances, repurchase agreements and other short-term debt
securities.
The payment of principal and interest on a private activity or industrial
development bond is generally dependent solely on the ability of the facility's
user to meet its financial obligations and the pledge, if any, of real and
personal property financed as security for such payment.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES
Mortgage-related securities may be issued by private companies or by agencies of
the U.S. government. Mortgage-related securities represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property.
The funds may use mortgage dollar rolls to finance the purchase of additional
investments. Dollar rolls expose a fund to the risk that it will lose money if
the additional investments do not produce enough income to cover the fund's
dollar roll obligations.
For mortgage derivatives and structured securities that have imbedded leverage
features, small changes in interest or prepayment rates may cause large and
sudden price movements. Mortgage derivatives can also become illiquid and hard
to value in declining markets.
Asset-backed securities represent participations in, or are secured by and
payable from, assets such as installment sales or loan contracts, leases, credit
card receivables and other categories or receivables.
Mortgage-related and asset-backed securities are especially sensitive to
prepayment and extension risk. At times, the Fixed Income Fund and the
Short-Term Fixed Income Fund invest a large percentage of assets in
mortgage-backed and asset-backed securities.
CREDIT QUALITY
Fixed Income securities are investment grade if:
- - They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
- - They have received a comparable short-term or other rating.
- - They are unrated securities that the adviser believes to be of comparable
quality to rated investment grade securities.
If a security receives different ratings, a fund will treat the security as
being rated in the highest rating category. A fund may choose not to sell
securities that are downgraded after their purchase below the fund's minimum
acceptable credit rating. Each fund's credit standards also apply to
counterparties of OTC derivative contracts.
DERIVATIVE CONTRACTS
The funds may, but are not required to, use derivative contracts for any of the
following purposes:
- - To hedge against adverse changes in the market value of securities held by or
to be bought for a fund. These changes may be caused by changing interest
rates, stock market prices or currency exchange rates.
- --------------------------------------------------------------------------------
20 Prospectus - Mutual Funds
<PAGE>
MORE ABOUT RISK (CONTINUED)
- --------------------------------------------------------------------------------
- - As a substitute for purchasing or selling securities or foreign currencies.
- - To shorten or lengthen the effective maturity or duration of a fund's fixed
income portfolio.
- - In non-hedging situations, to attempt to profit from anticipated market
developments.
A derivative contract will obligate or entitle a fund to deliver or receive an
asset or a cash payment that is based on the change in value of a designated
security, index or currency. Examples of derivative contracts are futures
contracts, options, forward contracts, swaps, caps, collars and floors.
Even a small investment in derivative contracts can have a big impact on stock
market, currency and interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when stock
prices, currency rates or interest rates are changing. Counterparties to OTC
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
LEVERAGE RISKS. Because of borrowing or investments in derivative contracts, a
fund may suffer disproportionately heavy losses relative to the amount of its
investment. Leverage can magnify the impact of poor asset allocation or
investment decisions.
CORRELATION RISKS. Changes in the value of derivative contracts or other
hedging instruments may not match or fully offset changes in the value of the
hedged portfolio securities.
FOREIGN SECURITIES
Each of the funds, other than the Municipal Funds, may invest in foreign
securities. The risks of investing in foreign securities are generally higher
than investing in domestic securities. A foreign government could expropriate or
nationalize assets, impose withholding or other taxes on dividend, interest or
other payments and prohibit transactions in the country's currency. In many
foreign countries, securities markets are less liquid, more volatile and subject
to less government regulation than U.S. securities markets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each of the funds may purchase or sell a security at a future date for a
predetermined price. The market value of the securities may change before
delivery.
DEFENSIVE INVESTING
Each fund may depart from its principal investment strategies by taking
temporary defensive positions in response to adverse market, economic or
political conditions. If a fund takes a temporary defensive position, it may be
unable to achieve its investment objectives.
LENDING SECURITIES
Each fund may lend its securities to broker-dealers for the purpose of receiving
income. There is a potential for default from the borrower.
THE FUND'S INVESTMENT OBJECTIVES
The fund's board of trustees may change each fund's investment objectives
without obtaining the approval of the fund's shareholders. A fund might not
succeed in achieving its objectives.
PORTFOLIO TURNOVER
Each fund may engage in active and frequent trading to achieve its principal
investment strategies. This may lead to the realization and distribution to
shareholders of higher capital gains, which would increase their tax costs,
which could detract from a fund's performance.
YEAR 2000 PROBLEM
Many computer systems today cannot distinguish the year 2000 from the year 1900
because of the way dates are encoded and calculated. The investment adviser is
taking steps designed to address the Year 2000 problem and to obtain reasonable
assurances that comparable steps are being taken by the funds' other major
service providers. Although there can be no assurance that these systems will be
properly adapted in time for the Year 2000, the adviser expects that they will
be.
- --------------------------------------------------------------------------------
21 Prospectus - Mutual Funds
<PAGE>
INVESTMENT ADVISER
- ----------------------------------------
ADVISER
The day-to-day operations of the funds, including investment decisions, have
been delegated to the adviser, Morgan Grenfell Inc. located at 885 Third Avenue,
New York, New York. Morgan Grenfell Inc. provides a full range of investment
advisory services to institutional clients, and as of October 31, 1998, managed
approximately 10.5 billion in assets. 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 and for
negotiating brokerage commissions and dealer charges.
As previously mentioned, the adviser has voluntarily agreed to reduce its
advisory fee and to make arrangements to limit certain other expenses of each
fund in order to limit the fund's operating expenses. For the fiscal period
ended October 31, 1998, the funds paid the following investment adviser fees:
Morgan Grenfell Fixed Income Fund
Morgan Grenfell Short-Term Fixed Income Fund
Morgan Grenfell Municipal Bond Fund
Morgan Grenfell Short-Term Municipal Bond Fund
Morgan Grenfell Total Return Bond Fund
Morgan Grenfell High Yield Bond Fund
Morgan Grenfell Smaller Companies Fund
Morgan Grenfell Microcap Fund
Morgan Grenfell Large Cap Growth Fund
SUBADVISER
The Total Return Bond Fund is subadvised by Morgan Grenfell Investment Services
Limited (MGIS), located at 20 Finsbury Circus, London, England. MGIS provides a
full range of international investment advisory services to institutional
clients, and as of October 31, 1998, managed approximately $12.1 billion in
assets. The adviser pays the subadviser for its services, not the fund.
Morgan Grenfell Inc. and MGIS are subsidiaries of Morgan Grenfell Asset
Management, Ltd. (MGAM), which is a wholly-owned subsidiary of Deutsche Bank AG,
an international commercial and investment banking group.
PORTFOLIO MANAGEMENT
Each of the funds, except for the High Yield Bond Fund, is managed by a
committee made up of investment professionals and analysts employed by the
adviser. These committees make all of the funds' investment decisions.
- --------------------------------------------------------------------------------
22 Prospectus - Mutual Funds
<PAGE>
Managing Your Investment
BUYING AND SELLING SHARES
- ----------------------------------------
You may only purchase service shares of a fund if you have a shareholder account
set up with a service organization such as a financial planner, investment
adviser, broker-dealer or other institution.
SERVICE PLAN
Each fund has adopted a service plan for its service shares. Under the plan,
each fund pays service fees at an aggregate annual rate of up to 0.25% of the
fund's average daily net assets for its service shares. The fees are
compensation to service organizations for providing personal services and/or
account maintenance services to their customers. In the event that your service
plan is terminated, your shares will be converted to institutional shares of the
same fund.
BUYING AND SELLING SHARES THROUGH YOUR SERVICE ORGANIZATION
In order to make an initial investment in service shares of a fund, you must
first establish an account with your service organization. Each fund has
authorized service organizations to accept purchase and redemption orders on
behalf of the fund. You may be subject to minimums established by your service
organization for the purchase of shares. Payment for share purchases should be
made directly to your service organization.
There is no sales charge for buying or selling shares of the fund. However, your
service organization may charge you transaction fees for buying or selling
shares.
When you buy or sell shares through a service organization, it is the service
organization's responsibility to forward the request to us. If we do not receive
the request in a timely manner, you may not receive that day's NAV.
Your financial professional will be able to assist you in establishing your fund
account, buying and selling shares and monitoring your investment.
HOW SHARES ARE PRICED
The price you pay when you buy, or receive when you sell, is based upon the net
asset value (NAV) of the fund. The NAV is calculated by dividing the net assets
(total assets minus liabilities) of each fund class by the number of shares of
that class outstanding. The NAV is calculated at the close of regular trading
every day the New York Stock Exchange (NYSE) is open for business (generally
4:00 p.m., Eastern time). If the NYSE closes early, the fund will accelerate the
calculation of NAV and transaction dealings to the actual closing time. Shares
will not be priced on holidays or other days on which the NYSE is closed for
trading.
The fund uses a forward pricing procedure. Therefore, the price at which you buy
or sell shares is based on the next calculation of the NAV after the order is
received.
Certain securities held by the funds are listed on foreign exchanges and trade
at times and on days when the New York Stock Exchange is closed. As a result,
the net asset value of each class of each fund may be significantly affected by
such trading and at times and on days when you have no ability to redeem shares
of the fund.
If the adviser believes that an asset's market value does not reflect its fair
value, then the Board of Trustees, in good faith, will determine fair market
value.
PAYMENT OF REDEMPTION PROCEEDS
When you sell shares, the proceeds will be sent directly to your service
organization. Normally, redemption proceeds will be wired no more than seven
days after the transfer agent receives the appropriate redemption request
documents, including any additional documentation we may ask for, to verify the
authenticity of your request. Frequently, the proceeds will be wired on the next
Business Day after receipt of such documents. Once we have sent the redemption
proceeds, we do not assume any further responsibility for the service
organization or for other intermediaries. If a problem arises, you should
contact your service organization directly.
You may redeem shares in cash up to the lesser of $250,000 or 1% of the net
asset value of the fund during any 90 day period. Redemptions in excess of this
limitation may be made in-kind. Please see the SAI for more information.
- --------------------------------------------------------------------------------
23 Prospectus - Mutual Funds
<PAGE>
Managing Your Investment
HOLDING SHARES
- ----------------------------------------
EXCHANGING SHARES
Service shares of one fund can be exchanged for service shares of any other
Morgan Grenfell fund, if your plan allows for exchanges. Be sure to read the
prospectus relating to the service shares of the fund you wish to acquire and
consider its investment objective, policies and fees before making an exchange
into that fund.
An exchange of a fund's shares for shares of another fund will be treated as a
sale of the fund's shares and a gain on the transaction may be subject to
federal income tax.
DIVIDENDS AND DISTRIBUTIONS
Each of the funds described in this prospectus pays dividends from net
investment income and net capital gains to shareholders, at least annually. Your
share of the income and capital gains the fund distributes is based on the
number of shares you own. You can receive your distributions in cash or reinvest
them in the same fund. You may change this preference at any time by notifying
your service provider in writing. If no election is made, all dividends and
capital gain distributions will be reinvested in the same fund. Please contact
your service organization for more information.
The fund's distributions, whether received in cash or reinvested in additional
shares of the fund, may be subject to federal, state and local tax.
TAX CONSIDERATIONS
This tax information is general in nature and may not apply to certain
tax-deferred accounts or other non-taxable entities. You should consult your tax
adviser to discuss how investing in the funds described in this prospectus will
affect your personal tax situation.
As a shareholder, you will generally pay taxes on the dividends and
distributions you receive, whether they are received in cash or reinvested.
Selling or exchanging shares or receiving dividends and distributions will
create tax liability. The following explains how various transactions are taxed
for federal income tax purposes.
<TABLE>
<CAPTION>
DISTRIBUTION RECEIVED: TREATED AS:
<S> <C>
Income Dividends and Ordinary income
Short-term capital gains
distributions
Long-term capital gains Capital gains
distributions (over 12 (generally taxed at a
months) maximum of 20%)
Selling or exchanging Generally capital gains
shares owned more than a or losses
year
Selling or exchanging For gains: short-term
shares owned one year or capital gains; For
less than a year losses: special rules
apply. Please consult
your tax adviser or see
the SAI.
</TABLE>
The Municipal Bond Fund intends to distribute the tax-exempt interest it earns
as "exempt-interest dividends," which are excluded from gross income for federal
income tax purposes but may be subject to state and local tax. The fund will
also at times distribute dividends from taxable interest and other sources which
would be taxable as described above.
If you buy shares of a fund right before it makes a taxable dividend or
distribution, part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax-deferred account, such as an
IRA, this is not to your advantage since you will pay tax on the dividend or
distribution but will not have shared in the increase in NAV of the fund.
If you sell shares at a loss for tax purposes and invest in a substantially
similar investment within a 61 day period beginning 30 days before and ending 30
days after the sale date, the sale is generally considered a "wash sale" and you
will be unable to claim a tax loss.
Every year, the fund will send you information detailing the amount of income
and capital gains distributed to you for the previous year and the proceeds of
redemptions (including exchanges).
If you fail to furnish your correct taxpayer identification number and required
certifications, you may be subject to a 31% backup withholding tax.
Foreign investors are subject to different tax rules and may be subject to
non-resident alien withholding tax at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends. Unless a
current IRS Form W-8 or acceptable substitute is on file, backup withholding on
certain other payments may apply as well.
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
- --------------------------------------------------------------------------------
24 Prospectus - Mutual Funds
<PAGE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------
The financial highlights table is intended to help you understand the funds'
financial performance for the past 5 years, or, if shorter, the period of the
funds' operations. Certain information reflects financial results for a single
fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the funds' financial
statements, are included in the Statement of Additional Information (SAI) and
annual report, which is available on request.
[Copy to come]
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25 Prospectus - Mutual Funds
<PAGE>
Additional information about a fund's investments is available in the fund's
annual and semi-annual reports to shareholders. In each fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the fund's performance during its last fiscal year.
The annual report also includes the report of the fund's independent
accountants.
The Statement of Additional Information (SAI) is a supplement to this
prospectus. The SAI contains further information about a fund and its investment
limitations and policies. It also includes the most recent annual report and the
independent accountant's report. A current SAI for the funds is on file with the
Securities and Exchange Commission and is incorporated by reference (is legally
part of this prospectus).
You can obtain a free copy of the current annual/semi-annual report, the SAI,
and other information and answers to questions about the funds are available by
contacting:
Morgan Grenfell Investment Trust
No-Load Open-End Funds
Service Shares
885 Third Avenue
New York, New York 10022
Telephone: 1-800-555-1212
Internet:
Information about a fund (including the SAI) can be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330.
Copies of information can be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009
Or you can visit the SEC Web site at: www.sec.gov
Registration Number: 811-8006
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26 Prospectus - Mutual Funds
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
885 Third Avenue
New York, New York 10022
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999
Morgan Grenfell Investment Trust (the "Trust") is an open-end, management
investment company consisting of twenty-two investment portfolios, each having
separate and distinct investment objectives and policies. This Statement of
Additional Information provides supplementary information pertaining to the
following thirteen separate investment portfolios of the Trust (the "Funds"):
- Morgan Grenfell International Equity Fund
- Morgan Grenfell Global Equity Fund
- Morgan Grenfell European Equity Growth Fund, previously Morgan Grenfell
European Equity Fund
- Morgan Grenfell New Asia Fund, previously Morgan Grenfell Pacific Basin
Equity Fund
- Morgan Grenfell International Small Cap Equity Fund
- Morgan Grenfell Japanese Small Cap Equity Fund
- Morgan Grenfell European Small Cap Equity Fund
- Morgan Grenfell Emerging Markets Equity Fund
- Morgan Grenfell Core Global Fixed Income Fund
- Morgan Grenfell Global Fixed Income Fund
- Morgan Grenfell International Fixed Income Fund
- Morgan Grenfell Emerging Markets Debt Fund
- Morgan Grenfell Emerging Local Currency Debt Fund
This Statement of Additional Information is not a prospectus, and should be read
only in conjunction with the Funds' Institutional or Service Shares Prospectus
dated March 1, 1999 (the "Prospectus"). A copy of the Prospectus may be obtained
without charge from SEI Financial Services Company, the Trust's Distributor, by
calling 1-800-550-6426 or writing to 1 Freedom Valley Drive, Oaks, Pennsylvania
19456-0100.
MIT-F-019-03
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction............................................................................................... 3
Additional Information on Fund Investments and Strategies and Related Risks................................ 4
Investment Restrictions.................................................................................... 25
Trustees and Officers...................................................................................... 27
Investment Advisory and Other Services..................................................................... 29
Service Plan............................................................................................... 33
Portfolio Transactions..................................................................................... 35
Purchase and Redemption of Shares.......................................................................... 37
Performance Information.................................................................................... 38
Taxes...................................................................................................... 41
General Information About the Trust........................................................................ 46
Additional Information..................................................................................... 50
Financial Statements....................................................................................... 50
Appendix A--Description of Rating Categories............................................................... 51
Appendix B--Quality Distribution for Emerging Markets Debt Fund............................................ 53
Appendix C--Portfolio Manager Information.................................................................. 54
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Trust or its Distributor. The Prospectus does not
constitute an offering by the Trust or by the Distributor in any jurisdiction in
which such offering may not lawfully be made. Shares of the Funds are not
available in certain states. Please call 1-800-550-6426 to determine
availability in your state.
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<PAGE>
INTRODUCTION
The Trust is an open-end, management investment company that currently consists
of twenty-two separate investment series, including the following thirteen
series (the "Funds"):
Morgan Grenfell International Equity Fund
Morgan Grenfell Global Equity Fund
Morgan Grenfell European Equity Growth Fund, previously Morgan Grenfell
European Equity Fund
Morgan Grenfell New Asia Fund, previously Morgan Grenfell Pacific Basin
Equity Fund
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Japanese Small Cap Equity Fund
Morgan Grenfell European Small Cap Equity Fund
Morgan Grenfell Emerging Markets Equity Fund
(collectively, the "Equity Funds")
Morgan Grenfell Core Global Fixed Income Fund
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Emerging Markets Debt Fund
Morgan Grenfell Emerging Local Currency Debt Fund
(collectively, the "Fixed Income Funds").
Each of the Fixed Income Funds is "non-diversified" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"). Each of the Equity
Funds is "diversified" within the meaning of the 1940 Act.
Morgan Grenfell Investment Services Limited (the "Adviser" or "MGIS") serves as
investment adviser to the Funds. SEI Financial Services Company (the
"Distributor") serves as the Funds' principal underwriter and distributor.
The information contained in this Statement of Additional Information generally
supplements the information contained in the Prospectus. No investor should
invest in shares of a Fund without first reading the Prospectus. Capitalized
terms used herein and not otherwise defined have the same meaning ascribed to
them in the Prospectus.
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<PAGE>
ADDITIONAL INFORMATION ON FUND INVESTMENTS
AND STRATEGIES AND RELATED RISKS
The following supplements the information contained in the Prospectus concerning
the investment objectives and policies of each Fund.
FOREIGN 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. For purposes of each Fund's investment
objective, 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.
To the extent the Funds' investments are denominated in foreign currencies, the
Funds' net asset values may be affected favorably or unfavorably by fluctuations
in currency exchange rates and by changes in exchange control regulations. For
example, if the Adviser increases a Fund's exposure to a foreign currency, and
that currency's value subsequently falls, the Adviser's currency management may
result in increased losses to the Fund. Similarly, if the Adviser hedges a
Fund's exposure to a foreign currency, and that currency's value rises, the Fund
will lose the opportunity to participate in the currency's appreciation. The
Funds will incur transaction costs in connection with conversions between
currencies.
INVESTMENTS IN EMERGING MARKETS. Each of the Funds may invest to varying
degrees in one or more countries with emerging securities markets. These
countries are generally located in Latin America, Europe, the Middle East,
Africa and Asia. Political and economic structures in many of these countries
may be undergoing significant evolution and rapid development, and these
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of these countries may have in the past
failed to recognize private property rights and, at times, may have nationalized
or expropriated the assets of private companies. As a result, these risks,
including the risk of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the value of a Fund's investments in these countries, as well as the
availability of additional investments in these countries. The small size and
inexperience of the securities markets in certain of these countries and the
limited volume of trading in securities in these countries may make the Funds'
investments in these countries illiquid and more volatile than investments in
most Western European countries, and the Funds may be required to establish
special custodial or other arrangements before making certain investments in
some of these countries. There may be little financial or accounting information
available with respect to issuers located in certain of these countries, and it
may be difficult as a result to assess the value or prospects of an investment
in these countries. The laws of some foreign countries may limit the Funds'
ability to invest in securities of certain issuers located in those countries.
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<PAGE>
REGION AND COUNTRY INVESTING. Each Fund may focus its investments in a
particular region and/or in one or more foreign countries. Focusing 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 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. 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.
FOREIGN CURRENCY EXCHANGE CONTRACTS. Each of the Funds will exchange currencies
in the normal course of managing its investments and may incur costs in doing so
because a foreign exchange dealer will charge a fee for conversion. A Fund may
conduct foreign currency exchange transactions on a "spot" basis (i.e., for
cash, for prompt delivery and settlement) at the prevailing spot rate for
purchasing or selling currency in the foreign currency exchange market. A Fund
also may enter into forward currency exchange contracts ("forward currency
contracts") or other contracts to purchase and sell currencies for settlement at
a future date. A foreign exchange dealer, in that situation, will expect to
realize a profit based on the difference between the price at which a foreign
currency is sold to the Fund and the price at which the dealer will cover the
purchase in the foreign currency market. Foreign exchange transactions are
entered into at prices quoted by dealers, which may include a mark-up over the
price that the dealer must pay for the currency. 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.
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<PAGE>
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are generally charged at any stage for trades, but currency dealers
seek to obtain a "spread" or profit on each transaction.
At the maturity of a forward contract a Fund may either accept or make delivery
of the currency specified in the contract or, at or prior to maturity, enter
into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
The Funds may enter into forward currency contracts in several circumstances for
both hedging and non-hedging purposes, although the Emerging Local Currency Debt
Fund does not expect generally to enter into such contracts for hedging
purposes. When purchase or sold for non-hedging purposes, forward currency
contracts are speculative. First, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on such a security which it holds, the Fund may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, a Fund will attempt to protect
itself against an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when management of a Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward currency
contracts in an attempt to protect the value of a Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which a Fund can achieve at some future point in time. The precise
projection of short-term currency market movements is not possible, and
short-term hedging provides a means of fixing the dollar value of only a portion
of a Fund's foreign assets.
A Fixed Income Fund may sell U.S. dollars and buy a 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).
Each 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. 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
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<PAGE>
currency rates, a significant portion of a Fund's assets may be invested in
synthetic investment positions, subject to compliance with the tax requirements
for qualification as a regulated investment company. See "Taxes."
There is a risk in adopting a synthetic investment position. It is impossible to
forecast with absolute precision what the market value of a particular security
will be at any given time. If the value of the U.S. dollar-denominated security
is not exactly matched with a Fund's obligation under a forward currency
contract on the date of maturity, the Fund may be exposed to some risk of loss
from fluctuations in the value of the U.S. dollar. Although the Adviser will
attempt to hold such mismatching to a minimum, there can be no assurance that
the Adviser will be able to do so.
A Fund's custodian will place cash or liquid securities into a segregated
account of the Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward currency contracts requiring the Fund
to purchase foreign currencies or forward contracts entered into for non-hedging
purposes. If the value of the securities placed in the segregated account
declines, additional cash or liquid securities will be placed in the account on
a daily basis so that the value of the account will equal the amount of a Fund's
commitments with respect to such contracts. The segregated account will be
marked-to-market on a daily basis. Although the contracts are not presently
regulated by the Commodity Futures Trading Commission (the "CFTC"), the CFTC may
in the future assert authority to regulate these contracts. In such event, the
Funds' ability to utilize forward currency contracts may be restricted.
A Fund generally will not enter into a forward currency contract with a term of
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.
While the Funds may enter into forward currency contracts in an attempt to
reduce currency exchange rate risks, transactions in currency contracts involve
certain other risks. Thus, while the Funds may benefit from currency
transactions, unanticipated changes in currency prices may result in a poorer
overall performance for a Fund than if it had not engaged in any such
transactions. Moreover, there may be an imperfect correlation between a Fund's
portfolio holdings of securities denominated in a particular currency and
forward contracts entered into by the Fund. Such imperfect correlation may cause
a Fund to sustain losses which will prevent the Fund from achieving a complete
hedge or expose the Fund to risk of foreign exchange loss.
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's activities in forward currency exchange contracts, currency options and
currency futures contracts and related options (see below) may be limited by the
requirements of subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
CROSS HEDGING. At the discretion of the Adviser, each of the Funds may employ
the currency hedging strategy known as "cross-hedging" by using forward currency
contracts, currency options or a combination of both. When engaging in
cross-hedging" 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.
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<PAGE>
OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES
Each of the Funds may write covered put and call options and purchase put and
call options. Such options may relate to particular U.S. or non-U.S. securities,
to various U.S. or non-U.S. stock indices or to U.S. or non-U.S. currencies. The
Funds may write put and call options which are issued by the Options Clearing
Corporation (the "OCC") or which are traded on U.S. and non-U.S. exchanges and
over-the-counter.
WRITTEN OPTIONS. The Funds 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
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
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<PAGE>
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.
OTHER CONSIDERATIONS. An option on a securities index provides the holder with
the right to receive a cash payment upon exercise of the option if the market
value of the underlying index exceeds (in case of a call option), or is less
than (in the case of a put option), the option's exercise price. The amount of
this payment will be equal to the difference between the closing price of the
index at the time of exercise and the exercise price of the option expressed in
U.S. dollars or a foreign currency, times a specified multiple. A put option on
a currency gives its holder the right to sell an amount (specified in units of
the underlying currency) of the underlying currency at the stated exercise price
at any time prior to the option's expiration. Conversely, a call option on a
currency gives its holder the right to purchase an amount (specified in units of
the underlying currency) of the underlying currency at the stated exercise price
at any time prior to the option's expiration.
The Funds will engage in over-the-counter ("OTC") options only with
broker-dealers deemed creditworthy by the Adviser. Closing transactions in
certain options are usually effected directly with the same broker-dealer that
effected the original option transaction. A Fund bears the risk that the broker-
dealer may fail to meet its obligations. There is no assurance that a Fund will
be able to close an unlisted option position. Furthermore, unlisted options are
not subject to the protections afforded purchasers of listed options by the OCC,
which performs the obligations of its members who fail to do so in connection
with the purchase or sale of options.
A Fund will write call options only if they are "covered." In the case of a call
option on a security, the option is "covered" if a portfolio owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional cash
consideration is required, cash or liquid securities in such amount are held in
a segregated account by the Fund's custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if the Fund's maintains with the Fund's custodian cash or liquid
securities equal to the contract value. A call option on a security or an index
is also covered if the Fund holds a call on the same security or index as the
call written by the Fund where the exercise price of the call held is (i) equal
to or less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written provided the difference is maintained by the
Fund in cash or liquid securities in a segregated account with the Fund's
custodian. A call option on currency written by a Fund is covered if the Fund
owns an equal amount of the underlying currency.
When a Fund purchases a put option, the premium paid by it is recorded as an
asset of the Fund. When the Fund writes an option, an amount equal to the net
premium (the premium less the commission paid by the Fund) received by the Fund
is included in the liability section of the Fund's statement of assets and
liabilities as a deferred credit. The amount of this asset or deferred credit
will be marked-to-market on an ongoing basis to reflect the current value of the
option purchased or written. The current value of a traded option is the last
sale price or, in the absence of a sale, the average of the closing bid and
asked prices. If an option purchased by the Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. If an option written by the Fund is exercised, the proceeds to the
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Fund from the exercise will be increased by the net premium originally received,
and the Fund will realize a gain or loss.
There are several risks associated with transactions in options on securities,
securities indices and currencies. For example, there are significant
differences between the securities markets, currency markets and the
corresponding options markets that could result in imperfect correlations,
causing a given option transaction not to achieve its objectives. In addition, a
liquid secondary market for particular options, whether traded OTC or on a U.S.
or non-U.S. securities exchange may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or the OCC may not at all times be
adequate to handle current trading volume; or one or more exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options that had been
issued by the OCC as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
The hours of trading for options may not conform to the hours during which the
underlying securities and currencies are traded. To the extent that the options
markets close before the markets for the underlying securities and currencies,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the options markets. The purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio transactions. The risks
described above also apply to options on futures, which are discussed below.
FUTURES CONTRACTS AND RELATED OPTIONS
To hedge against changes in interest rates or securities prices and for certain
non-hedging purposes, the Funds may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on any of such futures
contracts. The Funds may also enter into closing purchase and sale transactions
with respect to any of such contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, currencies and other financial instruments, currencies and indices. The
Funds will engage in futures and related options transactions only for bona fide
hedging or other non-hedging purposes as defined in regulations promulgated by
the CFTC. The Emerging Local Currency Debt Fund does not expect generally to
enter into such contracts for the purpose of attempting to hedge against
potential adverse changes in currency exchange rate. All futures contracts
entered into by the Funds are traded on U.S. exchanges or boards of trade that
are licensed and regulated by the CFTC or on foreign exchanges approved by the
CFTC.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell a particular financial instrument
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
Futures contracts obligate the long or short holder to take or make delivery of
a specified quantity of a commodity or financial instrument, such as a security
or the cash value of a securities index, during a specified future period at a
specified price.
When interest rates are rising or securities prices are falling, a Fund can seek
to offset a decline in the value of its current portfolio securities through the
sale of futures contracts. When interest rates are falling or securities prices
are rising, a Fund, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
it effects anticipated purchases.
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will
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usually be liquidated in this manner, the Funds may instead make, or take,
delivery of the underlying securities whenever it appears economically
advantageous to do so. A clearing corporation associated with the exchange on
which futures on securities are traded guarantees that, if still open, the sale
or purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to establish
with more certainty the effective price and rate of return on portfolio
securities and securities that a Fund proposes to acquire. The Funds may, for
example, take a "short" position in the futures market by selling futures
contracts in order to hedge against an anticipated rise in interest rates or a
decline in market prices that would adversely affect the value of a Fund's
portfolio securities. Futures contracts that a Fund may use for hedging purposes
include contracts for the future delivery of securities held by the Fund or
securities with characteristics similar to those of the Fund's portfolio
securities. If, in the opinion of the Adviser, there is a sufficient degree of
correlation between price trends for a Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Adviser will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having the Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting a
Fund's securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, the Funds may take a "long" position by purchasing futures
contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give the Funds the right (but not the obligation) for a
specified price to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of a Fund's assets. By writing a call
option, a Fund becomes obligated, in exchange for the premium, to sell a futures
contract (if the option is exercised), which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium which may partially offset an increase in the price of
securities that a Fund intends to purchase. However, a Fund becomes obligated to
purchase a futures contract (if the option is exercised), which may have a value
lower than the exercise price. Thus, the loss incurred by a Fund in writing
options on futures is potentially unlimited and may exceed the amount of the
premium received. The Funds will incur transaction costs in connection with the
writing of options on futures.
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The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. The Funds'
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
OTHER CONSIDERATIONS. The Funds will engage in futures and related options
transactions only for hedging or non-hedging purposes as permitted by CFTC
regulations which permit principals of an investment company registered under
the 1940 Act to engage in such transactions without registering as commodity
pool operators. A Fund will determine that the price fluctuations in the futures
contracts and options on futures used for hedging purposes are substantially
related to price fluctuations in securities or instruments held by the Fund or
securities or instruments which they expect to purchase. Except as stated below
for all the Funds and as noted above for the Emerging Local Currency Debt Fund,
the Funds' futures transactions will be entered into for traditional hedging
purposes--i.e., futures contracts will be sold to protect against a decline in
the price of securities (or the currency in which they are denominated) that a
Fund owns or futures contracts will be purchased to protect a Fund against an
increase in the price of securities (or the currency in which they are
denominated) that a Fund intends to purchase. As evidence of this hedging
intent, each Fund expects that, on 75% or more of the occasions on which it
takes a long futures or option position (involving the purchase of futures
contracts), the Fund will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities (or assets denominated in
the related currency) in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for a Fund to do so, a long futures position may be terminated or
an option may expire without the corresponding purchase of securities or other
assets.
As an alternative to compliance with the hedging definition, a CFTC regulation
now permits a Fund to elect to comply with a different test under which the
aggregate initial margin and premiums required to establish non-hedging
positions in futures contracts and options on futures will not exceed 5% of the
net asset value of a Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. A Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Code for maintaining
its qualification as a regulated investment company for federal income tax
purposes. See "Taxes."
A Fund will be required, in connection with transactions in futures contracts
and the writing of options on futures contracts, to make margin deposits, which
will be held by the Trust's custodian for the benefit of the futures commission
merchant through whom the Fund engages in such futures contracts and option
transactions. These transactions involve brokerage costs, require margin
deposits and, in the case of futures contracts and options obligating a Fund to
purchase securities, require a Fund to segregate cash or liquid securities in an
account maintained with the Trust's custodian to cover such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates or securities prices may result in a
poorer overall performance for a Fund than if it had not entered into any
futures contracts or options transactions. The other risks associated with the
use of futures contracts and options thereon are (i) imperfect correlation
between the change in market value of the securities held by a Fund and the
prices of the futures and options and (ii) the possible absence of a liquid
secondary market for a futures contract or option and the resulting inability to
close a futures or option position prior to its maturity or expiration date.
In the event of an imperfect correlation between a futures or options position
and the portfolio position which is intended to be protected, the desired
protection may not be obtained and the Fund may be exposed to risk of loss. The
risk of imperfect correlation may be minimized by investing in contracts whose
price behavior is expected to resemble that of a Fund's underlying portfolio
securities. The risk that the
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Funds will be unable to close out a futures or related options position will be
minimized by entering into such transactions on a national exchange with an
active and liquid secondary market.
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.
The use of options, futures and forward currency contracts is a highly
specialized activity which involves investment techniques and risks that are
different from those associated with ordinary portfolio transactions. Gains and
losses on investments in options and futures depend on the Adviser's ability to
predict the direction of stock prices, interest rates, currency movements and
other economic factors. The loss that may be incurred by a Fund in entering into
futures contracts and written options thereon and forward currency contracts is
potentially unlimited. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times, render certain
facilities of an options clearing entity or other entity performing the
regulatory and liquidity functions of an options clearing entity inadequate, and
thereby result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders. Options and futures
traded on foreign exchanges generally are not regulated by U.S. authorities, and
may offer less liquidity and less protection to a Fund in the event of default
by the other party to the contract.
Except as set forth above under "Futures Contracts and Related Options--Other
Considerations", 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.
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.
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
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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.
BRADY BONDS. Each Fund may invest in so-called "Brady Bonds," which have
recently been issued by Argentina, Brazil, Bulgaria, Costa Rica, Dominican
Republic, Ecuador, Jordan, Mexico, Nigeria, Panama, the Philippines, Poland,
Uruguay and Venezuela and which may be issued by other countries. Brady Bonds
are issued as part of a debt restructuring in which the bonds are issued in
exchange for cash and certain of the country's outstanding commercial bank
loans. Brady Bonds may be collateralized or uncollateralized, are issued in
various currencies (primarily the U.S. dollar) and are actively traded in the
over-the-counter secondary market. U.S. dollar denominated, collateralized Brady
Bonds, which may be fixed rate par bonds or floating rate discount bonds, are
collateralized in full as to principal by U.S. Treasury zero coupon bonds that
have the same maturity as the stated bonds. Interest payments on such bonds
generally are collateralized by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
the time and is adjusted at regular intervals thereafter.
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 a 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 issuer diversification and industry concentration
policies, the Fund will treat the underlying borrower of a registered loan as an
issuer of that loan. Where the Fund sells a loan
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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.
VARIABLE AND FLOATING RATE INSTRUMENTS. Debt instruments purchased by a Fund
may be structured to have variable or floating interest rates. These instruments
may include variable amount master demand notes that permit the indebtedness to
vary in addition to providing for periodic adjustments in the interest rates.
The Adviser will consider the earning power, cash flows and other liquidity
ratios of the issuers and guarantors of such instruments and, if the instrument
is subject to a demand feature, will continuously monitor their financial
ability to meet payment on demand. Where necessary to ensure that a variable or
floating rate instrument is equivalent to the quality standards applicable to a
Fund's fixed income investments, the issuer's obligation to pay the principal of
the instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend. Any bank providing such a bank letter, line of
credit, guarantee or loan commitment will meet the Fund's investment quality
standards relating to investments in bank obligations. A Fund will invest in
variable and floating rate instruments only when the Adviser deems the
investment to involve minimal credit risk. The Adviser will also continuously
monitor the creditworthiness of issuers of such instruments to determine whether
a Fund should continue to hold the investments.
The absence of an active secondary market for certain variable and floating rate
notes could make it difficult to dispose of the instruments, and a Fund could
suffer a loss if the issuer defaults or during periods in which a Fund is not
entitled to exercise its demand rights.
Variable and floating rate instruments held by a Fund will be subject to the
Fund's 15% limitation on investments in illiquid securities when a reliable
trading market for the instruments does not exist and the Fund may not demand
payment of the principal amount of such instruments within seven days.
YIELDS AND RATINGS. The yields on certain obligations, including the money
market instruments in which each Fund may invest (such as commercial paper and
bank obligations), are dependent on a variety of factors, including general
money market conditions, conditions in the particular market for the obligation,
the financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of Standard and Poor's,
Moody's and other nationally and internationally recognized rating organizations
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality or value. Consequently, obligations with the same rating, maturity
and interest rate may have different market prices. See Appendix A for a
description of the ratings provided by recognized statistical ratings
organizations.
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INTEREST RATE, MORTGAGE AND CURRENCY SWAPS AND INTEREST RATE CAPS AND
FLOORS. The Funds may enter into interest rate, mortgage and currency swaps and
interest rate caps and floors for hedging purposes and non-hedging purposes,
provided that the Emerging Local Currency Debt Fund does not expect generally to
use these instruments to attempt to hedge against potential adverse changes in
currency exchange rates. Inasmuch as transactions in swaps, caps and floors are
entered into for good faith hedging purposes or are offset by a segregated
account, the Funds and the Adviser believe that such obligations do not
constitute senior securities as defined in the 1940 Act and, accordingly, will
not treat them as being subject to the Funds' borrowing restrictions.
A Fund will not enter into any interest rate, mortgage, or currency swap or
interest rate cap or floor transaction unless the unsecured commercial paper,
senior debt or the claims-paying ability of the other party thereto is
considered to be investment grade by the Adviser. If there is a default by the
other party to such a transaction, a Fund will have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid in
comparison with the markets for other similar instruments which are traded in
the interbank market. However, the staff of the Securities and Exchange
Commission (the "Commission") takes the position that swaps, caps and floors are
illiquid investments that are subject to the Funds' 15% limitation on such
investments.
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.
INVERSE FLOATING RATE SECURITIES. The Funds may invest up to 5% of their net
assets in inverse floating rate securities. The interest rate on an inverse
floater resets in the opposite direction from the market rate of interest to
which the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values.
ZERO COUPON AND DEFERRED INTEREST BONDS. The Funds may invest in zero coupon
bonds and deferred interest bonds. Zero coupon and deferred interest bonds are
debt obligations which are issued at a significant discount from face value. The
original discount approximates the total amount of interest the bonds will
accrue and compound over the period until maturity or the first interest accrual
date at a rate of interest reflecting the market rate of the security at the
time of issuance. While zero coupon bonds do not require the periodic payment of
interest, deferred interest bonds generally provide for a period of delay before
the regular payment of interest begins. Although this period of delay is
different for each deferred interest bond, a typical period is approximately
one-third of the bond's term to maturity. Such investments benefit the issuer by
mitigating its initial need for cash to meet debt service, but some also provide
a higher rate of return to attract investors who are willing to defer receipt of
such cash. Zero coupon and deferred interest bonds are more volatile than
instruments that pay interest regularly. The Funds will accrue income on such
investments for tax and accounting purposes, as required, which is distributable
to shareholders and which, because no cash is generally received at the time of
accrual, may require the liquidation of other portfolio securities to satisfy
the Funds' distribution obligations. See "Taxes."
RISK FACTORS OF LOWER QUALITY SECURITIES. The Emerging Markets Debt Fund and
the Emerging Local Currency Debt Fund may invest without limit in rated and
unrated fixed income securities of any credit quality, including securities in
default. In addition, the Global Fixed Income Fund may invest up to 15% of its
total assets in fixed income securities that are rated less than Baa by Moody's
Investor Service, Inc. ("Moody's") or BBB by Standard & Poor's or, if unrated,
determined to be of comparable quality by the
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Adviser. Securities rated BB or lower by Standard & Poor's or Ba or lower by
Moody's and comparable unrated securities are considered speculative and, while
generally offering 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.
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 a 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."
Lower quality fixed income securities will also be affected by the market's
perception of their credit quality, especially during times of adverse
publicity, and the outlook for economic growth. In the past, economic downturns
or an increase in interest rates have, under certain circumstances, caused a
higher incidence of default by the issuers of these securities and may do so in
the future, especially in the case of highly leveraged issuers. The market for
these lower quality fixed income securities is generally less liquid than the
market for investment grade fixed income securities. Therefore, the Adviser's
judgment may at times play a greater role in valuing these securities than in
the case of investment grade fixed income securities, and it also may be more
difficult under certain adverse market conditions to sell these lower rated
securities to meet redemption requests, to respond to changes in the market, or
to determine accurately a Fund's net asset value.
If a fixed income security, that at the time of purchase satisfied a Fund's
minimum rating criteria, is subsequently downgraded, the Fund will not be
required to dispose of the security. If such a downgrading occurs, however, the
Adviser will consider what action, including the sale of the security, is in the
best interest of the Fund. No Fund, other than the Core Global Fixed Income
Fund, Global Fixed Income Fund, the Emerging Markets Debt Fund and the Emerging
Local Currency 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.
CONVERTIBLE SECURITIES AND PREFERRED STOCK
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.
Each of the Funds, subject to its investment objectives, may purchase preferred
stock. Preferred stocks are equity securities, but possess certain attributes of
debt securities and are generally considered fixed income
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securities. Holders of preferred stocks normally have the right to receive
dividends at a fixed rate when and as declared by the issuer's board of
directors, but do not participate in other amounts available for distribution by
the issuing corporation. Dividends on the preferred stock may be cumulative, and
in such cases all cumulative dividends usually must be paid prior to dividend
payments to common stockholders. Because of this preference, preferred stocks
generally entail less risk than common stocks. Upon liquidation, preferred
stocks are entitled to a specified liquidation preference, which is generally
the same as the par or stated value, and are senior in right of payment to
common stocks. However, preferred stocks are equity securities in that they do
not represent a liability of the issuer and therefore do not offer as great a
degree of protection of capital or assurance of continued income as investments
in corporate debt securities. In addition, preferred stocks are subordinated in
right of payment to all debt obligations and creditors of the issuer, and
convertible preferred stocks may be subordinated to other preferred stock of the
same issuer.
WARRANTS
Each of the Equity Funds may purchase warrants, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified number
of shares of the corporation at a specified price during a specified period of
time. The purchase of warrants involves a risk that a Fund could lose the
purchase value of a warrant if the right to subscribe to additional shares is
not exercised prior to the warrant's expiration. Also, the purchase of warrants
involves the risk that the effective price paid for the warrant added to the
subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
The Funds may invest in mortgage-backed securities. Mortgage-backed securities
represent direct or indirect participations in or obligations collateralized by
and payable from mortgage loans secured by real property. Each mortgage pool
underlying mortgage-backed securities will consist of mortgage loans evidenced
by promissory notes secured by first mortgages or first deeds of trust or other
similar security instruments creating a first lien on owner and non-owner
occupied one-unit to four-unit residential properties, multifamily residential
properties, agricultural properties, commercial properties and mixed use
properties.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying mortgage-backed and
asset-backed securities can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Accordingly,
the market values of such securities will vary with changes in market interest
rates generally and in yield differentials among various kinds of U.S.
Government securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities because asset-backed securities generally do not have
the benefit of a security interest in collateral that is comparable to mortgage
assets. In addition, there is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
AGENCY MORTGAGE SECURITIES. The Funds may invest in mortgage-backed securities
issued or guaranteed by the U.S. Government, foreign governments or any of their
agencies, instrumentalities or sponsored enterprises. Agencies,
instrumentalities or sponsored enterprises of the U.S. Government include but
are not limited to the Government National Mortgage Association, ("Ginnie Mae"),
Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan
Mortgage Corporation ("Freddie Mac"). Ginnie Mae securities are backed by the
full faith and credit of the U.S. Government, which means that the U.S.
Government guarantees that the interest and principal will be paid when due.
Fannie Mae securities and Freddie Mac securities are not backed by the full
faith and credit of the U.S. Government;
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however, these enterprises have the ability to obtain financing from the U.S.
Treasury. There are several types of agency mortgage securities currently
available, including, but not limited to, guaranteed mortgage pass-through
certificates and multiple class securities.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Funds may also invest in
mortgage-backed securities issued by trusts or other entities formed or
sponsored by private originators of and institutional investors in mortgage
loans and other foreign or domestic non-governmental entities (or representing
custodial arrangements administered by such institutions). These private
originators and institutions include domestic and foreign savings and loan
associations, mortgage bankers, commercial banks, insurance companies,
investment banks and special purpose subsidiaries of the foregoing. Privately
issued mortgage-backed securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
mortgage-backed securities are not guaranteed by an entity having the credit
standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive a high
quality rating, they normally are structured with one or more types of "credit
enhancement." Such credit enhancements fall generally into two categories; (1)
liquidity protection and (2) protection against losses resulting after default
by a borrower and liquidation of the collateral. Liquidity protection refers to
the providing of cash advances to holders of mortgage-backed securities when a
borrower on an underlying mortgage fails to make its monthly payment on time.
Protection against losses resulting after default and liquidation is designed to
cover losses resulting when, for example, the proceeds of a foreclosure sale are
insufficient to cover the outstanding amount on the mortgage. Such protection
may be provided through guarantees, insurance policies or letters of credit,
through various means of structuring the transaction or through a combination of
such approaches.
MORTGAGE PASS-THROUGH SECURITIES. The Funds may invest in mortgage pass-through
securities, which are fixed or adjustable rate mortgage-backed securities that
provide for monthly payments that are a "pass-through" of the monthly interest
and principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees or other amounts paid to
any guarantor, administrator and/or servicers of the underlying mortgage loans.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Funds may invest in collateralized mortgage obligations
("CMOs"), which are multiple class mortgage-backed securities. CMOs provide an
investor with a specified interest in the cash flow from a pool of underlying
mortgages or of other mortgage-backed securities. CMOs are issued in multiple
classes, each with a specified fixed or adjustable interest rate and a final
distribution date. In most cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no principal
payments will be made on a CMO class until all other classes having an earlier
stated maturity date are paid in full. Sometimes, however, CMO classes are
"parallel pay" (i.e., payments of principal are made to two or more classes
concurrently).
STRIPPED MORTGAGE-BACKED SECURITIES. The Funds may also invest in stripped
mortgage-backed securities ("SMBS"), which are derivative multiple class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of the interest and principal distributions from a
pool of mortgage loans. If the underlying mortgage loans experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities.
A common type of SMBS will have one class receiving all of the interest from a
pool of mortgage loans ("IOs"), while the other class will receive all of the
principal ("POs"). The market value of POs generally is unusually volatile in
response to changes in interest rates. The yields on IOs are generally higher
than prevailing market yields on other mortgage-backed securities because the
cash flow patterns of IOs are more volatile and there is a greater risk that the
initial investment will not be fully recouped. Because an investment in an IO
consists entirely of a right to an interest income stream and prepayments of
mortgage loan principal amounts can reduce or eliminate such income stream, the
value of IO's can be severely
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adversely affected by significant prepayments of underlying mortgage loans. In
accordance with a requirement imposed by the staff of the Commission, the
Adviser will consider privately-issued fixed rate IOs and POs to be illiquid
securities for purposes of the Funds' limitation on investments in illiquid
securities. Unless the Adviser, acting pursuant to guidelines and standards
established by the Board of Trustees, determines that a particular
government-issued fixed rate IO or PO is liquid, it will also consider these IOs
and POs to be illiquid.
ASSET-BACKED SECURITIES. The Funds may invest in asset-backed securities, which
represent participations in, or are secured by and payable from, pools of assets
such as motor vehicle installment sale contracts, installment loan contracts,
leases of various types of real and personal property, receivables from
revolving credit (credit card) agreements and other categories of receivables.
Such asset pools are securitized through the use of privately-formed trusts or
special purpose corporations. Payments or distributions of principal and
interest may be guaranteed up to certain amounts and for a certain time period
by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation, or other credit
enhancements may be present.
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.
CUSTODIAL RECEIPTS
Each of the Funds may acquire U.S. Government securities and their unmatured
interest coupons that have been separated ("stripped") by their holder,
typically a custodian bank or investment brokerage firm. Having separated the
interest coupons from the underlying principal of the U.S. Government
securities, the holder will resell the stripped securities in custodial receipt
programs with a number of different names, including "Treasury Income Growth
Receipts" ("TIGRs") and "Certificate of Accrual on Treasury Securities"
("CATS"). The stripped coupons are sold separately from the underlying
principal, which is usually sold at a deep discount because the buyer receives
only the right to receive a future fixed payment on the security and does not
receive any rights to periodic interest (cash) payments. The underlying U.S.
Treasury bonds and notes themselves are generally held in book-entry form at a
Federal Reserve Bank. Counsel to the underwriters of these certificates or other
evidences of ownership of U.S. Treasury securities have stated that, in their
opinion, purchasers of the stripped securities most likely will be deemed the
beneficial holders of the underlying U.S. Government securities for federal tax
and securities purposes. In the case of CATS and TIGRS, the Internal Revenue
Service ("IRS") has reached this conclusion for the purpose of applying the tax
diversification requirements applicable to regulated investment companies such
as the Funds. CATS and TIGRS are not considered U.S. Government securities by
the Staff of the Commission, however. Further, the IRS conclusion is contained
only in a general counsel memorandum, which is an internal document of no
precedential value or binding effect, and a private letter ruling, which also
may not be relied upon by the Funds. The Trust is not aware of any binding
legislative, judicial or administrative authority on this issue.
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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).
For purposes of the 1940 Act and, generally, for tax purposes, a repurchase
agreement is considered to be a loan from the Fund to the seller of the
obligation. For certain other purposes, it is not clear whether a court would
consider such an obligation as being owned by the Fund or as being collateral
for a loan by the Fund to the seller. In the event of the commencement of
bankruptcy or insolvency proceedings with respect to the seller of the
obligation before its repurchase, under the repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security. Such
delays may result in a loss of interest or decline in price of the obligation.
If the court characterizes the transaction as a loan and the Fund has not
perfected a security interest in the obligation, the Fund may be treated as an
unsecured creditor of the seller and required to return the obligation to the
seller's estate. As an unsecured creditor, the Fund would be at risk of losing
some or all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Funds, the Adviser seeks to minimize
the risk of loss from repurchase agreements by analyzing the creditworthiness of
the obligor, in this case, the seller of the obligation. In addition to the risk
of bankruptcy or insolvency proceedings, there is the risk that the seller may
fail to repurchase the security. However, if the market value of the obligation
falls below the repurchase price (including accrued interest), the seller of the
obligation will be required to deliver additional securities so that the market
value of all securities subject to the repurchase agreement equals or exceeds
the repurchase price.
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" PURCHASES AND FORWARD COMMITMENTS (DELAYED DELIVERY)
Each Fund may purchase securities on a when-issued, delayed delivery or forward
commitment basis. These transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security, regardless of future changes in interest rates. A
Fund will purchase securities on a "when-issued" or forward commitment basis
only with the intention of completing the transaction and actually purchasing
the securities. If deemed appropriate by the Adviser, however, a Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases the Fund may realize a gain or
loss.
When a Fund agrees to purchase securities on a "when-issued" or forward
commitment basis, the Fund's custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate
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<PAGE>
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment, and in such a case the Fund may be required subsequently
to place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitments. The
market value of a Fund's net assets may fluctuate to a greater degree when it
sets aside portfolio securities to cover such purchase commitments than when it
sets aside cash. Because a Fund's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, each Fund expects that its commitments to purchase
when-issued securities and forward commitments will not exceed 33% of the value
of its total assets absent unusual market conditions. When a Fund engages in
"when-issued" and forward commitment transactions, it relies on the other party
to the transaction to consummate the trade. Failure of such party to do so may
result in the Fund incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
a Fund starting on the day the Fund agrees to purchase the securities.
The Fund does not earn interest or dividends on the securities it has committed
to purchase until the settlement date.
REVERSE REPURCHASE AGREEMENTS
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 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.
BORROWINGS
Each Fund may borrow for temporary or emergency purposes. This borrowing may be
unsecured. Among the forms of borrowing in which each Fund may engage is
entering into reverse repurchase agreements. The 1940 Act requires a Fund to
maintain continuous asset coverage (that is, total assets including borrowings,
less liabilities exclusive of borrowings) of 300% of the amount borrowed. If the
asset coverage should decline below 300% as a result of market fluctuations or
for other reasons, a Fund is required to sell some of its portfolio securities
within three days to reduce its borrowings and restore the 300% asset coverage,
even though it may be disadvantageous from an investment standpoint to sell
securities at that time. To avoid the potential leveraging effects of a Fund's
borrowings, investments will not be made while borrowings (including reverse
repurchase agreements and dollar rolls) are in excess of 5% of a Fund's total
assets. Borrowing may exaggerate the effect on net asset value of any increase
or decrease in the market value of the portfolio. Money borrowed will be subject
to interest costs which may or may not be recovered by appreciation of the
securities purchased. A Fund also may be required to maintain minimum average
balances in connection with such borrowing or to pay a commitment or other fee
to maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate. See "Investment Restrictions."
LENDING PORTFOLIO SECURITIES
Each Fund may lend portfolio securities to brokers, dealers and other financial
organizations. These loans, if and when made, may not exceed 33 1/3% of the
value of the Fund's total assets. A Fund's loans of securities will be
collateralized by cash, cash equivalents or U.S. Government securities. The cash
or
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<PAGE>
instruments collateralizing the Fund's loans of securities will be maintained at
all times in a segregated account with the Trust's custodian, in an amount at
least equal to the current market value of the loaned securities. From time to
time, a Fund may pay a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Fund and is acting as a "placing broker." No fee
will be paid to affiliated persons of the Fund. The Board of Trustees will make
a determination that the fee paid to the placing broker is reasonable.
By lending portfolio securities, a Fund can increase its income by continuing to
receive amounts equal to the interest or dividends on the loaned securities as
well as by either investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower when U.S.
Government securities are used as collateral. A Fund will comply with the
following conditions whenever it loans securities: (i) the Fund must receive at
least 100% cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase the collateral whenever the market value of the
securities loaned rises above the level of the collateral; (iii) the Fund must
be able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as amounts equal to the dividends, interest or
other distributions on the loaned securities, and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower except
that, if a material event will occur affecting the investment in the loaned
securities, the Fund must terminate the loan in time to vote the securities on
such event.
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 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.
A Fund may also invest in variable rate master demand notes which typically are
issued by large corporate borrowers providing for variable amounts of principal
indebtedness and periodic adjustments in the interest rate according to the
terms of the instrument.
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Demand notes are direct lending arrangements between a Fund and an issuer, and
are not normally traded in a secondary market. A Fund, however, may demand
payment of principal and accrued interest at any time. In addition, while demand
notes generally are not rated, their issuers must satisfy the same criteria as
those for issuers of commercial paper. The Adviser will consider the earning
power, cash flow and other liquidity ratios of issuers of demand notes and
continually will monitor their financial ability to meet payment on demand. See
also "Fixed Income Securities--Variable and Floating Rate Instruments."
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.
BANK OBLIGATIONS. Certificates of Deposit ("CDs") are short-term negotiable
obligations of commercial banks. Time Deposits ("TDs") are non-negotiable
deposits maintained in banking institutions for specified periods of time at
stated interest rates. Bankers' acceptances are time drafts drawn on commercial
banks by borrowers usually in connection with international transactions.
U.S. commercial banks organized under federal law are supervised and examined by
the Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal Deposit Insurance Corporation
(the "FDIC"). U.S. banks organized under state law are supervised and examined
by state banking authorities but are members of the Federal Reserve System only
if they elect to join. Most state banks are insured by the FDIC (although such
insurance may not be of material benefit to a Fund, depending upon the principal
amount of CDs of each bank held by the Fund) and are subject to federal
examination and to a substantial body of federal law and regulation. As a result
of governmental regulations, U.S. branches of U.S. banks, among other things,
generally are required to maintain specified levels of reserves, and are subject
to other supervision and regulation designed to promote financial soundness.
U.S. savings and loan associations, the CDs of which may be purchased by the
Funds, are supervised and subject to examination by the Office of Thrift
Supervision. U.S. savings and loan associations are insured by the Savings
Association Insurance Fund which is administered by the FDIC and backed by the
full faith and credit of the U.S. Government.
Non-U.S. bank obligations include Eurodollar Certificates of Deposit ("ECDs"),
which are U.S. dollar-denominated certificates of deposit issued by offices of
non-U.S. and U.S. banks located outside the United States; Eurodollar Time
Deposits ("ETDs"), which are U.S. dollar-denominated deposits in a non-U.S.
branch of a U.S. bank or a non-U.S. bank; Canadian Time Deposits ("CTDs"), which
are essentially the same as ETDs except they are issued by Canadian offices of
major Canadian banks; Yankee Certificates of Deposit ("Yankee CDs"), which are
U.S. dollar-denominated certificates of deposit issued by a U.S. branch of a
non-U.S. bank and held in the United States; and Yankee Bankers' Acceptances
("Yankee BAs"), which are U.S. dollar-denominated bankers' acceptances issued by
a U.S. branch of a non-U.S. bank and held in the United States.
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 U.S. registered investment companies. A
Fund may not invest more than 5% of its total assets in the securities of any
one such investment company or acquire more than 3% of the voting securities of
any such other investment company. A Fund will indirectly bear its proportionate
share of any management or other fees paid by investment companies in which it
invests, in addition to its own fees.
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INVESTMENT RESTRICTIONS
The fundamental investment restrictions set forth below may not be changed with
respect to a Fund without the approval of a "majority" (as defined in the 1940
Act) of the outstanding shares of the Fund. For the purposes of the 1940 Act,
"majority" means the lesser of (a) 67% or more of the shares of the Fund present
at a meeting, if the holders of more than 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the shares of
the Fund.
Investment restrictions that involve a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by or on behalf of, a Fund
with the exception of borrowings permitted by fundamental investment restriction
(2) listed below.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Trust may not, on behalf of a Fund:
(1) Issue senior securities, except as permitted by paragraphs (2), (6) and (7)
below. For purposes of this restriction, the issuance of shares of beneficial
interest in multiple classes or series, the purchase or sale of options,
futures contracts and options on futures contracts, forward commitments,
forward foreign exchange contracts, repurchase agreements and reverse
repurchase agreements entered into in accordance with the Fund's investment
policy, and the pledge, mortgage or hypothecation of the Fund's assets within
the meaning of paragraph (3) below are not deemed to be senior securities.
(2) Borrow money (i) except from banks as a temporary measure for extraordinary
emergency purposes and (ii) except that the Fund may enter into reverse
repurchase agreements and dollar rolls with banks, broker-dealers and other
parties; provided that, in each case, the Fund is required to maintain asset
coverage of at least 300% for all borrowings. For the purposes of this
investment restriction, short sales, transactions in currency, forward
contracts, swaps, options, futures contracts and options on futures
contracts, and forward commitment transactions shall not constitute
borrowing.
(3) Pledge, mortgage, or hypothecate its assets, except to secure indebtedness
permitted by paragraph (2) above and to the extent related to the segregation
of assets in connection with the writing of covered put and call options and
the purchase of securities or currencies on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to forward contracts, options, futures contracts
and options on futures contracts.
(4) Act as an underwriter, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate, or any interest therein, and real estate
mortgage loans, except that the Fund may invest in securities of corporate or
governmental entities secured by real estate or marketable interests therein
or securities issued by companies (other than real estate limited
partnerships) that invest in real estate or interests therein.
(6) Make loans, except that the Fund may lend portfolio securities in accordance
with the Fund's investment policies and may purchase or invest in repurchase
agreements, bank certificates of deposit, all or a portion of an issue of
bonds, bank loan participation agreements, bankers' acceptances, debentures
or other securities, whether or not the purchase is made upon the original
issuance of the securities.
(7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except interest rate futures contracts, options on
securities, securities indices, currency and other financial instruments,
futures contracts on securities, securities indices, currency and other
financial instruments and options
- --------------------------------------------------------------------------------
Page -25-
<PAGE>
on such futures contracts, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment policies.
(8) Invest 25% or more of the value of the Fund's total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry or group of industries. This restriction does not apply to
investments in obligations of the U.S. Government or any of its agencies or
instrumentalities.
In addition, each Equity Fund will adhere to the following fundamental
investment restriction:
With respect to 75% of its total assets, an Equity Fund may not purchase
securities of an issuer (other than the U.S. Government, or any of its
agencies or instrumentalities, or other investment companies), if (a) such
purchase would cause more than 5% of the Fund's total assets taken at market
value to be invested in the securities of such issuer, or (b) such purchase
would at the time result in more than 10% of the outstanding voting
securities of such issuer being held by the Fund.
NONFUNDAMENTAL INVESTMENT RESTRICTIONS
In addition to the fundamental policies mentioned above, the Board of Trustees
of the Trust has adopted the following nonfundamental policies that may be
changed or amended by action of the Board of Trustees without shareholder
approval.
The Trust may not, on behalf of a Fund:
(a) Participate on a joint-and-several basis in any securities trading account.
The "bunching" of orders for the sale or purchase of marketable portfolio
securities with other accounts under the management of the Adviser to save
commissions or to average prices among them is not deemed to result in a
securities trading account.
(b) Purchase securities of other investment companies, except as permitted by
the Investment Company Act of 1940 and the rules, regulations and any
applicable exemptive order issued thereunder.
(c) Invest for the purpose of exercising control over or management of any
company.
(d) Purchase any security, including any repurchase agreement maturing in more
than seven days, which is illiquid, if more than 15% of the net assets of the
Fund, taken at market value, would be invested in such securities.
The staff of the Commission has taken the position that fixed time deposits
maturing in more than seven days that cannot be traded on a secondary market and
participation interests in loans are illiquid. Until such time (if any) as this
position changes, the Trust, on behalf of each Fund, will include such
investments in determining compliance with the 15% limitation on investments in
illiquid securities. Restricted securities (including commercial paper issued
pursuant to Section 4(2) of the Securities Act of 1933) which the Board of
Trustees has determined are readily marketable will not be deemed to be illiquid
for purposes of such restriction.
"Value" for the purposes of all investment restrictions shall mean the market
value used in determining each Fund's net asset value.
- --------------------------------------------------------------------------------
Page -26-
<PAGE>
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the Trust is set forth
below. An asterisk (*) indicates those Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act.
<TABLE>
<CAPTION>
Positions Principal Occupation
Name and Address With Trust During Past Five Years
- ------------------------------ ------------------------------ --------------------------------------------------
<S> <C> <C>
James E. Minnick (1)(3)* President, Chief President, Secretary and Treasurer, Morgan
885 Third Avenue Executive Officer, and Grenfell Inc. ("MG Inc.") (since 1990).
New York, NY 10022 Trustee
(age 50)
Patrick W.W. Disney (1)(3)* Senior Vice President Director, Morgan Grenfell Investment
20 Finsbury Circus and Trustee Services Limited (MGIS) (since 1988).
London EC2M 1NB
ENGLAND
(age 42)
Paul K. Freeman (2) Trustee Chief Executive Officer, The Eric Group Inc.
7257 South Tucson Way (environmental insurance) (since 1986).
Englewood, CO 80112
(age 48)
Graham E. Jones (2) Trustee Senior Vice President, BGK Realty Inc. (since
330 Garfield Street 1995); Financial Manager, Practice Management
Santa Fe, NM 87501 Systems (medical information services) (1988-95);
(age 65) Director, 12 closed-end funds managed by Morgan
Stanley Asset Management; Trustee, 10 open-end
mutual funds managed by Weiss, Peck & Greer.
William N. Searcy (2) Trustee Pension & Savings Trust Officer, Sprint
2330 Shawnee Mission Pkwy Corporation (telecommunications) (since 1989).
Westwood, KS 66205
(age 52)
Hugh G. Lynch Trustee Managing Director, International Investments,
767 Fifth Avenue General Motors Investment Management Corporation
New York, NY 10153 (since September 1990).
(age 61)
Edward T. Tokar Trustee Vice President-Investments, Allied Signal, Inc.
101 Columbia Road (advanced technology and manufacturer) (since
Morristown, NJ 07962 1985).
(age 51)
Neil P. Jenkins Vice President Director, Morgan Grenfell Inc. (since 1991),
20 Finsbury Circus Morgan Grenfell International Funds Mgmt (since
London, England 1995), and Morgan Grenfell & Co. (since 1985).
(age 38)
David W. Baldt Vice President Executive Vice President and Director of Fixed
150 S. Independence Sq. W. Income Investments, Morgan Grenfell Inc. (since
Philadelphia, PA 19106 1989).
(age 49)
Ian D. Kelson Vice President Director, MGIS (since 1988); Chief Investment
20 Finsbury Circus Officer, Fixed Income, MGIS (since 1989).
London EC2M INB
England
(age 42)
</TABLE>
- --------------------------------------------------------------------------------
Page -27-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
Name and Address With Trust During Past Five Years
- ------------------------------ ------------------------------ --------------------------------------------------
<S> <C> <C>
James Grifo Vice President Executive Vice President and Director, Morgan
150 S. Independence Sq. W. Grenfell Inc. (since 1996); Senior Vice President,
Philadelphia, PA 19106 GT Global Financial (since 1990).
(age 47)
Joan A. Binstock (1) Secretary Chief Operating Officer, Morgan Grenfell Inc.
885 Third Avenue and Vice President (since June 1997); Principal, National of
New York, NY 10022 Investment Management Regulatory Consulting, Ernst
(age 44) & Young (May 1995 - June 1997); Vice President,
Director of Compliance, JP Morgan Mutual Funds
(August 1993 - May 1995).
Tracie E. Richter Treasurer, Chief Financial Vice President, Morgan Grenfell Inc. (since
885 Third Avenue Officer January 1998); Vice President, Bankers Trust
New York, NY 10022 (February 1996 to December 1997); Associate,
(age 31) Goldman Sachs Asset Management (January 1993 to
January 1996).
</TABLE>
- ----------
1 Member of the Trust's Pricing Committee.
2 Member of the Trust's Audit Committee.
3 Member of the Trust's Dividend Committee.
Certain of the Trustees and officers of the Trust reside outside the United
States, and substantially all the assets of these persons are located outside
the United States. It may not be possible, therefore, for investors to effect
service of process within the United States upon these persons or to enforce
against them, in United States courts or foreign courts, judgments obtained in
United States courts predicated upon the civil liability provisions of the
federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws.
Messrs. Jones, Freeman, and Searcy are members of the Audit Committee of the
Board of Trustees. The Audit Committee's functions include making
recommendations to the Trustees regarding the selection of independent
accountants, and reviewing with such accountants and the Treasurer of the Trust
matters relating to accounting and auditing practices and procedures, accounting
records, internal accounting controls and the functions performed by the Trust's
custodian, administrator and transfer agent.
As of December 18, 1998, the Trustees and officers of the Trust owned, as a
group, less than one percent of the outstanding shares of each Fund other than
Morgan Grenfell International Equity Fund. On such date, the Trustees and
officers of the Trust owned, as a group, 1.679% of the outstanding shares of
Morgan Grenfell International Equity Fund.
COMPENSATION OF TRUSTEES
The Trust pays each Trustee who is not affiliated with the Adviser an annual fee
of $15,000 provided that they attend each regular Board meeting during the year.
Members of the Audit Committee also receive $1,000 for each Audit Committee
meeting attended. The Chairman of the Audit Committee, currently Mr. Searcy,
receives an additional $1,000 per Audit Committee meeting attended. The Trustees
are also reimbursed for out-of-pocket expenses incurred by them in connection
with their duties as Trustees.
- --------------------------------------------------------------------------------
Page -28-
<PAGE>
The following table sets forth the compensation paid by the Trust to the
Trustees for the fiscal year of the Trust ended October 31, 1998:
<TABLE>
<CAPTION>
Aggregate
Pension or Retirement Compensation
Benefits Accrued as from the Trust/
Name of Trustees Part of Fund Expenses Complex*
- --------------------- --------------------- -------------------
<S> <C> <C>
James E. Minnick $ 0 $ 0
Patrick W. Disney $ 0 $ 0
Paul K. Freeman $ 0 $ 18,000
Graham E. Jones $ 0 $ 18,000
William N. Searcy $ 0 $ 21,000
Hugh G. Lynch $ 0 $ 15,000
Edward T. Tokar $ 0 $ 15,000
</TABLE>
- ---------
* The Trustees listed above do not serve on the Board of any other investment
company that may be considered to belong to the same complex as the Trust.
INVESTMENT ADVISORY AND OTHER SERVICES
THE ADVISER
MGIS of London, England acts as investment adviser to each Fund pursuant to the
terms of two Management Contracts between the Trust and MGIS (the "Management
Contracts"). Pursuant to the Management Contracts, the Adviser supervises and
assists in the management of the assets of each Fund and furnishes each Fund
with research, statistical, advisory and managerial services. The Adviser
determines on a continuous basis, the allocation of each Fund's investments
among countries. The Adviser is responsible for the ordinary expenses of
offices, if any, for the Trust and the compensation, if any, of all officers and
employees of the Trust and all Trustees who are "interested persons" (as defined
in the 1940 Act) of the Adviser.
Under the Management Contracts, the Trust, on behalf of each Fund, is obligated
to pay the Adviser a monthly fee at an annual rate of each Fund's average daily
net assets as follows:
<TABLE>
<CAPTION>
Annual Rate
-------------
<S> <C>
Morgan Grenfell International Equity Fund............................................... 0.70%
Morgan Grenfell Global Equity Fund...................................................... 0.70%
Morgan Grenfell European Equity Growth Fund............................................. 0.70%
Morgan Grenfell New Asia 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 Core Global Fixed Income Fund........................................... 0.50%
Morgan Grenfell Global Fixed Income Fund................................................ 0.50%*
Morgan Grenfell International Fixed Income Fund......................................... 0.50%*
Morgan Grenfell Emerging Markets Debt Fund.............................................. 1.00%**
Morgan Grenfell Emerging Local Currency Debt Fund....................................... 0.60%
</TABLE>
- ----------
* Effective April 1, 1995, the annual advisory fee rate for each of these Funds
was reduced from 0.60% to 0.50% of average daily net assets.
** Effective September 1, 1995, the annual advisory fee rate for this Fund was
reduced from 1.60% to 1.50% of average daily net assets. Effective March 1,
1997, the annual advisory fee rate for this Fund was further reduced from
1.50% to 1.00% of average daily net assets.
- --------------------------------------------------------------------------------
Page -29-
<PAGE>
The advisory fees are paid monthly and will be prorated if the Adviser shall not
have acted as a Fund's investment adviser during the entire monthly period. The
Adviser has temporarily agreed, under certain circumstances, to reduce or not
impose its management fee and to make arrangements to limit certain other
expenses.
For the fiscal period ended October 31, 1996, Morgan Grenfell International
Equity Fund, Morgan Grenfell European Equity Growth Fund, Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell European Small Cap Equity
Fund, Morgan Grenfell Emerging Markets Equity Fund, Morgan Grenfell Global Fixed
Income Fund, Morgan Grenfell International Fixed Income Fund and Morgan Grenfell
Emerging Markets Debt Fund paid net advisory fees of $0, $5,508, $987,205, $0,
$726,299, $696,819, $67,316 and $819,659, respectively. For the fiscal year
ended October 31, 1997, Morgan Grenfell International Equity Fund, Morgan
Grenfell European Equity Growth Fund, Morgan Grenfell International Small Cap
Equity Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell
Emerging Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan
Grenfell International Fixed Income Fund and Morgan Grenfell Emerging Markets
Debt Fund paid net advisory fees of $0, $137,269, $794,548, $13,612, $804,930,
$444,411, $21,976, and $1,398,207, respectively. For the fiscal period ended
October 31, 1998, Morgan Grenfell International Equity Fund, Morgan Grenfell
European Equity Growth Fund, Morgan Grenfell International Small Cap Equity
Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell Emerging
Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
paid net advisory fees of . The foregoing advisory fee payments and
non-payments reflect expense limitations that were in effect during the
indicated periods. The Funds not listed in this paragraph were not in operation
during the relevant periods and, accordingly, paid no advisory fees for such
periods.
The Management Contracts were last approved on November 19, 1998 by a vote of
the Trust's Board of Trustees, including a majority of those Trustees who were
not parties to either Management Contract or "interested persons" of such
parties. Each Management Contract will continue in effect with respect to each
Fund that it covers only if such continuance is specifically approved annually
by the Trustees, including a majority of the Trustees who are not parties to the
Management Contract or "interested persons" (as such term is defined in the 1940
Act) of such parties, or by a vote of a majority of the outstanding shares of
such Fund. Each Management Contract is terminable by vote of the Board of
Trustees, or, with respect to a Fund, by the holders of a majority of the
outstanding shares of the affected Fund, at any time without penalty on 60 days'
written notice to the Adviser. Termination of a Management Contract with respect
to a Fund will not terminate or otherwise invalidate any provision of the
Management Contract between the Adviser and any other Fund. The Adviser may
terminate a Management Contract at any time without penalty on 60 days' written
notice to the Trust. Each Management Contract terminates automatically in the
event of its assignment (as such term is defined in the 1940 Act).
Each Management Contract provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust or any
Fund in connection with the performance of the Adviser's obligations under the
Management Contract with the Trust, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from reckless disregard of its duties and
obligations thereunder.
In the management of the Funds and its other accounts, the Adviser and its
subsidiaries allocate investment opportunities to all accounts for which they
are appropriate subject to the availability of cash in any particular account
and the final decision of the individual or individuals in charge of such
accounts. Where market supply is inadequate for a distribution to all such
accounts, securities are allocated based on a Fund's pro rata portion of the
amount ordered. In some cases their procedure may have an adverse effect on the
price or volume of the security as far as a Fund is concerned. However, it is
the judgment of the Board that the desirability of continuing the Trust's
advisory arrangement with the Adviser outweighs any disadvantages that may
result from contemporaneous transactions.
- --------------------------------------------------------------------------------
Page -30-
<PAGE>
MGIS is registered with the Commission as an investment adviser and provides a
full range of international investment advisory services to individual and
institutional clients. MGIS is a direct wholly-owned subsidiary of Morgan
Grenfell Asset Management, Ltd., which is an indirect wholly-owned subsidiary of
Deutsche Bank AG, an international commercial and investment banking group. As
of October 31, 1998, MGIS managed approximately $12.1 billion in assets for
various individual and institutional accounts, including the following
registered investment companies to which it acts as a subadviser:
Dean Witter Worldwide Investment Trust, Compass International Fixed Income Fund,
RSI International Equity Fund, SEI International Equity Fund, SEI Institutional
International Equity, Dean Witter Pacific Growth Fund, Dean Witter European
Growth Fund, Dean Witter International SmallCap Fund, Dean Witter Global Asset
Allocation Fund, Dean Witter Japan Fund and Dean Witter Worldwide Investment
Trust, and Pacific Growth Portfolio and European Growth Portfolio (each a series
of Dean Witter Variable Investment Series).
PORTFOLIO MANAGEMENT
A committee made up of investment professionals and analysts employed by the
Adviser makes all of the funds' investment decisions. For information on the
experience and qualifications of team members, see "Appendix C."
PORTFOLIO TURNOVER
The Funds do not expect to trade in securities for short-term gain. Each Fund's
portfolio turnover rate is calculated by dividing the lesser of the dollar
amount of sales or purchases of portfolio securities by the average monthly
value of a Fund's portfolio securities, excluding securities having a maturity
at the date of purchase of one year or less. For the fiscal period ended October
31, 1997, the portfolio turnover rates for Morgan Grenfell International Equity
Fund, Morgan Grenfell European Equity Growth Fund, Morgan Grenfell International
Small Cap Equity Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan
Grenfell Emerging Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund,
Morgan Grenfell International Fixed Income Fund and Morgan Grenfell Emerging
Markets Debt Fund were 55%, 45%, 59%, 44%, 94%, 179%, 174% and 472%,
respectively. For the fiscal period ended October 31, 1998, the portfolio
turnover rates for Morgan Grenfell International Equity Fund, Morgan Grenfell
European Equity Growth Fund, Morgan Grenfell International Small Cap Equity
Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell Emerging
Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
were respectively.
THE ADMINISTRATOR
Morgan Grenfell Inc. ("MG Inc." or the "Administrator"), 150 South Independence
Square West, Philadelphia, PA 19106, serves as the Trust's administrator
pursuant to an Administration Agreement dated August 27, 1998. Pursuant to the
Administration Agreement, the Administrator has agreed to furnish statistical
and research data, clerical services, and stationery and office supplies;
prepare and file various reports with the appropriate regulatory agencies
including the Commission and state securities commissions; and provide
accounting and bookkeeping services for the Funds, including the computation of
each Fund's net asset value, net investment income and realized capital gains,
if any.
For its services under the Administration Agreement, the Administrator receives
a monthly fee at the following annual rates of the aggregate average daily net
assets of such Fund: 0.25% for the International Fixed Income Funds; 0.30% for
the International Equity Funds. The Administrator will pay Accounting Agency and
Transfer Agency fees out of the Administration fee. Previously, these fees were
charged directly to the Funds. Net Fund Operating Expenses will remain unchanged
since the Adviser has agreed to
- --------------------------------------------------------------------------------
Page -31-
<PAGE>
reduce its advisory fee and to make arrangements to limit certain other
expenses. In its sole discretion the Adviser may terminate or modify this
voluntary agreement at any time.
Prior to November 1, 1998, SEI Financial Management Company was the
Administrator for the funds. For the fiscal period ended October 31, 1996,
Morgan Grenfell International Equity Fund, Morgan Grenfell European Equity
Growth Fund, Morgan Grenfell International Small Cap Equity Fund, Morgan
Grenfell European Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity
Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International
Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund paid the
Administrator administration fees of $62,500, $3,159, $124,286, $100,000,
$109,687, $165,566, $75,000 and $100,878, respectively. For the fiscal year
ended October 31, 1997, Morgan Grenfell International Equity Fund, Morgan
Grenfell European Equity Growth Fund, Morgan Grenfell International Small Cap
Equity Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell
Emerging Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan
Grenfell International Fixed Income Fund and Morgan Grenfell Emerging Markets
Debt Fund paid the Administrator administration fees of $60,000, $38,843,
$90,975, $63,934, $99,601, $119,264, $60,000 and $139,420, respectively. For the
fiscal year ended October 31, [1998], Morgan Grenfell International Equity Fund,
Morgan Grenfell European Equity Growth Fund, Morgan Grenfell International Small
Cap Equity Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell
Emerging Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan
Grenfell International Fixed Income Fund and Morgan Grenfell Emerging Markets
Debt Fund paid the Administrator administration fees of respectively. The
administration fees described in the paragraph were paid pursuant to a fee
schedule that is different from the one currently in effect (described above).
The Funds not listed in the preceding three sentences were not in operation
during the relevant periods and, accordingly, paid no administration fees for
such periods.
The Administration Agreement provides that the Administrator shall not be liable
under the Administration Agreement except for bad faith or gross negligence in
the performance of its duties or from the reckless disregard by it of its duties
and obligations thereunder.
EXPENSES OF THE TRUST
The expenses borne by the shares of the Funds include: (i) fees and expenses of
any investment adviser and any administrator of the Funds; (ii) fees and
expenses incurred by the Funds in connection with membership in investment
company organizations; (iii) brokers' commissions; (iv) payment for portfolio
pricing services to a pricing agent, if any; (v) legal expenses (vi) interest,
insurance premiums, taxes or governmental fees; (vii) clerical expenses of
issue, redemption or repurchase of shares of the Funds; (viii) the expenses of
and fees for registering or qualifying shares of the Funds for sale and of
maintaining the registration of the Funds and registering the Funds as a broker
or a dealer; (ix) the fees and expenses of Trustees who are not affiliated with
the Adviser; (x) the fees or disbursements of custodians of the Funds' assets,
including expenses incurred in the performance of any obligations enumerated by
the Declaration of Trust or By-Laws of the Trust insofar as they govern
agreements with any such custodian; (xi) costs in connection with annual or
special meetings of shareholders, including proxy material preparation printing
and mailing; (xii) charges and expenses of the Trust's auditor; (xiii)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Funds' business; and (xiv) expenses of an
extraordinary and nonrecurring nature.
TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore, Kansas City, Missouri 64105 (the "Transfer
Agent") serves as the transfer and dividend disbursing agent for the Funds
pursuant to a transfer agency agreement (the "Transfer Agency Agreement"), under
which the Transfer Agent (i) maintains record shareholder
- --------------------------------------------------------------------------------
Page -32-
<PAGE>
accounts, and (ii) makes periodic reports to the Trust's Board of Trustees
concerning the operations of each Fund.
THE DISTRIBUTOR
The Trust has entered into a distribution agreement (the "Distribution
Agreement") pursuant to which SEI Financial Services Company, 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456-0100 (the "Distributor"), as agent, serves as
principal underwriter for the continuous offering of shares of each Fund. The
Distributor has agreed to use best efforts to solicit orders for the purchase of
shares of each Fund, although it is not obligated to sell any particular amount
of shares. Shares of the Trust are not subject to sales loads or distribution
fees. The Adviser, and not the Trust, is responsible for payment of any expenses
or fees incurred in the marketing and distribution of shares of the Trust.
The Distribution Agreement will remain in effect for one year from its effective
date and will continue in effect thereafter only if such continuance is
specifically approved annually by the Trustees, including a majority of the
Trustees who are not parties to the Distribution Agreement or "interested
persons" (as such term is defined in the 1940 Act) of such parties. The
Distribution Agreement was most recently approved on November 19, 1998 by a vote
of the Trust's Board of Trustees, including a majority of those Trustees who
were not parties to the Distribution Agreement or "interested persons" of such
parties. The Distribution Agreement is terminable, as to a Fund, by vote of the
Board of Trustees, or by the holders of a majority of the outstanding shares of
the Fund, at any time without penalty on 60 days' written notice to the
Distributor. The Distributor may terminate the Distribution Agreement at any
time without penalty on 60 days' written notice to the Trust.
CUSTODIAN
Brown Brothers Harriman and Co. (the "Custodian"), 40 Water Street, Boston,
Massachusetts 02109, serves as the Trust's custodian pursuant to a Custodian
Agreement. Under the Custodian Agreement, the Custodian (i) maintains a separate
account in the name of each Fund, (ii) holds and transfers portfolio securities
on account of each Fund, (iii) accepts receipts and makes disbursements of money
on behalf of each Fund, (iv) collects and receives all income and other payments
and distributions on account of each Fund's portfolio securities and (v) makes
periodic reports to the Trust's Board of Trustees concerning each Fund's
operations. The Custodian is authorized to select one or more foreign or
domestic banks or companies to serve as sub-custodian on behalf of the Trust.
SERVICE PLAN
(SERVICE SHARES ONLY)
Each Fund has adopted a service plan (the "Plan") with respect to its service
shares which authorizes it to compensate Service Organizations whose customers
invest in service shares of the Funds for providing certain personal, account
administration and/or shareholder liaison services. Pursuant to the Plans, the
Funds may enter into agreements with Service Organizations ("Service
Agreements"). Under such Service Agreements or otherwise, the Service
Organizations may perform some or all of the following services: (i) acting as
record holder and nominee of all service shares beneficially owned by their
customers; (ii) establishing and maintaining individual accounts and records
with respect to the service shares owned by each customer; (iii) providing
facilities to answer inquiries and respond to correspondence from customers
about the status of their accounts or about other aspects of the Trust or
applicable Fund; (iv) processing and issuing confirmations concerning customer
orders to purchase, redeem and exchange service shares; and (v) receiving and
transmitting funds representing the purchase price or redemption proceeds of
such service shares.
As compensation for such services, each Fund will pay each Service Organization
with which it has a Service Agreement a service fee in an amount up to .25% (on
an annualized basis) of the average daily net
- --------------------------------------------------------------------------------
Page -33-
<PAGE>
assets of the Fund's service shares attributable to customers of such Service
Organization. Service Organizations may from time to time be required to meet
certain other criteria in order to receive service fees.
Pursuant to the Plans, service shares of a Fund that are beneficially owned by
customers of a Service Organization will convert automatically to institutional
shares of the same Fund in the event that such Service Organization's Service
Agreement expires or is terminated. Customers of a Service Organization will
receive advance notice of any such conversion, and any such conversion will be
effected on the basis of the relative net asset values of the two classes of
shares involved.
In accordance with the terms of the Service Plans, the officers of the Trust
provide to the Trust's Board of Trustees for their review a quarterly written
report of the amounts expended under the Service Plans and the purpose for which
such expenditures were made. In the Trustees' quarterly review of such reports,
they will consider the continued appropriateness and the level of compensation
that the Service Plans provide.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974 ("ERISA") ) may apply to a Service Organization's receipt
of compensation paid by a Fund in connection with the investment of fiduciary
assets in service shares of the Fund. Service Organizations that are subject to
the jurisdiction of the SEC, the Department of Labor or state securities
commissions are urged to consult their own legal advisers before investing
fiduciary assets in service shares and receiving service fees.
The Trust believes that fiduciaries of ERISA plans may properly receive fees
under a Service Plan if the plan fiduciary otherwise properly discharges its
fiduciary duties, including (if applicable) those under ERISA. Under ERISA, a
plan fiduciary, such as a trustee or investment manager, must meet the fiduciary
responsibility standard set forth in part 4 of Title I of ERISA. These standards
are designed to help ensure that the fiduciary's decisions are made in the best
interests of the plan and are not colored by self-interest.
Section 403 (c) (1) of ERISA provides, in part, that the assets of a plan shall
be held for the exclusive purpose of providing benefits to the plan's
participants and their beneficiaries and defraying reasonable expenses of
administering the plan. Section 404 (a) sets forth a similar requirement on how
a plan fiduciary must discharge his or her duties with respect to the plan, and
provides further that such fiduciary must act prudently and solely in the
interest of the participants and beneficiaries. These basic provisions are
supplemented by the per se prohibitions of certain classes of transactions set
forth in Section 406 of ERISA.
Section 406 (a) (1) (D) of ERISA prohibits a fiduciary of an ERISA plan from
causing that plan to engage in a transaction if he knows or should know that the
transaction would constitute a direct or indirect transfer to, or use by or for
the benefit of, a party in interest, of any assets of that plan. Section 3 (14)
includes within the definition of "party in interest" with respect to a plan any
fiduciary with respect to that plan. Thus, Section 406 (a) (1) (D) would not
only prohibit a fiduciary from causing the plan to engage in a transaction which
would benefit a third person who is a party in interest, but it also would
prohibit the fiduciary from similarly benefiting himself. In addition, Section
406 (b) (1) specifically prohibits a fiduciary with respect to a plan from
dealing with the assets of that plan in his own interest or for his own account.
Section 406 (b) (3) supplements these provisions by prohibiting a plan fiduciary
from receiving any consideration for his own personal account from any party
dealing with the plan in connection with a transaction involving the assets of
the plan.
In accordance with the foregoing, however, a fiduciary of an ERISA plan may
properly receive service fees under a Service Plan if the fees are used for the
exclusive purpose of providing benefits to the plan's participants and their
beneficiaries or for defraying reasonable expenses of administering the plan for
which the plan would otherwise be liable. See, e.g., Department of Labor ERISA
Technical Release No. 86-1 (stating a violation of ERISA would not occur where a
broker-dealer rebates commission dollars to a plan fiduciary who, in turn,
reduces its fees for which the plan is otherwise responsible for paying).
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<PAGE>
Thus, the fiduciary duty issues involved in a plan fiduciary's receipt of the
service fee must be assessed on a case-by-case basis by the relevant plan
fiduciary.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees, the Adviser makes
decisions with respect to and places orders for all purchases and sales of
portfolio securities for the Funds. In executing portfolio transactions, the
Adviser seeks to obtain the best net results for the Funds, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), size of the order, difficulty of execution and operational facilities
of the firm involved. Commission rates, being a component of price, are
considered together with such factors. Where transactions are effected on a
foreign securities exchange, the Funds employ brokers, generally at fixed
commission rates. Commissions on transactions on U.S. securities exchanges are
subject to negotiation. Where transactions are effected in the over-the-counter
market or third market, the Funds deal with the primary market makers unless a
more favorable result is obtainable elsewhere. Fixed income securities purchased
or sold on behalf of the Funds normally will be traded in the over-the-counter
market on a net basis (i.e. without a commission) through dealers acting for
their own account and not as brokers or otherwise through transactions directly
with the issuer of the instrument. Some fixed income securities are purchased
and sold on an exchange or in over-the-counter transactions conducted on an
agency basis involving a commission.
Pursuant to the Management Contracts, the Adviser agrees to select
broker-dealers in accordance with guidelines established by the Trust's Board of
Trustees from time to time and in accordance with Section 28(e) of the
Securities Exchange Act of 1934, as amended. In assessing the terms available
for any transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consideration may also be given to the broker-dealer's
sale of shares of the Funds. In addition, the Management Contracts authorize the
Adviser, subject to the periodic review of the Trust's Board of Trustees, to
cause a Fund to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker-dealer for effecting the same transaction, provided that the Adviser
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser to the Fund. Such brokerage and research
services may consist of pricing information, reports and statistics on specific
companies or industries, general summaries of groups of bonds and their
comparative earnings and yields, or broad overviews of the securities markets
and the economy.
Supplemental research information utilized by the Adviser is in addition to, and
not in lieu of, services required to be performed by the Adviser and does not
reduce the advisory fees payable to the Adviser. The Trustees will periodically
review the commissions paid by the Funds to consider whether the commissions
paid over representative periods of time appear to be reasonable in relation to
the benefits inuring to the Funds. It is possible that certain of the
supplemental research or other services received will primarily benefit one or
more other investment companies or other accounts of the Adviser for which
investment discretion is exercised. Conversely, a Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company. During the
fiscal period ended October 31, 1996, October 31, 1997, [and October 31, 1998]
the Adviser did not, pursuant to any agreement or understanding with a broker or
otherwise through an internal allocation procedure, direct any Fund's brokerage
transactions to a broker because of research services provided by such broker.
Investment decisions for each Fund and for other investment accounts managed by
the Adviser are made independently of each other in the light of differing
conditions. However, the same investment decision
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<PAGE>
may be made for two or more of such accounts. In such cases, simultaneous
transactions are inevitable. Purchases or sales are then averaged as to price
and allocated as to amount in a manner deemed equitable to each such account.
While in some cases this practice could have a detrimental effect on the price
or value of the security as far as a Fund is concerned, in other cases it is
believed to be beneficial to a Fund. To the extent permitted by law, the Adviser
may aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for other investment companies or accounts in executing
transactions.
Pursuant to procedures determined by the Trustees and subject to the general
policies of the Funds and Section 17(e) of the 1940 Act, the Adviser may place
securities transactions with brokers with whom it is affiliated ("Affiliated
Brokers"). These brokers may include but are not limited to Morgan Grenfell Asia
and Morgan Grenfell Debt Arbitrage Trading.
Section 17(e) of the 1940 Act limits to "the usual and customary broker's
commission" the amount which can be paid by the Funds to an Affiliated Broker
acting as broker in connection with transactions effected on a securities
exchange. The Board, including a majority of the Trustees who are not
"interested persons" of the Trust or the Adviser, has adopted procedures
designed to comply with the requirements of Section 17(e) of the 1940 Act and
Rule 17e-1 promulgated thereunder to ensure that the broker's commission is
"reasonable and fair compared to the commission, fee or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time...."
A transaction would not be placed with Affiliated Brokers if a Fund would have
to pay a commission rate less favorable than their contemporaneous charges for
comparable transactions for their other most favored, but unaffiliated,
customers except for accounts for which they act as a clearing broker, and any
of their customers determined, by a majority of the Trustees who are not
"interested persons" of the Fund or the Adviser, not to be comparable to the
Fund. With regard to comparable customers, in isolated situations, subject to
the approval of a majority of the Trustees who are not "interested persons" of
the Trust or the Adviser, exceptions may be made. Since the Adviser, as
investment adviser to the Funds, has the obligation to provide management, which
includes elements of research and related skills, such research and related
skills will not be used by them as a basis for negotiating commissions at a rate
higher than that determined in accordance with the above criteria. The Funds
will not engage in principal transactions with Affiliated Brokers. When
appropriate, however, orders for the account of the Funds placed by Affiliated
Brokers are combined with orders of their respective clients, in order to obtain
a more favorable commission rate. When the same security is purchased for two or
more funds or customers on the same day, each fund or customer pays the average
price and commissions paid are allocated in direct proportion to the number of
shares purchased.
Affiliated Brokers furnish to the Trust at least annually a statement setting
forth the total amount of all compensation retained by them or any associated
person of them in connection with effecting transactions for the account of the
Funds, and the Board reviews and approves all such portfolio transactions on a
quarterly basis and the compensation received by Affiliated Brokers in
connection therewith. During the fiscal periods ended October 31, 1996, October
31, 1997, [and October 1998] no Fund paid any brokerage commissions to any
Affiliated Broker.
Affiliated Brokers do not knowingly participate in commissions paid by the Funds
to other brokers or dealers and do not seek or knowingly receive any reciprocal
business as the result of the payment of such commissions. In the event that an
Affiliated Broker learns at any time that it has knowingly received reciprocal
business, it will so inform the Board.
For the fiscal period ended October 31, 1996, Morgan Grenfell International
Equity Fund, Morgan Grenfell European Equity Growth Fund, Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell European Small Cap Equity
Fund, Morgan Grenfell Emerging Markets Equity Fund, Morgan Grenfell Global Fixed
Income Fund, Morgan Grenfell International Fixed Income Fund and Morgan Grenfell
Emerging Markets Debt Fund paid aggregate brokerage commissions of $6,948,
$3,645, $382,726,
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<PAGE>
$17,303, $623,975, $0, $0 and $0, respectively. For the fiscal year ended
October 31, 1997, Morgan Grenfell International Equity Fund, Morgan Grenfell
European Equity Growth Fund, Morgan Grenfell International Small Cap Equity
Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell Emerging
Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
paid aggregate brokerage commissions of $15,439.06, $78,071.14, $503,504.08,
$23,189.97, $868,715.91, $0, $0 and $0, respectively. For the fiscal year ended
October 31, 1998, Morgan Grenfell International Equity Fund, Morgan Grenfell
European Equity Growth Fund, Morgan Grenfell International Small Cap Equity
Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell Emerging
Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
paid aggregate brokerage commissions of respectively.
As of October 31, 1997, Morgan Grenfell European Equity Growth Fund held
securities of HSBC Holdings, one of its regular broker-dealers during the year
then ended. The value of such securities on this date was $180,024.17. As of
October 31, 1997, Morgan Grenfell International Equity Fund held securities of
Barclays and Nomura, two of its regular broker-dealers. The value of such
securities on this date were $70,152.71 and $11,642.41, respectively.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Funds are distributed by SEI Financial Services Company, the
Distributor. The Funds offer two classes of shares, institutional and service
shares. General information on how to buy shares of the Fund is set forth in
"Managing Your Investment" in the Funds' Prospectus. The following supplements
that information.
Investors may invest in institutional shares by establishing a shareholder
account with the Trust. In order to make an initial investment in service shares
of a Fund, an investor must establish an account with a service organization.
Additionally, each Fund has authorized brokers to accept purchase and redemption
order for institutional and service shares for each Fund. Brokers, including
authorized brokers of service organizations, are, in turn, authorized to
designate other intermediaries to accept purchase and redemption orders on a
Fund's behalf. Investors who invest through brokers, service organizations or
their designated intermediaries may be subject to minimums established by their
broker, service organization or designated intermediary.
Investors who establish shareholder accounts with the Trust should submit
purchase and redemption orders to the Transfer Agent as described in the
Prospectus. Investors who invest through authorized brokers, service
organizations or their designated intermediaries should submit purchase and
redemption orders directly to their broker, service organization or designated
intermediary. The broker or intermediary may charge you a transaction fee. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker, service organization or, if applicable, an authorized
designee, accepts the order. Shares of any Fund may be purchased or redeemed on
any Business Day at the net asset value next determined after receipt of the
order, in good order, by the Transfer Agent, the service organization, broker or
designated intermediary. A "Business Day" means any day on which the New York
Stock Exchange (the "NYSE") is open. For an investor who has a shareholder
account with the Trust, the Transfer Agent must receive the investor's purchase
or redemption order before the close of regular trading on the NYSE for the
investor to receive that day's net asset value. For an investor who invests
through a mutual fund marketplace, the investor's authorized broker or
designated intermediary must receive the investor's purchase or redemption order
before the close of regular trading on the NYSE (generally 4:00 p.m., Eastern
Time) and promptly forward such order to the Transfer Agent for the investor to
receive that day's net asset value. Service organizations, brokers and
designated intermediaries are responsible for promptly forwarding such
investors' purchase or redemption orders to the Transfer Agent.
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<PAGE>
NET ASSET VALUE
Under the 1940 Act, the Board of Trustees of the Trust is responsible for
determining in good faith the fair value of the securities of each Fund. In
accordance with procedures adopted by the Board of Trustees, the net asset value
per share of each class of each Fund is calculated by determining the net worth
of the Fund attributable to the class (assets, including securities at value,
minus liabilities) divided by the number of shares of such class outstanding.
Each Fund computes net asset value for each class of its shares at the close of
such regular trading, which is generally 4:00 p.m. Eastern time, on each day on
which the New York Stock Exchange ("NYSE") is open (a "Business Day"). If the
NYSE closes early, the fund will accelerate the calculation of the NAV and
transaction deadlines to the actual closing time. The NYSE is closed on
Saturdays and Sundays as well as the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
For purposes of calculating net asset value, equity securities traded on a
recognized U.S. or foreign securities exchange or the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") are valued at their
last sale price on the principal exchange on which they are traded or NASDAQ (if
NASDAQ is the principal market for such securities) prior to the time of
valuation on the valuation day or, if no sale occurs, at the bid price. Unlisted
equity securities for which market quotations are readily available are valued
at the most recent bid price prior to the time of valuation.
Debt securities and other fixed income investments of the Funds are valued at
prices supplied by independent pricing agents, which prices reflect
broker-dealer supplied valuations and electronic data processing techniques.
Short-term obligations maturing in sixty days or less may be valued at amortized
cost, which method does not take into account unrealized gains or losses on such
portfolio securities. Amortized cost valuation involves initially valuing a
security at its cost, and thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods in which the value of the
security, as determined by amortized cost, may be higher or lower than the price
the Fund would receive if the Fund sold the security.
Other assets and assets for which market quotations are not readily available
are valued at fair value using methods determined in good faith by the Board of
Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the 4:00 P.M.
(Eastern Time) close of business on each Business Day. In addition, European or
Far Eastern securities trading generally or in a particular country or countries
may not take place on all Business Days. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign markets on days
which are not Business Days in New York and on which the Funds' net asset values
are not calculated. Such calculation does not take place contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the regular
trading on the NYSE will not be reflected in the Funds' calculation of net asset
values unless the Adviser deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.
PERFORMANCE INFORMATION
From time to time, performance information, such as total return and yield for
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 shares of a Fund. Aggregate total return
reflects the total percentage change over the stated period.
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<PAGE>
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 shares, when redeemed, may be more or less than the
original cost. Any fees charged by banks or other investors directly to their
customer accounts in connection with investments in shares of a Fund are not at
the direction or within the control of the Funds and will not be included in the
Funds' calculations of total return.
YIELD
From time to time, the Fixed Income Funds may advertise their yield. Yield is
calculated separately for service shares and institutional shares of a Fund.
Each type of share is subject to differing yields for the same period. The yield
of a class of shares of a Fund refers to the annualized income generated by an
investment in the class of shares of the Fund over a specified 30-day period.
The yield is calculated by assuming that the income generated by the investment
during that period is generated for each like period over one year and is shown
as a percentage of the investment. In particular, yield will be calculated
according to the following formula:
a-b
YIELD = 2 [ ( ---- + 1 ) to the power of 6 -1 ]
cd
<TABLE>
<S> <C> <C> <C>
Where: a = dividends and interest earned by the Fund during the
period;
b = net expenses accrued for the period;
c = average daily number of shares outstanding during the
period entitled to receive dividends; and
d = maximum offering price per share on the last day of
the period.
</TABLE>
Actual yields will depend on such variables as asset quality, average asset
maturity, the type of instruments a Fund invests in, changes in interest rates
on money market instruments, changes in the expenses of the Fund and other
factors.
Yields are one basis upon which investors may compare the Funds with other
mutual funds; however, yields of other mutual funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments.
For the 30-day period ended October 31, 1998, the yields of institutional shares
of Morgan Grenfell Core Global Fixed Income Fund, Morgan Grenfell Emerging
Markets Debt Fund, Morgan Grenfell Global Fixed Income Fund and Morgan Grenfell
International Fixed Income Fund were %, %, %, and % respectively. If
the expense limitations described in the Prospectus for these Funds had not been
in effect during this period, the yields of institutional shares of Morgan
Grenfell Global Fixed Income Fund, Morgan Grenfell International Fixed Income
Fund and Morgan Grenfell Emerging Markets Debt Fund would have been %, %
and %, respectively.
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<PAGE>
TOTAL RETURN
Average annual total return is calculated separately for service shares and
institutional shares of a Fund. Each class of share is subject to different fees
and expenses and, consequently, may have differing average annual total returns
for the same period. Each Fund that advertises "average annual total return" for
a class of its shares computes such return by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
ERV
T = [ ( --- ) 1/n - 1 ]
P
<TABLE>
<S> <C> <C> <C>
Where: T = average annual total return,
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year (or other) periods at the end of the
applicable period (or a fractional portion
thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in
years.
</TABLE>
Each Fund that advertises "aggregate total return" for a class of its shares
computes such returns by determining the aggregate compounded rates of return
during specified periods that likewise equate the initial amount invested to the
ending redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
ERV
Aggregate Total Return = [ ( --- ) - 1 ]
P
The above calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
For the fiscal year ended October 31, 1998, the average annual total returns for
institutional shares of Morgan Grenfell International Equity Fund, Morgan
Grenfell European Equity Growth Fund, Morgan Grenfell International Small Cap
Equity Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell
Emerging Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan
Grenfell International Fixed Income Fund and Morgan Grenfell Emerging Markets
Debt Fund were %, %, %, %, %, %, % and %, respectively.
For their respective periods from commencement of operations to October 31,
1998, the average annual total returns for institutional shares of Morgan
Grenfell International Equity Fund, Morgan Grenfell European Equity Growth Fund,
Morgan Grenfell International Small Cap Equity Fund, Morgan Grenfell European
Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity Fund, Morgan
Grenfell Global Fixed Income Fund, Morgan Grenfell International Fixed Income
Fund and Morgan Grenfell Emerging Markets Debt Fund were %, %, %, %,
%, %, % and %, respectively. For the fiscal year ended October 31,
1998, the average annual total returns for service shares of Morgan Grenfell
Emerging Markets Debt Fund was %. From its commencement of operations to
October 31, 1998, the average
- --------------------------------------------------------------------------------
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<PAGE>
annual total returns for service shares of Morgan Grenfell Emerging Markets Debt
Fund was %. If the expense limitations described in the Prospectus for the
above Funds had not been in effect during the indicated periods, the total
returns for institutional shares of these Funds for such periods would have been
lower than the total return figures shown in this paragraph.
The Funds may from time to time advertise comparative performance as measured by
various independent sources, including, but not limited to, Barron's, The Wall
Street Journal, Weisenberger Investment Companies Service, Business Week,
Changing Times, Financial World, Forbes, Fortune and Money. In addition, a Fund
may from time to time advertise its performance relative to certain indices and
benchmark investments, including: (a) the Lipper Analytical Services, Inc.
Mutual Fund Performance Analysis, Fixed Income Analysis and Mutual Fund Indices
(which measure total return and average current yield for the mutual fund
industry and rank mutual fund performance); (b) the CDA Mutual Fund Report
published by CDA Investment Technologies, Inc. (which analyzes price, risk and
various measures of return for the mutual fund industry); (c) the Consumer Price
Index published by the U.S. Bureau of Labor Statistics (which measures changes
in the price of goods and services); (d) Stocks, Bonds, Bills and Inflation
published by Ibbotson Associates (which provides historical performance figures
for stocks, government securities and inflation); (e) the Shearson Lehman
Brothers Aggregate Bond Index or its component indices (the Aggregate Bond Index
measures the performance of Treasury, U.S. Government agency, corporate,
mortgage and Yankee bonds); (f) the Standard & Poor's Bond Indices (which
measure yield and price of corporate, municipal and U.S. Government bonds); and
(g) historical investment data supplied by the research departments of Goldman
Sachs, Lehman Brothers, Inc., First Boston Corporation, Dean Witter Morgan
Stanley, Salomon Brothers, Merrill Lynch, Donaldson Lufkin and Jenrette or other
providers of such data. The composition of the investments in such indices and
the characteristics of such benchmark investments are not identical to, and in
some cases are very different from, those of any Fund's portfolio. These indices
and averages are generally unmanaged and the items included in the calculations
of such indices and averages may not be identical to the formulas used by a Fund
to calculate its performance figures.
TAXES
The following is a summary of the principal U.S. federal income, and certain
state and local, tax considerations regarding the purchase, ownership and
disposition of shares in the Funds. This summary does not address special tax
rules applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Prospective shareholders are
urged to consult their own tax advisers with respect to the specific federal,
state, local and foreign tax consequences of investing in the Funds. The summary
is based on the laws in effect on the date of this Additional Statement, which
are subject to change.
GENERAL
Each Fund is a separate taxable entity and has elected or intends to elect to be
treated, and to qualify for each taxable year, as a regulated investment company
under Subchapter M of the Code.
Qualification of a Fund as a regulated investment company under the Code
requires, among other things, that (a) the Fund derive at least 90% of its gross
income for its taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stocks or
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the "90% gross
income test"); and (b) the Fund diversify its holdings so that, at the close of
each quarter of its taxable year, (i) at least 50% of the market value of its
total (gross) assets is comprised of cash, cash items, United States Government
securities, securities of other regulated investment companies and other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of the Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total assets is invested in the securities of any one issuer
(other than United States Government securities and securities of other
regulated investment companies) or two or more issuers controlled by the Fund
and engaged in the same, similar or related trades or businesses.
- --------------------------------------------------------------------------------
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<PAGE>
Future Treasury regulations could provide that qualifying income under the 90%
gross income test will not include gains from foreign currency transactions or
derivatives that are not directly related to a Fund's principal business of
investing in stock or securities or options and futures with respect to stock or
securities. Using foreign currency positions or entering into foreign currency
options, futures or forward contracts for purposes other than hedging currency
risk with respect to securities in a Fund's portfolio or anticipated to be
acquired may not qualify as "directly-related" under such regulations.
If a Fund complies with such provisions, then in any taxable year in which the
Fund distributes at least 90% of its "investment company taxable income" (which
includes dividends, interest, accrued original issue discount and recognized
market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss and certain net realized
foreign exchange gains and is reduced by deductible expenses), the Fund (but not
its shareholders) will be relieved of federal income tax on any income of the
Fund, including long-term capital gains, distributed to shareholders. However,
if a Fund retains any investment company taxable income or net capital gain (the
excess of net long-term capital gain over net short-term capital loss), it will
be subject to federal income tax at regular corporate rates on the amount
retained.
If a Fund retains any net capital gain, the Fund may designate the retained
amount as undistributed capital gains in a notice to its shareholders who, if
subject to U.S. federal income tax on long-term capital gains, (i) will be
required to include in income for federal income tax purposes, as long-term
capital gain, their shares of such undistributed amount, and (ii) will be
entitled to credit their proportionate shares of the tax paid by the Fund
against their U.S. federal income tax liabilities, if any, and to claim refunds
to the extent the credit exceeds such liabilities.
For U.S. federal income tax purposes, the tax basis of shares owned by a
shareholder of a Fund will be increased by an amount equal under current law to
65% of the amount of undistributed net capital gain included in the
shareholder's gross income. Each Fund intends to distribute at least annually to
its shareholders all or substantially all of its investment company taxable
income and net capital gain. Exchange control or other foreign laws, regulations
or practices may restrict repatriation of investment income, capital, or the
proceeds of sales of securities by foreign investors such as the Funds and may
therefore make it more difficult for the Funds to satisfy the distribution
requirements described above, as well as the excise tax distribution
requirements described below. However, the Funds generally expect to be able to
obtain sufficient cash to satisfy such requirements from new investors, the sale
of securities or other sources. If for any taxable year a Fund does not qualify
as a regulated investment company, it will be taxed on all of its investment
company taxable income and net capital gain at corporate rates, and its
distributions to shareholders will be taxable as ordinary dividends to the
extent of its current and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed in such year and on which no federal income tax was
paid by the Fund. For federal income tax purposes, dividends declared by a Fund
in October, November or December to shareholders of record on a specified date
in such a month and paid during January of the following year are taxable to
such shareholders as if received on December 31 of the year declared.
Gains and losses on the sale, lapse, or other termination of options and futures
contracts, options thereon and certain forward contracts (except certain foreign
currency options, forward contracts and futures contracts) will generally be
treated as capital gains and losses. Certain futures contracts, forward
contracts and options held by the Funds will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Funds' taxable year.
As a result, a Fund may be required to recognize income or gain without a
concurrent receipt of cash. Additionally, a Fund may be required to recognize
gain if an option, future, forward contract, short sale, or
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<PAGE>
other transaction that is not subject to these mark to market rules is treated
as a "constructive sale" of an "appreciated financial position" held by the Fund
under Section 1259 of the Code. Any gain or loss recognized on actual or deemed
sales of futures contracts, forward contracts, or options that are subject to
the mark to market rules, but not the constructive sale rules, (not including
certain foreign currency options, forward contracts, and futures contracts) will
be treated as 60% long-term capital gain or loss and 40% short-short capital
gain or loss. As a result of certain hedging transactions entered into by a
Fund, such Fund may be required to defer the recognition of losses on futures or
forward contracts and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions and the
characterization of gains or losses as long-term or short-term may be changed.
The tax provisions described above applicable to options, futures, forward
contracts and constructive sales may affect the amount, timing and character of
a Fund's distributions to shareholders. Certain tax elections may be available
to the Funds to mitigate some of the unfavorable consequences described in this
paragraph.
Section 988 of the Code contains special tax rules applicable to certain foreign
currency transactions and instruments that may affect the amount, timing and
character of income, gain or loss recognized by the Funds. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain futures and options thereon, foreign currency-denominated debt
instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available that
would alter this treatment. If a net foreign exchange loss treated as ordinary
loss under Section 988 of the Code were to exceed a Fund's investment company
taxable income (computed without regard to such loss) for a taxable year, the
resulting loss would not be deductible by the Fund or its shareholders in future
years. Net loss, if any, from certain foreign currency transactions or
instruments could exceed net investment income otherwise calculated for
accounting purposes with the result that either no dividends are paid or a
portion of the Fund's dividends is treated as a return of capital, which is
nontaxable to the extent of a shareholder's tax basis in his shares and, once
such basis is exhausted, generally gives rise to capital gains.
Each Fund's investments in zero coupon securities, deferred interest securities,
increasing-rate securities, pay-in-kind securities or other securities bearing
original issue discount or, if the Fund elects to include market discount in
income currently, market discount will generally cause it to realize income
prior to the receipt of cash payments with respect to these securities.
Transactions or instruments subject to the mark to market or constructive sale
rules described above may have the same result in some circumstances. In order
to obtain cash to distribute this income or gain, maintain its qualification as
a regulated investment company, and avoid federal income or excise taxes, a Fund
may be required to liquidate portfolio securities that it might otherwise have
continued to hold.
The Funds anticipate that they will be subject to foreign withholding or other
foreign taxes on certain income they derive from foreign securities, possibly
including, in some cases, capital gains from the sale of such securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases. If more than 50% of a Fund's total assets at the close of
any taxable year consists of stock or securities of foreign corporations, a Fund
may file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends and distributions they actually
receive) their pro rata shares of qualified foreign taxes paid by the Fund (not
in excess of its actual tax liability) even though not actually received by the
shareholders, and (ii) treat such respective pro rata portions as foreign taxes
paid by them. If a Fund makes this election, shareholders may then deduct such
pro rata portions of qualified foreign taxes in computing their taxable incomes,
or, alternatively, use them as foreign tax credits, subject to satisfaction of
certain holding period requirements and to other applicable limitations, against
their U.S. federal income taxes. Shareholders who do not itemize deductions for
federal income tax purposes will not, however, be able to deduct their pro rata
portion of qualified foreign taxes paid by a Fund, although such shareholders
will be required to include their shares of such taxes in gross income if the
Fund makes the election referred to above.
If a shareholder chooses to take a credit for the qualified foreign taxes deemed
paid by such shareholder as a result of any such election by a Fund, the amount
of the credit that may be claimed in any year may not
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<PAGE>
exceed the same proportion of the U.S. tax against which such credit is taken
which the shareholder's taxable income from foreign sources (but not in excess
of the shareholder's entire taxable income) bears to his entire taxable income.
For this purpose, distributions from long-term and short-term capital gains or
foreign currency gains by a Fund will generally not be treated as income from
foreign sources. This foreign tax credit limitation may also be applied
separately to certain specific categories of foreign-source income and the
related foreign taxes. As a result of these rules, which have different effects
depending upon each shareholder's particular tax situation, certain shareholders
of a Fund that makes the election described above may not be able to claim a
credit for the full amount of their proportionate shares of the foreign taxes
paid by the Fund. Tax-exempt shareholders will ordinarily not benefit from this
election. Each year that a Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of qualified foreign taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country. If a Fund does not
make this election or otherwise pays foreign taxes that cannot be passed through
to shareholders, it generally may deduct such taxes in computing its investment
company taxable income.
If a Fund acquires stock (including, under proposed regulations, an option to
acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, certain rents and royalties, or capital
gains) or hold at least 50% of their assets in investments producing such
passive income ("passive foreign investment companies"), the Fund could be
subject to federal income tax and additional interest charges on "excess
distributions" received from such companies or gain from the sale of stock in
such companies, even if all income or gain actually received by the Fund is
timely distributed to its shareholders. The Fund would not be able to pass
through to its shareholders any credit or deduction for such a tax. Certain
elections may, if available, ameliorate these adverse tax consequences, but any
such election could require the Fund to recognize taxable income or gain without
the concurrent receipt of cash. Investments in passive foreign investment
companies may also produce ordinary income rather than capital gains, and the
deductibility of losses is subject to certain limitations. Each Fund may limit
and/or manage its holdings in passive foreign investment companies or make an
available election to minimize its tax liability or maximize its return from
these investments.
The federal income tax rules applicable to currency and interest rate swaps,
mortgage dollar rolls, certain structured securities and interest rate floors
and caps are unclear in certain respects, and the Funds may be required to
account for these transactions or instruments under tax rules in a manner that
may affect the amount, timing and character of income, gain or loss therefrom
and that may, under certain circumstances, limit the extent to which the Funds
engage in these transactions or acquire these instruments.
Each of the Fixed Income Funds other than the International Fixed Income Fund
may invest in debt obligations that are in the lowest rating categories or are
unrated, including debt obligations of issuers not currently paying interest as
well as issuers who are in default. Investments in debt obligations that are at
risk of or in default present special tax issues for these Funds. Tax rules are
not entirely clear about issues such as when a Fund may cease to accrue
interest, original issue discount, or market discount, when and to what extent
deductions may be taken for bad debts or worthless securities, how payments
received on obligations in default should be allocated between principal and
income, and whether exchanges of debt obligations in a workout context are
taxable. These and other issues will be addressed by these Funds, to the extent
they invest in such securities, in order to reduce the risk of their
distributing insufficient income to preserve their status as regulated
investment companies and seek to avoid having to pay federal income or excise
tax.
For federal income tax purposes, each Fund is permitted to carry forward a net
capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent years'
capital gains are offset by such losses, they would not result in federal income
tax liability to the applicable Fund and, accordingly, would generally not be
distributed to shareholders. At October 31, 1997, the Morgan Grenfell
International Small Cap Equity Fund had a capital loss carryforward of
approximately $6,862,000 expiring in the fiscal year ended October 31, 2004, the
Morgan Grenfell European Small Cap Equity Fund had a capital loss carryforward
of approximately $84,000 expiring in the fiscal year ended October 31, 2005.
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<PAGE>
U.S. SHAREHOLDERS--DISTRIBUTIONS
For U.S. federal income tax purposes, distributions by the Funds, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received. Distributions from investment company taxable income of any
Fund for the year will be taxable as ordinary income. Distributions to corporate
shareholders designated as derived from a Fund's dividend income, if any, that
would be eligible for the dividends received deduction if the Fund were not a
regulated investment company will be eligible, subject to certain holding period
requirements and debt-financing restrictions, for the 70% dividends received
deduction for corporations. Because eligible dividends are limited to those
received by a Fund from U.S. domestic corporations, it is unlikely that any
significant portion of any Fund's distributions will qualify for the dividends
received deduction. The dividends-received deduction, if available, is reduced
to the extent the shares with respect to which the dividends are received are
treated as debt financed under the Code and is eliminated if the shares are
deemed to have been held for less than a minimum period, generally 46 days,
extending before and after each such dividend. The entire dividend, including
the deducted amount, is considered in determining the excess, if any, of a
corporate shareholder's adjusted current earnings over its alternative minimum
taxable income, which may increase its liability for the federal alternative
minimum tax. The dividend may, if it is treated as an "extraordinary dividend"
under the Code, reduce such shareholder's tax basis in its shares of a Fund and,
to the extent such basis would be reduced below zero, require the current
recognition of income. Capital gain dividends (i.e., dividends from net capital
gain), if designated as such in a written notice to shareholders mailed not
later than 60 days after a Fund's taxable year closes, will be taxed to
shareholders as long-term capital gain regardless of how long shares have been
held by shareholders, but are not eligible for the dividends received deduction
for corporations.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions, and certain
prohibited transactions is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
U.S. SHAREHOLDERS--SALE OF SHARES
When a shareholder's shares are sold, redeemed or otherwise disposed of in a
transaction that is treated as a sale for tax purposes, the shareholder will
generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale or other disposition, such gain or loss
should be capital in character. Any loss realized on the sale, redemption or
other disposition of the shares of any Fund with a tax holding period of six
months or less, to the extent such loss is not disallowed under any other tax
rule, will be treated as a long-term capital loss to the extent of any capital
gain dividend with respect to such shares. Additionally, any loss realized on a
sale, redemption or other disposition of shares of a Fund may be disallowed
under "wash sale" rules to the extent the shares disposed of are replaced with
shares of the same Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to a dividend
reinvestment in shares of the Fund. If disallowed, the loss will be reflected in
an adjustment to the basis of the shares acquired. Shareholders should consult
their own tax advisers regarding their particular circumstances to determine
whether a disposition of Fund shares is properly treated as a sale for tax
purposes, as is assumed in the foregoing discussion.
The Funds may be required to withhold, as "backup withholding," federal income
tax at a rate of 31% from dividends (including distributions from a Fund's net
long-term capital gains) and share redemption and exchange proceeds to
individuals and other non-exempt shareholders who fail to furnish the Funds with
a correct taxpayer identification number ("TIN") certified under penalties of
perjury, or if the Internal Revenue Service or a broker notifies the Funds that
the payee has failed to properly report interest or dividend income to the
Internal Revenue Service or that the TIN furnished by the payee to the Funds is
incorrect, or if (when
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<PAGE>
required to do so) the payee fails to certify under penalties of perjury that it
is not subject to backup withholding. Any amounts withheld may be credited
against a shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
Shareholders who, as to the United States, are nonresident aliens, foreign
corporations, fiduciaries of foreign trusts or estates, foreign partnerships or
other non-U.S. investors generally will be subject to U.S. withholding tax at
the rate of 30% on distributions treated as ordinary income unless the tax is
reduced or eliminated pursuant to a tax treaty or the dividends are effectively
connected with a U.S. trade or business of the shareholder. In the latter case
the dividends will be subject to tax on a net income basis at the graduated
rates applicable to U.S. individuals or domestic corporations. Distributions of
net capital gain, including amounts retained by a Fund which are designated as
undistributed capital gains, to a non-U.S. shareholder will not be subject to
U.S. federal income or withholding tax unless the distributions are effectively
connected with the shareholder's trade or business in the United States or, in
the case of a shareholder who is a nonresident alien individual, the shareholder
is present in the United States for 183 days or more during the taxable year and
certain other conditions are met.
Any gain realized by a non-U.S. shareholder upon a sale or redemption of shares
of a Fund will not be subject to U.S. federal income or withholding tax unless
the gain is effectively connected with the shareholder's trade or business in
the United States, or in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the United States for 183 days or more
during the taxable year and certain other conditions are met. Non-U.S. investors
should consult their tax advisers about the applicability of U.S. federal income
or withholding taxes to certain distributions received by them.
STATE AND LOCAL
The Funds may be subject to state or local taxes in jurisdictions in which the
Funds may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of a Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in the Fund may have tax consequences for
shareholders different from those of a direct investment in the Fund's portfolio
securities. Shareholders should consult their own tax advisers concerning these
matters.
GENERAL INFORMATION ABOUT THE TRUST
GENERAL
The Trust is an open-end investment company organized as a Delaware business
trust on September 13, 1993. The Trust commenced operations on January 3, 1994.
The Board of Trustees of the Trust is responsible for the overall management and
supervision of the affairs of the Trust. The Declaration of Trust authorizes the
Board of Trustees to create separate investment series or portfolios of shares.
As of the date hereof, the Trustees have established the thirteen Funds
described in this SAI and nine 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. On
May 21, 1998, the European Equity Fund changed its name to the European Equity
Growth Fund and the Pacific Basin Equity Fund changed its name to the New Asia
Fund as indicated on the cover page of this Statement of Additional Information.
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
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<PAGE>
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.
In the event of a liquidation or dissolution of the Trust or an individual Fund,
shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund. Shareholders of a Fund are
entitled to participate in the net distributable assets of the particular Fund
involved on liquidation, based on the number of shares of the Fund that are held
by each shareholder.
As of the date of this SAI, SEI Investments Distributions Co. owned 100% of the
outstanding shares of Global Equity Fund, New Asia Fund and Japanese Small Cap
Equity Fund.
As of December 16, 1998, the following shareholders owned the following
respective percentages of the outstanding institutional shares of the indicated
Funds:
INTERNATIONAL SMALL CAP EQUITY FUND:
Kroger Company Master Retirement Trust, c/o The Northern Trust Co., P.O. Box
92956, Chicago, IL 60675-2956
(20.98%)
Black & Decker Defined Benefit Plan Master Trust, c/o State Street Bank & Trust
Co., P.O. Box 1992, Boston, MA 02105-1992
(25.16%)
Delta Airlines Inc. c/o Harris Trust & Savings, 111 W Monroe Street SE, Chicago,
IL 60603
(46.68%)
Pitney Bowes Retirement Plan, c/o State Street Bank & Trust Co., One Enterprise
Drive W7A, North Quincy, MA 02171-2126
(6.44%)
EMERGING MARKETS EQUITY FUND:
Motorola Employees Savings & Profit Sharing Trust, c/o Northern Trust Co., P.O.
Box 92956, Chicago, IL 60675-2956
(45.82%)
Motorola Pension Fund, c/o Harris Trust, 111 West Monroe, P.O. Box 755, Chicago,
IL 60690-0755
(50.97%)
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<PAGE>
GLOBAL FIXED INCOME FUND:
The American University in Cairo, 420 Fifth Ave., New York, NY 10018-2729
(22.47%)
Town of Plymouth Retirement System, 11 Lincoln St., Plymouth, MA 02360-3386
(11.02%)
Museum of Fine Arts Boston, 465 Huntington Ave., Boston, MA 02115-5597
(9.94%)
Foundation for Seacoast Health, P.O. Box 4606, Portsmouth, NH 03802-4606
(10.42%)
Wofford College, c/o Bankers Trust Co., 100 Plaza One MS 3029, Jersey City, NJ
07311-3902
(20.51%)
The American University in Cairo, In Respect of USAid Endowment, 420 Fifth Ave.,
New York, NY 10018-2729
(5.67%)
INTERNATIONAL FIXED INCOME FUND:
Bay City Policemen & Firemen Retirement System, Defined Benefit Pension Plan,
c/o Gary Fields, 301 Washington Ave, Bay City, MI 48708-5837
(15.65%)
Dingle & Co, c/o Comerica Bank, PO Box 75000, Detroit MI 48275-0001
(21.68%)
James R. Trueman Irrev. Subchapter S Trust, c/o Northern Trust, 50 S LaSalle
St., P.O. 92956, Chicago IL 60675-2956
(47.13%)
US Trust Company NA, 4380 SW Macadam Ave, Suite 450, Portland, OR 97201-6407
(9.00%)
EMERGING MARKETS DEBT FUND:
Iowa Public Employees Retirement System, 600 E. Court Avenue, Des Moines, IA
50309-2021
(9.82%)
Los Angeles City Employees Retirement Systems, 360 E 2nd St, Los Angeles, CA
90012-4207
(8.45%)
State of Wisconsin Investment Board, 121 E Wilson St., P.O. Box 7847, Madison WI
53707-7847
(15.05%)
Los Angeles County Employees Retirement Association, 300 N Lake Ave., Suite 850,
Pasadena, CA 91101-4109
(9.58%)
Bell Atlantic Master Trust, c/o Bost & Co., P.O. Box 3198, Pittsburgh, PA
15230-3198
(22.98%)
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<PAGE>
EUROPEAN SMALL CAP EQUITY FUND:
Pitney Bowes Retirement Plan, c/o State Street Bank & Trust Co., One Enterprise
Drive W7A, North Quincy, MA 02171-2126
(99.93%)
INTERNATIONAL EQUITY FUND:
Morgan Grenfell Inc., (Delaware Corporation), 885 Third Avenue, New York, NY
10022
(64.65%)
Deutsche Bank Securities C/F David N. Wilner, 1251 Avenue of the Americas, New
York, NY 10020-1104
(22.49%)
Miter & Co., fbo Deutsche Bank, P.O. Box 2977, Milwaukee, WI 53201-2977
(5.55%)
Deutsche Bank Securities C/F Dr. Dieter Kraus, 1251 Avenue of the Americas, New
York, NY 10020-1104
(5.48%)
EUROPEAN EQUITY GROWTH FUND:
Louisiana Municipal Police Employees' Retirement System, 8401 United Plaza
Blvd., Suite 270, Baton Rouge, LA 70809-7017
(98.09%)
CORE GLOBAL FIXED INCOME FUND:
University of North Dakota Foundation, PO Box 8157, Grand Forks, ND 58202-8157
(28.87%)
New Hampshire Charitable Foundation, 870 Westminster St., Providence, RI
02903-4024
(35.21%)
Alexander Eastman Foundation, 37 Pleasant St., Concord, NH 03301-4005
(5.18%)
Goodall Hospital Custody, c/o Fleet National Bank, P.O. Box 92800, Rochester, NY
14692-8900
(11.40%)
Bristol County Retirement Board, 645 County St., Taunton, MA 02780-3623
(19.33%)
As of December 16, 1998, the following shareholders owned the following
respective percentages of the outstanding service shares of the indicated Funds:
EMERGING MARKETS DEBT FUND SERVICE SHARES:
Secs Corp., c/o Donaldson Lufkin & Jenrette, P.O. Box 2052, Jersey City, NJ
07303-2052
(95.89%)
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<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is organized as a Delaware business trust and, under Delaware law, the
shareholders of a business trust are not generally subject to liability for the
debts or obligations of the trust. Similarly, Delaware law provides that none of
the Funds will be liable for the debts or obligations of any other Fund.
However, no similar statutory or other authority limiting business trust
shareholder liability exists in other states. As a result, to the extent that a
Delaware business trust or a shareholder is subject to the jurisdiction of the
courts in such other states, the courts may not apply Delaware law and may
thereby subject the Delaware business trust shareholders to liability. To guard
against this risk, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. Notice of such
disclaimer will normally be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification by the relevant Fund for any loss suffered by a
shareholder as a result of an obligation of the Fund. The Declaration of Trust
also provides that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon. The Trustees believe that, in view of the above,
the risk of personal liability of shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
CONSIDERATION FOR PURCHASES OF SHARES
The Trust generally will not issue shares of the Funds for consideration other
than cash. At the Trust's sole discretion, however, it may issue Fund shares for
consideration other than cash in connection with an acquisition of portfolio
securities (other than municipal debt securities issued by state political
subdivisions or their agencies or instrumentalities) or pursuant to a bona fide
purchase of assets, merger or other reorganization, provided the securities meet
the investment objectives and policies of the Fund and the securities are
acquired by the Fund for investment and not for resale. An exchange of
securities for Fund shares will generally be a taxable transaction to the
shareholder.
ADDITIONAL INFORMATION
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Trust's independent accountants, providing audit services,
including review and consultation in connection with various filings by the
Trust with the Commission and tax authorities.
REGISTRATION STATEMENT
The Trust has filed with the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities of the Funds and certain other series of
the Trust. If further information is desired with respect to the Trust, the
Funds or such other series, reference is made to the Registration Statement and
the exhibits filed as a part thereof.
FINANCIAL STATEMENTS
The Trust's audited financial statements for the period ended October 31, 1998
are included in, and incorporated by reference into, this Statement of
Additional Information in reliance upon the report of PricewaterhouseCoopers
LLP, the Trust's independent accountants, as experts in accounting and auditing.
The financial statements of the Trust for the periods ended on and prior to
October 31, 1998 are included in, and incorporated by reference into, this
Statement of Additional Information from the Trust's 1998 Annual Report to
Shareholders for the year ended October 31, 1998 (filed electronically on
December , 1998; file no. ; accession no. , and will be
attached to each copy of such Statement of Additional Information that is
distributed.
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<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS CATEGORIES OF
MOODY'S INVESTORS SERVICE, INC. AND
STANDARD & POOR'S RATINGS GROUP
Moody's Investors Service, Inc. ("Moody's") describes classifications of fixed
income securities (not including commercial paper) as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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.
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<PAGE>
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.
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<PAGE>
APPENDIX B
QUALITY DISTRIBUTION FOR EMERGING MARKETS DEBT FUND
During the fiscal year ended October 31, 1997, the percentages of Morgan
Grenfell Emerging Market Debt Fund's assets invested in unrated debt securities
and securities rated in particular rating categories by Standard & Poor's were,
on a weighted average basis, as follows*:
<TABLE>
<CAPTION>
Percentage
of
Total
Standard & Poor's (Moody's) Ratings Investments
- -------------------------------------------------- ------------
<S> <C>
Not Rated......................................... 15.3%**
Rated by Standard & Poor's (Moody's):
BBB+, BBB, BBB-................................... 2%
BB+, BB, BB-, (Ba)................................ 53.5%
B+, B, B- (B)..................................... 12.1%
Cash.............................................. 17.1%
</TABLE>
- ---------
* Based on the average of month-end portfolio holdings during the fiscal year
ended October 31, 1997. Asset composition does not represent actual holdings
on October 31, 1997; 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: 12.1%, B+, B, B- (B); and 0%, CCC+, CCC, CCC- (Caa).
- --------------------------------------------------------------------------------
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<PAGE>
APPENDIX C
PORTFOLIO MANAGER INFORMATION
<TABLE>
<CAPTION>
FUNDS PORTFOLIO MANAGERS
- ------------------------------------------------------------------------------------------- ---------------------
<S> <C>
Morgan Grenfell International Equity Fund Patrick Disney
Patrick Deane
Alex Tedder
William Thomas
Morgan Grenfell Global Equity Fund Patrick Disney
Patrick Deane
Alex Tedder
William Thomas
David Heape
Morgan Grenfell European Equity Growth Fund Richard Wilson
Marco Ricci
Morgan Grenfell New Asia Fund William Thomas
Morgan Grenfell International Small Cap Equity Fund Jonathan Wild
Marco Ricci
Lim Ser Mui
Atsuhiko Masuda
Richard Curling
Helene Jelman
Morgan Grenfell Japanese Small Cap Equity Fund James Pulsford
Atsuhiko Masuda
Morgan Grenfell European Small Cap Equity Fund Marco Ricci
Jonathan Wild
Richard Curling
Helene Jelman
Morgan Grenfell Emerging Markets Equity Fund Neil Jenkins
Alan Nesbit
Christopher Turner
Andrew Williamson
Daniel Salter
Morgan Grenfell Core Global Fixed Income Fund Ian Kelson
Annette Fraser
Morgan Grenfell Global Fixed Income Fund Ian Kelson
Annette Fraser
Morgan Grenfell International Fixed Income Fund Ian Kelson
Annette Fraser
Morgan Grenfell Emerging Markets Debt Fund Ian Kelson
Simon Treacher
David Dowsett
Morgan Grenfell Emerging Local Currency Debt Fund Ian Kelson
Simon Treacher
David Dowsett
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO MANAGER EXPERTISE PROFESSIONAL EXPERIENCE
- ---------------------- --------------------------- -------------------------------------------------------------
<S> <C> <C>
Richard Curling European Equities Director, MGAM (since 1996); MGIM (since 1989); Fund
Director, Manager--Small Companies, MGIS (since 1986).
Patrick Deane UK Equities Fund Manager, MGIS (since 1994); Fund Manager, HSBC Asset
Management (1992-1994); Fund Manager, Midland Montagu Asset
Management (1990-1992).
Patrick Disney EAFE Markets Managing Director, MGIS (since 1988); Director, MGIS
(1987-1988); EAFE Team (since 1981).
David Dowsett Emerging Markets Debt Portfolio Manager, Emerging Markets Debt, MGIS (since 1995);
MGIFM (since 1994).
Annette Fraser Global Fixed Income Portfolio Manager, Fixed Income Team, MGIS (since 1992); Fund
Manager, MGIFM (since 1990).
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).
Helene Jelman European Equities Fund Manager, MGIS (since 1996); Cazenove (1995-1996); Price
Waterhouse (1991-1995).
Neil Jenkins, CFA Emerging Markets Director, MGIS and Head of Emerging Markets (since 1997);
Global and Emerging Markets Fixed Income Portfolio Manager
(1996-1997); Director, MGIFM (since 1995); Vice President,
MGIT (since 1993); Director, MG Inc. (1991-1996); Morgan
Grenfell, Moscow Office (1988-1990); Morgan Grenfell &
Company Ltd. (since 1985).
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) (1981-1985).
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).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO MANAGER EXPERTISE PROFESSIONAL EXPERIENCE
- ---------------------- --------------------------- -------------------------------------------------------------
<S> <C> <C>
Alan Nesbit Emerging Markets Director of Morgan Grenfell Asset Management Ltd. (since
1985) and Morgan Grenfell Trust Managers; Portfolio Manager,
Latin American Equities, MGIS (since 1991).
James Pulsford Japanese Markets Portfolio Manager, Japanese Markets, MGIS (since 1987); UK
research (since 1984).
Marco Ricci Continental Europe Fund Manager, MGIS--Continental Europe (since 1997); Analyst,
Fidelity International Ltd. (1994-1997); Corporate Finance,
Bankers Trust Co., (1993); Analyst, Schroeders Plc (1992).
Daniel Salter European Equities Fund Manager, MGIS (since 1995); Fund Manager, MGIFM (since
1994).
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 Markets Portfolio Manager, European Emerging Markets, MGIS (since
Equities 1993); Portfolio Manager, European Emerging Markets, MGIFM
(since 1990); Analyst/ Portfolio Manager, Equity and Law Life
Assurance Society (1986-1990).
Jonathan Wild International Equity Portfolio Manager, MGIS (since 1996); Portfolio Manager,
Markets, Small Finsbury Asset Management (1993-1995); Manager, Barclays De
Capitalization Companies Zoette Wedd (1991-1992); Manager, KPMG Peat Marwick
(1986-1991).
Andrew Williamson Emerging Markets-- South Fund Manager, MGIS (since 1996); Morgan Grenfell & Co.
Africa (1993-1996).
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>
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<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
Morgan Grenfell Incorporated
150 South Independence Square West
Philadelphia, Pennsylvania 19106
DISTRIBUTOR
SEI Financial Services Company
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
TRANSFER AGENT
DST Systems, Inc.
SEI Division CT-7 Tower
1004 Baltimore
Kansas City, Missouri 64105
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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
MIT-F-018-03
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
885 Third Avenue
New York, NY 10022
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999
Morgan Grenfell Investment Trust (the "Trust") is an open-end, management
investment company consisting of twenty-two investment portfolios, each having
separate and distinct investment objectives and policies. This Statement of
Additional Information provides supplementary information pertaining to the
following investment portfolios of the Trust (each, a "Fund"):
- 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 Total Return Bond Fund
- Morgan Grenfell High Yield Bond Fund
- Morgan Grenfell Smaller Companies Fund
- Morgan Grenfell Microcap Fund
- Morgan Grenfell Large Cap Growth Fund
This Statement of Additional Information is not a prospectus, and should be read
only in conjunction with the Funds' Institutional or Service Shares Prospectus
dated March 1, 1999, as amended or supplemented from time to time (the
"Prospectus"). A copy of the Prospectus may be obtained without charge from SEI
Financial Services Company, the Trust's Distributor, by calling 1-800-550-6426
or writing to 1 Freedom Valley Drive, Oaks, Pennsylvania 19456-0100
MIT-F-017-03
- --------------------------------------------------------------------------------
Page -1-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction............................................................................................... 3
Additional Information on Fund Investments and Strategies and Related Risks................................ 4
Investment Restrictions.................................................................................... 27
Trustees and Officers...................................................................................... 31
Investment Advisory and Other Services..................................................................... 33
Service Plan............................................................................................... 38
Portfolio Transactions..................................................................................... 39
Purchase and Redemption of Shares.......................................................................... 41
Performance Information.................................................................................... 42
Taxes...................................................................................................... 46
General Information About the Trust........................................................................ 52
Additional Information..................................................................................... 56
Financial Statements....................................................................................... 57
Appendix A--Description of Ratings......................................................................... 58
Appendix B--The Adviser's Microcap Investment Results...................................................... 61
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Trust or its Distributor. The Prospectus does not
constitute an offering by the Trust or by the Distributor in any jurisdiction in
which such offering may not lawfully be made. Shares of the Funds are not
available in certain states. Please call 1-800-550-6426 to determine
availability in your state.
- --------------------------------------------------------------------------------
Page -2-
<PAGE>
INTRODUCTION
The Trust is an open-end, management investment company that currently consists
of twenty-two separate investment portfolios. This Statement of Additional
Information relates to the following nine separate investment portfolios of the
Trust (the "Funds"):
Morgan Grenfell Smaller Companies Fund
Morgan Grenfell Microcap Fund
Morgan Grenfell Large Cap Growth Fund
(collectively, the "Equity Funds")
Morgan Grenfell Municipal Bond Fund
Morgan Grenfell Short-Term Municipal Bond Fund
(collectively, the "Municipal Funds")
Morgan Grenfell Fixed Income Fund
Morgan Grenfell Short-Term Fixed Income Fund
Morgan Grenfell Total Return Bond Fund
Morgan Grenfell High Yield Bond Fund
(collectively, the "Fixed Income Funds")
Each Fund other than the Total Return Bond Fund is classified as "diversified"
within the meaning of the Investment Company Act of 1940 (the "1940 Act").
Morgan Grenfell Inc. (the "Adviser") serves as investment adviser to the Funds.
SEI Financial Services Company (the "Distributor") serves as the Funds'
principal underwriter and distributor. Morgan Grenfell Inc. serves as the Funds'
administrator (the "Administrator").
The information contained in this Statement of Additional Information generally
supplements the information contained in the Prospectus. No investor should
invest in shares of a Fund without first reading the Prospectus. Capitalized
terms used herein and not otherwise defined have the same meaning ascribed to
them in the Prospectus.
- --------------------------------------------------------------------------------
Page -3-
<PAGE>
ADDITIONAL INFORMATION ON FUND INVESTMENTS
AND STRATEGIES AND RELATED RISKS
The following supplements the information contained in the Prospectus concerning
the investment objectives and policies of each Fund.
FIXED INCOME SECURITIES
GENERAL. Each Fund may invest in fixed income securities. In periods of
declining interest rates, the yield (income from portfolio investments over a
stated period of time) of a Fund that invests in fixed income securities may
tend to be higher than prevailing market rates, and in periods of rising
interest rates, the yield of the Fund may tend to be lower. Also, when interest
rates are falling, the inflow of net new money to such a Fund will likely be
invested in portfolio instruments producing lower yields than the balance of the
Fund's portfolio, thereby reducing the yield of the Fund. In periods of rising
interest rates, the opposite can be true. The net asset value of a Fund
investing in fixed income securities can generally be expected to change as
general levels of interest rates fluctuate. The value of fixed income securities
in a Fund's portfolio generally varies inversely with changes in interest rates.
Prices of fixed income securities with longer effective maturities are more
sensitive to interest rate changes than those with shorter effective maturities.
PRIVATE ACTIVITY AND INDUSTRIAL DEVELOPMENT BONDS. Each of the Funds other than
the Equity Funds may invest in private activity and industrial development
bonds, which are obligations issued by or on behalf of public authorities to
raise money to finance various privately owned or operated facilities for
business and manufacturing, housing, sports and pollution control. These bonds
are also used to finance public facilities such as airports, mass transit
systems, ports, parking or sewage or solid waste disposal facilities, as well as
certain other facilities or projects. The payment of the principal and interest
on such bonds is generally dependent solely on the ability of the facility's
user to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
PUT BONDS. Each of the Funds other than the Equity Funds may invest in "put"
bonds, which are tax exempt securities (including securities with variable
interest rates) that may be sold back to the issuer of the security at face
value at the option of the holder prior to their stated maturity. The Adviser
intends to purchase only those "put" bonds for which the put option is an
integral part of the security as originally issued. The option to "put" the bond
back to the issuer prior to the stated final maturity can cushion the price
decline of the bond in a rising interest rate environment. However, the premium
paid, if any, for an option to put will have the effect of reducing the yield
otherwise payable on the underlying security. For the purpose of determining the
"maturity" of securities purchased subject to an option to put, and for the
purpose of determining the dollar weighted average maturity of a Fund holding
such securities, the Fund will consider "maturity" to be the first date on which
it has the right to demand payment from the issuer of the put although the final
maturity of the security is later than such date.
U.S. GOVERNMENT SECURITIES. The Funds may invest in obligations issued or
guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (iii) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association, or (iv) only the credit
of the issuer. No assurance can be given that the U.S. Government will provide
financial support to U.S. Government agencies or instrumentalities in the
future.
- --------------------------------------------------------------------------------
Page -4-
<PAGE>
Each of the Funds other than the Equity Funds may also invest in separately
traded principal and interest components of securities guaranteed or issued by
the U.S. Government or its agencies, instrumentalities or sponsored enterprises
if such components are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS") or any
similar program sponsored by the U.S. Government. However, no Fund may actively
trade these instruments. STRIPS are sold as zero coupon securities. See "Zero
Coupon Securities."
CUSTODIAL RECEIPTS. Custodial receipts are interests in separately traded
interest and principal component parts of U.S. Government securities that are
issued by banks or brokerage firms and are created by depositing U.S. Government
securities into a special account at a custodian bank. The custodian holds the
interest and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Custodial receipts include Treasury Receipts ("TRs"), Treasury Investment Growth
Receipts ("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS").
TIGRs and CATS are interests in private proprietary accounts while TRs and
STRIPS (see "U.S. Government Securities" above) are interests in accounts
sponsored by the U.S. Treasury. Receipts are sold as zero coupon securities; for
more information, see "Zero Coupon Securities."
Each of the Funds other than the Equity Funds and the Municipal Funds may
acquire U.S. Government Securities and their unmatured interest coupons that
have been separated ("stripped") by their holder, typically a custodian bank or
investment brokerage firm. Having separated the interest coupons from the
underlying principal of the U.S. Government Securities, the holder will resell
the stripped securities in custodial receipt programs with a number of different
names, including TIGRs, and CATS. The stripped coupons are sold separately from
the underlying principal, which is usually sold at a deep discount because the
buyer receives only the right to receive a future fixed payment on the security
and does not receive any rights to periodic interest (cash) payments. The
underlying U.S. Treasury bonds and notes themselves are generally held in
book-entry form at a Federal Reserve Bank. Counsel to the underwriters of these
certificates or other evidences of ownership of U.S. Treasury securities have
stated that, in their opinion, purchasers of the stripped securities most likely
will be deemed the beneficial holders of the underlying U.S. Government
Securities for federal tax and securities purposes. In the case of CATS and
TIGRS, the Internal Revenue Service ( the "IRS") has reached this conclusion for
the purpose of applying the tax diversification requirements applicable to
regulated investment companies such as the Funds. CATS and TIGRS are not
considered U.S. Government Securities by the staff of the Commission. Further,
the IRS conclusion noted above is contained only in a general counsel
memorandum, which is an internal document of no precedential value or binding
effect, and a private letter ruling, which also may not be relied upon by the
Funds. The Trust is not aware of any binding legislative, judicial or
administrative authority on this issue.
ZERO COUPON SECURITIES. STRIPS and custodial receipts (TRs, TIGRs and CATS) are
sold as zero coupon securities, that is, fixed income securities that have been
stripped of their unmatured interest coupons. Zero coupon securities are sold at
a (usually substantial) discount and redeemed at face value at their maturity
date without interim cash payments of interest or principal. The amount of this
discount is accreted over the life of the security, and the accretion
constitutes the income earned on the security for both accounting and tax
purposes. Because a Fund must distribute the accreted amounts in order to
qualify for favorable tax treatment, it may have to sell portfolio securities to
generate cash to satisfy the applicable distribution requirements. Because of
these features, the market prices of zero coupon securities are generally more
volatile than the market prices of securities that have similar maturity but
that pay interest periodically. Zero coupon securities are likely to respond to
a greater degree to interest rate changes than are non-zero coupon securities
with similar maturity and credit qualities.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each of the Funds other than the Equity
Funds may invest in variable or floating rate instruments and variable rate
demand instruments, including variable amount
- --------------------------------------------------------------------------------
Page -5-
<PAGE>
master demand notes. These instruments will normally involve industrial
development or revenue bonds that provide that the rate of interest is set as a
specific percentage of a designated base rate (such as the prime rate) at a
major commercial bank. In addition, the interest rate on these securities may be
reset daily, weekly or on some other reset period and may have a floor or
ceiling on interest rate changes. A Fund holding such an instrument can demand
payment of the obligation at all times or at stipulated dates on short notice
(not to exceed 30 days) at par plus accrued interest.
Debt instruments purchased by a Fund may be structured to have variable or
floating interest rates. These instruments may include variable amount master
demand notes that permit the indebtedness to vary in addition to providing for
periodic adjustments in the interest rates. The Adviser will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and, if the instrument is subject to a demand
feature, will continuously monitor their financial ability to meet payment on
demand. Where necessary to ensure that a variable or floating rate instrument is
equivalent to the quality standards applicable to a Fund's fixed income
investments, the issuer's obligation to pay the principal of the instrument will
be backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. Any bank providing such a bank letter, line of credit,
guarantee or loan commitment will meet the Fund's investment quality standards
relating to investments in bank obligations. A Fund will invest in variable and
floating rate instruments only when the Adviser deems the investment to involve
minimal credit risk. The Adviser will also continuously monitor the
creditworthiness of issuers of such instruments to determine whether a Fund
should continue to hold the investments.
The absence of an active secondary market for certain variable and floating rate
notes could make it difficult to dispose of the instruments, and a Fund could
suffer a loss if the issuer defaults or during periods in which a Fund is not
entitled to exercise its demand rights.
Variable and floating rate instruments held by a Fund will be subject to the
Fund's limitation on investments in illiquid securities when a reliable trading
market for the instruments does not exist and the Fund may not demand payment of
the principal amount of such instruments within seven days.
YIELDS AND RATINGS. The yields on certain obligations, including the money
market instruments in which each Fund may invest (such as commercial paper and
bank obligations), are dependent on a variety of factors, including general
money market conditions, conditions in the particular market for the obligation,
the financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of Standard and Poor's
Ratings Group ("Standard & Poor's"), Moody's Investor Service, Inc. ("Moody's")
and other recognized rating organizations represent their respective opinions as
to the quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality or value. Consequently,
obligations with the same rating, maturity and interest rate may have different
market prices. See Appendix A for a description of the ratings provided by
Standard & Poor's, Moody's and certain other recognized rating organizations.
Subsequent to its purchase by a Fund, a rated security may cease to be rated or
its rating may be reduced below the minimum rating required for purchase by the
Fund. The Board of Trustees or the Adviser, pursuant to guidelines established
by the Board of Trustees, will consider such an event in determining whether the
Fund should continue to hold the security in accordance with the interests of
the Fund and applicable regulations of the Securities and Exchange Commission
(the "Commission"). In no event, however, will any Fund other than the Total
Return Bond Fund and the High Yield Bond Fund hold more than 5% of its net
assets in fixed income securities that are not investment grade.
LOWER QUALITY HIGH YIELD "HIGH RISK" DEBT OBLIGATIONS. The High Yield Bond Fund
and, to a lesser extent, the Total Return Bond Fund may invest in below
investment grade bonds, including securities in default. These securities are
considered speculative and, while generally offering 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. These lower quality bonds tend to be
affected by economic
- --------------------------------------------------------------------------------
Page -6-
<PAGE>
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 a Fund invests in such lower
quality securities, the achievement of its investment objective may be more
dependent on the Adviser's own credit analysis.
Below investment grade bonds 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 bonds is generally less liquid than the market for investment grade
bonds. Therefore, the Adviser's judgment may at times play a greater role in
valuing these securities than in the case of investment grade bonds, and it also
may be more difficult under certain adverse market conditions to sell these
lower quality securities to meet redemption requests, to respond to changes in
the market, or to determine accurately a Fund's net asset value.
As discussed above, the High Yield Bond Fund and, to a lesser extent, the Total
Return Bond Fund may invest in high yielding fixed income securities that are
rated lower than Baa by Moody's or BBB by Standard & Poor's and unrated
securities determined to be of comparable quality. The values of these lower
quality securities generally fluctuate more than those of higher quality
securities. In addition, these securities involve a greater possibility of an
adverse change in financial condition affecting the ability of the issuer to
make payments of interest and principal. The Adviser seeks to reduce these risks
through investment analysis and attention to current developments in interest
rates and economic conditions, but there can be no assurance that the Adviser
will be successful in reducing the risks associated with investments in such
securities. To the extent that the High Yield Bond Fund and the Total Return
Bond Fund invest in lower quality fixed income securities, the achievement of
their respective investment objectives will be more dependent on the Adviser's
ability than it would be otherwise.
The High Yield Bond Fund and the Total Return Bond Fund may invest in
pay-in-kind (PIK) securities, which pay interest in either cash or additional
securities, at the issuer's option, for a specified period. In addition, each
Fund may invest in zero coupon bonds. Both of these types of bonds may be more
speculative and subject to greater fluctuations in value than securities which
pay interest periodically and in cash, due to changes in interest rates. A Fund
will accrue income on such investments for tax and accounting purposes, as
required, which is distributable to shareholders and which, because no cash is
generally received at the time of accrual, may require the liquidation of other
portfolio securities to satisfy the Fund's distribution obligations. See "Taxes"
below.
The market value of fixed income securities which carry no equity participation
usually reflects yields generally available on securities of similar quality and
type. When such yields decline, the market value of a portfolio already invested
at higher yields can be expected to rise if such securities are protected
against early call. Similarly, when such yields increase, the market value of a
portfolio already invested at lower yields can be expected to decline.
CONVERTIBLE SECURITIES AND PREFERRED STOCKS
Subject to its investment objectives and policies, the Total Return Bond Fund,
the High Yield Bond Fund and each Equity Fund may invest in convertible
securities, which are ordinarily preferred stock or long-term debt obligations
of an issuer convertible at a stated exchange rate into common stock of the
issuer. The market value of convertible securities tends to decline as interest
rates increase and, conversely, to increase as interest rates decline.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the 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
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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. The convertible debt securities in which each Fund
may invest are subject to the same rating criteria and downgrade policy as the
Fund's investments in fixed income securities.
The Total Return Bond Fund, the High Yield Bond Fund and each of the Equity
Funds, subject to its investment objectives, may purchase preferred stock.
Preferred stocks are equity securities, but possess certain attributes of debt
securities and are generally considered fixed income securities. Holders of
preferred stocks normally have the right to receive dividends at a fixed rate
when and as declared by the issuer's board of directors, but do not participate
in other amounts available for distribution by the issuing corporation.
Dividends on the preferred stock may be cumulative, and in such cases all
cumulative dividends usually must be paid prior to dividend payments to common
stockholders. Because of this preference, preferred stocks generally entail less
risk than common stocks. Upon liquidation, preferred stocks are entitled to a
specified liquidation preference, which is generally the same as the par or
stated value, and are senior in right of payment to common stocks. However,
preferred stocks are equity securities in that they do not represent a liability
of the issuer and therefore do not offer as great a degree of protection of
capital or assurance of continued income as investments in corporate debt
securities. In addition, preferred stocks are subordinated in right of payment
to all debt obligations and creditors of the issuer, and convertible preferred
stocks may be subordinated to other preferred stock of the same issuer.
WARRANTS
Each Equity Fund may invest in warrants. Warrants generally entitle the holder
to buy a specified number of shares of common stock at a specified price, which
is often higher than the market price at the time of issuance, for a period of
years or in perpetuity. Warrants may be issued in units with other securities or
separately, and may be freely transferable and traded on exchanges. While the
market value of a warrant tends to be more volatile than that of the securities
underlying the warrant, the market value of a warrant may not necessarily change
with that of the underlying security. A warrant ceases to have value if it is
not exercised prior to any expiration date to which the warrant is subject. The
purchase of warrants involves a risk that a Fund could lose the purchase value
of a warrant if the right to subscribe to additional shares is not exercised
prior to the warrant's expiration. Also, the purchase of warrants involves the
risk that the effective price paid for the warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security.
MUNICIPAL SECURITIES
The Municipal Funds and, to a more limited extent, the Fixed Income Fund, the
Short-Term Fixed Income Fund, the Total Return Bond Fund and the High Yield Bond
Fund may invest in municipal securities. Municipal securities consist of bonds,
notes and other instruments issued by or on behalf of states, territories and
possessions of the United States (including the District of Columbia) and their
political subdivisions, agencies or instrumentalities, the interest on which is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from the federal
alternative minimum tax or from state and local taxes). Municipal securities may
also be issued on a taxable basis (i.e., the interest on such securities is not
exempt from regular federal income tax).
Municipal securities are often issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, housing, hospitals, mass transportation, schools, streets
and water and sewer works. Other public purposes for which municipal securities
may be issued include refunding outstanding obligations, obtaining funds for
general operating expenses, and obtaining funds to lend to other public
institutions and facilities. Municipal securities also include "private
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activity" or industrial development bonds, which are issued by or on behalf of
public authorities to provide financing aid to acquire sites or construct or
equip facilities within a municipality for privately or publicly owned
corporations.
The two principal classifications of municipal securities are "general
obligations" and "revenue obligations." General obligations are secured by the
issuer's pledge of its full faith and credit for the payment of principal and
interest although the characteristics and enforcement of general obligations may
vary according to the law applicable to the particular issuer. Revenue
obligations, which include, but are not limited to, private activity bonds,
resource recovery bonds, certificates of participation and certain municipal
notes, are not backed by the credit and taxing authority of the issuer and are
payable solely from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Nevertheless, the obligations of the issuer may also be
backed by a letter of credit, guarantee or insurance. General obligations and
revenue obligations may be issued in a variety of forms, including commercial
paper, fixed, variable and floating rate securities, tender option bonds,
auction rate bonds and capital appreciation bonds.
In addition to general obligations and revenue obligations, there is a variety
of hybrid and special types of municipal securities. There are also numerous
differences in the credit backing of municipal securities both within and
between these two principal classifications.
For the purpose of applying a Fund's investment restrictions, the identification
of the issuer of a municipal security which is not a general obligation is made
by the Adviser based on the characteristics of the municipal security, the most
important of which is the source of funds for the payment of principal and
interest on such securities.
An entire issue of municipal securities may be purchased by one or a small
number of institutional investors such as a Fund. Thus, the issue may not be
said to be publicly offered. Unlike some securities that are not publicly
offered, a secondary market exists for many municipal securities that were not
publicly offered initially and such securities can be readily marketable.
The obligations of an issuer to pay the principal of and interest on a municipal
security are subject to the provisions of bankruptcy, insolvency and other laws
affecting the rights and remedies of creditors, such as the Federal Bankruptcy
Act, and laws, if any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest or imposing other
constraints upon the enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of the issuer to pay when due principal of or interest on a municipal
security may be materially affected.
MUNICIPAL LEASES, CERTIFICATES OF PARTICIPATION AND OTHER PARTICIPATION
INTERESTS. A municipal lease is an obligation in the form of a lease or
installment purchase contract which is issued by a state or local government to
acquire equipment and facilities. Income from such obligations is generally
exempt from state and local taxes in the state of issuance (as well as regular
Federal income tax). Municipal leases frequently involve special risks not
normally associated with general obligation or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
relieve the governmental issuer of any obligation to make future payments under
the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Thus, a Fund's
investment in municipal leases will be subject to the special risk that the
governmental issuer may not appropriate funds for lease payments.
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In addition, such leases or contracts may be subject to the temporary abatement
of payments in the event the issuer is prevented from maintaining occupancy of
the leased premises or utilizing the leased equipment. Although the obligations
may be secured by the leased equipment or facilities, the disposition of the
property in the event of nonappropriation or foreclosure might prove difficult,
time consuming and costly, and result in an unsatisfactory or delayed recoupment
of a Fund's original investment.
Certificates of participation represent undivided interests in municipal leases,
installment purchase contracts or other instruments. The certificates are
typically issued by a trust or other entity which has received an assignment of
the payments to be made by the state or political subdivision under such leases
or installment purchase contracts.
Certain municipal lease obligations and certificates of participation may be
deemed illiquid for the purpose of the Funds' respective limitations on
investments in illiquid securities. Other municipal lease obligations and
certificates of participation acquired by a Fund may be determined by the
Adviser, pursuant to guidelines adopted by the Trustees of the Trust, to be
liquid securities for the purpose of such Fund's limitation on investments in
illiquid securities. In determining the liquidity of municipal lease obligations
and certificates of participation, the Adviser will consider a variety of
factors including: (1) the willingness of dealers to bid for the security; (2)
the number of dealers willing to purchase or sell the obligation and the number
of other potential buyers; (3) the frequency of trades or quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Adviser will consider factors unique to particular lease obligations and
certificates of participation affecting the marketability thereof. These include
the general creditworthiness of the issuer, the importance to the issuer of the
property covered by the lease and the likelihood that the marketability of the
obligation will be maintained throughout the time the obligation is held by a
Fund. No Fund may invest more than 5% of its net assets in municipal leases.
Each of the Funds other than the Equity Funds may purchase participations in
municipal securities held by a commercial bank or other financial institution.
Such participations provide a Fund with the right to a pro rata undivided
interest in the underlying municipal securities. In addition, such
participations generally provide a Fund with the right to demand payment, on not
more than seven days notice, of all or any part of the Fund's participation
interest in the underlying municipal security, plus accrued interest.
MUNICIPAL NOTES. Municipal securities in the form of notes generally are used
to provide for short-term capital needs, in anticipation of an issuer's receipt
of other revenues or financing, and typically have maturities of up to three
years. Such instruments may include Tax Anticipation Notes, Revenue Anticipation
Notes, Bond Anticipation Notes, Tax and Revenue Anticipation Notes and
Construction Loan Notes. Tax Anticipation Notes are issued to finance the
working capital needs of governments. Generally, they are issued in anticipation
of various tax revenues, such as income, sales, property, use and business
taxes, and are payable from these specific future taxes. Revenue Anticipation
Notes are issued in expectation of receipt of other kinds of revenue, such as
federal revenues available under federal revenue sharing programs. Bond
Anticipation Notes are issued to provide interim financing until long-term bond
financing can be arranged. In most cases, the long-term bonds then provide the
funds needed for repayment of the notes. Tax and Revenue Anticipation Notes
combine the funding sources of both Tax Anticipation Notes and Revenue
Anticipation Notes. Construction Loan Notes are sold to provide construction
financing. These notes are secured by mortgage notes insured by the Federal
Housing Authority; however, the proceeds from the insurance may be less than the
economic equivalent of the payment of principal and interest on the mortgage
note if there has been a default. The obligations of an issuer of municipal
notes are generally secured by the anticipated revenues from taxes, grants or
bond financing. An investment in such instruments, however, presents a risk that
the anticipated revenues will not be received or that such revenues will be
insufficient to satisfy the issuer's payment obligations under the notes or that
refinancing will be otherwise unavailable.
TAX-EXEMPT COMMERCIAL PAPER. Issues of tax-exempt commercial paper typically
represent short-term, unsecured, negotiable promissory notes. These obligations
are issued by state and local governments and
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their agencies to finance working capital needs of municipalities or to provide
interim construction financing and are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases, tax-exempt
commercial paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by banks or
other institutions.
PRE-REFUNDED MUNICIPAL SECURITIES. The principal of and interest on municipal
securities that have been pre-refunded are no longer paid from the original
revenue source for the securities. Instead, after pre-refunding the source of
such payments is typically an escrow fund consisting of obligations issued or
guaranteed by the U.S. Government. The assets in the escrow fund are derived
from the proceeds of refunding bonds issued by the same issuer as the
pre-refunded municipal securities. Issuers of municipal securities use this
advance refunding technique to obtain more favorable terms with respect to
securities that are not yet subject to call or redemption by the issuer. For
example, advance refunding enables an issuer to refinance debt at lower market
interest rates, restructure debt to improve cash flow or eliminate restrictive
covenants in the indenture or other governing instrument for the pre-refunded
municipal securities. However, except for a change in the revenue source from
which principal and interest payments are made, the pre-refunded municipal
securities remain outstanding on their original terms until they mature or are
redeemed by the issuer. Pre-refunded municipal securities are usually purchased
at a price which represents a premium over their face value.
TENDER OPTION BONDS. A tender option bond is a municipal security (generally
held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates. The bond is typically issued in conjunction with the agreement
of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which such institution grants the security holders the option, at
periodic intervals, to tender their securities to the institution and receive
the face value thereof.
As consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with the
tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term tax-exempt rate.
However, an institution will not be obligated to accept tendered bonds in the
event of certain defaults or a significant downgrade in the credit rating
assigned to the issuer of the bond. The liquidity of a tender option bond is a
function of the credit quality of both the bond issuer and the financial
institution providing liquidity. Tender option bonds are deemed to be liquid
unless, in the opinion of the Adviser, the credit quality of the bond issuer and
the financial institution is deemed, in light of the Fund's credit quality
requirements, to be inadequate. Each Municipal Fund intends to invest only in
tender option bonds the interest on which will, in the opinion of bond counsel,
counsel for the issuer of interests therein or counsel selected by the Adviser,
be exempt from regular federal income tax. However, because there can be no
assurance that the IRS will agree with such counsel's opinion in any particular
case, there is a risk that a Municipal Fund will not be considered the owner of
such tender option bonds and thus will not be entitled to treat such interest as
exempt from such tax. Additionally, the federal income tax treatment of certain
other aspects of these investments, including the proper tax treatment of tender
option bonds and the associated fees, in relation to various regulated
investment company tax provisions is unclear. Each Municipal Fund intends to
manage its portfolio in a manner designed to eliminate or minimize any adverse
impact from the tax rules applicable to these investments.
AUCTION RATE SECURITIES. Auction rate securities consist of auction rate
municipal securities and auction rate preferred securities issued by closed-end
investment companies that invest primarily in municipal securities. Provided
that the auction mechanism is successful, auction rate securities usually permit
the holder to sell the securities in an auction at par value at specified
intervals. The dividend is reset by "Dutch" auction
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in which bids are made by broker-dealers and other institutions for a certain
amount of securities at a specified minimum yield. The dividend rate set by the
auction is the lowest interest or dividend rate that covers all securities
offered for sale. While this process is designed to permit auction rate
securities to be traded at par value, there is the risk that an auction will
fail due to insufficient demand for the securities.
Dividends on auction rate preferred securities issued by a closed-end fund may
be designated as exempt from federal income tax to the extent they are
attributable to tax-exempt interest income earned by the fund on the securities
in its portfolio and distributed to holders of the preferred securities,
provided that the preferred securities are treated as equity securities for
federal income tax purposes and the closed-end fund complies with certain
requirements under the Internal Revenue Code of 1986, as amended (the "Code").
For purposes of complying with the 20% limitation on each Municipal Fund's
investments in taxable investments, auction rate preferred securities will be
treated as taxable investments unless substantially all of the dividends on such
securities are expected to be exempt from regular federal income taxes.
A Fund's investments in auction rate preferred securities of closed-end funds
are subject to limitations on investments in other U.S. registered investment
companies, which limitations are prescribed by the 1940 Act. These limitations
include prohibitions against acquiring more than 3% of the voting securities of
any other such investment company, and investing more than 5% of the Fund's
assets in securities of any one such investment company or more than 10% of its
assets in securities of all such investment companies. A Fund will indirectly
bear its proportionate share of any management fees paid by such closed-end
funds in addition to the advisory fee payable directly by the Fund.
PRIVATE ACTIVITY BONDS. Certain types of municipal securities, generally
referred to as industrial development bonds (and referred to under current tax
law as private activity bonds), are issued by or on behalf of public authorities
to obtain funds for privately-operated housing facilities, airport, mass transit
or port facilities, sewage disposal, solid waste disposal or hazardous waste
treatment or disposal facilities and certain local facilities for water supply,
gas or electricity. Other types of industrial development bonds, the proceeds of
which are used for the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities, may constitute municipal
securities, although the current federal tax laws place substantial limitations
on the size of such issues. The interest from certain private activity bonds
owned by a Fund (including a Municipal Fund's distributions attributable to such
interest) may be a preference item for purposes of the alternative minimum tax.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
GENERAL. The Fixed Income Fund, the Short-Term Fixed Income Fund, the Total
Return Bond Fund, the High Yield Bond Fund and, to a more limited extent, the
Municipal Funds may invest in mortgage-backed securities, which represent direct
or indirect participations in, or are collateralized by and payable from,
mortgage loans secured by real property. The Fixed Income Fund, the Short-Term
Fixed Income Fund, the Total Return Bond Fund and the High Yield Bond Fund may
also invest in asset-backed securities, which represent participations in, or
are secured by and payable from, assets such as motor vehicle installment sales,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements and
other categories of receivables. Such securities are generally issued by trusts
and special purpose corporations.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying mortgage-backed and
asset-backed securities can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Accordingly,
the market values of such securities will vary with changes in market interest
rates generally and in yield differentials among various kinds of U.S.
Government securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present
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certain risks that are not presented by mortgage-backed securities because
asset-backed securities generally do not have the benefit of a security interest
in collateral that is comparable to mortgage assets. In addition, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities. Many mortgage and
asset-backed securities may be considered derivative instruments. No Fund will
invest 25% or more of its total assets in collateralized mortgage obligations or
in asset-backed securities (in each case, excluding U.S. Government Securities).
MORTGAGE-BACKED. Each of the Funds other than the Equity Funds may invest in
mortgage-backed securities, including derivative instruments. Mortgage-backed
securities represent direct or indirect participations in or obligations
collateralized by and payable from mortgage loans secured by real property. A
Fund may invest in mortgage-backed securities issued or guaranteed by U.S.
Government agencies or instrumentalities such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). Obligations
of GNMA are backed by the full faith and credit of the U.S. Government.
Obligations of FNMA and FHLMC are not backed by the full faith and credit of the
U.S. Government but are considered to be of high quality since they are
considered to be instrumentalities of the United States. The market value and
yield of these mortgage-backed securities can vary due to market interest rate
fluctuations and early prepayments of underlying mortgages. These securities
represent ownership in a pool of Federally insured mortgage loans with a maximum
maturity of 30 years. The scheduled monthly interest and principal payments
relating to mortgages in the pool will be "passed through" to investors.
Government mortgage-backed securities differ from conventional bonds in that
principal is paid back to the certificate holders over the life of the loan
rather than at maturity. As a result, there will be monthly scheduled payments
of principal and interest.
Only the Fixed Income Fund, the Short-Term Fixed Income Fund, the Total Return
Bond Fund and the High Yield Bond Fund may invest in mortgage-backed securities
issued by non-governmental entities including collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs").
CMOs are securities collateralized by mortgages, mortgage pass-throughs,
mortgage pay-through bonds (bonds representing an interest in a pool of
mortgages where the cash flow generated from the mortgage collateral pool is
dedicated to bond repayment), and mortgage-backed bonds (general obligations of
the issuers payable out of the issuers' general funds and additionally secured
by a first lien on a pool of single family detached properties). Many CMOs are
issued with a number of classes or series which have different maturities and
are retired in sequence. Investors purchasing such CMOs in the shortest
maturities receive or are credited with their pro rata portion of the
unscheduled prepayments of principal up to a predetermined portion of the total
CMO obligation. Until that portion of such CMO obligation is repaid, investors
in the longer maturities receive interest only. Accordingly, the CMOs in the
longer maturity series are less likely than other mortgage pass-throughs to be
prepaid prior to their stated maturity. Although some of the mortgages
underlying CMOs may be supported by various types of insurance, and some CMOs
may be backed by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by U.S. Government agencies or instrumentalities, the CMOs themselves
are not generally guaranteed.
REMICs are private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs in
that they issue multiple classes of securities, including "regular" interests
and "residual" interests. The Funds do not intend to acquire residual interests
in REMICs under current tax law, due to certain disadvantages for regulated
investment companies that acquire such interests.
Mortgage-backed securities are subject to unscheduled principal payments
representing prepayments on the underlying mortgages. Although these securities
may offer yields higher than those available from other types of securities,
mortgage-backed securities may be less effective than other types of securities
as a means of "locking in" attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, the value of these
securities likely will not rise as much as comparable debt securities
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due to the prepayment feature. In addition, these prepayments can cause the
price of a mortgage-backed security originally purchased at a premium to decline
in price to its par value, which may result in a loss.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Adviser believes that the estimated average life is the most appropriate measure
of the maturity of a mortgage-backed security. Accordingly, in order to
determine whether such security is a permissible investment, it will be deemed
to have a remaining maturity of three years or less if the average life, as
estimated by the Adviser, is three years or less at the time of purchase of the
security by a Fund. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns. The assumption is based upon current
interest rates, current conditions in the relevant housing markets and other
factors. The assumption is necessarily subjective, and thus different market
participants could produce somewhat different average life estimates with regard
to the same security. Although the Adviser will monitor the average life of the
portfolio securities of each Fund with a portfolio maturity policy and make
needed adjustments to comply with such Funds' policy as to average dollar
weighted portfolio maturity, there can be no assurance that the average life of
portfolio securities as estimated by the Adviser will be the actual average life
of such securities.
No Fund will invest 25% or more of its total assets in CMOs (other than U.S.
Government Securities).
ASSET-BACKED SECURITIES. The Fixed Income Fund, the Short-Term Fixed Income
Fund, the Total Return Bond Fund and the High Yield Bond Fund may invest in
asset-backed securities, which represent participations in, or are secured by
and payable from, pools of assets including company receivables, truck and auto
loans, leases and credit card receivables. The asset pools that back
asset-backed securities are securitized through the use of privately-formed
trusts or special purpose corporations. Payments or distributions of principal
and interest may be guaranteed up to certain amounts and for a certain time
period by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation, or other credit
enhancements may be present. Certain asset backed securities may be considered
derivative instruments. No Fund will invest 25% or more of its total assets in
asset-backed securities.
SECURITIES OF FOREIGN ISSUERS
FOREIGN SECURITIES. Subject to their respective investment objectives and
policies, each of the Funds other than the Municipal Funds may invest in
securities of foreign issuers. While the non-U.S. investments of the Equity
Funds and the Total Return Bond Fund may be denominated in any currency, the
investments of the Fixed Income Fund, the Short-Term Fixed Income Fund and the
High Yield Bond Fund in foreign securities may be denominated only in the U.S.
dollar. Foreign securities may offer investment opportunities not available in
the United States, but such investments also involve significant risks not
typically associated with investing in domestic securities. In many foreign
countries, there is less publicly available information about foreign issuers,
and there is less government regulation and supervision of foreign stock
exchanges, brokers and listed companies. Also, in many foreign countries,
companies are not subject to uniform accounting, auditing, and financial
reporting standards comparable to those applicable to domestic issuers. Security
trading practices differ and there may be difficulty in enforcing legal rights
outside the United States. Settlement of transactions in some foreign markets
may be delayed or may be less frequent than in the United States, which could
affect the liquidity of the Funds' portfolios. Additionally, in some foreign
countries, there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of securities, property, or other Fund assets,
political or social instability or diplomatic developments which could affect
investments in foreign securities.
To the extent the investments of the Equity Funds and the Total Return Bond Fund
are denominated in foreign currencies, the net asset values of such Funds may be
affected favorably or unfavorably by fluctuations in currency exchange rates and
by changes in exchange control regulations. For example, if the
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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 Equity Funds and
the Total Return Bond Fund will incur transaction costs in connection with
conversions between currencies.
FOREIGN GOVERNMENT SECURITIES. The foreign government securities in which each
of the Funds other than the Municipal Funds may invest generally consist of debt
obligations issued or guaranteed by national, state or provincial governments or
similar political subdivisions. Each of the Funds other than the Municipal Funds
may invest in foreign government securities in the form of American Depositary
Receipts. Foreign government securities also include debt securities of
supranational 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. Currently, the Fixed Income Fund and the Short-Term Fixed Income Fund
intend to invest only in obligations issued or guaranteed by the Asian
Development Bank, the Inter-American Development Bank, the International Bank
for Reconstruction and Development (the "World Bank"), the African Development
Bank, the European Coal and Steel Community, the European Economic Community,
the European Investment Bank and the Nordic Investment Bank. Foreign government
securities also include mortgage-related securities issued or guaranteed by
national, state or provincial governmental instrumentalities, including
quasi-governmental agencies.
SMALL AND MICRO CAPITALIZATION COMPANIES
The Smaller Companies Fund and Microcap Fund invest a significant portion of
their assets in smaller, lesser-known companies which the Adviser believes offer
greater growth potential than larger, more mature, better-known companies.
Investing in the securities of these companies, however, also involves greater
risk and the possibility of greater portfolio price volatility. Among the
reasons for the greater price volatility of these small companies and unseasoned
stocks are the less certain growth prospects of smaller firms, the lower degree
of liquidity in the markets for such stocks and the greater sensitivity of small
companies to changing economic conditions in their geographic region. For
example, securities of these companies involve higher investment risk than that
normally associated with larger firms due to the greater business risks of small
size and limited product lines, markets, distribution channels and financial and
managerial resources.
Many smaller capitalization companies in which Smaller Companies Fund and
Microcap Fund may invest are not well-known to the investing public, do not have
significant institutional ownership and are followed by relatively few
securities analysts. As a result, there may be less publicly available
information concerning these companies than exists for larger capitalization
companies. Also, the securities of smaller capitalization companies traded on
the over-the-counter market may have fewer market makers, wider spreads between
their quoted bid and asked prices and lower trading volumes, resulting in
comparatively greater price volatility and less liquidity than exists for
securities of larger capitalization companies.
CURRENCY MANAGEMENT TECHNIQUES
To the extent that they invest in securities denominated or quoted in foreign
currencies, the Equity Funds and the Total Return Bond Fund may enter into
forward currency exchange contracts ("forward contracts") and buy and sell
currency options to hedge against currency exchange rate fluctuations. For the
same purpose, the Total Return Bond Fund may also enter into currency swap
agreements, purchase securities indexed to foreign currencies and buy and sell
futures contracts relating to foreign currencies and options on such futures
contracts. The instruments involved in Currency-Related Transactions may be
considered derivative instruments. A Fund may enter into Currency-Related
Transactions to attempt to
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protect against an anticipated rise in the U.S. dollar price of securities that
it intends to purchase. In addition, a Fund may enter into Currency-Related
Transactions to attempt to protect against the decline in value of its foreign
currency denominated or quoted portfolio securities, or a decline in the value
of anticipated dividends or interest from such securities, due to a decline in
the value of the foreign currency against the U.S. dollar. The forecasting of
currency market movements is extremely difficult and there can be no assurance
that currency hedging strategies will be successful. If the Adviser is incorrect
in its forecast, currency hedging strategies may result in investment
performance worse than if the strategies were not attempted. In addition,
forward contracts and over-the-counter currency options may be illiquid and are
subject to the risk that the counterparty will default on its obligations. For
more information on these instruments, see the Statement of Additional
Information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Total Return Bond Fund and
each of the Equity Funds may exchange currencies in the normal course of
managing its investments in foreign securities and may incur costs in doing so
because a foreign exchange dealer will charge a fee for conversion. A Fund may
conduct foreign currency exchange transactions on a "spot" basis (i.e., for
prompt delivery and settlement) at the prevailing spot rate for purchasing or
selling currency in the foreign currency exchange market. A Fund also may enter
into forward foreign currency exchange contracts ("forward currency contracts")
or other contracts to purchase and sell currencies for settlement at a future
date. A foreign exchange dealer, in that situation, will expect to realize a
profit based on the difference between the price at which a foreign currency is
sold to a Fund and the price at which the dealer will cover the purchase in the
foreign currency market. Foreign exchange transactions are entered into at
prices quoted by dealers, which may include a mark-up over the price that the
dealer must pay for the currency.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are generally charged at any stage for trades, but currency dealers
seek to obtain a "spread" or profit on each transaction.
At the maturity of a forward contract, a Fund may either accept or make delivery
of the currency specified in the contract or, at or prior to maturity, enter
into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
The Equity Funds and the Total Return Bond Fund may enter into forward currency
contracts only for the following hedging purposes. First, when a Fund enters
into a contract for the purchase or sale of a security denominated in a foreign
currency, or when a Fund anticipates the receipt in a foreign currency of
dividend or interest payments on such a security which it holds, the Fund may
desire to "lock in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such dividend or interest payment, as the case may be. By entering
into a forward contract for the purchase or sale, for a fixed amount of U.S.
dollars, of the amount of foreign currency involved in the underlying
transactions, the Fund will attempt to protect itself against an adverse change
in the relationship between the U.S. dollar and the subject foreign currency
during the period between the date on which the security is purchased or sold,
or on which the dividend or interest payment is declared, and the date on which
such payments are made or received.
Additionally, when management of a Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may cause the Fund to enter into a forward contract to sell, for a
fixed amount of U.S. dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date on which the contract is entered into and the date it matures.
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Using forward currency contracts in an attempt to protect the value of a Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which a Fund can achieve at some future point in
time. The precise projection of short-term currency market movements is not
possible, and short-term hedging provides a means of fixing the dollar value of
only a portion of a Fund's foreign assets.
A Fund's custodian will place cash or liquid securities into a segregated
account of the Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward currency contracts requiring the Fund
to purchase foreign currencies. If the value of the securities placed in the
segregated account declines, additional cash or liquid securities will be placed
in the account on a daily basis so that the value of the account will equal the
amount of a Fund's commitments with respect to such contracts. The segregated
account will be marked-to-market on a daily basis. Although forward currency
contracts are not presently regulated by the Commodity Futures Trading
Commission (the "CFTC"), the CFTC may in the future assert authority to regulate
these contracts. In such event, the Funds' ability to utilize forward currency
contracts may be restricted. In addition, a particular forward currency contract
and assets used to cover such contract may be illiquid.
A Fund generally will not enter into a forward currency contract with a term of
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.
While a Fund will enter into forward currency contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while a Fund may benefit from currency transactions, unanticipated changes
in currency prices may result in a poorer overall performance for a Fund than if
it had not engaged in any such transactions. Moreover, there may be an imperfect
correlation between a Fund's portfolio holdings of securities denominated in a
particular currency and forward contracts entered into by the Fund. Such
imperfect correlation may cause a Fund to sustain losses which will prevent the
Fund from achieving a complete hedge or expose the Fund to risk of foreign
currency exchange loss. Forward currency contracts may be considered derivative
instruments.
Each Fund's activities in forward currency exchange contracts, currency futures
contracts and related options and currency options (see below) may be limited by
the requirements of subchapter M of the Code, for qualification as a regulated
investment company.
OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES
GENERAL. The Total Return Bond Fund, the High Yield Bond Fund and each Equity
Fund may write covered put and call options and purchase put and call options.
Such options may relate to particular securities, to various stock indices, or
to currencies. The Funds may write call and put options which are issued by the
Options Clearing Corporation (the "OCC") or which are traded on U.S. and
non-U.S. exchanges and over-the-counter. These instruments may be considered
derivative instruments.
WRITTEN OPTIONS. The Total Return Bond Fund, the High Yield Bond Fund and each
Equity Fund may write (sell) covered put and call options on securities and
enter into related closing transactions. A Fund may receive fees (referred to as
"premiums") for granting the rights evidenced by the options. However, in return
for the premium for a written call option, the Fund assumes certain risks. For
example, in the case of a written call option, the Fund forfeits the right to
any appreciation in the underlying security while the option is outstanding. A
put option gives to its purchaser the right to compel the Fund to purchase an
underlying security from the option holder at the specified price at any time
during the option period. In contrast, a call option written by the Fund gives
to its purchaser the right to compel the Fund to sell an underlying security to
the option holder at a specified price at any time during the option period.
Upon the exercise of a put option written by the Fund, the Fund may suffer a
loss equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. All options written
by a Fund are
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covered. In the case of a call option, this means that the Fund will own the
securities subject to the option or an offsetting call option as long as the
written option is outstanding, or will have the absolute and immediate right to
acquire other securities that are the same as those subject to the written
option. In the case of a put option, this means that the Fund will deposit cash
or liquid securities in a segregated account with the custodian with a value at
least equal to the exercise price of the put option.
PURCHASED OPTIONS. The Total Return Bond Fund, the High Yield Bond Fund and
each Equity Fund may also purchase put and call options on securities. A put
option entitles a Fund to sell, and a call option entitles a Fund to buy, a
specified security at a specified price during the term of the option. The
advantage to the purchaser of a call option is that it may hedge against an
increase in the price of 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.
A 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.
A Fund may purchase and sell options traded on U.S. exchanges and, to the extent
permitted by law, options traded over-the-counter. A Fund may also purchase and
sell options traded on recognized foreign exchanges. There can be no assurance
that a liquid secondary market will exist for any particular option.
Over-the-counter options also involve the risk that a counterparty will fail to
meet its obligation under the option.
STOCK INDEX OPTIONS. The Equity Funds may purchase and write exchange-listed
put and call options on stock indices to hedge against risks of market-wide
price movements. A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the index.
Examples of well-known stock indices are the Standard & Poor's Index of 500
Common Stocks and the Wilshire 5000 Index. Options on stock indices are similar
to options on securities. However, because options on stock indices do not
involve the delivery of an underlying security, the option represents the
holder's right to obtain from the writer in cash a fixed multiple of the amount
by which the exercise price exceeds (in the case of a put) or is less than (in
the case of a call) the closing value of the underlying index on the exercise
date.
When an Equity Fund writes an option on a stock index, it will cover the option
by depositing cash or 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 Fund's custodian, and will maintain the account
while the option is open. Alternatively, and only in the case of a written call
option on a stock index, the Fund may cover the written option by owning an
offsetting call option.
OTHER CONSIDERATIONS. A call option on a securities index provides the holder
with the right to receive a cash payment upon exercise of the option if the
market value of the underlying index exceeds the option's exercise price.
Conversely, a put option on a securities index provides the holder with the
right to receive a cash payment upon exercise of the option if the market value
of the underlying index is less than the option's exercise price. The amount of
any payment to the option holder will be equal to the difference between the
closing price of the index at the time of exercise and the exercise price of the
option expressed in U.S. dollars or a foreign currency, times a specified
multiple. A put option on a currency gives its holder the right to sell an
amount (specified in units of the underlying currency) of the underlying
currency at the stated exercise price at any time prior to the option's
expiration. Conversely, a call option on a currency gives its holder the right
to purchase an amount (specified in units of the underlying currency) of the
underlying currency at the stated exercise price at any time prior to the
option's expiration.
The Funds will engage in over-the-counter ("OTC") options only with
broker-dealers deemed creditworthy by the Adviser. Closing transactions in
certain options are usually effected directly with the
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same broker-dealer that effected the original option transaction. A Fund bears
the risk that the broker-dealer may fail to meet its obligations. There is no
assurance that a Fund will be able to close an unlisted option position.
Furthermore, unlisted options are not subject to the protections afforded
purchasers of listed options by the OCC, which performs the obligations of its
members who fail to do so in connection with the purchase or sale of options.
A Fund will write call options only if they are "covered." In the case of a call
option on a security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional cash
consideration is required, cash or liquid securities in such amount are held in
a segregated account by the Fund's custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if the Fund maintains with the Fund's custodian cash or liquid
securities equal to the contract value. A call option on a security or an index
is also covered if the Fund holds a call on the same security or index as the
call written by the Fund where the exercise price of the call held is (i) equal
to or less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written provided the difference is maintained by the
Fund in cash or liquid securities in a segregated account with the Fund's
custodian. A call option on currency written by a Fund is covered if the Fund
owns an equal amount of the underlying currency.
When a Fund purchases a put option, the premium paid by it is recorded as an
asset of the Fund. When the Fund writes an option, an amount equal to the net
premium (the premium less the commission paid by the Fund) received by the Fund
is included in the liability section of the Fund's statement of assets and
liabilities as a deferred credit. The amount of this asset or deferred credit
will be marked-to-market on an ongoing basis to reflect the current value of the
option purchased or written. The current value of a traded option is the last
sale price or, in the absence of a sale, the average of the closing bid and
asked prices. If an option purchased by the Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. If an option written by the Fund is exercised, the proceeds to the
Fund from the exercise will be increased by the net premium originally received,
and the Fund will realize a gain or loss.
There are several risks associated with transactions in options on securities,
securities indices and currencies. For example, there are significant
differences between the securities markets, currency markets and the
corresponding options markets that could result in imperfect correlations,
causing a given option transaction not to achieve its objectives. In addition, a
liquid secondary market for particular options, whether traded OTC or on a U.S.
or non-U.S. securities exchange may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or the OCC may not at all times be
adequate to handle current trading volume; or one or more exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options that had been
issued by the OCC as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
The hours of trading for options may not conform to the hours during which the
underlying securities and currencies are traded. To the extent that the options
markets close before the markets for the underlying
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securities and currencies, significant price and rate movements can take place
in the underlying markets that cannot be reflected in the options markets. The
purchase of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions.
The risks described above also apply to options on futures, which are discussed
below.
FUTURES CONTRACTS AND RELATED OPTIONS
GENERAL. When deemed advisable by the Adviser, the Total Return Bond Fund, the
High Yield Bond Fund and each of the Equity 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, require the Funds to segregate cash or liquid securities
with a value equal to the amount of the Fund's obligations.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell a particular financial instrument
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
Futures contracts obligate the long or short holder to take or make delivery of
a specified quantity of a commodity or financial instrument, such as a security
or the cash value of a securities index, during a specified future period at a
specified price.
When interest rates are rising or securities prices are falling, a Fund can seek
to offset a decline in the value of its current portfolio securities through the
sale of futures contracts. When interest rates are falling or securities prices
are rising, a Fund, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
it effects anticipated purchases.
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, the Funds may instead make, or take, delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures on securities are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to establish
with more certainty the effective price and rate of return on portfolio
securities and securities that a Fund proposes to acquire. A Fund may, for
example, take a "short" position in the futures market by selling futures
contracts in order to hedge against an anticipated rise in interest rates or a
decline in market prices that would adversely affect the value of a Fund's
portfolio securities. Such futures contracts may include contracts for the
future delivery of securities held by a Fund or securities with characteristics
similar to those of the Fund's portfolio securities. If, in the opinion of the
Adviser, there is a sufficient degree of correlation between price trends for a
Fund's portfolio securities and futures contracts based on other financial
instruments, securities indices or other indices, the Fund may also enter into
such futures contracts as part of its hedging strategy. Although under some
circumstances prices of securities in a Fund's portfolio may be more or less
volatile than prices of such futures contracts, the Adviser will attempt to
estimate the extent of this volatility
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difference based on historical patterns and compensate for any such differential
by having the Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting a
Fund's securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation) for a
specified price to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of a Fund's assets. By writing a call
option, a Fund becomes obligated, in exchange for the premium, to sell a futures
contract (if the option is exercised), which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium which may partially offset an increase in the price of
securities that a Fund intends to purchase. However, a Fund becomes obligated to
purchase a futures contract (if the option is exercised) which may have a value
lower than the exercise price. Thus, the loss incurred by a Fund in writing
options on futures is potentially unlimited and may exceed the amount of the
premium received. The Funds will incur transaction costs in connection with the
writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.
A Fund may use options on futures contracts solely for bona fide hedging or
other non-hedging purposes as described below.
OTHER CONSIDERATIONS. The Total Return Bond Fund, the High Yield Bond Fund and
each of the Equity Funds will engage in futures and related options transactions
only for bona fide hedging or non-hedging purposes as permitted by CFTC
regulations which permit principals of an investment company registered under
the 1940 Act to engage in such transactions without registering as commodity
pool operators. A Fund will determine that the price fluctuations in the futures
contracts and options on futures used by it for hedging purposes are
substantially related to price fluctuations in securities or instruments held by
the Fund or securities or instruments which it expects to purchase. Except as
stated below, a Fund's futures transactions will be entered into for traditional
hedging purposes--i.e., futures contracts will be sold to protect against a
decline in the price of securities (or the currency in which they are
denominated) that a Fund owns or futures contracts will be purchased to protect
a Fund against an increase in the price of securities (or the currency in which
they are denominated) that a Fund intends to purchase. As evidence of this
hedging intent, each Fund expects that, on 75% or more of the occasions on which
it takes a long futures or option position (involving the purchase of futures
contracts), the Fund will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities (or assets denominated in
the related currency) in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for a Fund to do so, a long futures position may be terminated or
an option may expire without the corresponding purchase of securities or other
assets.
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As an alternative to compliance with the bona fide hedging definition, a CFTC
regulation now permits a Fund to elect to comply with a different test under
which the aggregate initial margin and premiums required to establish
non-hedging positions in futures contracts and options on futures will not
exceed 5% of the net asset value of a Fund's portfolio, after taking into
account unrealized profits and losses on any such positions and excluding the
amount by which such options were in-the-money at the time of purchase. A Fund
will engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Code for
maintaining its qualification as a regulated investment company. See "Taxes."
A Fund will be required, in connection with transactions in futures contracts
and the writing of options on futures contracts, to make margin deposits, which
will be held by its custodian for the benefit of the futures commission merchant
through whom the Fund engages in such futures and option transactions. These
transactions involve brokerage costs, require margin deposits and, in the case
of futures contracts and options obligating a Fund to purchase securities,
require a Fund to segregate cash or liquid securities in an account maintained
with its custodian to cover such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates or securities prices may result in a
poorer overall performance for a Fund than if it had not entered into any
futures contracts or options transactions. The other risks associated with the
use of futures contracts and options thereon are (i) imperfect correlation
between the change in market value of the securities held by a Fund and the
prices of the futures and options and (ii) the possible absence of a liquid
secondary market for a futures contract or option and the resulting inability to
close a futures position prior to its maturity date.
In the event of an imperfect correlation between a futures position and
portfolio position which is intended to be protected, the desired protection may
not be obtained and a Fund may be exposed to risk of loss. The risk of imperfect
correlation may be minimized by investing in contracts whose price behavior is
expected to resemble that of the Fund's underlying securities. The Funds will
attempt to minimize the risk that they will be unable to close out futures
positions by entering into such transactions on a national exchange with an
active and liquid secondary market.
LIMITATIONS AND RISKS ASSOCIATED WITH TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS
AND OPTIONS ON FUTURES CONTRACTS
Options and futures transactions involve (1) liquidity risk that contractual
positions cannot be easily closed out in the event of market changes or
generally in the absence of a liquid secondary market, (2) correlation risk that
changes in the value of hedging positions may not match the securities market
fluctuations intended to be hedged, and (3) market risk that an incorrect
prediction of securities prices by the Adviser may cause the Fund to perform
worse than if such positions had not been taken. The ability to terminate
over-the-counter options is more limited than with exchange traded options and
may involve the risk that the counterparty to the option will not fulfill its
obligations. In accordance with a position taken by the Commission, each Fund
will limit its investments in illiquid securities to 15% of the Fund's net
assets.
Options and futures transactions are highly specialized activities which involve
investment techniques and risks that are different from those associated with
ordinary portfolio transactions. Gains and losses on investments in options and
futures depend on the Adviser's ability to predict the direction of stock prices
and other economic factors. The loss that may be incurred by a Fund in entering
into futures contracts and written options thereon is potentially unlimited.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain facilities of an options
clearing entity or other entity performing the regulatory and liquidity
functions of an options clearing entity inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders. Most futures exchanges limit the amount
of fluctuation permitted in a futures contract's prices during a single trading
day. Once the limit has been reached no further trades
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may be made that day at a price beyond the limit. The price limit will not limit
potential losses, and may in fact prevent the prompt liquidation of futures
positions, ultimately resulting in further losses.
Except as set forth above under "Futures Contracts and Options on Futures
Contracts", there is no limit on the percentage of the assets of the Total
Return Bond Fund, the High Yield Bond Fund or any Equity Fund that may be at
risk with respect to futures contracts and related options. A Fund may not
invest more than 25% of its total assets in purchased protective put options. A
Fund's transactions in options, futures contracts and options on futures
contracts may be limited by the requirements for qualification of the Fund as a
regulated investment company for tax purposes. See "Taxes" below. Options,
futures contracts and options on futures contracts are derivative instruments.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements. In a repurchase agreement, a
Fund buys a security subject to the right and obligation to sell it back to the
other party at the same price plus accrued interest. The Fund's custodian will
hold the security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 102% of the repurchase price, but
repurchase agreements involve some credit risk to a Fund if the other party
defaults on its obligation and the Fund is delayed in or prevented from
liquidating the collateral. A Fund will enter into repurchase agreements only
with financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on guidelines established and periodically
reviewed by the Trust's Board of Trustees.
For purposes of the 1940 Act and, generally, for tax purposes, a repurchase
agreement is considered to be a loan from the Fund to the seller of the
obligation. For other purposes, it is not clear whether a court would consider
such an obligation as being owned by the Fund or as being collateral for a loan
by the Fund to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the obligation before its
repurchase, under the repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Such delays may result in a
loss of interest or decline in price of the obligation.
If the court characterizes the transaction as a loan and the Fund has not
perfected a security interest in the obligation, the Fund may be treated as an
unsecured creditor of the seller and required to return the obligation to the
seller's estate. As an unsecured creditor, the Fund would be at risk of losing
some or all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Funds, the Adviser seeks to minimize
the risk of loss from repurchase agreements by analyzing the creditworthiness of
the obligor, in this case, the seller of the obligation. In addition to the risk
of bankruptcy or insolvency proceedings, there is the risk that the seller may
fail to repurchase the security. However, if the market value of the obligation
falls below an amount equal to 102% of the repurchase price (including accrued
interest), the seller of the obligation will be required to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement equals or exceeds the repurchase price.
"WHEN-ISSUED" PURCHASES AND FORWARD COMMITMENTS (DELAYED DELIVERY)
Each Fund may purchase securities on a when-issued, delayed delivery or forward
commitment basis. When these transactions are negotiated, the price of the
securities is fixed at the time of the commitment, but delivery and payment may
take place up to 90 days after the date of the commitment to purchase for equity
securities, and up to 45 days after such date for fixed income securities.
When-issued securities or forward commitments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
These transactions, which involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Fund to lock in a price or yield
on a security, regardless of future changes in interest rates. A Fund will
purchase
- --------------------------------------------------------------------------------
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<PAGE>
securities on a "when-issued" or forward commitment basis only with the
intention of completing the transaction and actually purchasing the securities.
If deemed appropriate by the Adviser, however, a Fund may dispose of or
renegotiate a commitment after it is entered into, and may sell securities it
has committed to purchase before those securities are delivered to the Fund on
the settlement date. In these cases the Fund may realize a gain or loss, and
distributions attributable to any such gain, including a distribution by a
Municipal Fund, would be taxable to shareholders.
When a Fund agrees to purchase securities on a "when-issued" or forward
commitment basis, the Fund's custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Normally, the
custodian will set aside portfolio securities to satisfy a purchase commitment,
and in such a case the Fund may be required subsequently to place additional
assets in the separate account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitments. The market value of a
Fund's net assets will generally fluctuate to a greater degree when it sets
aside portfolio securities to cover such purchase commitments than when it sets
aside cash. Because a Fund's liquidity and ability to manage its portfolio might
be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, each Fund expects that its commitments to purchase
when-issued securities and forward commitments will not exceed 33% of the value
of its total assets. When a Fund engages in "when-issued" and forward commitment
transactions, it relies on the other party to the transaction to consummate the
trade. Failure of such party to do so may result in the Fund incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
a Fund starting on the day the Fund agrees to purchase the securities. The Fund
does not earn interest or dividends on the securities it has committed to
purchase until the settlement date.
BORROWING
Each Fund may borrow for temporary or emergency purposes, although borrowings by
the Fixed Income Fund and the Municipal Bond Fund may not exceed 10% of the
value of their respective net assets. This borrowing may be unsecured. The 1940
Act requires a Fund to maintain continuous asset coverage (that is, total assets
including borrowings, less liabilities exclusive of borrowings) of 300% of the
amount borrowed. If the asset coverage should decline below 300% as a result of
market fluctuations or for other reasons, a Fund will be required to sell some
of its portfolio securities within three days to reduce its borrowings and
restore the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. To limit the potential
leveraging effects of a Fund's borrowings, each Fund other than the Fixed Income
Fund and the Municipal Bond Fund will not make investments while borrowings are
in excess of 5% of total assets. The Fixed Income Fund and the Municipal Bond
Fund may not make additional investments while they have any borrowings
outstanding. Borrowing generally will exaggerate the effect on net asset value
of any increase or decrease in the market value of the portfolio. Money borrowed
will be subject to interest costs which may or may not be recovered by
appreciation of the securities purchased. A Fund also may be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
See "Investment Restrictions."
LENDING PORTFOLIO SECURITIES
Each Fund, other than Fixed Income Fund and Municipal Bond Fund, may lend
portfolio securities to brokers, dealers and other financial organizations.
These loans, if and when made by a Fund, may not exceed 33 1/3% of the value of
the Fund's total assets. A Fund's loans of securities will be collateralized by
cash, cash equivalents or U.S. Government securities. The cash or instruments
collateralizing the Fund's
- --------------------------------------------------------------------------------
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<PAGE>
loans of securities will be maintained at all times in a segregated account with
the Fund's custodian, in an amount at least equal to the current market value of
the loaned securities. From time to time, a Fund may pay a part of the interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund and is acting
as a "placing broker". No fee will be paid to affiliated persons of the Fund.
The Board of Trustees will make a determination that the fee paid to the placing
broker is reasonable.
By lending portfolio securities, a Fund can increase its income by continuing to
receive amounts equal to the interest or dividends on the loaned securities as
well as by either investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower when U.S.
Government securities are used as collateral. A Fund will comply with the
following conditions whenever it loans securities: (i) the Fund must receive at
least 100% cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase the collateral whenever the market value of the
securities loaned rises above the level of the collateral; (iii) the Fund must
be able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as amounts equal to the dividends, interest or
other distributions on the loaned securities, and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower except
that, if a material event will occur affecting the investment in the loaned
securities, the Fund must terminate the loan in time to vote the securities on
such event.
DIVERSIFICATION
Each Fund other than the Total Return Bond Fund is "diversified" under the 1940
Act and is also subject to issuer diversification requirements imposed on
regulated investment companies by Subchapter M of the Code. See "Investment
Restrictions" and "Taxes" below. The Total Return Bond Fund is "non-diversified"
under the 1940 Act. Accordingly, although it is subject to the issuer
diversification requirements imposed on regulated investment companies by
Subchapter M of the Code, the Total Return Bond Fund is not subject to the more
stringent issuer diversification requirements imposed on diversified funds by
the 1940 Act. To the extent that the Total Return Bond Fund does not meet the
standards for being diversified under the 1940 Act, it will be more susceptible
to developments affecting any single issuer of portfolio securities.
CONCENTRATION OF INVESTMENTS
As a matter of fundamental policy, no Fund may invest 25% or more of its total
assets in the securities of one or more issuers conducting their principal
business activities in the same industry (except U.S. Government securities).
Currently, it is not anticipated that either Municipal Fund will invest 25% or
more of its total assets (at market value at the time of purchase) in: (a)
securities of one or more issuers conducting their principal activities in the
same state; or (b) securities the principal and interest of which is paid from
revenues of projects with similar characteristics, except that 25% or more of
either Municipal Fund's total assets may be invested in single family and
multi-family housing obligations. To the extent a Municipal Fund concentrates
its investments in single family and multi-family housing obligations, the Fund
will be subject to the peculiar risks associated with investments in such
obligations, including prepayment risks and the risks of default on housing
loans, which may be affected by economic conditions and other factors relating
to such obligations.
MORTGAGE DOLLAR ROLLS
Each of the Funds other than the Equity Funds and the Municipal 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
- --------------------------------------------------------------------------------
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<PAGE>
(often referred to as the "drop") or fee income and 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.
RESTRICTED SECURITIES
Each of the Funds other than the Municipal Funds may invest to a limited extent
in restricted securities. Restricted securities are securities that may not be
sold freely to the public without prior registration under federal securities
laws or an exemption from registration. Restricted securities will be considered
illiquid unless they are restricted securities offered and sold to "qualified
institutional buyers" under Rule 144A under the Securities Act of 1933 and the
Board of Trustees determines that these securities are liquid based upon a
review of the trading markets for the specific securities.
OTHER INVESTMENT COMPANIES
Each Fund may invest in the aggregate no more than 10% of its total assets,
calculated at the time of purchase, in the securities of other U.S.-registered
investment companies. In addition, a Fund may not invest more than 5% of its
total assets in the securities of any one such investment company or acquire
more than 3% of the voting securities of any other such investment company,
except that, in accordance with an exemptive order expected to be issued by the
Commission, the Total Return Bond Fund may invest up to 10% of its total assets
in institutional shares of Morgan Grenfell Emerging Markets Debt Fund (but only
after such order is issued). A Fund will indirectly bear its proportionate share
of any management or other fees paid by investment companies in which it
invests, in addition to its own fees.
TEMPORARY DEFENSIVE INVESTMENTS
For temporary defensive purposes during periods when the Adviser determines that
conditions warrant, each of the Funds other than the Municipal Funds may invest
up to 100% of its assets in cash and money market instruments, including
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; certificates of deposit, time deposits, and bankers'
acceptances issued by banks or savings and loans associations having net assets
of at least $500 million as of the end of their most recent fiscal year;
commercial paper rated at the time of purchase at least A-1 by Standard & Poor's
or P-1 by Moody's, or unrated commercial paper determined by the Adviser to be
of comparable quality; repurchase agreements involving any of the foregoing;
and, to the extent permitted by applicable law, shares of other investment
companies investing solely in money market instruments.
COMMERCIAL PAPER. Commercial paper is a short-term, unsecured negotiable
promissory note of a U.S or non-U.S issuer. Each of the Funds may purchase
commercial paper. Each Fund may also invest in variable rate master demand notes
which typically are issued by large corporate borrowers and which provide for
variable amounts of principal indebtedness and periodic adjustments in the
interest rate. Demand notes are direct lending arrangements between a Fund and
an issuer, and are not normally traded in a secondary market. A Fund, however,
may demand payment of principal and accrued interest at any time. In addition,
while demand notes generally are not rated, their issuers must satisfy the same
criteria as those that apply to issuers of commercial paper. The Adviser will
consider the earning power, cash flow and other liquidity ratios of issuers of
demand notes and continually will monitor their financial ability to meet
payment on demand. See also "Fixed Income Securities--Variable and Floating Rate
Instruments."
BANK OBLIGATIONS. Each Fund's investments in money market instruments may
include certificates of deposit, time deposits and bankers' acceptances.
Certificates of Deposit ("CDs") are short-term negotiable obligations of
commercial banks. Time Deposits ("TDs") are non-negotiable deposits maintained
in banking institutions for specified periods of time at stated interest rates.
Bankers' acceptances are time drafts drawn on commercial banks by borrowers
usually in connection with international transactions.
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<PAGE>
U.S. commercial banks organized under federal law are supervised and examined by
the Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal Deposit Insurance Corporation
(the "FDIC"). U.S. banks organized under state law are supervised and examined
by state banking authorities but are members of the Federal Reserve System only
if they elect to join. Most state banks are insured by the FDIC (although such
insurance may not be of material benefit to a Fund, depending upon the principal
amount of CDs of each bank held by the Fund) and are subject to federal
examination and to a substantial body of federal law and regulation. As a result
of governmental regulations, U.S. branches of U.S. banks, among other things,
generally are required to maintain specified levels of reserves, and are subject
to other supervision and regulation designed to promote financial soundness.
U.S. savings and loan associations, the CDs of which may be purchased by the
Funds, are supervised and subject to examination by the Office of Thrift
Supervision. U.S. savings and loan associations are insured by the Savings
Association Insurance Fund which is administered by the FDIC and backed by the
full faith and credit of the U.S. Government.
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 other Fund will not
exceed 175%. The higher portfolio turnover rates of these Funds may result from
their respective portfolio management strategies. These Funds may sell
securities held for a short time in order to take advantage of what the Adviser
believes to be temporary disparities in normal yield relationships between
securities. A high rate of portfolio turnover (i.e., 100% or higher) will result
in correspondingly higher transaction costs to a Fund, particularly if the
Fund's primary investments are equity securities. A high rate of portfolio
turnover will also increase the likelihood of net short-term capital gains
(distributions of which are taxable to shareholders as ordinary income). See
"Financial Highlights" for each Fund's portfolio turnover rate for the fiscal
year ended October 31, 1998.
INVESTMENT RESTRICTIONS
The fundamental investment restrictions set forth below may not be changed with
respect to a Fund without the approval of a "majority" (as defined in the 1940
Act) of the outstanding shares of that Fund. For the purposes of the 1940 Act,
"majority" means the lesser of (a) 67% or more of the shares of the Fund present
at a meeting, if the holders of more than 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the shares of
the Fund.
Investment restrictions that involve a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by or on behalf of, a Fund
with the exception of borrowings permitted by fundamental investment restriction
(2) listed below for each Fund other than the Fixed Income Fund and the
Municipal Bond Fund and fundamental investment restriction (3) listed below for
Fixed Income Fund and Municipal Bond Fund.
In addition, the policy of each of Morgan Grenfell Municipal Bond Fund and
Morgan Grenfell Short-Term Municipal Bond Fund to invest at least 80% of its net
assets in tax-exempt securities has been designated as fundamental.
The nonfundamental investment restrictions set forth below may be changed or
amended by the Trust's Board of Trustees without shareholder approval.
INVESTMENT RESTRICTIONS THAT APPLY TO SHORT-TERM FIXED INCOME FUND, SHORT-TERM
MUNICIPAL BOND FUND, TOTAL RETURN BOND FUND, HIGH YIELD BOND FUND AND THE EQUITY
FUNDS
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<PAGE>
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Trust may not, on behalf of a Fund:
(1) Issue senior securities, except as permitted by paragraphs (2), (6) and (7)
below. For purposes of this restriction, the issuance of shares of beneficial
interest in multiple classes or series, the purchase or sale of options,
futures contracts and options on futures contracts, forward commitments,
forward foreign exchange contracts, repurchase agreements and reverse
repurchase agreements entered into in accordance with the Fund's investment
policy, and the pledge, mortgage or hypothecation of the Fund's assets within
the meaning of paragraph (3) below are not deemed to be senior securities, if
appropriately covered.
(2) Borrow money (i) except from banks as a temporary measure for extraordinary
emergency purposes and (ii) except that the Fund may enter into reverse
repurchase agreements and dollar rolls, if appropriately covered, with banks,
broker-dealers and other parties; provided that, in each case, the Fund is
required to maintain asset coverage of at least 300% for all borrowings. For
the purposes of this investment restriction, short sales, transactions in
currency, forward contracts, swaps, options, futures contracts and options on
futures contracts, and forward commitment transactions shall not constitute
borrowing.
(3) Pledge, mortgage, or hypothecate its assets, except to secure indebtedness
permitted by paragraph (2) above and to the extent related to the segregation
of assets in connection with the writing of covered put and call options and
the purchase of securities or currencies on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to forward contracts, options, futures contracts
and options on futures contracts.
(4) Act as an underwriter, except to the extent that, in connection with the
disposition of Fund securities, the Fund may be deemed to be an underwriter
for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate, or any interest therein, and real estate
mortgage loans, except that the Fund may invest in securities of corporate or
governmental entities secured by real estate or marketable interests therein
or securities issued by companies (other than real estate limited
partnerships) that invest in real estate or interests therein.
(6) Make loans, except that the Fund may lend Fund securities in accordance with
the Fund's investment policies and may purchase or invest in repurchase
agreements, bank certificates of deposit, all or a portion of an issue of
bonds, bank loan participation agreements, bankers' acceptances, debentures
or other securities, whether or not the purchase is made upon the original
issuance of the securities.
(7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except interest rate futures contracts, options on
securities, securities indices, currency and other financial instruments,
futures contracts on securities, securities indices, currency and other
financial instruments and options on such futures contracts, forward foreign
currency exchange contracts, forward commitments, securities index put or
call warrants and repurchase agreements entered into in accordance with the
Fund's investment policies.
(8) Invest 25% or more of the value of the Fund's total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry or group of industries. This restriction does not apply to
investments in obligations of the U.S. Government or any of its agencies or
instrumentalities.
In addition, each Fund will adhere to the following fundamental investment
restriction:
With respect to 75% of its total assets, a Fund may not purchase securities
of an issuer (other than the U.S. Government, or any of its agencies or
instrumentalities, or other investment companies), if (a) such purchase
would cause more than 5% of the Fund's total assets taken at market value to
be
- --------------------------------------------------------------------------------
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<PAGE>
invested in the securities of such issuer, or (b) such purchase would at the
time result in more than 10% of the outstanding voting securities of such
issuer being held by the Fund.
NONFUNDAMENTAL INVESTMENT RESTRICTIONS
The Trust may not, on behalf of a Fund:
(a) Participate on a joint-and-several basis in any securities trading account.
The "bunching" of orders for the sale or purchase of marketable Fund
securities with other accounts under the management of the Adviser to save
commissions or to average prices among them is not deemed to result in a
securities trading account.
(b) Purchase securities of other U.S.-registered investment companies, except as
permitted by the Investment Company Act of 1940 and the rules, regulations
and any applicable exemptive order issued thereunder.
(c) Invest for the purpose of exercising control over or management of any
company.
(d) Purchase any security, including any repurchase agreement maturing in more
than seven days, which is illiquid, if more than 15% of the net assets of the
Fund, taken at market value, would be invested in such securities.
The staff of the Commission has taken the position that fixed time deposits
maturing in more than seven days that cannot be traded on a secondary market and
participation interests in loans are illiquid. Until such time (if any) as this
position changes, the Trust, on behalf of each Fund, will include such
investments in determining compliance with the 15% limitation on investments in
illiquid securities (10% limitation for the Municipal Bond Fund and Short-Term
Municipal Bond Fund). Restricted securities (including commercial paper issued
pursuant to Section 4(2) of the Securities Act of 1933, which the Board of
Trustees has determined are readily marketable will not be deemed to be illiquid
for purposes of such restriction.
"Value" for the purposes of the foregoing investment restrictions shall mean the
market value used in determining each Fund's net asset value.
INVESTMENT RESTRICTIONS THAT APPLY TO THE FIXED INCOME FUND AND THE MUNICIPAL
BOND FUND
Fundamental Investment Restrictions. The Trust may not, on behalf of the Fixed
Income Fund or the Municipal Bond Fund:
(1) Acquire more than 10% of the voting securities of any one issuer.
(2) Invest in companies for the purpose of exercising control.
(3) Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of its total assets. Any borrowing
will be done from a bank and to the extent that such borrowing exceeds 5%
of the value of a Fund's assets, asset coverage of at least 300% is
required. In the event that such asset coverage shall at any time fall
below 300%, a Fund shall, within three days thereafter or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. This borrowing
provision is included for temporary liquidity or emergency purposes. All
borrowings will be repaid before making investments and any interest paid
on such borrowings will reduce income.
(4) Make loans, except that a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies, and a Fund may enter
into repurchase agreements.
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<PAGE>
(5) Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such
loan.
(6) Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts and interests in a
pool of securities that are secured by interests in real estate. However,
subject to the permitted investments of the Fund, a Fund may invest in
municipal securities or other obligations secured by real estate or
interests therein.
(7) Make short sales of securities, maintain a short position or purchase
securities on margin, except that a Fund may obtain short-term credits as
necessary for the clearance of security transactions.
(8) Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
(9) Purchase securities of other investment companies except as permitted by
the Investment Company Act of 1940 and the rules and regulations
thereunder.
(10) Issue senior securities (as defined in the Investment Company Act of 1940)
except in connection with permitted borrowings as described above or as
permitted by rule, regulation or order of the Securities and Exchange
Commission.
(11) Purchase or retain securities of an issuer if an officer, trustee, partner
or director of the Fund or any investment adviser of the Fund owns
beneficially more than 1/2 of 1% of the shares or securities of such
issuer and all such officers, trustees, partners and directors owning more
than 1/2 of 1% of such shares or securities together own more than 5% of
such shares or securities.
(12) Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
(13) Write or purchase puts, calls, options or combinations thereof or invest
in warrants, except that a Fund may purchase "put" bonds.
NONFUNDAMENTAL INVESTMENT RESTRICTIONS
(1) A Fund may not invest in illiquid securities in an amount exceeding, in the
aggregate, 10% of the Municipal Bond Fund's total assets and 15% of the
Fixed Income Fund's net assets. An illiquid security is a security that
cannot be disposed of promptly (within seven days) and in the usual course
of business without a loss, and includes repurchase agreements maturing in
excess of seven days, time deposits with a withdrawal penalty,
non-negotiable instruments and instruments for which no market exists.
(2) A Fund may not purchase securities of other U.S.-registered investment
companies except as permitted by the Investment Company Act of 1940 and the
rules, regulations and any applicable exemptive order issued thereunder.
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<PAGE>
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the Trust is set forth
below. An asterisk (*) indicates those Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act.
<TABLE>
<CAPTION>
Positions Principal Occupation
Name and Address With Trust During Past Five Years
- ------------------------- ----------------------- -------------------------------------------------
<S> <C> <C>
James E. Minnick (1)(3)* President, Chief President, Secretary and Treasurer, Morgan
885 Third Avenue Executive Officer, and Grenfell Inc. ("MG Inc.") (since 1990).
New York, NY 10022 Trustee
(age 50)
Patrick W.W. Disney Senior Vice President Director, Morgan Grenfell Investment
(1)(3)*
20 Finsbury Circus and Trustee Services Limited (MGIS) (since 1988).
London EC2M 1NB
ENGLAND
(age 42)
Paul K. Freeman (2) Trustee Chief Executive Officer, The Eric Group Inc.
7257 South Tucson Way (environmental insurance) (since 1986).
Englewood, CO 80112
(age 48)
Graham E. Jones (2) Trustee Senior Vice President, BGK Realty Inc. (since
330 Garfield Street 1995); Financial Manager, Practice Management
Santa Fe, NM 87501 Systems (medical information services) (1988-95);
(age 65) Director, 12 closed-end funds managed by Morgan
Stanley Asset Management; Trustee, 10 open-end
mutual funds managed by Weiss, Peck & Greer.
William N. Searcy (2) Trustee Pension & Savings Trust Officer, Sprint
2330 Shawnee Mission Pkwy Corporation (telecommunications) (since 1989).
Westwood, KS 66205
(age 52)
Hugh G. Lynch Trustee Managing Director, International Investments,
767 Fifth Avenue General Motors Investment Management Corporation
New York, NY 10153 (since September 1990).
(age 61)
Edward T. Tokar Trustee Vice President-Investments, Allied Signal, Inc.
101 Columbia Road (advanced technology and manufacturer) (since
Morristown, NJ 07962 1985).
(age 51)
Neil P. Jenkins Vice President Director, Morgan Grenfell Inc. (since 1991),
20 Finsbury Circus Morgan Grenfell International Funds Mgmt (since
London, England 1995), and Morgan Grenfell & Co. (since 1985).
(age 38)
David W. Baldt Vice President Executive Vice President and Director of Fixed
150 S. Independence Sq. Income Investments, Morgan Grenfell Inc. (since
W. 1989).
Philadelphia, PA 19106
(age 49)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
Name and Address With Trust During Past Five Years
- ------------------------- ----------------------- -------------------------------------------------
<S> <C> <C>
Ian D. Kelson Vice President Director, MGIS (since 1988); Chief Investment
20 Finsbury Circus Officer, Fixed Income, MGIS (since 1989).
London EC2M INB
England
(age 42)
James Grifo Vice President Executive Vice President and Director, Morgan
150 S. Independence Sq. Grenfell Inc. (since 1996); Senior Vice
W. President, GT Global Financial (since 1990).
Philadelphia, PA 19106
(age 47)
Joan A. Binstock (1) Secretary Chief Operating Officer, Morgan Grenfell Inc.
885 Third Avenue and Vice President (since June 1997); Principal, National of
New York, NY 10022 Investment Management Regulatory Consulting,
(age 44) Ernst & Young (May 1995 - June 1997); Vice
President, Director of Compliance, JP Morgan
Mutual Funds (August 1993 - May 1995).
Tracie E. Richter Treasurer, Chief Vice President, Morgan Grenfell Inc. (since
885 Third Avenue Financial Officer January 1998); Vice President, Bankers Trust
New York, NY 10022 (February 1996 to December 1997); Associate,
(age 31) Goldman Sachs Asset Management (January 1993 to
January 1996).
</TABLE>
- ----------
1 Member of the Trust's Pricing Committee.
2 Member of the Trust's Audit Committee.
3 Member of the Trust's Dividend Committee.
Certain of the Trustees and officers of the Trust reside outside the United
States, and substantially all the assets of these persons are located outside
the United States. It may not be possible, therefore, for investors to effect
service of process within the United States upon these persons or to enforce
against them, in United States courts or foreign courts, judgments obtained in
United States courts predicated upon the civil liability provisions of the
federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws.
Messrs. Jones, Freeman and Searcy are members of the Audit Committee of the
Board of Trustees. The Audit Committee's functions include making
recommendations to the Trustees regarding the selection of independent
accountants, and reviewing with such accountants and the Treasurer of the Trust
matters relating to accounting and auditing practices and procedures, accounting
records, internal accounting controls and the functions performed by the Trust's
custodian, administrator and transfer agent.
As of December 18, 1998, the Trustees and officers of the Trust owned, as a
group, less than one percent of the outstanding shares of each Fund other than
Morgan Grenfell Short-Term Municipal Bond Fund, Morgan Grenfell Smaller
Companies Fund and Morgan Grenfell Microcap Fund. On such date, the Trustees and
officers of the Trust owned, as a group, 1.805% of the outstanding shares of
Morgan Grenfell Short-Term Municipal Bond Fund, 2.21% of the outstanding shares
of Morgan Grenfell Smaller Companies Fund and 2.764% of the outstanding shares
of Morgan Grenfell Microcap Fund, respectively.
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Page -32-
<PAGE>
COMPENSATION OF TRUSTEES
The Trust pays each Trustee who is not affiliated with the Adviser an annual fee
of $15,000 provided that they attend each regular Board meeting during the year.
Members of the Audit Committee also receive $1,000 for each Audit Committee
meeting attended. The Chairman of the Audit Committee, currently Mr. Searcy,
receives an additional $1,000 per Audit Committee meeting attended. The Trustees
are also reimbursed for out-of-pocket expenses incurred by them in connection
with their duties as Trustees.
The following table sets forth the compensation paid by the Trust to the
Trustees for the fiscal year of the Trust ended October 31, 1998:
<TABLE>
<CAPTION>
Aggregate
Pension or Retirement Compensation
Benefits Accrued as from the Trust/
Name of Trustees Part of Fund Expenses Complex*
- --------------------- --------------------- -------------------
<S> <C> <C>
James E. Minnick $ 0 $ 0
Patrick W. Disney $ 0 $ 0
Paul K. Freeman $ 0 $ 18,000
Graham E. Jones $ 0 $ 18,000
William N. Searcy $ 0 $ 21,000
Hugh G. Lynch $ 0 $ 15,000
Edward T. Tokar $ 0 $ 15,000
</TABLE>
- ---------
* The Trustees listed above do not serve on the Board of any other investment
company that may be considered to belong to the same complex as the Trust.
INVESTMENT ADVISORY AND OTHER SERVICES
THE ADVISER
Morgan Grenfell Inc., 885 Third Avenue, New York, New York, acts as the
investment adviser to each Fund pursuant to the terms of Management Contracts,
dated December 28, 1994, August 7, 1996 and January 30, 1997 (referred to
collectively herein as the "Management Contracts"). Pursuant to the Management
Contracts, the Adviser supervises and assists in the management of the assets of
each Fund and furnishes each Fund with research, statistical, advisory and
managerial services. The Adviser pays the ordinary office expenses of the Trust
and the compensation, if any, of all officers and employees of the Trust and all
Trustees who are "interested persons" (as defined in the 1940 Act) of the
Adviser.
Under the Management Contracts, the Trust, on behalf of each Fund is obligated
to pay the Adviser a monthly fee at an annual rate of each Fund's average daily
net assets as follows:
<TABLE>
<CAPTION>
Annual Rate
-------------
<S> <C>
Morgan Grenfell Large Cap Growth Fund................................................... 0.75%
Morgan Grenfell Smaller Companies Fund.................................................. 1.00%
Morgan Grenfell Microcap Fund........................................................... 1.50%
Morgan Grenfell Fixed Income Fund....................................................... 0.40%
Morgan Grenfell Total Return Bond Fund.................................................. 0.45%
Morgan Grenfell High Yield Bond Fund.................................................... 0.50%
Morgan Grenfell Short-Term Fixed Income Fund............................................ 0.40%
Morgan Grenfell Municipal Bond Fund..................................................... 0.40%
Morgan Grenfell Short-Term Municipal Bond Fund.......................................... 0.40%
</TABLE>
Each Fund's advisory fees are paid monthly and will be prorated if the Adviser
shall not have acted as the Fund's investment adviser during the entire monthly
period. The Adviser has temporarily agreed, under
- --------------------------------------------------------------------------------
Page -33-
<PAGE>
certain circumstances, to reduce or not impose its management fee and to make
arrangements to limit certain other expenses.
For the fiscal years ended October 31, [1998], 1997, and 1996, Morgan Grenfell
Fixed Income Fund paid the Adviser net advisory fees of $ , $3,171,809, and
$2,041,053, respectively. For the same years, Morgan Grenfell Municipal Bond
Fund paid the Adviser net advisory fees of $ , $977,638, and $791,321,
respectively. For the fiscal periods ended October 31, [1998], 1997, and 1996,
Morgan Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term
Municipal Bond Fund and Morgan Grenfell Smaller Companies Fund paid no advisory
fees to the Adviser. For the fiscal periods ended [October 31, 1998] and 1997,
Morgan Grenfell Microcap Fund paid no advisory fee to the Adviser. The foregoing
advisory fee payments and non-payments reflect expense limitations that were in
effect during the indicated periods. Morgan Grenfell Large Cap Growth Fund,
Morgan Grenfell Total Return Bond Fund and Morgan Grenfell High Yield Bond Fund
were not in operation during any of the indicated periods and, accordingly, paid
no advisory fees during such periods.
Each Management Contract between Morgan Grenfell Inc. and the Trust, was most
recently approved on November 19, 1998 by a vote of the Trust's Board of
Trustees, including a majority of those Trustees who were not parties to such
Management Contract or "interested persons" of any such parties. The Management
Contract for the Microcap Fund will remain in effect until August 23, 1999. Each
Management Contract will continue in effect, with respect to each Fund, only if
such continuance is specifically approved annually by the Trustees, including a
majority of the Trustees who are not parties to the Management Contracts or
"interested persons" of any such parties, or by a vote of a majority of the
outstanding shares of each Fund. The Management Contracts are terminable by vote
of the Board of Trustees, or, with respect to a Fund, by the holders of a
majority of the outstanding shares of the Fund, at any time without penalty on
60 days' written notice to the Adviser. Termination of a Management Contract
(that covers more than one Fund) with respect to a Fund will not terminate or
otherwise invalidate any provision of such Management Contract with respect to
any other Fund. The Adviser may terminate any Management Contract at any time
without penalty on 60 days' written notice to the Trust. Each Management
Contract terminates automatically in the event of its "assignment" (as such term
is defined in the 1940 Act).
Each Management Contract provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust or any
Fund in connection with the performance of the Adviser's obligations under the
Management Contract with the Trust, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from reckless disregard of its duties and
obligations thereunder.
In the management of the Funds and its other accounts, the Adviser allocates
investment opportunities to all accounts for which they are appropriate subject
to the availability of cash in any particular account and the final decision of
the individual or individuals in charge of such accounts. Where market supply is
inadequate for a distribution to all such accounts, securities are allocated
based on a Fund's pro rata portion of the amount ordered. In some cases this
procedure may have an adverse effect on the price or volume of the security as
far as a Fund is concerned. However, it is the judgment of the Board that the
desirability of continuing the Trust's advisory arrangements with the Adviser
outweighs any disadvantages that may result from contemporaneous transactions.
See "Portfolio Brokerage."
Morgan Grenfell Inc. is registered with the Commission as an investment adviser
and provides a full range of investment advisory services to institutional
clients. Morgan Grenfell Inc. is a direct wholly-owned subsidiary of Morgan
Grenfell Asset Management, Ltd., which is a wholly-owned subsidiary of Deutsche
Morgan Grenfell Group plc. Deutsche Morgan Grenfell Group plc is an indirect
wholly-owned subsidiary of Deutsche Bank AG, an international commercial and
investment banking group. As of October 31, 1998, Morgan Grenfell Inc. managed
approximately $10.5 billion in assets for various individual and institutional
accounts, including the Morgan Grenfell SMALLCap Fund, Inc., a registered,
closed-end investment company for which it acts as investment adviser.
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Page -34-
<PAGE>
SUBADVISER FOR TOTAL RETURN BOND FUND
Morgan Grenfell Investment Services Limited ("MGIS"), located at 20 Finsbury
Circus, London, England, acts as Subadviser for the international component of
the Total Return Bond Fund pursuant to the terms of a subadvisory contract. MGIS
is registered as an investment adviser with the Commission and provides a full
range of international investment advisory services to institutional clients.
All of the outstanding voting stock of MGIS is owned by Morgan Grenfell Asset
Management, Ltd. ("MGAM"), which is an indirect wholly owned subsidiary of
Deutsche Bank AG, an international commercial and investment banking group. As
of October 31, 1998, MGIS managed approximately $12.1 billion in assets. Under
the Subadvisory contract, the Adviser, and not the Fund, will pay the Subadviser
0.08% of the average daily net assets of the Total Return Bond Fund.
PORTFOLIO MANAGEMENT
Each of the Fixed Income Funds, except for the High Yield Bond Fund, is managed
utilizing a team approach led by David W. Baldt, Executive President of the
Adviser. Mr. Baldt has been in the investment advisory business since 1973 and
with the Adviser since 1989. The rest of the team includes Gary W. Bartlett,
Warren S. Davis, Thomas J. Flaherty, Christopher J. Gagnier and Timothy C. Vile,
all Senior Vice Presidents of the Adviser. Mr. Bartlett has been in the
investment advisory business since 1982 (with the Adviser since 1992) and
previously managed funds with Provident National Bank. Mr. Davis has been in the
investment advisory business since 1986 (with the Adviser since 1995) and has
managed funds with Merrill Lynch and Paine Webber. Mr. Flaherty has been in the
investment advisory business since 1985 (with the Adviser since 1995) and
previously managed funds with Prudential Securities. Mr. Vile has been in the
investment advisory business since 1986 (with the Adviser since 1991) and
previously managed funds for Equitable Capital Management. Mr. Gagnier has been
in the investment advisory business since 1984 (with the Adviser since 1997) and
previously with Paine Webber.
Mr. Curtiss O. Barrows is a senior vice president with the Adviser and serves as
the portfolio manager of the High Yield Bond Fund. Prior to joining Morgan
Grenfell Inc. in March 1998, Mr. Barrows managed Phoenix High-Yield Fund at
Phoenix Duff & Phelps for the past 13 years.
The Smaller Companies Fund and Microcap Fund are each managed by a team of three
experienced portfolio managers, Audrey M. T. Jones, David A. Baratta and John P.
Callaghan. Ms. Jones and Mr. Baratta have served as members of the Funds'
portfolio management team since the Fund's inception. Mr. Callaghan joined the
Funds' portfolio management team (and the Adviser) in June 1997 and, prior to
such time, worked as a portfolio manager for Odyssey Partners and Weiss, Peck &
Greer. Ms. Jones has been employed by the Adviser as a portfolio manager since
1986. Prior to joining the Adviser in September 1994, Mr. Baratta worked as a
portfolio manager for AIG Global Investors and Shearson Lehman Asset Management.
The Large Cap Growth Fund is managed by a committee consisting of investment
professionals employed by the Adviser. This committee makes investment decisions
for the Fund.
PORTFOLIO TURNOVER
Each Fund's portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. For the fiscal period
ended October 31, 1998, the portfolio turnover rates for Morgan Grenfell Fixed
Income Fund, Morgan Grenfell Municipal Bond Fund, Morgan Grenfell Short-Term
Fixed Income Fund, Morgan Grenfell Short-Term Municipal Bond Fund, Morgan
Grenfell Smaller Companies Fund and Morgan Grenfell Microcap Fund were %,
%, %, %, % and %, respectively. For the fiscal period ended
October 31, 1997, the portfolio turnover rates for Morgan Grenfell Fixed Income
Fund, Morgan Grenfell Municipal Bond Fund, Morgan Grenfell Short-Term Fixed
Income Fund, Morgan Grenfell Short-Term Municipal
- --------------------------------------------------------------------------------
Page -35-
<PAGE>
Bond Fund, Morgan Grenfell Smaller Companies Fund and Morgan Grenfell Microcap
Fund were 178%, 67%, 186%, 95%, 122% and 272%, respectively.
THE ADMINISTRATOR
Morgan Grenfell Inc. (the "Administrator"), 150 South Independence Square West,
Philadelphia, PA 19106, serves as the Trust's administrator pursuant to an
Administration Agreement dated August 27, 1998. Pursuant to the Administration
Agreement, the Administrator has agreed to furnish statistical and research
data, clerical services, and stationery and office supplies; prepare and file
various reports with the appropriate regulatory agencies including the
Commission and state securities commissions; and provide accounting and
bookkeeping services for the Funds, including the computation of each Fund's net
asset value, net investment income and net realized capital gains, if any.
For its services under the Administration Agreement, the Administrator receives
a monthly fee at the following annual rates of the aggregate average daily net
assets of such Fund: 0.12% for the Fixed Income Funds; 0.22% for the Equity
Funds. The Administrator will pay Accounting Agency and Transfer Agency fees out
of the Administration fee. Previously, these fees were charged directly to the
Funds. Net Fund Operating Expenses will remain unchanged since 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 to the specified percentage of each Fund's net assets as demonstrated in
the Expense Information table on page 4 of the prospectus. In its sole
discretion the Adviser may terminate or modify this voluntary agreement at any
time.
Prior to November 1, 1998, SEI Financial Management Corporation was the
Administrator for the Funds. For the fiscal years ended October 31, 1997, 1996
and 1995, Morgan Grenfell Fixed Income Fund paid the Administrator
administration fees of $901,672, $655,936 and $455,614, respectively. For the
same years, Morgan Grenfell Municipal Bond Fund paid the Administrator
administration fees of $295,813, $253,839 and $227,872, respectively. For the
fiscal period ended October 31, 1997, Morgan Grenfell Short-Term Fixed Income
Fund, Morgan Grenfell Short-Term Municipal Bond Fund, Morgan Grenfell Smaller
Companies Fund and Morgan Grenfell Microcap Fund paid the Administrator
administration fees of $60,000, $60,000, $60,000 and $23,000, respectively. For
the fiscal year ended October 31, 1996, Morgan Grenfell Short-Term Fixed Income
Fund, Morgan Grenfell Short-Term Municipal Bond Fund and Morgan Grenfell Smaller
Companies Fund paid the Administrator administration fees of $45,833, $45,833
and $37,500, respectively. For the fiscal year ended October 31, 1995, Morgan
Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term Municipal Bond
Fund and Morgan Grenfell Smaller Companies Fund paid the Administrator
administration fees of $12,500, $12,500 and $4,167, respectively. The
administration fees described in this paragraph were paid pursuant to a fee
schedule that is different from the one currently in effect (described above).
The Administration Agreement provides that the Administrator shall not be liable
under the Administration Agreement except for bad faith or gross negligence in
the performance of its duties or from the reckless disregard by it of its duties
and obligations thereunder.
EXPENSES OF THE TRUST
The expenses borne by institutional shares of the Funds include: (i) fees and
expenses of any investment adviser and any administrator of the Funds; (ii) fees
and expenses incurred by the Funds in connection with membership in investment
company organizations; (iii) brokers' commissions; (iv) payment for portfolio
pricing services to a pricing agent, if any; (v) legal expenses; (vi) interest,
insurance premiums, taxes or governmental fees; (vii) clerical expenses of
issue, redemption or repurchase of shares of the Funds; (viii) the expenses of
and fees for registering or qualifying shares of the Funds for sale and of
maintaining the registration of the Funds and registering the Funds as a broker
or a dealer; (ix) the fees and expenses of Trustees who are not affiliated with
the Adviser; (x) the fees or disbursements of custodians of the
- --------------------------------------------------------------------------------
Page -36-
<PAGE>
Funds' assets, including expenses incurred in the performance of any obligations
enumerated by the Declaration of Trust or By-Laws of the Trust insofar as they
govern agreements with any such custodian; (xi) costs in connection with annual
or special meetings of shareholders, including proxy material preparation,
printing and mailing; (xii) charges and expenses of the Trust's auditor; (xiii)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Trust's business; and (xiv) expenses of
an extraordinary and nonrecurring nature.
TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore, Kansas City, Missouri 64105 (the "Transfer
Agent") serves as the transfer and dividend disbursing agent for the Funds
pursuant to a transfer agency agreement (the "Transfer Agency Agreement"), under
which the Transfer Agent (i) maintains record shareholder accounts, and (ii)
makes periodic reports to the Trust's Board of Trustees concerning the
operations of each Fund.
THE DISTRIBUTOR
The Trust, on behalf of the Funds, has entered into a distribution agreement
(the "Distribution Agreement") pursuant to which SEI Financial Services Company,
1 Freedom Valley Drive, Oaks, Pennsylvania 19456-0100 (the "Distributor"), as
agent, serves as principal underwriter for the continuous offering of shares,
including institutional shares, of each Fund. The Distributor has agreed to use
its best efforts to solicit orders for the purchase of shares of each Fund,
although it is not obligated to sell any particular amount of shares. Shares of
the Funds are not subject to sales loads or distribution fees. The Adviser, and
not the Trust, is responsible for payment of any expenses or fees incurred in
the marketing and distribution of shares of the Funds.
The Distribution Agreement will remain in effect for one year from its effective
date and will continue in effect thereafter only if such continuance is
specifically approved annually by the Trustees, including a majority of the
Trustees who are not parties to the Distribution Agreement or "interested
persons" of such parties. The Distribution Agreement was approved by the initial
shareholder of Microcap Fund on August 5, 1996. The Distribution Agreement was
most recently approved on November 19, 1998 by a vote of the Trust's Board of
Trustees, including a majority of those Trustees who were not parties to the
Distribution Agreement or "interested persons" of any such parties. The
Distribution Agreement is terminable, as to a Fund, by vote of the Board of
Trustees, or by the holders of a majority of the outstanding shares of the Fund,
at any time without penalty on 60 days' written notice to the Distributor. The
Distributor may terminate the Distribution Agreement at any time without penalty
on 60 days' written notice to the Trust.
CUSTODIAN
Brown Brothers Harriman and Co. (the "Custodian"), 40 Water Street, Boston,
Massachusetts 02109, serves as the Trust's custodian pursuant to a Custodian
Agreement. Under its custody agreement with the Trust, Northern (i) maintains
separate accounts in the name of each Fund, (ii) holds and transfers portfolio
securities on account of each Fund, (iii) accepts receipts and makes
disbursements of money on behalf of each Fund, (iv) collects and receives all
income and other payments and distributions on account of each Fund's portfolio
securities and (v) makes periodic reports to the Trust's Board of Trustees
concerning each Fund's operations. The Custodian is authorized to select one or
more foreign or domestic banks or companies to serve as sub-custodian on behalf
of the Funds.
- --------------------------------------------------------------------------------
Page -37-
<PAGE>
SERVICE PLAN
(SERVICE SHARES ONLY)
Each Fund has adopted a service plan (the "Plan") with respect to its service
shares which authorizes it to compensate Service Organizations whose customers
invest in service shares of the Funds for providing certain personal, account
administration and/or shareholder liaison services. Pursuant to the Plans, the
Funds may enter into agreements with Service Organizations ("Service
Agreements"). Under such Service Agreements or otherwise, the Service
Organizations may perform some or all of the following services: (i) acting as
record holder and nominee of all service shares beneficially owned by their
customers; (ii) establishing and maintaining individual accounts and records
with respect to the service shares owned by each customer; (iii) providing
facilities to answer inquiries and respond to correspondence from customers
about the status of their accounts or about other aspects of the Trust or
applicable Fund; (iv) processing and issuing confirmations concerning customer
orders to purchase, redeem and exchange service shares; and (v) receiving and
transmitting funds representing the purchase price or redemption proceeds of
such service shares.
As compensation for such services, each Fund will pay each Service Organization
with which it has a Service Agreement a service fee in an amount up to .25% (on
an annualized basis) of the average daily net assets of the Fund's service
shares attributable to customers of such Service Organization. Service
Organizations may from time to time be required to meet certain other criteria
in order to receive service fees.
In accordance with the terms of the Service Plans, the officers of the Trust
provide to the Trust's Board of Trustees for their review a quarterly written
report of the amounts expended under the Service Plans and the purpose for which
such expenditures were made. In the Trustees' quarterly review of such reports,
they will consider the continued appropriateness and the level of compensation
that the Service Plans provide.
Pursuant to the Plans, service shares of a Fund that are beneficially owned by
customers of a Service Organization will convert automatically to institutional
shares of the same Fund in the event that such Service Organization's Service
Agreement expires or is terminated. Customers of a Service Organization will
receive advance notice of any such conversion, and any such conversion will be
effected on the basis of the relative net asset values of the two classes of
shares involved.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974 ("ERISA") may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in service shares of the Fund. Service Organizations that are subject to
the jurisdiction of the SEC, the Department of Labor or state securities
commissions are urged to consult their own legal advisers before investing
fiduciary assets in service shares and receiving service fees.
The Trust believes that fiduciaries of ERISA plans may properly receive fees
under a Service Plan if the plan fiduciary otherwise properly discharges its
fiduciary duties, including (if applicable) those under ERISA. Under ERISA, a
plan fiduciary, such as a trustee or investment manager, must meet the fiduciary
responsibility standards set forth in part 4 of Title I of ERISA. Those
standards are designed to help ensure that the fiduciary's decisions are made in
the best interests of the plan and are not colored by self-interest.
Section 403 (c)(1) of ERISA provides, in part, that the assets of a plan shall
be held for the exclusive purpose of providing benefits to the plan's
participants and their beneficiaries and defraying reasonable expenses of
administering the plan. Section 404(a)(1) sets forth a similar requirement on
how a plan fiduciary must discharge his or her duties with respect to the plan,
and provides further that such fiduciary must act prudently and solely in the
interests of the participants and beneficiaries. These basic provisions are
supplemented by the per se prohibitions of certain classes of transactions set
forth in Section 406 of ERISA.
- --------------------------------------------------------------------------------
Page -38-
<PAGE>
Section 406(a)(1)(D) of ERISA prohibits a fiduciary of an ERISA plan from
causing that plan to engage in a transaction if he knows or should know that the
transaction would constitute a direct or indirect transfer to, or use by or for
the benefit of, a party in interest, of any assets of that plan. Section 3(14)
includes within the definition of "party in interest" with respect to a plan any
fiduciary with respect to that plan. Thus, Section 406(a)(1)(D) would not only
prohibit a fiduciary from causing the plan to engage in a transaction which
would benefit a third person who is a party in interest, but it would also
prohibit the fiduciary from similarly benefiting himself. In addition, Section
406(b)(1) specifically prohibits a fiduciary with respect to a plan from dealing
with the assets of that plan in his own interest or for his own account. Section
406(b)(3) supplements these provisions by prohibiting a plan fiduciary from
receiving any consideration for his own personal account from any party dealing
with the plan in connection with a transaction involving the assets of the plan.
In accordance with the foregoing, however, a fiduciary of an ERISA plan may
properly receive service fees under a Service Plan if the fees are used for the
exclusive purpose of providing benefits to the plan's participants and their
beneficiaries or for defraying reasonable expenses of administering the plan for
which the plan would otherwise be liable. See, e.g., Department of Labor ERISA
Technical Release No. 86-1 (stating a violation of ERISA would not occur where a
broker-dealer rebates commission dollars to a plan fiduciary who, in turn,
reduces its fees for which plan is otherwise responsible for paying). Thus, the
fiduciary duty issues involved in a plan fiduciary's receipt of the service fee
must be assessed on a case-by-case basis by the relevant plan fiduciary.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees, the Adviser makes
decisions with respect to and places orders for all purchases and sales of
portfolio securities for the Funds. In executing portfolio transactions, the
Adviser seeks to obtain the best net results for the Funds, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), size of the order, difficulty of execution and operational facilities
of the firm involved. Commission rates, being a component of price, are
considered together with such factors. Where transactions are effected on a
foreign securities exchange, the Funds employ brokers, generally at fixed
commission rates. Commissions on transactions on U.S. securities exchanges are
subject to negotiation. Where transactions are effected in the over-the-counter
market or third market, the Funds deal with the primary market makers unless a
more favorable result is obtainable elsewhere. Fixed income securities purchased
or sold on behalf of the Funds normally will be traded in the over-the-counter
market on a net basis (i.e. without a commission) through dealers acting for
their own account and not as brokers or otherwise through transactions directly
with the issuer of the instrument. Some fixed income securities are purchased
and sold on an exchange or in over-the-counter transactions conducted on an
agency basis involving a commission.
Pursuant to the Management Contracts, the Adviser agrees to select
broker-dealers in accordance with guidelines established by the Trust's Board of
Trustees from time to time and in accordance with Section 28(e) of the
Securities Exchange Act of 1934, as amended. In assessing the terms available
for any transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In addition, the Management Contracts authorize the
Adviser, subject to the periodic review of the Trust's Board of Trustees, to
cause a Fund to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker-dealer for effecting the same transaction, provided that the Adviser
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser to the Fund. Such brokerage and research
services may consist of pricing information, reports and statistics on specific
- --------------------------------------------------------------------------------
Page -39-
<PAGE>
companies or industries, general summaries of groups of bonds and their
comparative earnings and yields, or broad overviews of the securities markets
and the economy.
Supplemental research information utilized by the Adviser is in addition to, and
not in lieu of, services required to be performed by the Adviser and does not
reduce the advisory fees payable to the Adviser. The Trustees will periodically
review the commissions paid by the Funds to consider whether the commissions
paid over representative periods of time appear to be reasonable in relation to
the benefits inuring to the Funds. It is possible that certain of the
supplemental research or other services received will primarily benefit one or
more other investment companies or other accounts of the Adviser for which
investment discretion is exercised. Conversely, a Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company. During the
fiscal year ended [October 31, 1998], the Adviser did not, pursuant to any
agreement or understanding with a broker or otherwise through an internal
allocation procedure, direct any Fund's brokerage transactions to a broker
because of research services provided by such broker.
Investment decisions for each Fund and for other investment accounts managed by
the Adviser are made independently of each other in the light of differing
conditions. However, the same investment decision may be made for two or more of
such accounts. In such cases, simultaneous transactions are inevitable.
Purchases or sales are then averaged as to price and allocated as to amount in a
manner deemed equitable to each such account. While in some cases this practice
could have a detrimental effect on the price or value of the security as far as
a Fund is concerned, in other cases it is believed to be beneficial to a Fund.
To the extent permitted by law, the Adviser may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for other
investment companies or accounts in executing transactions.
Pursuant to procedures determined by the Trustees and subject to the general
policies of the Funds and Section 17(e) of the 1940 Act, the Adviser may place
securities transactions with brokers with whom it is affiliated ("Affiliated
Brokers").
Section 17(e) of the 1940 Act limits to "the usual and customary broker's
commission" the amount which can be paid by the Funds to an Affiliated Broker
acting as broker in connection with transactions effected on a securities
exchange. The Board, including a majority of the Trustees who are not
"interested persons" of the Trust or the Adviser, has adopted procedures
designed to comply with the requirements of Section 17(e) of the 1940 Act and
Rule 17e-1 promulgated thereunder to ensure that the broker's commission is
"reasonable and fair compared to the commission, fee or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time...."
A transaction would not be placed with an Affiliated Broker if a Fund would have
to pay a commission rate less favorable than their contemporaneous charges for
comparable transactions for their other most favored, but unaffiliated,
customers except for accounts for which they act as a clearing broker, and any
of their customers determined, by a majority of the Trustees who are not
"interested persons" of the Fund or the Adviser, not to be comparable to the
Fund. With regard to comparable customers, in isolated situations, subject to
the approval of a majority of the Trustees who are not "interested persons" of
the Trust or the Adviser, exceptions may be made. Since the Adviser, as
investment adviser to the Funds, has the obligation to provide management, which
includes elements of research and related skills, such research and related
skills will not be used by them as a basis for negotiating commissions at a rate
higher than that determined in accordance with the above criteria. The Funds
will not engage in principal transactions with Affiliated Brokers. When
appropriate, however, orders for the account of the Funds placed by Affiliated
Brokers are combined with orders of their respective clients, in order to obtain
a more favorable commission rate. When the same security is purchased for two or
more funds or customers on the same day, each fund or customer pays the average
price and commissions paid are allocated in direct proportion to the number of
shares purchased.
- --------------------------------------------------------------------------------
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<PAGE>
Affiliated Brokers furnish to the Trust at least annually a statement setting
forth the total amount of all compensation retained by them or any associated
person of them in connection with effecting transactions for the account of the
Funds, and the Board reviews and approves all such portfolio transactions on a
quarterly basis and the compensation received by Affiliated Brokers in
connection therewith. During the fiscal years ended October 31, 1996, 1997 and
[1998], no Fund paid any brokerage commissions to any Affiliated Broker.
Affiliated Brokers do not knowingly participate in commissions paid by the Funds
to other brokers or dealers and do not seek or knowingly receive any reciprocal
business as the result of the payment of such commissions. In the event that an
Affiliated Broker learns at any time that it has knowingly received reciprocal
business, it will so inform the Board.
For the fiscal years ended October 31, 1996, 1997, [and 1998] Morgan Grenfell
Fixed Income Fund and Morgan Grenfell Municipal Bond Fund paid no brokerage
commissions. For the fiscal years ended October 31, 1996, 1997, [and 1998]Morgan
Grenfell Short-Term Fixed Income Fund and Morgan Grenfell Short-Term Municipal
Bond Fund paid no brokerage commissions. For the fiscal years ended October 31,
1996, 1997 [and 1998] Morgan Grenfell Smaller Companies Fund paid aggregate
brokerage commissions of $ , $9,546.89, and $7,708, respectively. For the
fiscal periods ended October 31, [1998] and 1997, Morgan Grenfell Microcap Fund
paid aggregate brokerage commissions of $ and $7,337.06 respectively.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Funds are distributed by SEI Investments Distribution Co., the
Distributor. The Funds offer two classes of shares, institutional and service
shares. General information on how to buy shares of the Funds is set forth in
"Managing Your Investment" in the Funds' Prospectus. The following supplements
that information.
Investors may invest in institutional shares by establishing a shareholder
account with the Trust. In order to make an initial investment in service shares
of a Fund, an investor must establish an account with a service organization.
Additionally, each Fund has authorized brokers to accept purchase and redemption
order for institutional and service shares for each Fund. Brokers, including
authorized brokers of service organizations, are, in turn, authorized to
designate other intermediaries to accept purchase and redemption orders on a
Fund's behalf. Investors who invest through brokers, service organizations or
their designated intermediaries may be subject to minimums established by their
broker, service organization or designated intermediary.
Investors who establish shareholder accounts with the Trust should submit
purchase and redemption orders to the Transfer Agent as described in the
Prospectus. Investors who invest through authorized brokers, service
organizations or their designated intermediaries should submit purchase and
redemption orders directly to their broker, service organization or designated
intermediary. The broker or intermediary may charge you a transaction fee. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker, service organization or, if applicable, an authorized
designee, accepts the order. Shares of any Fund may be purchased or redeemed on
any Business Day at the net asset value next determined after receipt of the
order, in good order, by the Transfer Agent, the service organization, broker or
designated intermediary. A "Business Day" means any day on which the New York
Stock Exchange (the "NYSE") is open. For an investor who has a shareholder
account with the Trust, the Transfer Agent must receive the investor's purchase
or redemption order before the close of regular trading on the NYSE for the
investor to receive that day's net asset value. For an investor who invests
through a mutual fund marketplace, the investor's authorized broker or
designated intermediary must receive the investor's purchase or redemption order
before the close of regular trading on the NYSE (generally 4:00 p.m., Eastern
Time) and promptly forward such order to the Transfer Agent for the investor to
receive that day's net asset value. Service organizations, brokers and
designated intermediaries
- --------------------------------------------------------------------------------
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<PAGE>
are responsible for promptly forwarding such investors' purchase or redemption
orders to the Transfer Agent.
NET ASSET VALUE
Under the 1940 Act, the Board of Trustees of the Trust is responsible for
determining in good faith the fair value of the securities of each Fund. In
accordance with procedures adopted by the Board of Trustees, the net asset value
per share of each class of each Fund is calculated by determining the net worth
of the Fund attributable to the class (assets, including securities at value,
minus liabilities) divided by the number of shares of such class outstanding.
Each Fund computes net asset value for each class of its shares at the close of
such regular trading, which is generally 4:00 p.m. Eastern time, on each day on
which the New York Stock Exchange ("NYSE") is open (a "Business Day"). If the
NYSE closes early, the fund will accelerate the calculation of the NAV and
transaction deadlines to the actual closing time. The NYSE is closed on
Saturdays and Sundays as well as the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
For purposes of calculating net asset value for each class of its shares, equity
securities traded on a recognized U.S. or foreign securities exchange or the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
are valued at their last sale price on the principal exchange on which they are
traded or NASDAQ (if NASDAQ is the principal market for such securities) on the
valuation day or, if no sale occurs, at the bid price. Unlisted equity
securities for which market quotations are readily available are valued at the
most recent bid price prior to the time of valuation.
Debt securities and other fixed income investments of the Funds are valued at
prices supplied by independent pricing agents, which prices reflect
broker-dealer supplied valuations and electronic data processing techniques.
Short-term obligations maturing in sixty days or less may be valued at amortized
cost, which method does not take into account unrealized gains or losses on such
portfolio securities. Amortized cost valuation involves initially valuing a
security at its cost, and thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods in which the value of the
security, as determined by amortized cost, may be higher or lower than the price
the Fund would receive if the Fund sold the security.
Other assets and assets for which market quotations are not readily available
are valued at fair value using methods determined in good faith by the Board of
Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the 4:00 P.M.
(Eastern Time) close of business on each Business Day. In addition, European or
Far Eastern securities trading generally or in a particular country or countries
may not take place on all Business Days. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign markets on days
which are not Business Days and on which the Funds' net asset values are not
calculated. Such calculation may not take place contemporaneously with the
determination of the prices of certain portfolio securities used in such
calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the regular
trading on the NYSE will not be reflected in the Funds' calculation of net asset
values unless the Adviser deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.
PERFORMANCE INFORMATION
From time to time, performance information, such as total return and yield for
shares of a Fund may be quoted in advertisements or in communications to
shareholders. A Fund's total return may be calculated
- --------------------------------------------------------------------------------
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<PAGE>
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 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
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 share over a
30-day period by the net asset value per share on the last day of that period.
For the Municipal Funds, tax-equivalent yield may also be quoted. Tax-equivalent
yield is calculated by determining the rate of return that would have to be
achieved on a fully taxable investment to produce the after tax equivalent of a
Municipal Fund's yield, assuming certain tax brackets for a shareholder.
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 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.
YIELD
From time to time, the Fixed Income Fund, the Short-Term Fixed Income Fund, the
Total Return Bond Fund, the High Yield Bond Fund and each Municipal Fund may
advertise its yield and (in the case of the Municipal Funds) its tax-equivalent
yield. Yield and tax-equivalent yield are calculated separately for service
shares and institutional shares of a Fund. Each type of share is subject to
differing yields for the same period. The yield of institutional shares of a
Fund refers to the annualized income generated by an investment in the Fund over
a specified 30-day period. The yield is calculated by assuming that the income
generated by the investment during that period is generated for each like period
over one year and is shown as a percentage of the investment. In particular,
yield will be calculated according to the following formula:
a-b
YIELD = 2 [ ( ---- + 1 ) 6 - 1 ]
cd
<TABLE>
<S> <C> <C> <C>
Where: a = dividends and interest earned by the Fund during the
period;
b = net expenses accrued for the period;
c = average daily number of shares outstanding during the
period entitled to receive dividends; and
d = maximum offering price per share on the last day of
the period.
</TABLE>
- --------------------------------------------------------------------------------
Page -43-
<PAGE>
Tax-equivalent yield is computed by dividing the portion of the yield that is
tax exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the yield that is not tax exempt.
Actual yields will depend on such variables as asset quality, average asset
maturity, the type of instruments a Fund invests in, changes in interest rates
on money market instruments, changes in the expenses of the Fund and other
factors.
Yields are one basis upon which investors may compare the Funds with other
mutual funds; however, yields of other mutual funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments.
For the 30-day period ended October 31, 1998, the yields for institutional
shares of the Fixed Income Fund, the Municipal Bond Fund, the Short-Term Fixed
Income Fund and the Short-Term Municipal Bond Fund were %, %, % and
%, respectively. If the expense limitations for these Funds had not been in
effect during this period, the yields for institutional shares of these Funds
would have been %, %, % and %, respectively. For the same
period, the tax-equivalent yields for institutional shares of the Municipal Bond
Fund and the Short-Term Municipal Bond Fund were % and %, respectively,
assuming the highest Federal Income Tax bracket for individuals (39.6%). If the
expense limitations for these Funds had not been in effect during this period,
the tax-equivalent yields for institutional shares of these Funds would have
been % and %, respectively, assuming the same Federal Income Tax
bracket.
For the 30-day period ended October 31, 1998 the yield for service shares of the
Municipal Bond Fund was %. If the expense limitations described in the
Prospectus for this Fund had not been in effect during this period, the yield
for service shares of this Fund would have been %. For the same period, the
tax-equivalent yield for service shares of the Municipal Bond Fund was %,
assuming the highest Federal Income Tax bracket for individuals (39.6%). If the
expense limitations described in the Prospectus for this Fund had not been in
effect during this period, the tax-equivalent yield for service shares of this
Fund would have been %, assuming the same Federal Income Tax bracket.
TOTAL RETURN
Average annual total return is calculated separately for service shares and
institutional shares of a Fund. Each type of share is subject to different fees
and expenses and, consequently, may have differing average annual total returns
for the same period. Each Fund that advertises "average annual total return" for
a class of its shares computes such return by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
ERV
T = [ ( --- ) 1/n - 1 ]
P
<TABLE>
<S> <C> <C> <C>
Where: T = average annual total return,
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year (or other) periods at the end of the
applicable period (or a fractional portion
thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in
years.
</TABLE>
Each Fund that advertises "aggregate total return" for a class of its shares
computes such returns by determining the aggregate compounded rates of return
during specified periods that likewise equate the
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<PAGE>
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Aggregate Total Return
= [( ERV ) - 1]
P
</TABLE>
The above calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. For the fiscal year ended October 31, 1998, the average annual
total return of institutional shares of Morgan Grenfell Fixed Income Fund,
Morgan Grenfell Municipal Bond Fund, Morgan Grenfell Short-Term Fixed Income
Fund, Morgan Grenfell Short-Term Municipal Bond Fund and Morgan Grenfell Smaller
Companies Fund were %, %, %, % and %, respectively. For the
five-year period ended October 31, 1998, the average annual total returns of
institutional shares of Morgan Grenfell Fixed Income Fund and Morgan Grenfell
Municipal Bond Fund were % and %, respectively. For their respective
periods from commencement of operations to October 31, 1998, the average annual
total returns of institutional shares of Morgan Grenfell Fixed Income Fund,
Morgan Grenfell Municipal Bond Fund, Morgan Grenfell Short-Term Fixed Income
Fund, Morgan Grenfell Short-Term Municipal Bond Fund, Morgan Grenfell Smaller
Companies Fund and Morgan Grenfell Microcap Fund were %, %, %,
%, % and %, respectively. If expense limitations for the above Funds
had not been in effect during the indicated periods, the total returns for
institutional shares of these Funds for such periods would have been lower than
the total return figures shown in this paragraph.
For the fiscal year ended October 31, 1998, the average annual returns for
service shares of Morgan Grenfell Municipal Bond Fund, Morgan Grenfell Smaller
Companies Fund and Morgan Grenfell Microcap Fund were %, % and %,
respectively. For their respective periods from commencement of operations (for
service shares) to October 31, 1998, the average annual returns for service
shares of Morgan Grenfell Municipal Bond Fund, Morgan Grenfell Smaller Companies
Fund and Morgan Grenfell Microcap Fund were %, % and %,
respectively. If the expense limitations described in the Prospectus for the
above Funds had not been in effect during the indicated periods, the total
returns of these Funds for such periods would have been lower than the total
return figures shown in this paragraph.
The Funds may from time to time advertise comparative performance as measured by
various independent sources, including, but not limited to, Barron's, The Wall
Street Journal, Weisenberger Investment Companies Service, Business Week,
Changing Times, Financial World, Forbes, Fortune and Money. In addition, the
Funds may from time to time advertise their performance relative to certain
indices and benchmark investments, including: (a) the Lipper Analytical
Services, Inc. Mutual Fund Performance Analysis, Fixed Income Analysis and
Mutual Fund Indices (which measure total return and average current yield for
the mutual fund industry and rank mutual fund performance); (b) the CDA Mutual
Fund Report published by CDA Investment Technologies, Inc. (which analyzes
price, risk and various measures of return for the mutual fund industry); (c)
the Consumer Price Index published by the U.S. Bureau of Labor Statistics (which
measures changes in the price of goods and services); (d) Stocks, Bonds, Bills
and Inflation published by Ibbotson Associates (which provides historical
performance figures for stocks, government securities and inflation); (e) the
Shearson Lehman Brothers Aggregate Bond Index or its component indices (the
Aggregate Bond Index measures the performance of Treasury, U.S. Government
agency, corporate, mortgage and Yankee bonds); (f) the Standard & Poor's Bond
Indices (which measure yield and price of corporate, municipal and U.S.
Government bonds); and (g) historical investment data supplied by the research
departments of Goldman Sachs, Lehman Brothers, Inc., First Boston Corporation,
Dean Witter Morgan Stanley, Salomon Brothers, Merrill Lynch, Donaldson Lufkin
and Jenrette or
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<PAGE>
other providers of such data. The composition of the investments in such indices
and the characteristics of such benchmark investments are not identical to, and
in some cases are very different from, those of the Funds' portfolios. These
indices and averages are generally unmanaged and the items included in the
calculations of such indices and averages may not be identical to the formulas
used by the Funds to calculate their performance figures.
TAXES
The following is a summary of the principal U.S. federal income, and certain
state and local, tax considerations regarding the purchase, ownership and
disposition of shares in the Funds. This summary does not address special tax
rules applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Each prospective shareholder is
urged to consult his own tax adviser with respect to the specific federal,
state, local and foreign tax consequences of investing in the Funds. The summary
is based on the laws in effect on the date of this Statement of Additional
Information, which are subject to change.
GENERAL
Each Fund is a separate taxable entity. Each Fund has elected or intends to
elect to be treated, and intends to qualify for each taxable year, as a
regulated investment company under Subchapter M of the Code.
Qualification of any Fund as a regulated investment company under the Code
requires, among other things, that (a) the Fund derive at least 90% of its gross
income (including tax-exempt interest) for its taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stocks or securities or foreign currencies, or other income
(including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% gross income test"); and (b) the Fund
diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the market value of its total (gross) assets is
comprised of cash, cash items, United States Government securities, securities
of other regulated investment companies and other securities limited in respect
of any one issuer to an amount not greater in value than 5% of the value of the
Fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than United States
Government securities and securities of other regulated investment companies) or
two or more issuers controlled by the Fund and engaged in the same, similar or
related trades or businesses. Future Treasury regulations could provide that
qualifying income under the 90% gross income test will not include gains from
foreign currency transactions or derivatives that are not directly related to a
Fund's principal business of investing in stock or securities or options and
futures with respect to stock or securities. Using foreign currency positions or
entering into foreign currency options, futures or forward contracts for
purposes other than hedging currency risk with respect to securities in a Fund's
portfolio or anticipated to be acquired may not qualify as "directly-related"
under such regulations.
If a Fund complies with such provisions, then in any taxable year in which the
Fund distributes at least 90% of the sum of (i) its "investment company taxable
income" (which includes dividends, taxable interest, taxable accrued original
issue discount, recognized market discount income, income from securities
lending, any net short-term capital gain in excess of net long-term capital loss
and certain net realized foreign exchange gains and is reduced by deductible
expenses) and (ii) the excess of its gross tax-exempt interest, if any, over
certain disallowed deductions ("net tax-exempt interest"), the Fund (but not its
shareholders) will be relieved of federal income tax on any income of the Fund,
including long-term capital gains, distributed to shareholders. However, if a
Fund retains any investment company taxable income or net capital gain (the
excess of net long-term capital gain over net short-term capital loss), it will
be subject to federal income tax at regular corporate rates on the amount
retained.
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<PAGE>
If a Fund retains any net capital gain, the Fund may designate the retained
amount as undistributed capital gains in a notice to its shareholders who, if
subject to U.S. federal income tax on long-term capital gains, (i) will be
required to include in income for federal income tax purposes, as long-term
capital gain, their shares of such undistributed amount, and (ii) will be
entitled to credit their proportionate shares of the tax paid by the Fund
against their U.S. federal income tax liabilities, if any, and to claim refunds
to the extent the credit exceeds such liabilities.
For U.S. federal income tax purposes, the tax basis of shares owned by a
shareholder of a Fund will be increased by an amount equal under current law to
65% of the amount of undistributed net capital gain included in the
shareholder's gross income. Each Fund intends to distribute at least annually to
its shareholders all or substantially all of its investment company taxable
income, net tax-exempt interest, and net capital gain. If for any taxable year a
Fund does not qualify as a regulated investment company, it will be taxed on all
of its investment company taxable income and net capital gain at corporate
rates, any net tax-exempt interest may be subject to alternative minimum tax,
and its distributions to shareholders will be taxable as ordinary dividends to
the extent of its current and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed in such year and on which no federal income tax was
paid by the Fund. For federal income tax purposes, dividends declared by a Fund
in October, November or December to shareholders of record on a specified date
in such a month and paid during January of the following year are taxable to
such shareholders as if received on December 31 of the year declared.
Gains and losses on the sale, lapse, or other termination of options and futures
contracts, options thereon and certain forward contracts (except certain foreign
currency options, forward contracts and futures contracts) entered into by a
Fund will generally be treated as capital gains and losses. Certain of the
futures contracts, forward contracts and options held by the Funds will be
required to be "marked-to-market" for federal income tax purposes, that is,
treated as having been sold at their fair market value on the last day of the
Funds' taxable year. As a result, a Fund may be required to recognize income or
gain without a concurrent receipt of cash. Additionally, a Fund may be required
to recognize gain if an option, future, forward contract, short sale, or other
transaction that is not subject to these mark to market rules is treated as a
"constructive sale" of an "appreciated financial position" held by the Fund
under Section 1259 of the Code. Any gain or loss recognized on actual or deemed
sales of futures contracts, forward contracts, or options that are subject to
the mark to market rules, but not the constructive sales rules, (except for
certain foreign currency options, forward contracts, and futures contracts) will
be treated as 60% long-term capital gain or loss and 40% short-term capital gain
or loss. As a result of certain hedging transactions entered into by a Fund,
such Fund may be required to defer the recognition of losses on futures or
forward contracts and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions and the
characterization of gains or losses as long-term or short-term may be changed.
The tax provisions described above applicable to options, futures, forward
contracts and constructive sales may affect the amount, timing and character of
a Fund's distributions to shareholders. Certain tax elections may be available
to the Funds to mitigate some of the unfavorable consequences described in this
paragraph.
Section 988 of the Code contains special tax rules applicable to certain foreign
currency transactions and instruments that may affect the amount, timing and
character of income, gain or loss recognized by Funds other than the Municipal,
Fixed Income and Short-Term Fixed Income Funds. Under these rules, foreign
exchange gain or loss realized with respect to foreign currencies and certain
futures and options thereon, foreign currency-denominated debt instruments,
foreign currency forward contracts, and foreign currency-
- --------------------------------------------------------------------------------
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<PAGE>
denominated payables and receivables will generally be treated as ordinary
income or loss, although in some cases elections may be available that would
alter this treatment.
If a Fund acquires stock (including, under proposed regulations, an option to
acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, certain rents and royalties or capital
gains) or hold at least 50% of their assets in investments producing such
passive income ("passive foreign investment companies"), the Fund could be
subject to federal income tax and additional interest charges on "excess
distributions" received from such companies or gain from the sale of stock in
such companies, even if all income or gain actually received by the Fund is
timely distributed to its shareholders. The Fund would not be able to pass
through to its shareholders any credit or deduction for such a tax. Certain
elections may, if available, ameliorate these adverse tax consequences, but any
such election could require the Fund to recognize taxable income or gain without
the concurrent receipt of cash. The applicable Funds may limit and/or manage
their holdings in passive foreign investment companies or make an available
election to minimize their tax liability or maximize their return from these
investments.
The federal income tax rules applicable to currency swaps, mortgage dollar
rolls, and certain structured securities are unclear in certain respects, and
the Funds may be required to account for these transactions or instruments under
tax rules in a manner that may affect the amount, timing and character of
income, gain or loss therefrom and that may, under certain circumstances, limit
the extent to which the Funds engage in these transactions or acquire these
instruments.
The High Yield Bond Fund and the Total Return Bond Fund may invest in debt
obligations that are in the lowest rating categories or are unrated, including
debt obligations of issuers not currently paying interest as well as issuers who
are in default. Investments in debt obligations that are at risk of or in
default present special tax issues for these Funds. Tax rules are not entirely
clear about issues such as when a Fund may cease to accrue interest, original
issue discount, or market discount, when and to what extent deductions may be
taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by these Funds, to the extent they invest in
such securities, in order to reduce the risk of their distributing insufficient
income to preserve their status as regulated investment companies and seek to
avoid having to pay federal income or excise tax.
A Fund that invests in foreign securities may be subject to foreign withholding
or other foreign taxes on certain income (possibly including, in some cases,
capital gains) from such securities. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes in some cases. The Funds
anticipate that they generally will not be entitled to elect to pass through
such foreign taxes to their shareholders. If such an election is made,
shareholders would have to include their shares of such taxes as additional
income, but could be entitled to U.S. tax credits or deductions for such taxes,
subject to certain requirements and limitations under the Code.
Each Fund's investments in zero coupon securities or other securities bearing
original issue discount or, if the Fund elects to include market discount in
income currently, market discount will generally cause it to realize income
prior to the receipt of cash payments with respect to these securities.
Transactions or instruments subject to the mark to market or constructive sale
rules described above may have the same result in some circumstances. In order
to obtain cash to distribute this income or gain, maintain its qualification as
a regulated investment company, and avoid federal income or excise taxes, a Fund
may be required to liquidate portfolio securities that it might otherwise have
continued to hold.
Each Municipal Fund purchases tax-exempt municipal securities which are
generally accompanied by an opinion of bond counsel to the effect that interest
on such securities is not included in gross income for federal income tax
purposes. It is not economically feasible to, and the Municipal Funds therefore
do not, make any additional independent inquiry into whether such securities are
in fact tax-exempt. Bond counsels' opinions will generally be based in part upon
covenants by the issuers and related parties
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regarding continuing compliance with federal tax requirements. Tax laws,
especially those enacted during the last decade, not only limit the purposes for
which tax-exempt bonds can be issued and the supply of such bonds, but also
contain numerous and complex requirements that must be satisfied on a continuing
basis in order for bonds to be and remain tax-exempt. If the issuer of a bond or
a user of a bond-financed facility fails to comply with such requirements at any
time, interest on the bond could become taxable, retroactive to the date the
obligation was issued. In that event, a portion of a Municipal Fund's
distributions attributable to interest such Fund received on such bond for the
current year and for prior years could be characterized or recharacterized as
taxable income.
Each Fixed Income Fund and each Municipal Fund may purchase municipal securities
together with the right to resell the securities to the seller at an agreed upon
price or yield within a specified period prior to the maturity date of the
securities. Such a right to resell is commonly known as a "put" and is also
referred to as a "standby commitment." A Fund may pay for a standby commitment
either separately, in cash, or in the form of a higher price for the securities
which are acquired subject to the standby commitment, thus increasing the cost
of securities and reducing the yield otherwise available. Additionally, a Fund
may purchase beneficial interests in municipal securities held by trusts,
custodial arrangements or partnerships and/or combined with third-party puts or
other types of features such as interest rate swaps; those investments may
require the Fund to pay "tender fees" or other fees for the various features
provided.
The IRS has issued a revenue ruling to the effect that, under specified
circumstances, a registered investment company will be the owner of tax-exempt
municipal obligations acquired subject to a put option. The IRS has also issued
private letter rulings to certain taxpayers (which do not serve as precedent for
other taxpayers) to the effect that tax-exempt interest received by a regulated
investment company with respect to such obligations will be tax-exempt in the
hands of the company and may be distributed to its shareholders as
exempt-interest dividends. The IRS has subsequently announced that it will not
ordinarily issue advance ruling letters as to the identity of the true owner of
property in cases involving the sale of securities or participation interests
therein if the purchaser has the right to cause the security, or the
participation interest therein, to be purchased by either the seller or a third
party. Each Fund intends to take the position that it is the owner of any
municipal obligations acquired subject to a standby commitment or other third
party put and that tax-exempt interest earned with respect to such municipal
obligations will be tax-exempt in its hands. There is no assurance that the IRS
will agree with such position in any particular case. Additionally, the federal
income tax treatment of certain other aspects of these investments, including
the treatment of tender fees paid by the Fund, in relation to various regulated
investment company tax provisions is unclear. However, the Adviser intends to
manage each Fund's portfolio in a manner designed to minimize any adverse impact
from the tax rules applicable to these investments.
For federal income tax purposes, each Fund is permitted to carry forward a net
capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent years'
capital gains are offset by such losses, they would not result in federal income
tax liability to the applicable Fund and, accordingly, would generally not be
distributed to shareholders. At October 31, 1997, Morgan Grenfell Short-Term
Fixed Income Fund has capital loss carryforwards of approximately $11,000
expiring on the fiscal year ended October 31, 2004 and the Morgan Grenfell
Short-Term Municipal Bond Fund has capital loss carryforwards of approximately
$9,000 expiring on the fiscal year ended October 31, 2005.
U.S. SHAREHOLDERS--DISTRIBUTIONS
A Municipal Fund's distributions from the tax-exempt interest it receives will
generally be exempt from federal income tax, provided that such Fund qualifies
as a regulated investment company, at least 50% of the value of the Fund's total
assets at the close of each quarter of its taxable year consists of debt
obligations that pay interest excluded from gross income under Section 103(a) of
the Code, and the Fund properly designates such distributions as
"exempt-interest dividends." The portions of such exempt-
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interest dividends, if any, derived from interest on certain private activity
bonds will constitute tax preference items and may give rise to, or increase
liability under, the federal alternative minimum tax for particular
shareholders. In addition, all exempt-interest dividends may increase certain
corporate shareholders' liability, if any, for the corporate alternative minimum
tax and will be taken into account in determining the portion, if any, of a
shareholder's social security benefits or certain railroad retirement benefits
that is subject to tax.
For U.S. federal income tax purposes, distributions by the Funds other than the
Municipal Funds, as well as any distributions of the Municipal Funds that are
not designated as exempt-interest dividends as described above, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax.
Shareholders receiving a distribution in the form of newly issued shares will be
treated for U.S. federal income tax purposes as receiving a distribution in an
amount equal to the amount of cash they would have received had they elected to
receive cash and will have a cost basis in each share received equal to such
amount divided by the number of shares received. Distributions from investment
company taxable income of any Fund, including the Municipal Funds, for the year
will be taxable as ordinary income. Investment company taxable income includes,
among other things, dividends, taxable interest, income from repurchase
agreements and securities loans; accrued, recognized market discount; a portion
of the discount on certain stripped tax-exempt obligations and their coupons;
and net short-term capital gain (in excess of net long-term capital loss) from
the sale of investments or options or futures transactions or the disposition of
rights to when-issued securities prior to issuance. Distributions to corporate
shareholders designated as derived from dividend income received by a Fund, if
any, that would be eligible for the dividends received deduction if the Fund
were not a regulated investment company will be eligible, subject to certain
holding period and debt-financing restrictions, for the 70% dividends received
deduction for corporations. Because eligible dividends are limited to those
received by a Fund from U.S. domestic corporations, dividends paid by Funds
other than the Equity Funds will generally not qualify for the dividends
received deduction, and some of the dividends paid by the Equity Funds also may
not qualify for the deduction. The dividends-received deduction, if available,
is reduced to the extent the shares with respect to which the dividends received
are treated as debt financed under the Code and is eliminated if the shares are
deemed to have been held for less than a minimum period, generally 46 days,
extending before and after each such dividend. The entire dividend, including
the deducted amount, is considered in determining the excess, if any, of a
corporate shareholder's adjusted current earnings over its alternative minimum
taxable income, which may increase its liability for the federal alternative
minimum tax. The dividend may, if it is treated as an "extraordinary dividend"
under the Code, reduce such shareholder's tax basis in its shares of a Fund and,
to the extent such basis would be reduced below zero, require the current
recognition of income. Capital gain dividends (i.e., dividends from net capital
gain) paid by any Fund, including the Municipal Funds, if designated as such in
a written notice to shareholders mailed not later than 60 days after a Fund's
taxable year closes, will be taxed to shareholders as capital gain regardless of
how long shares have been held by shareholders, but are not eligible for the
dividends received deduction for corporations.
Interest on indebtedness incurred directly or indirectly to purchase or carry
shares of a Municipal Fund will not be deductible to the extent it is deemed
related to exempt-interest dividends paid by such Fund.
A Municipal Fund may not be an appropriate investment for persons who are, or
are related to, substantial users of facilities financed by industrial
development or private activity bonds.
Shareholders that are required to file tax returns are required to report
tax-exempt interest income, including exempt-interest dividends, on their
federal income tax returns. Each Municipal Fund will inform shareholders of the
federal income tax status of its distributions after the end of each calendar
year, including the amounts that qualify as exempt-interest dividends and any
portions of such amounts that constitute tax preference items under the federal
alternative minimum tax. Shareholders who have not held shares of a Municipal
Fund for a full taxable year may have designated as tax-exempt or as a tax
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<PAGE>
preference item a percentage of their distributions which is not exactly equal
to a proportionate share of the amount of tax-exempt interest or tax preference
income earned during the period of their investment in the Fund.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions, and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
U.S. SHAREHOLDERS--SALE OF SHARES
When a shareholder's shares are sold, redeemed or otherwise disposed of in a
transaction that is treated as a sale for tax purposes, the shareholder will
generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale or other disposition, such gain or loss
should be capital in character. However, any loss realized on the sale,
redemption or other disposition of shares of a Municipal Fund with a tax holding
period of six months or less will be disallowed to the extent of any
exempt-interest dividends with respect to such shares. Moreover, any loss
realized on the sale, redemption, or other disposition of the shares of any Fund
with a tax holding period of six months or less, to the extent such loss is not
disallowed under any other tax rule, will be treated as a long-term capital loss
to the extent of any capital gain dividend with respect to such shares.
Additionally, any loss realized on a sale, redemption or other disposition of
shares of a Fund may be disallowed under "wash sale" rules to the extent the
shares disposed of are replaced with shares of the same Fund within a period of
61 days beginning 30 days before and ending 30 days after the shares are
disposed of, such as pursuant to a dividend reinvestment in shares of the Fund.
If disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired. Shareholders should consult their own tax advisers regarding
their particular circumstances to determine whether a disposition of Fund shares
is properly treated as a sale for tax purposes, as is assumed in the foregoing
discussion.
The Funds may be required to withhold, as "backup withholding," federal income
tax at a rate of 31% from dividends (including distributions from a Fund's net
long-term capital gains, but not including exempt-interest dividends) and share
redemption and exchange proceeds to individuals and other non-exempt
shareholders who fail to furnish the Funds with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Funds that the payee has
failed to properly report interest or dividend income to the IRS or that the TIN
furnished by the payee to the Funds is incorrect, or if (when required to do so)
the payee fails to certify under penalties of perjury that it is not subject to
backup withholding. Any amounts withheld may be credited against a shareholder's
United States federal income tax liability. Distributions by a Municipal Fund
will not be subject to backup withholding, however, for any year such Fund
reasonably estimates that at least 95% of its dividends will be exempt-interest
dividends.
NON-U.S. SHAREHOLDERS
Shareholders who, as to the United States, are nonresident aliens, foreign
corporations, fiduciaries of foreign trusts or estates, foreign partnerships or
other non-U.S. investors generally will be subject to U.S. withholding tax at
the rate of 30% on distributions treated as ordinary income unless the tax is
reduced or eliminated pursuant to a tax treaty or the dividends are effectively
connected with a U.S. trade or business of the shareholder. In the latter case
the dividends will be subject to tax on a net income basis at the graduated
rates applicable to U.S. individuals or domestic corporations. Distributions of
net capital gain, including amounts retained by a Fund which are designated as
undistributed capital gains, to a non-U.S. shareholder will not be subject to
U.S. federal income or withholding tax unless the distributions are effectively
connected with the shareholder's trade or business in the United States or, in
the case of a
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<PAGE>
shareholder who is a nonresident alien individual, the shareholder is present in
the United States for 183 days or more during the taxable year and certain other
conditions are met.
Any gain realized by a non-U.S. shareholder upon a sale or redemption of shares
of a Fund will not be subject to U.S. federal income or withholding tax unless
the gain is effectively connected with the shareholder's trade or business in
the United States, or in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the United States for 183 days or more
during the taxable year and certain other conditions are met. Non-U.S. investors
should consult their tax advisers about the applicability of U.S. federal income
or withholding taxes to certain distributions received by them.
STATE AND LOCAL
The Funds may be subject to state or local taxes in jurisdictions in which the
Funds may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of a Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in the Fund may have tax consequences for
shareholders different from those of a direct investment in the Fund's portfolio
securities.
Shareholders should consult their own tax advisers concerning these matters.
GENERAL INFORMATION ABOUT THE TRUST
GENERAL
The Trust was formed as a business trust under the laws of the State of Delaware
on September 13, 1993, and commenced investment operations on January 3, 1994.
The Board of Trustees of the Trust is responsible for the overall management and
supervision of the affairs of the Trust. The Declaration of Trust authorizes the
Board of Trustees to create separate investment series or portfolios of shares.
As of the date hereof, the Trustees have established the Funds described in this
Prospectus and thirteen additional series. Until December 28, 1994, the Fixed
Income Fund and the Municipal Bond Fund were series of The Advisors' Inner
Circle Fund, a business trust organized under the laws of The Commonwealth of
Massachusetts on July 18, 1991. The Declaration of Trust further authorizes the
Trust to classify or reclassify any series or portfolio of shares into one or
more classes. As of the date hereof, the Trustees have established two classes
of shares: service shares and institutional shares.
The shares of each class represent an interest in the same portfolio of
investments of a Fund. Each class has equal rights as to voting, redemption,
dividends and liquidations, 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
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<PAGE>
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.
In the event of a liquidation or dissolution of the Trust or an individual Fund,
shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund. Shareholders of a Fund are
entitled to participate in the net distributable assets of the particular Fund
involved on liquidation, based on the number of shares of the Fund that are held
by each shareholder.
As of December 16, 1998, the following shareholders owned the following
respective percentages of the outstanding institutional shares of the Fixed
Income Fund, the Municipal Bond Fund, the Short-Term Municipal Bond Fund, the
Short-Term Fixed Income Fund, the Smaller Companies Fund, the Microcap Fund and
the High Yield Bond Fund:
FIXED INCOME FUND:
San Mateo County Employees Retirement Association 702 Marshall Street, Suite 280
Redwood City, CA 94063-1823
8.60%
MUNICIPAL BOND FUND:
Batrus & Co., (New York Corporation) c/o Bankers Trust Co. PO Box 9005 Church
Street Station New York, NY 10006
20.74%
Charles Schwab & Co. Inc. 101 Montgomery Street San Francisco, CA 94104-4122
42.60%
SHORT-TERM MUNICIPAL BOND FUND:
Charles Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA 94104-4122
33.01%
FTC & Co. P.O. Box 173736 Denver, CO 80217-3736
5.82%
Balsa & Co. c/o Chase Manhattan Bank Grand Central Station P.O. Box 1768 New
York, NY 10163-1768
8.75%
Reliable Stores, Inc. P.O. Box 6369 Columbia, MD 21045-6369
8.07%
Bear Stearns Securities Corp. 1 Metrotech Center North Brooklyn, NY 11201-3870
5.31%
SHORT-TERM FIXED INCOME FUND:
Batrus & Co. (New York Corporation) c/o Bankers Trust PO Box 9005 Church Street
Station New York, NY 10006
11.51%
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<PAGE>
Independence Trust Company 381 Riverside Dr. Suite 110 Franklin, TN 37064-8934
16.41%
Guadi & Co. c/o Bankers Trust Co. P.O. Box 9005 Church Street Station New York,
NY 10008
6.47%
Jewish Federation of Greater Pennsylvania c/o First Union National Bank 1525 W
WT Harris Blvd. Charlotte, NC 28262-8522
9.22%
Byrd & Co. c/o First Union National Bank 530 Walnut Street Philadelphia, PA
19106-3620
12.74%
SMALLER COMPANIES FUND:
Morgan Grenfell Inc. (Delaware Corporation) 885 Third Avenue Suite 3200 New
York, NY 10022
67.32%
Deutsche Bank Securities C/F David N. Wilner 1251 Avenue of the Americas New
York, NY 10020-1104
14.10%
Charles Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA 94104-4122
5.53%
National Financial Services Corp. 200 Lieberty St. 1 World Financial Center New
York, NY 10281-1003
6.17%
MICROCAP FUND:
Morgan Grenfell Inc. 885 Third Avenue New York, NY 10022
16.13%
Charles Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA 94104-4122
21.56%
National Financial Services Corp. 200 Liberty St. 1 World Financial Center New
York, NY 10281-1003
35.26%
First American National Bank 300 Union St. Nashville, TN 37237-0002
5.29%
Currie & Co. c/o Fiduciary Trust Company Intl. P.O. Box 3199 Church Street
Station New York, NY 10008-3199
6.64%
HIGH YIELD BOND FUND:
Public School Employees Retirement System c/o Mellon Trust P.O. Box 3198
Pittsburgh, PA 15230-3198
13.62%
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<PAGE>
Archdiocese of Detroit c/o Comercia Bank P.O. Box 75000 Detroit, MI 48275-0001
5.07%
Bell Atlantic Master Trust c/o Bost & Co. P.O. Box 3198 Pittsburgh, PA
15230-3198
70.66%
As of December 16, 1998, the following shareholders owned the following
respective percentages of the outstanding service shares of the following funds:
FIXED INCOME FUND SERVICE SHARES
Charles Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA 94104-4122
68.94%
Secs Corp. c/o Donaldson Lufkin & Jenrette P.O. Box 2052 Jersey City, NJ
07303-2052
24.25%
FTC & Co. P.O. Box 173736 Denver, CO 80217-3736
5.94%
MICROCAP FUND SERVICE SHARES
Charles Schwab & Co. Inc. 101 Montgomery Street San Francisco, CA 94104-4122
67.23%
National Financial Services Corp. 200 Liberty St. 1 World Financial Center New
York, NY 10281-1003
32.50%
SMALLER COMPANIES FUND SERVICE SHARES
Charles Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA 94104-4122
99.06%
SHORT-TERM MUNI BOND FUND SERVICE SHARES
Secs Corp. Donaldson Lufkin & Jenrette P.O. Box 2052 Jersey City, NJ 07303-2052
26.39%
National Financial Services Corp. 200 Liberty St. 1 World Financial Center New
York, NY 10281-1003
73.32%
MUNICIPAL BOND FUND SERVICE SHARES
Charles Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA 94104-4122
76.80%
Secs Corp. c/o Donaldson Lufkin & Jenrette P.O. Box 2052 Jersey City, NJ
07303-2052
21.24%
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<PAGE>
HIGH YIELD BOND FUND SERVICE SHARES
Charles Schwab & Co., Inc. 101 Montgomery St. San Francisco, CA 94104-4122
99.75%
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is organized as a Delaware business trust and, under Delaware law, the
shareholders of a business trust are not generally subject to liability for the
debts or obligations of the trust. Similarly, Delaware law provides that none of
the Funds will be liable for the debts or obligations of any other Fund.
However, no similar statutory or other authority limiting business trust
shareholder liability exists in other states. As a result, to the extent that a
Delaware business trust or a shareholder is subject to the jurisdiction of the
courts in such other states, the courts may not apply Delaware law and may
thereby subject the Delaware business trust shareholders to liability. To guard
against this risk, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. Notice of such
disclaimer will normally be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification by the relevant Fund for any loss suffered by a
shareholder as a result of an obligation of the Fund. The Declaration of Trust
also provides that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon. The Trustees believe that, in view of the above,
the risk of personal liability of shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
CONSIDERATION FOR PURCHASES OF SHARES
The Trust generally will not issue shares of the Funds for consideration other
than cash. At the Trust's sole discretion, however, it may issue Fund shares for
consideration other than cash in connection with an acquisition of portfolio
securities (other than municipal debt securities issued by state political
subdivisions or their agencies or instrumentalities) or pursuant to a bona fide
purchase of assets, merger or other reorganization, provided the securities meet
the investment objectives and policies of the Fund and are acquired by the Fund
for investment and not for resale. An exchange of securities for Fund shares
will generally be a taxable transaction to the shareholder.
ADDITIONAL INFORMATION
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1117 Avenue of the Americas, New York, New York
10036, serves as the Funds' independent accountants, providing audit services,
including review and consultation in connection with various filings by the
Trust with the Commission and tax authorities.
REGISTRATION STATEMENT
The Trust has filed with the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities of the Funds and certain other series of
the Trust. If further information is desired with respect to the Trust, the
Funds or such other series, reference is made to the Registration Statement and
the exhibits filed as a part thereof.
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<PAGE>
FINANCIAL STATEMENTS
The Trust's audited financial statements for the period ended October 31, 1998
are included in, and incorporated by reference into, this Statement of
Additional Information in reliance upon the report of PricewaterhouseCoopers
LLP, the Trust's independent accountants, as experts in accounting and auditing.
The financial statements of the Trust for the periods ended on and prior to
October 31, 1998 are included in, and incorporated by reference into, this
Statement of Additional Information from the Trust's 1998 Annual Report to
Shareholders for the year ended October 31, 1997 (filed electronically on
; file no. ; accession no. ), and will be attached to each
copy of such Statement of Additional Information that is distributed.
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<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
The rating descriptions set forth below are believed to be the most recent
rating descriptions available from Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("Standard & Poor's), Duff & Phelps, Inc.
("Duff") and Fitch Investors Service ("Fitch") at the date of this Statement of
Additional Information for the securities listed. Ratings are generally given to
securities at the time of issuance. While the rating agencies may from time to
time revise such ratings, they undertake no obligation to do so, and the ratings
indicated do not necessarily represent ratings which will be given to these
securities on the date of a Fund's fiscal year end.
I. LONG-TERM DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC.
Description of four highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2 and 3) in each rating category to indicate the
security's ranking within the category):
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
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, ie:,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
STANDARD & POOR'S RATINGS GROUP (1)
Description of the four highest long-term debt ratings by Standard & Poor's
(Standard & Poor's may apply a plus (+) or minus (-) to a particular rating
classification to show relative standing within the classification):
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
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<PAGE>
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
- ---------
(1) Rates all governmental bodies having $1,000,000 or more of debt outstanding,
unless adequate information is not available.
DUFF & PHELPS, INC.
Description of the four highest long-term debt ratings by Duff (Duff may
apply a plus or minus to show relative standing within a rating category):
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
A: Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
BBB: Investment grade. Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
FITCH INVESTORS SERVICE
Description of the four highest long-term ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issues is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and to repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
II. SHORT-TERM DEBT RATINGS
Short-term debt ratings may be assigned, for example, to commercial paper,
master demand notes, bank instruments and letters of credit.
- --------------------------------------------------------------------------------
Page -59-
<PAGE>
Moody's description of its highest short-term debt rating:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:
- Lending market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternative liquidity.
Standard & Poor's description of its highest short-term debt rating:
A-1 This designation indicated that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).
III. SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan / municipal note
ratings:
MIG-1/VMIG-1 This description denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Standard & Poor's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
- --------------------------------------------------------------------------------
Page -60-
<PAGE>
APPENDIX B
THE ADVISER'S MICROCAP INVESTMENT RESULTS
Set forth below are investment results for Morgan Grenfell Microcap Fund and a
composite of accounts managed by the Microcap Equity Team of Morgan Grenfell
Inc. (the "Adviser" or "MG Inc.") in accordance with the microcap investment
strategy (the "MG Inc. Microcap Composite"). For comparison purposes,
performance information is also shown for Morgan Grenfell Microcap Fund and the
Russell 2000 (an index of small capitalization stocks). The Russell 2000 is
comprised of issuers that are ranked according to market capitalization in the
bottom 10% of the U.S. equity market. In contrast, Morgan Grenfell Microcap
Fund's principal investments are common stocks of issuers that are ranked (at
time of purchase) in the bottom 5% of U.S. equity market.
Each of the Adviser's discretionary, microcap accounts (other than Morgan
Grenfell Microcap Fund, which commenced operations on December 18, 1996) is
included in the MG Inc. Microcap Composite. These accounts had the same
investment objective as Morgan Grenfell Microcap Fund and were managed using
substantially similar, though not necessarily identical, investment strategies
and techniques as those contemplated for Microcap Fund. Because of the
similarities in investment strategies and techniques, the Adviser believes that
the accounts included in the MG Inc. Microcap Composite are sufficiently
comparable to Microcap Fund to make the performance data listed below relevant
to prospective investors.*
The investment results presented below for the MG Inc. Microcap Composite do not
include Microcap Fund's investment results and are not intended to predict or
suggest the returns that will be experienced by Microcap Fund or the return an
investor may achieve by investing in shares of the Fund. Most of the accounts
included in the MG Inc. Microcap Composite were not subject to the investment
limitations, diversification requirements and other restrictions imposed on
registered mutual funds by the Investment Company Act of 1940 and the Internal
Revenue Code of 1986, as amended. If more of the accounts had been subject to
these requirements, the performance of the MG Inc. Microcap Composite might have
been lower.
The investment results of the MG Inc. Microcap Composite were calculated in
accordance with the Association for Investment Management and Research (AIMR)
Performance Presentation Standards and are shown net of commissions and
transaction costs (including custody fees) and net of the highest investment
advisory fee charged to any account included in the Composite (2.00% for periods
prior to October 1, 1993 and 1.50% for subsequent periods). Microcap Fund's
estimated total annual operating expenses are higher than the highest investment
advisory fee charged to any account included in the MG Inc. Microcap Composite.
As a result, it is expected that fees and expenses will reduce Microcap Fund's
performance to a greater extent than investment advisory fees have reduced the
performance of accounts included in the MG Inc. Microcap Composite.
- ---------
* Audrey Jones, David Baratta and John Callaghan are the members of the
Adviser's Microcap Equity Team. Ms. Jones has been a member of the Team
throughout the eleven-year period for which data is shown. Mr. Baratta joined
the Team in September 1994, following the departure of two portfolio managers
who had been members of the Team since at least 1987. Mr. Callaghan joined the
Team in June 1997, following the departure of a portfolio manager who had been
a member of the Team since at least 1987. Also, in May 1996, another portfolio
manager who had been a member of the Team since at least 1987 left Morgan
Grenfell Inc.
- --------------------------------------------------------------------------------
Page -61-
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
Morgan Grenfell Microcap Fund
Performance of MG Inc. Microcap Composite And Russell 2000
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
MG INC. MICROCAP COMPOSITE
YEAR (NET OF FEES) RUSSELL 2000
<S> <C> <C>
1997 18.80% 22.36%
1996 50.67% 16.49%
1995 54.29% 28.44%
1994 (16.71)% (1.81)%
1993 18.15% 18.89%
1992 3.49% 18.42%
1991 74.37% 46.05%
1990 (2.48)% (19.50)%
1989 24.25% 16.24%
1988 14.13% 24.89%
1987 (4.91)% (8.77)%
ANNUALIZED TOTAL 18.47% 13.28%
RETURN FOR PERIOD FROM
DECEMBER 31, 1986 TO
DECEMBER 31, 1997
</TABLE>
- --------------------------------------------------------------------------------
Page -62-
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
885 Third Avenue
New York, New York 10022
INVESTMENT ADVISER
Morgan Grenfell Inc.
885 Third Avenue
New York, NY 10022
ADMINISTRATOR
Morgan Grenfell Incorporated
150 South Independence Square West
Philadelphia, Pennsylvania 19106
DISTRIBUTOR
SEI Financial Services Company
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
TRANSFER AGENT
DST Systems, Inc.
SEI Division CT-7 Tower
1004 Baltimore
Kansas City, Missouri 64105
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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
MIT-F-018-03
- --------------------------------------------------------------------------------
Page -63-
<PAGE>
FORM N-1A
PART C. OTHER INFORMATION
Item 23. EXHIBITS
Except as noted, the following exhibits are
being filed herewith:
*(a) Agreement and Declaration of Trust of Registrant dated
September 13, 1993, as amended (previously filed with the
SEC on February 14, 1996 and incorporated by reference
herein).
*(b). Amended By-Laws of Registrant (previously filed with the SEC
on February 14, 1996 and incorporated by reference herein).
*(c). See Articles III, IV, and V of the Agreement and Declaration
of Trust (exhibit (a)) and Article II of the Amended By-Laws
(exhibit (b)).
*(d)(1). Management Contract dated January 3, 1994, as amended as of
April 25, 1994, April 1, 1995 and September 1, 1995, between
Morgan Grenfell Investment Services Limited and Registrant,
on behalf of Morgan Grenfell International Equity Fund,
Morgan Grenfell Global Equity Fund, Morgan Grenfell European
Equity Growth Fund (formerly Morgan Grenfell European Equity
Fund), Morgan Grenfell New Asia Fund (formerly Morgan
Grenfell Pacific Basin Equity Fund), Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell
Japanese Small Cap Equity Fund, Morgan Grenfell European
Small Cap Equity Fund, Morgan Grenfell Emerging Markets
Equity Fund, Morgan Grenfell Global Fixed Income Fund,
Morgan Grenfell International Fixed Income Fund and Morgan
Grenfell Emerging Markets Debt Fund (previously filed with
the SEC on February 14, 1996 and incorporated by reference
herein).
*(d)(2). Management Contract dated as of December 28, 1994 between
Morgan Grenfell Inc. (formerly Morgan Grenfell Capital
Management, Inc.) and Registrant, on behalf of Morgan
Grenfell Fixed Income Fund and Morgan Grenfell Municipal
Bond Fund (previously filed with the SEC on February 14,
1996 and incorporated by reference herein).
C-1
<PAGE>
*(d)(3). Management Contract dated as of December 28, 1994 between
Morgan Grenfell Inc. (formerly Morgan Grenfell Capital
Management, Inc.) and Registrant, on behalf of Morgan
Grenfell Large Cap Growth Fund, Morgan Grenfell Smaller
Companies Fund, Morgan Grenfell Short-Term Fixed Income Fund
and Morgan Grenfell Short-Term Municipal Bond
Fund(previously filed with the SEC on February 14, 1996 and
incorporated by reference herein).
*(d)(4). Management Contract between Morgan Grenfell Inc. (formerly
Morgan Grenfell Capital Management, Inc.) and Registrant, on
behalf of Morgan Grenfell Microcap Fund (previously filed
with the SEC on November 1, 1996 pursuant to Post-Effective
Amendment No. 12 to Registrant's Registration Statement).
*(d)(5). Form of Management Contract between Morgan Grenfell Inc.
(formerly Morgan Grenfell Capital Management, Inc.) and
Registrant, on behalf of Morgan Grenfell Total Return Bond
Fund and Morgan Grenfell High Yield Bond Fund (previously
filed with the SEC on December 12, 1997 pursuant to
Post-Effective Amendment No. 18 to Registrant's Registration
Statement).
*(d)(6). Form of Management Contract between Morgan Grenfell
Investment Services Ltd. and Registrant, on behalf of Morgan
Grenfell Emerging Local Currency Debt Fund (previously filed
with the SEC on December 12, 1997 pursuant to Post-Effective
Amendment No. 18 to Registrant's Registration Statement).
(d)(7). Form of Subadvisory Contract between Morgan Grenfell
Investment Services Ltd., Morgan Grenfell Inc. (formerly
Morgan Grenfell Capital Management, Inc.) and Registrant, on
behalf of Morgan Grenfell Total Return Bond Fund.
*(e). Distribution Agreement dated as of December 30, 1993 between
SEI Financial Services Company and Registrant, on behalf of
all of its series (previously filed with the SEC on June 11,
1996 and incorporated by reference herein).
(f). Not Applicable.
C-2
<PAGE>
(g). Custody Agreement dated as of August 24, 1998 between Brown
Brothers Harriman & Co. and Registrant, on behalf of all
of its series.
(h)(1). Administration Agreement dated as of August 27, 1998 between
Morgan Grenfell Inc. (formerly Morgan Grenfell Capital
Management Inc.) and Registrant, on behalf of all of its
series.
*(h)(2). Transfer Agency Agreement dated as of December 30, 1993
between Supervised Service Company, Inc. and Registrant, on
behalf of Morgan Grenfell International Equity Fund, Morgan
Grenfell Global Equity Fund, Morgan Grenfell European Equity
Growth Fund (formerly Morgan Grenfell European Equity Fund),
Morgan Grenfell New Asia Fund (formerly Morgan Grenfell
Pacific Basin Equity Fund), Morgan Grenfell International
Small Cap Equity Fund, Morgan Grenfell Japanese Small Cap
Equity Fund, Morgan Grenfell European Small Cap Equity Fund,
Morgan Grenfell Emerging Markets Equity Fund, Morgan
Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging
Markets Fixed Income Fund (previously filed with the SEC on
November 1, 1996 pursuant to Post-Effective Amendment No. 12
to Registrant's Registration Statement).
*(h)(3). Transfer Agency Agreement dated as of December 28, 1994
between Supervised Service Company, Inc. and Registrant, on
behalf of Morgan Grenfell Large Cap Growth Fund, Morgan
Grenfell Smaller Companies Fund, Morgan Grenfell Fixed
Income Fund, Morgan Grenfell Short-Term Fixed Income Fund,
Morgan Grenfell Municipal Bond Fund, Morgan Grenfell
Short-Term Municipal Bond Fund and Morgan Grenfell Microcap
Fund (previously filed with the SEC on November 1, 1996
pursuant to Post-Effective Amendment No. 12 to Registrant's
Registration Statement).
(h)(4). Accounting Agency Agreement dated as of September 8, 1998
between Brown Brothers Harriman & Co., Morgan Grenfell Inc.
(formerly Morgan Grenfell Capital Management, Inc.) and
Registrant on behalf of all of its series.
(h)(5). Delegation Agreement dated as of August 24, 1998 between
Brown
C-3
<PAGE>
Brothers Harriman & Co. and Registrant on behalf of Morgan
Grenfell International Equity Fund, Morgan Grenfell Global
Equity Fund, Morgan Grenfell European Equity Growth Fund,
Morgan Grenfell New Asia Fund, Morgan Grenfell International
Small Cap Equity Fund, Morgan Grenfell Japanese Small Cap
Equity Fund, Morgan Grenfell European Small Cap Equity Fund,
Morgan Grenfell Emerging Markets Equity Fund, Morgan
Grenfell Core Global Fixed Income Fund, Morgan Grenfell
Global Fixed Income Fund, Morgan Grenfell International
Fixed Income Fund, Morgan Grenfell Emerging Markets Debt and
Morgan Grenfell Emerging Local Currency Debt Fund.
(i). Not Applicable.
**(j). Consent of Independent Accountants (to be filed
by amendment on or about February 26, 1999).
(k). Not Applicable.
*(l). Share Purchase Agreement dated as of December 29, 1993
between Registrant and SEI Financial Management Corporation
(previously filed with the SEC on February 11, 1997 pursuant
to Post-Effective Amendment No. 16 to Registrant's
Registration Statement).
(m). Not Applicable.
**(n). Financial Data Schedule (to be filed by
amendment on or about February 26, 1999).
*(o). Form of Amended Rule 18f-3 Plan (previously filed with the
SEC on February 11, 1997 pursuant to Post-Effective
Amendment No. 16 to Registrant's Registration Statement).
---------------------------
* Previously filed on the date indicated.
** To be filed by amendment.
Item 24. Persons Controlled By or Under
Common Control With Registrant
------------------------------
The Registrant does not directly or indirectly control any person. On
the effective date of this Registration Statement, 100% of the shares of the
following series of the Registrant will be owned by the Distributor of the
Registrant, SEI Investments Distribution Co., a Delaware
C-4
<PAGE>
corporation: Morgan Grenfell Global Equity Fund, Morgan Grenfell New Asia Fund
and Morgan Grenfell Japanese Small Cap Equity Fund. SEI Investments
Distribution Co. is a wholly-owned subsidiary of SEI Investments Company, a
Pennsylvania corporation, and other corporations engaged in providing various
financial and recordkeeping services, primarily to bank trust departments,
pension plan sponsors and investment managers.
Item 25. INDEMNIFICATION
Article III, Section 7 and Article VII, Section 2 of the Registrant's
Agreement and Declaration of Trust and Article VI of the Registrant's By-Laws
provide for indemnification of the Registrant's trustees and officers under
certain circumstances.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
All of the information required by this item is set forth in the Form
ADV, as amended, of Morgan Grenfell Investment Services Limited (File No.
801-12880) and in the Form ADV, as amended, of Morgan Grenfell Inc. (formerly
Morgan Grenfell Capital Management, Inc.) (File No. 801-27291). The following
sections of each such Form ADV are incorporated herein by reference:
(a) Items 1 and 2 of Part II
(b) Section 6, Business Background, of each Schedule D.
Item 27. PRINCIPAL UNDERWRITER
(a) The Registrant's distributor is SEI Investments Distribution Co.
("SID"), which also acts as distributor for SEI Daily Income
Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust,
The Advisors' Inner Circle Fund, The Pillar Funds, CUFUND, STI
Classic Funds, CoreFunds, Inc., First American Funds, Inc., First
American Investment Funds, Inc., The Arbor Fund, Boston 1784
Funds-Registered Trademark-, The PBHG Funds, Inc., PBHG Insurance
Series Fund, Inc., Marquis Funds-Registered Trademark-, The
Achievement Funds Trust, Bishop Street Funds, CrestFunds, Inc.,
STI Classic Variable Trust, ARK Funds, Monitor Funds, FMB Funds,
Inc., SEI Asset Allocation Trust, TIP Funds, TIP Institutional
Funds, SEI Institutional Investments Trust, First American
Strategy
C-5
<PAGE>
Funds, Inc., High Mark Funds and Armada Funds pursuant to
distribution agreements dated July 15, 1982, November 29, 1982,
December 3, 1982, July 10, 1985, January 22, 1987, August 30,
1988, November 14, 1991, February 28, 1992, May 1, 1992, May 29,
1992, October 30, 1992, November 1, 1992, November 1, 1992,
January 28, 1993, June 1, 1993, July 16, 1993, April 1, 1997,
August 17, 1993, December 27, 1994, January 27, 1995, March 1,
1995, August 18, 1995, November 1, 1995, January 11, 1996, March
1, 1996, April 1, 1996, April 28, 1996, January 1, 1998, June 14,
1996, October 1, 1996, February 15, 1997 and March 8, 1997,
respectively.
(b) The following table lists, for each director and officer of SID,
the information indicated.
<TABLE>
<CAPTION>
Name and Positions and
Principal Business Position and Offices Offices with
Address* with Underwriter Registrant
- ------------------ -------------------- -------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman and None
Chief Executive Officer
Henry H. Greer Director, President and None
Chief Operating Officer
Carmen V. Romeo Director, Executive Vice None
President, President -
Investment Advisory Group
Gilbert L. Beebower Executive Vice President None
Richard B. Lieb Executive Vice President, None
President - Investment
Services Division
Leo J. Dolan, Jr. Senior Vice President None
Carl A. Guarino Senior Vice President None
David G. Lee Senior Vice President None
A. Keith McDowell Senior Vice President None
Dennis J. McGonigle Executive Vice President None
Hartland J. McKeown Senior Vice President None
Kevin P. Robins Senior Vice President, None
General Counsel and
Secretary
Patrick K. Walsh Senior Vice President None
C-6
<PAGE>
Robert Crudup Vice President and
Managing Director None
Barbara Doyne Vice President None
Vic Galef Vice President and None
Managing Director
Kim Kirk Vice President and None
Managing Director
John Krzeminski Vice President and None
Managing Director
Carolyn McLaurin Vice President and None
Managing Director
Barbara Moore Senior Vice President None
Donald Pepin Vice President and None
Managing Director
Mark Samuels Vice President and None
Managing Director
Wayne M. Withrow Vice President and None
Managing Director
Robert Aller Vice President None
W. Kelso Morrill Vice President None
Joanne Nelson Vice President None
Gordon W. Carpenter Vice President None
Todd Cipperman Vice President and None
Assistant Secretary
Jeff Drennen Vice President None
Kathy Heilig Vice President and None
Treasurer
Larry Hutchison Senior Vice President None
Michael Kantor Vice President None
Mark Nagel Vice President None
Robert Redican Vice President None
Samuel King Vice President None
Maria Rinehart Vice President None
Sandra K. Orlow Vice President and None
Assistant Secretary
Kim Rainey Vice President None
Steve Smith Vice President None
Daniel Spaventa Vice President None
Kathryn L. Stanton Vice President and None
C-7
<PAGE>
Assistant Secretary
James Dougherty Director of Brokerage Services None
</TABLE>
___________________________
* The principal business address of each of the listed persons is SEI
Investments Distribution Co., 1 Freedom Valley Drive, Oaks, Pennsylvania 19456.
(c) Not applicable.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
The Agreement and Declaration of Trust, By-Laws and minute books of
the Registrant are in the physical possession of Morgan Grenfell Inc., 885 Third
Avenue, New York, New York 10022. All other books, records, accounts and other
documents required to be maintained under Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder will be in the physical
possession of the Registrant's custodian: Brown Brothers Harriman & Co., 40
Water Street, Boston, Massachusetts 02109, except for certain transfer agency
and records which are in the physical possession of DST Systems, Inc., 811 Main
Street, Kansas City, Missouri 64105, the Registrant's transfer agent, and Morgan
Grenfell Inc., the Trust's administrator.
Item 29. MANAGEMENT SERVICES
Not Applicable.
Item 30. UNDERTAKING
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of
New York, on December 28, 1998.
MORGAN GRENFELL INVESTMENT TRUST
C-8
<PAGE>
By:/s/ James E. Minnick
--------------------
James E. Minnick
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 20 to the Registrant's
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James E. Minnick )
- --------------------------
James E. Minnick Chief Executive Officer )December 28, 1998
(Principal Executive )
Officer) and Trustee )
)
)
/s/ Tracie E. Richter* )
- --------------------------
Tracie E. Richter Treasurer and Chief )
Financial Officer )
(Principal Financial and )
Accounting Officer) )
)
Paul K. Freeman* )
- --------------------------
Paul K. Freeman Trustee )
)
)
Graham E. Jones* )
- --------------------------
Graham E. Jones Trustee )
Signature Title Date
--------- ----- ----
William N. Searcy* )
- --------------------------
William N. Searcy Trustee )
)
)
Patrick W. Disney* )
- --------------------------
Patrick W. Disney Trustee )
)
)
Hugh G. Lynch* )
- --------------------------
C-9
<PAGE>
Hugh G. Lynch Trustee )
)
)
Edward T. Tokar* )
- --------------------------
Edward T. Tokar Trustee )
</TABLE>
____________
*By:/s/ James E. Minnick Dated: December 28, 1998
---------------------------------
James E. Minnick, Attorney-in-Fact,
pursuant to powers of attorney
C-10
<PAGE>
Exhibit
Number Document Title
- ---------------------
EXHIBIT INDEX
Exhibit
Number Document Title
- ---------------------
(d)(7). Form of Subadvisory Contract between Morgan Grenfell
Investment Services Ltd., Morgan Grenfell Inc. (formerly
Morgan Grenfell Capital Management, Inc.) and Registrant, on
behalf of Morgan Grenfell Total Return Bond Fund.
(g). Custody Agreement dated as of August 24, 1998 between Brown
Brothers Harriman & Co. and Registrant, on behalf of all of
its series.
(h)(1). Administration Agreement dated as of August 27, 1998 between
Morgan Grenfell Inc. (formerly Morgan Grenfell Capital
Management Inc.) and Registrant, on behalf of all of its
series.
(h)(4). Accounting Agency Agreement dated as of September 8, 1998
between Brown Brothers Harriman & Co., Morgan Grenfell Inc.
(formerly Morgan Grenfell Capital Management, Inc.) and
Registrant on behalf of all of its series.
(h)(5). Delegation Agreement dated as of August 24, 1998 between
Brown Brothers Harriman & Co. and Registrant on behalf of
Morgan Grenfell International Equity Fund, Morgan Grenfell
Global Equity Fund, Morgan Grenfell European Equity Growth
Fund, Morgan Grenfell New Asia Fund, Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell
Japanese Small Cap Equity Fund, Morgan Grenfell European
Small Cap Equity Fund, Morgan Grenfell Emerging Markets
Equity Fund, Morgan Grenfell Core Global Fixed Income
Fund, Morgan Grenfell Global Fixed Income Fund, Morgan
Grenfell International Fixed Income Fund, Morgan Grenfell
EmergingMarkets Debt and Morgan Grenfell Emerging Local
Currency Debt Fund.
C-11
<PAGE>
EXHIBIT (d)(7)
SUBADVISORY CONTRACT
AGREEMENT made as of the ___ day of _____, 1998 by and between Morgan
Grenfell Investment Trust (the "Trust"), on behalf of Morgan Grenfell Total
Return Bond Fund, Morgan Grenfell Capital Management, Incorporated, a Delaware
corporation (the "Adviser"), and Morgan Grenfell Investment Services Limited, a
United Kingdom corporation.
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
consisting of several series of shares, each having its own investment policies.
WHEREAS, the Trustees of the Trust (the "Trustees") have selected the
Adviser to provide overall investment advice and management for Morgan Grenfell
Total Return Bond Fund (the "Portfolio") and to provide certain other services,
under the terms and conditions provided in the investment management contract,
dated January 30, 1998, between the Trust, on behalf of the Portfolio, and the
Adviser (the "Investment Management Contract").
WHEREAS, the Adviser and the Trustees have selected Morgan Grenfell
Investment Services Limited (the "Subadviser") to provide the Adviser and the
Portfolio with the advice and services set forth below, and the Subadviser is
willing to provide such advice and services, subject to the review of the
Trustees and overall supervision of the Adviser, under the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. DUTIES OF SUBADVISER. The Subadviser will manage the investment
and reinvestment of that component of the Portfolio's assets
designated by the Adviser from time to time as the Portfolio's
international component, and will continuously review, supervise and
administer the international investment program of the Portfolio, to
determine in its discretion the securities to be purchased or sold and
to effect such purchases and sales for that component, to provide the
Adviser and the Trust with records concerning the Subadviser's
activities which the Trust is required to maintain, and to render
regular reports to the Adviser and to the Trust's officers and
trustees concerning the Subadviser's discharge of the foregoing
responsibilities.
<PAGE>
The Subadviser will, to the extent reasonably required in
the conduct of the business of the Portfolio and upon the Trust's
request, furnish to the Portfolio research, statistical, valuation and
advisory reports on countries, regions, currencies, industries, and
issuers, whether or not the international component of the Portfolio
shall have any instruments in such countries, regions, currencies,
industries or issuers. The Subadviser will use its best efforts in
the preparation of such reports.
The Subadviser accepts such employment and agrees, at its
own expense, to render the services described and to provide the
office space, furnishings and the personnel required by it to perform
the services described on the terms and for the compensation provided
herein.
The Subadviser shall pay directly or reimburse the Portfolio
for (i) the compensation, if any, of the Trustees and officers of the
Trust who are affiliated with, or interested persons of, the
Subadviser; and (ii) all expenses not hereinafter specifically assumed
by the Trust or the Portfolio, or by the Adviser pursuant to the
Investment Management Contract, where such expenses are incurred by
the Subadviser or by the Trust or the Portfolio, in connection with
the management of the investment and reinvestment of the assets of the
international component of the Portfolio.
The Subadviser shall discharge the foregoing
responsibilities subject to the control of the Board of Trustees of
the Trust and the overall supervision of the Adviser and in compliance
with such policies as the Trustees or the Adviser may from time to
time establish, and in compliance with the objectives, policies, and
limitations for the Portfolio as set forth in the Portfolio's
prospectus and statement of additional information, as amended from
time to time, and applicable laws and regulations. The Trust and the
Adviser hereby agree that the Subadviser shall not be bound by changes
to the Fund's prospectus or statement of additional information until
the Subadviser has been notified of such changes in writing.
2. PORTFOLIO TRANSACTIONS. The Subadviser is authorized in its
discretion to select the brokers or dealers that will execute the
purchases and sales of portfolio securities in the international
component of the Portfolio and is directed to use its best efforts to
obtain the best net results as described from time to time in the
Portfolio's prospectus and statement of additional information. The
Subadviser will promptly communicate to the Adviser and to the
officers and the Trustees of the Trust such
<PAGE>
information relating to portfolio transactions as they may reasonably
request.
It is understood that the Subadviser will not be deemed to
have acted unlawfully, or to have breached a fiduciary duty to the
Trust or be in breach of any obligation owing to the Trust under this
Agreement, or otherwise, solely by reason of its having directed a
securities transaction on behalf of the Trust to a broker-dealer in
compliance with the provisions of Section 28(e) of the Securities
Exchange Act of 1934 or as otherwise permitted from time to time by
the Portfolio's prospectus and statement of additional information.
3. EXPENSES OF THE PORTFOLIO NOT PAID BY THE SUBADVISER. The
Subadviser will not be required to pay any expenses which this
Agreement does not expressly state shall be payable by the Subadviser.
In particular, and without limiting the generality of the foregoing,
the Subadviser will not be required to pay:
(a) any and all expenses, taxes and governmental fees
incurred by the Trust prior to the date hereof;
(b) without limiting the generality of the foregoing clause
(a), the expenses of organizing the Trust or the Portfolio
(including without limitation legal, accounting and auditing fees
and expenses incurred in connection with the matters referred to
in this clause (b)), of initially registering the shares of the
Trust or the Portfolio under the Securities Act of 1933 and of
qualifying the shares for sale under state securities laws for
the initial offering and sale of shares;
(c) the compensation and expenses of Trustees of the Trust
not affiliated with the Subadviser, and of independent advisers,
independent contractors, consultants, managers and other agents
employed by the Trust or the Portfolio other than through the
Subadviser;
(d) legal, accounting and auditing fees and expenses of the
Trust or the Portfolio;
(e) the fees or disbursements of custodians, and
depositories of the Trust or the Portfolio's assets, transfer
agents, disbursing agents, plan agents and registrars;
<PAGE>
(f) taxes and governmental fees assessed against the
Trust's assets and payable by the Trust;
(g) the cost of preparing and mailing dividends,
distributions, reports, notices and proxy materials to
shareholders of the Trust and the Portfolio;
(h) broker's commissions and underwriting fees; and
(i) the expense of periodic calculation of the net asset
value of shares of the Portfolio.
4. COMPENSATION OF THE SUBADVISER. For the services to be rendered
by the Subadviser as provided in this Agreement, the Adviser shall pay
to the Subadviser compensation at the rates specified in the
Schedule A which is attached hereto and made a part of this Agreement.
Such compensation shall be paid to the Subadviser at the end of each
month, and calculated by applying a daily rate, based on the annual
percentage rates as specified in the attached Schedule A, to the
assets of the Portfolio. The fee shall be based on the average daily
net assets for the month involved (less any assets of the Portfolio
held in non-interest bearing special deposits with a Federal Reserve
Bank).
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the termination of
this Agreement.
5. REPORTS. The Trust, the Adviser and the Subadviser each agree to
furnish each other, as applicable, current prospectuses, proxy
statements, reports to shareholders, certified copies of their
financial statements, and such other information with regard to their
affairs as each may reasonably request.
6. CERTAIN RECORDS. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
promulgated under the 1940 Act which are prepared or maintained by the
Subadviser on behalf of the Trust are the property of the Trust and
will be surrendered promptly to the Trust on request.
7. OTHER ACTIVITIES OF THE SUBADVISER AND ITS AFFILIATES. Each of
the Adviser and the Subadviser hereby represents and warrants that it
is registered as an investment adviser under the Investment Advisers
Act of 1940, as amended.
<PAGE>
Nothing herein contained shall prevent the Subadviser or any of its
affiliates or associates from engaging in any other business or from
acting as investment adviser or investment manager for any other
person or entity, whether or not having investment policies or a
portfolio similar to the Portfolio. It is specifically understood
that officers, directors and employees of the Subadviser and those of
it affiliates may engage in providing investment advice to portfolio
advisory clients of the Subadviser or of its affiliates.
8. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases
or sales of portfolio securities for the account of the Trust or the
Portfolio, neither the Subadviser nor any of its directors, officers
or employees will act as principal or agent or receive any commission.
The Subadviser shall not knowingly recommend that the Portfolio
purchase, sell or retain securities of any issuer in which the
Subadviser has a financial interest without obtaining prior approval
of the Adviser prior to the execution of any such transaction.
9. NO PARTNERSHIP OR JOINT VENTURE. The Trust, the Portfolio, the
Adviser and the Subadviser are not partners of or joint venturers with
each other and nothing herein shall be construed so as to make them
such partners or joint venturers or impose any liability as such on
any of them. The Subadviser shall be deemed to be an independent
contractor, and except as otherwise provided herein, shall have no
authority to act for or bind the Adviser or the Trust as an agent.
10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of the
Trust are or may be interested in the Subadviser (or any successor
thereof) as directors, partners, officers, or shareholders, or
otherwise; directors, partners, officers, agents, and shareholders of
the Subadviser are or may be interested in the Trust as Trustees,
shareholders or otherwise; and the Subadviser (or any successor
thereof) is or may be interested in the Trust as a shareholder or
otherwise. In addition, brokerage transactions for the Portfolio may
be effected through affiliates of the Subadviser if approved by the
Trustees, subject to the rules and regulations of the Securities and
Exchange Commission.
11. LIMITATION OF LIABILITY OF SUBADVISER. The duties of the
Subadviser shall be confined to those expressly set forth herein, and
no implied duties are assumed by or may be asserted against the
Subadviser hereunder. The Subadviser shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in carrying out its duties
hereunder, except a loss resulting from willful
<PAGE>
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and
duties hereunder, except as may otherwise be provided under provisions
of applicable state law or federal securities law which cannot be
waived or modified hereby.
12. DURATION AND TERMINATION. This Agreement, unless sooner
terminated as provided herein, shall remain in effect with respect to
the Portfolio until two years from the date first set forth above, and
thereafter, for periods of one year so long as such continuance
thereafter is specifically approved at least annually (a) by the vote
of a majority of those Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and
(b) by vote of a majority of the outstanding voting securities of the
Fund; provided however, that if the shareholders of the Portfolio fail
to approve the Agreement as provided in Section 15 of the 1940 Act,
the Subadviser may continue to serve hereunder in the manner and to
the extent permitted by the 1940 Act and rules and regulations
thereunder. The foregoing requirement that continuance of this
Agreement be "specifically approved at least annually" shall be
construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder.
This Agreement may be terminated as to the Portfolio at any
time, without the payment of any penalty by vote of a majority of the
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Portfolio or the Adviser on not less than 30
days nor more than 60 days written notice to the Subadviser, or by the
Subadviser at any time without the payment of any penalty, on 60 days
written notice to the Adviser and the Trust. This Agreement will
automatically and immediately terminate in the event of its
assignment. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at any
office of such party.
As used in this Section 10, the term "assignment" shall have
the meaning as set forth in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the
Commission.
13. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may
be changed or waived orally, but only by an instrument in writing
signed by the party against which enforcement of the change or waiver
is sought, and no amendment to this Agreement shall be effective until
approved by (a) the Trustees, including a majority of the Trustees who
are
<PAGE>
not interested persons of the Adviser, the Subadviser or (other than
as Board members) the Trust, cast in person at a meeting called for
the purpose of voting on such approval, and (b) a majority of the
outstanding voting securities of the Portfolio, as defined in the 1940
Act.
14. MISCELLANEOUS.
(a) The captions in this Agreement are included for
convenience of reference only and in no way define or limit any
of the provisions hereof or otherwise affect their construction
or effect. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument. The name "Morgan Grenfell Investment Trust" is the
designation of the Trustees under the Declaration of Trust and
The Declaration of Trust has been filed with the Secretary of
State of Delaware. The obligations of the Trust and the
Portfolio are not personally binding upon, nor shall resort be
had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Trust or the
Portfolio, but only the Portfolio's property shall be bound. The
Portfolio shall not be liable for the obligations of any other
series of the Trust.
(b) Nothing herein contained shall limit or restrict the
Subadviser or any of its officers, affiliates or employees from
buying, selling or trading in any securities for its or their own
account or accounts. The Trust and Portfolio acknowledge the
Subadviser and its officers, affiliates and employees, and its
other clients may at any time have, acquire, increase, decrease
or dispose of positions in investments which are at the same time
being acquired or disposed of hereunder. The Subadviser shall
have no obligation to acquire with respect to the Portfolio, a
position in any investment which the Subadviser, its officers,
affiliates or employees may acquire for its or their own accounts
or for the account of another client if, in the sole discretion
of the Subadviser, it is not feasible or desirable to acquire a
position in such investment on behalf of the Portfolio. Nothing
herein contained shall prevent the Subadviser from purchasing or
recommending the purchase of a particular security for one or
more funds or clients while other funds or clients may be selling
the same security.
<PAGE>
(c) Any information supplied by the Subadviser, which is
not otherwise in the public domain, in connection with the
performance of its duties hereunder is to be regarded as
confidential and for use only by the Portfolio and/or its agents,
and only in connection with the Portfolio and its investments.
15. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New York and the applicable provisions
of the 1940 Act.
16. NOTICE. Any notice required or permitted to be given by any
party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice
to the other party at the address specified below for the receiving
party or such other address as the receiving party may hereinafter
designate in writing to the other parties: if to the Trust, at 885
Third Avenue, New York, NY 10022 Attention: President, if to the
Adviser, at 885 Third Avenue, New York, NY 10022 Attention: President,
and if to the Subadviser, at 20 Finsbury Circus, London, England EC2M
1NB Attention: President.
17. SEVERABILITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
MORGAN GRENFELL INVESTMENT TRUST
ON BEHALF OF MORGAN GRENFELL TOTAL RETURN BOND FUND
By:
-------------------------------
Name: Joan A. Binstock
Title: Secretary
Attest:
---------------------------
MORGAN GRENFELL CAPITAL MANAGEMENT INCORPORATED
By:
-------------------------------
Name: James E. Minnick
Title: President
Attest:
---------------------------
MORGAN GRENFELL INVESTMENT SERVICES LIMITED
By:
-------------------------------
Name: Patrick W. W. Disney
Title: Chief Executive Officer
Attest:
---------------------------
<PAGE>
SCHEDULE A
TO THE
SUBADVISORY AGREEMENT
BETWEEN
MORGAN GRENFELL INVESTMENT TRUST (THE "TRUST"),
ON BEHALF OF MORGAN GRENFELL TOTAL RETURN BOND FUND
AND
MORGAN GRENFELL CAPITAL MANAGEMENT
AND
MORGAN GRENFELL INVESTMENT SERVICES LIMITED
The Adviser shall pay the Subadviser compensation at the following annual rates:
Portfolio Fee
--------- ---
Morgan Grenfell Total Return Bond Fund 0.08% of the average daily net assets
of the Portfolio, unless reduced, on a
pro rata basis, by any fee waiver then
in effect
<PAGE>
EXHIBIT (g)
CUSTODIAN AGREEMENT
THIS AGREEMENT, dated as of August 24, 1998, between MORGAN GRENFELL
INVESTMENT TRUST, an open-end management investment company organized under the
laws of the State of Delaware and registered with the Securities and Exchange
Commission under the 1940 Act (the trust) on behalf of each series of the Trust
set forth on the attached Appendix A as the same may be amended from time to
time (each a Fund and collectively the Funds), and BROWN BROTHERS HARRIMAN &
CO., a limited partnership formed under the laws of the State of New York
(BBH&Co. or the custodian),
W I T N E S S E T H:
WHEREAS, the Trust wishes to employ BBH&Co. to act as custodian for the
Trust and to provide related services, all as provided herein, and BBH&Co. is
willing to accept such employment, subject to the terms and conditions herein
set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Trust and BBH&Co. hereby agree, as follows:
1. APPOINTMENT OF CUSTODIAN. The Trust hereby appoints BBH&Co. as each
Fund's custodian, and BBH&Co. hereby accepts such appointment. All Investments
of a Fund delivered to the Custodian or its agents or Subcustodians shall be
dealt with as provided in this Agreement. The duties of the Custodian with
respect to a Fund's Investments shall be only as set forth expressly in this
Agreement which duties are generally comprised of safekeeping and various
administrative duties that will be performed in accordance with Instructions and
as reasonably required to effect Instructions.
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE TRUST. The Trust hereby
represents and warrants that:
2.1 This Agreement has been, and at the time of delivery of each
Instruction such Instruction will have been, duly authorized, executed and
delivered by the Trust. This Agreement does not conflict with or
constitute a default a Fund's prospectus or other agreement, instrument,
judgment, order or decree to which a Fund is a party or by which it or its
Investments is bound.
2.2 The Trust shall safeguard and shall solely be responsible for the
safekeeping of any testkeys, identification codes, passwords, other
security devices or statements of account with which the Custodian provides
it. In furtherance and not limitation of the foregoing, in the event the
Fund utilizes any on-line service offered by the Custodian, the Fund and
the Custodian shall be fully responsible for the security of each party's
connecting terminal, access thereto and the proper and authorized use
thereof and the initiation and application of continuing effective
safeguards in respect thereof.
3. REPRESENTATION AND WARRANTY OF BBH&CO. BBH&Co. hereby represents and
warrants that this Agreement has been duly authorized, executed and delivered by
BBH&Co. and does not and will not violate any Applicable Law or conflict with or
constitute a default under BBH&Co.'s limited partnership agreement or any
agreement, instrument, judgment, order or decree to which BBH&Co. is a party or
by which it is bound.
4. INSTRUCTIONS. Unless otherwise explicitly indicated herein, the Custodian
shall perform its duties pursuant to Instruction(s). As used herein, the term
INSTRUCTION(s) shall mean a directive initiated by a Fund, acting directly or
through its board of directors, officers or other Authorized Persons, which
directive shall conform to the requirements of this Section 4.
4.1 AUTHORIZED PERSONS. For purposes hereof, an AUTHORIZED PERSON shall
be a person or entity authorized to give Instructions for or on behalf of a
particular Fund by written notices to the Custodian or otherwise in accordance
with procedures delivered to and acknowledged by the Custodian, including
<PAGE>
without limitation the Fund's Investment Adviser or Foreign Custody Manager.
Authorized Persons may be identified by the Board of Trustees of a Fund by name,
title or position and will include at least one officer empowered by the Board
to name other individuals who are authorized to give Instructions on behalf of
the Fund. The Custodian may treat any Authorized Person as having full
authority of the relevant Fund to issue Instructions hereunder unless the notice
of authorization contains explicit limitations as to said authority. The
Custodian shall be entitled to rely upon the authority of Authorized Persons
until it receives appropriate written notice from a Fund to the contrary. No
Authorized Person has the authority to deliver an Instruction directing the
delivery of securities or the payment of funds to such Authorized Person and no
such Instruction will be executed by the Custodian if delivered to the
Custodian.
4.2 FORM OF INSTRUCTION. Each Instruction shall be transmitted by such
secured or authenticated electro-mechanical means as the Custodian shall make
available to a Fund from time to time unless the Fund shall elect to transmit
such Instruction in accordance with Subsections 4.2.1 through 4.2.3 of this
Section.
4.2.1 FUND DESIGNATED SECURED-TRANSMISSION METHOD. Instructions may
be transmitted through a secured or tested electro-mechanical means
identified by a Fund or by an Authorized Person of such Fund and
acknowledged and accepted by the Custodian.
4.2.2 WRITTEN INSTRUCTIONS. Instructions may be transmitted in a
writing that bears the manual signature of Authorized Persons.
4.2.3 OTHER FORMS OF INSTRUCTION. Instructions may also be
transmitted by another means determined by a Fund or Authorized Persons and
acknowledged and accepted by the Custodian including Instructions given
orally or by SWIFT, telex or telex or telefax (whether tested or
untested).
When an Instruction is given it shall be the responsibility of the Custodian to
use reasonable care to adhere to any security or other procedures established in
writing between the Custodian and the
<PAGE>
Authorized Person with respect to such means of Instruction. Telephonic, or
other oral Instructions given by any Authorized Person will be considered proper
instructions if the Custodian reasonably believes them to have been given by an
Authorized Person. Oral Instructions will be confirmed by such Authorized
Person through a secured or tested electro-mechanical means in the manner set
forth above. With respect to telefax instructions, the parties agree and
acknowledge that receipt of legible instructions cannot be assured, that the
Custodian cannot verify that authorized signatures on telefax instructions are
original or properly affixed, and that the Custodian shall not be liable for
losses or expenses incurred through actions taken in reliance on inaccurately
stated, illegible or unauthorized telefax instructions. The provisions of
Section 4A of the Uniform Commercial Code shall apply to funds transfers
performed in accordance with Instructions. In the event that a Funds Transfer
Services Agreement is executed between a Fund or an Authorized Person and the
Custodian, such an agreement shall comprise a designation of form of a means of
delivering Instructions for purposes of this Section 4.2.
4.3 COMPLETENESS AND CONTENTS OF INSTRUCTIONS. The Authorized Person
shall be responsible for assuring the adequacy and accuracy of Instructions.
Particularly, upon any acquisition or disposition or other dealing in a Fund's
Investments and upon any delivery and transfer of any Investment or moneys, the
person initiating such Instruction shall give the Custodian an Instruction with
appropriate detail, including, without limitation:
4.3.1 The transaction date and the date and location of settlement;
4.3.2 The specification of the type of transaction;
4.3.4 A description of the Investments or moneys in question,
including, as appropriate, quantity, price per unit, amount of money to be
received or delivered and currency information. Where an Instruction is
communicated by electronic means, or otherwise where an Instruction
contains an identifying number such as a CUSIP, SEDOL or ISIN number, the
Custodian shall be entitled to rely on such number as controlling.
However, should the Custodian become actually
<PAGE>
aware of an inconsistency contained in such Instruction with respect to
Investment description, the Custodian shall endeavor to contact an
Authorized Person to resolve such inconsistency;
4.3.5 The name of the broker or similar entity concerned with
execution of the transaction.
If the Custodian shall determine that an Instruction is either unclear or
incomplete, or contains any inconsistency, the Custodian shall give prompt
notice of such determination to the affected Fund, and the Fund shall thereupon
amend or otherwise reform such Instruction. In such event, the Custodian shall
have no obligation to take any action in response to the Instruction initially
delivered until the redelivery of an amended or reformed Instruction.
4.4 TIMELINESS OF INSTRUCTIONS. In giving an Instruction, the Fund shall
take into consideration delays which may occur due to the involvement of a
Subcustodian or agent, differences in time zones, and other factors particular
to a given market, exchange or issuer. When the Custodian has established
specific timing requirements or deadlines with respect to particular classes of
Instruction, or when an Instruction is received by the Custodian at such a time
that it could not reasonably be expected to have acted on such instruction due
to time zone differences or other factors beyond its reasonable control, the
execution of any Instruction received by the Custodian after such deadline or at
such time (including any modification or revocation of a previous Instruction)
shall be at the risk of the relevant Fund.
5. SAFEKEEPING OF FUND ASSETS. The Custodian shall hold Investments delivered
to it or Subcustodians for the each Fund in accordance with the provisions of
this Section. The Custodian shall not be responsible for (a) the safekeeping
of Investments not delivered or that are not caused to be issued to it or its
Subcustodians; or, (b) pre-existing faults or defects in Investments that are
delivered to the Custodian, or its Subcustodians. The Custodian is hereby
authorized to hold with itself or a
<PAGE>
Subcustodian, and to record in one or more accounts, all Investments delivered
to and accepted by the Custodian, any Subcustodian or their respective agents
pursuant to an Instruction or in consequence of any corporate action. The
Custodian shall hold Investments for the account of each Fund and shall
segregate Investments from assets belonging to the Custodian and shall cause its
Subcustodians to segregate Investments from assets belonging to the Subcustodian
in an account held for the Fund or in an account maintained by the Subcustodian
generally for non-proprietary assets of the Custodian.
5.1 USE OF SECURITIES DEPOSITORIES. The Custodian may deposit and
maintain Investments in any Securities Depository, either directly or through
one or more Subcustodians appointed by the Custodian. Investments held in a
Securities Depository shall be held (a) subject to the agreement, rules,
statement of terms and conditions or other document or conditions effective
between the Securities Depository and the Custodian or the Subcustodian, as the
case may be, and (b) in an account for the Fund or in bulk segregation in an
account maintained for the non-proprietary assets of the entity holding such
Investments in the Depository. If market practice or the rules and regulations
of the Securities Depository prevent the Custodian, the Subcustodian or (any
agent of either) from holding its client assets in such a separate account, the
Custodian, the Subcustodian or other agent shall as appropriate segregate such
Investments for benefit of the Fund or for benefit of clients of the Custodian
generally on its own books. At the election of the Fund, it shall be entitled
to be subrogated to the rights of the Custodian or Subcustodian, to the extent
allowable under local law or regulation, with respect to any claim against the
Securities Depository if and to the extent that the Fund has not been made whole
for such loss or damage.
5.2 CERTIFICATED ASSETS. Investments which are certificated may be held
in registered or bearer
<PAGE>
form: (a) in the Custodian's vault; (b) in the vault of a Subcustodian or agent
of the Custodian or a Subcustodian; or (c) in an account maintained by the
Custodian, Subcustodian or agent at a Securities Depository; all in accordance
with customary market practice in the jurisdiction in which any Investments are
held.
5.3 REGISTERED ASSETS. Investments which are registered may be registered
in the name of the Custodian, a Subcustodian, or in the name of the Fund or a
nominee for any of the foregoing, and may be held in any manner set forth in
paragraph 5.2 above with or without any identification of fiduciary capacity in
such registration, provided that securities are held in an account of the
Custodian, Subcustodian or a nominee for the foregoing, containing only assets
of the Fund or only assets held as fiduciary or custodian for customers.
5.4 BOOK ENTRY ASSETS. Investments which are represented by book-entry
may be so held in an account maintained by the Book-Entry Agent on behalf of the
Custodian, a Subcustodian or another agent of the Custodian, or a Securities
Depository.
5.5 REPLACEMENT OF LOST INVESTMENTS. In the event of a loss of
Investments for which the Custodian is responsible under the terms of this
Agreement, the Custodian shall replace such Investment, or in the event that
such replacement cannot be effected, the Custodian shall pay to the affected
Fund the fair market value of such Investment based on the Fund's pricing
procedures as of the close of business in the relevant market on the date
that the claim is paid by the Custodian, or, if the fair market value of the
Investment on such date is less than the fair market value on the date that
the loss was incurred, the Custodian shall pay to the effected Fund the fair
market value of such Investment based on the fair market value of the
Investment based on the Fund's pricing procedures as of the close of business
in the
<PAGE>
relevant market on the date that the loss was incurred.
6. ADMINISTRATIVE DUTIES OF THE CUSTODIAN. The Custodian shall perform the
following administrative duties with respect to Investments of each Fund.
6.1 PURCHASE OF INVESTMENTS. Pursuant to Instruction, Investments
purchased for the account of the Fund shall be paid for (a) against delivery
thereof to the Custodian or a Subcustodian, as the case may be, either directly
or through a Clearing Corporation or a Securities Depository (in accordance with
the rules of such Securities Depository or such Clearing Corporation), or (b)
otherwise in accordance with an Instruction, Applicable Law, generally accepted
trade practices, or the terms of the instrument representing such Investment.
6.2 SALE OF INVESTMENTS. Pursuant to Instruction, Investments sold for
the account of the Fund shall be delivered (a) against payment therefor in cash,
by certified check, bank cashier's check, bank credit or by bank wire transfer,
(b) by credit to the account of the Custodian or the applicable Subcustodian, as
the case may be, with a Clearing Corporation or a Securities Depository (in
accordance with the rules of such Securities Depository or such Clearing
Corporation), or (c) otherwise in accordance with an Instruction, Applicable
Law, generally accepted trade practices, or the terms of the instrument
representing such Investment.
6.3 DELIVERY IN CONNECTION WITH BORROWINGS OF THE FUND OR OTHER
COLLATERAL AND MARGIN REQUIREMENTS. Pursuant to Instruction, the Custodian may
deliver Investments or cash of the Fund to lenders or their agents as collateral
in connection with borrowings and other collateral and margin requirements.
Such borrowed money is payable to or upon the Custodian's order as Custodian for
the Fund.
6.4 FUTURES AND OPTIONS. If, pursuant to an Instruction, the Custodian
shall become a party to an agreement with the Fund and a futures commission
merchant or broker-dealer dealing in options regarding margin (TRI-PARTY
AGREEMENT), the Custodian shall (a) receive and retain, confirmations or other
documents evidencing the purchase or sale by the Fund of futures contracts and
commodity
<PAGE>
options, (b) when required by such Tri-Party Agreement, deposit and maintain in
an account opened pursuant to such Agreement (MARGIN ACCOUNT), segregated either
physically or by book-entry in a Securities Depository for the benefit of any
futures commission merchant or broker-dealer dealing in options, such
Investments as the Fund shall have designated as initial, maintenance or
variation "margin" deposits or other collateral intended to secure the Fund's
performance of its obligations under the terms of any futures contracts and
commodity options; and (c) thereafter pay, release or transfer Investments into
or out of the margin account in accordance with the provisions of such
Agreement. Alternatively, the Custodian may deliver Investments, in accordance
with an Instruction, to a futures commission merchant for purposes of margin
requirements in accordance with Rule 17f-6 of the 1940 Act. The Custodian shall
in no event be responsible for the acts and omissions of any futures commission
merchant or broker-dealer dealing in options to whom Investments are delivered
pursuant to this Section; for the sufficiency of Investments held in any Margin
Account; or, for the performance of any terms of any exchange-traded futures
contracts and commodity options.
6.5 RIGHTS, WARRANTS, ETC. Pursuant to Instruction, the Custodian shall
(a) deliver warrants, puts, calls, rights or similar securities to the issuer or
trustee thereof, or to any agent of such issuer or trustee, for purposes of
exercising such rights or selling such securities, provided that the new
securities and cash, if any, acquired by such action are to be delivered to the
Custodian, and (b) deposit securities in response to any invitation for the
tender thereof, provided that the consideration is to be paid or delivered or
the tendered securities are to be returned to the Custodian.
6.6 CONTRACTUAL OBLIGATIONS AND SIMILAR INVESTMENTS. From time to time,
the Fund's Investments may include Investments that are not ownership interests
as may be represented by certificate (whether registered or bearer), by entry in
a Securities Depository or by book entry agent, registrar or similar agent for
recording ownership interests in the relevant Investment. If the Fund shall at
any time acquire such Investments, including without limitation deposit
obligations, loan participations, repurchase agreements and derivative
arrangements, the Custodian shall (a) receive and retain, confirmations or
other documents evidencing the arrangement; and (b) perform on the Fund's
account in
<PAGE>
accordance with the terms of the applicable arrangement, but only to the extent
directed to do so by Instruction. The Custodian shall have no responsibility
for agreements running to the Fund as to which it is not a party other than to
retain, to the extent the same are provided to the Custodian, documents or
copies of documents evidencing the arrangement and, in accordance with
Instruction, to include such arrangements in reports made to the Fund.
6.7 EXCHANGE OF SECURITIES. Unless otherwise directed by Instruction,
the Custodian shall: (a) exchange securities held for the account of the Fund
for other securities in connection with any reorganization, recapitalization,
conversion, split-up, change of par value of shares or similar event, and (b)
deposit any such securities in accordance with the terms of any reorganization
or protective plan.
6.8 SURRENDER OF SECURITIES. Unless otherwise directed by Instruction,
the Custodian may surrender securities: (a) in temporary form for definitive
securities; (b) for transfer into the name of an entity allowable under Section
5.3; and (c) for a different number of certificates or instruments representing
the same number of shares or the same principal amount of indebtedness.
6.9 MANDATORY CORPORATE ACTIONS. Unless otherwise directed by
Instruction, the Custodian shall: (a) comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions or similar rights of
securities ownership affecting securities held on the Fund's account and
promptly notify the Fund of such action, and (b) collect all stock dividends,
rights and other items of like nature with respect to such securities.
6.10 INCOME COLLECTION. Unless otherwise directed by Instruction, the
Custodian shall collect any amount due and payable to the Fund with respect to
Investments and promptly credit the amount collected to a Principal or Agency
Account; provided, however, that the Custodian shall not be responsible for: (a)
the collection of amounts due and payable with respect to Investments that are
in default, or (b) the collection of cash or share entitlements with respect to
Investments that are not registered in the name of the Custodian or its
Subcustodians. The Custodian is hereby authorized to endorse and deliver any
instrument required to be so endorsed and delivered to effect collection of any
amount due and payable to the Fund with respect to Investments.
<PAGE>
6.11 OWNERSHIP CERTIFICATES AND DISCLOSURE OF THE FUND'S INTEREST. The
Custodian is hereby authorized to execute on behalf of the Fund ownership
certificates, affidavits or other disclosure required under Applicable Law or
established market practice in connection with the receipt of income, capital
gains or other payments by the Fund with respect to Investments, or in
connection with the sale, purchase or ownership of Investments.
6.12 PROXY MATERIALS. The Custodian shall deliver, or cause to be
delivered, to the Fund proxy forms, notices of meeting, and any other notices
or announcements materially affecting or relating to Investments received by the
Custodian or any nominee, and pursuant to Instruction to execute and deliver or
cause its nominee to execute and deliver such proxies or other authorizations as
may be required. Neither the Custodian nor its nominee shall vote upon any such
securities or execute any proxy to vote thereon or give any consent or take any
other action with respect thereto (except as otherwise herein provided) unless
ordered to do so by Instruction.
6.13 TAXES. The Custodian shall, where applicable, assist the Fund in
the reclamation of taxes withheld on dividends and interest payments received by
the Fund. In the performance of its duties with respect to tax withholding and
reclamation, the Custodian shall be entitled to rely on the advice of counsel
and upon information and advice regarding the Fund's tax status that is received
from or on behalf of the Fund without duty of separate inquiry.
6.14 OTHER DEALINGS. The Custodian shall otherwise act as directed by
Instruction, including without limitation effecting the free payments of moneys
or the free delivery of securities, provided that such Instruction shall
indicate the purpose of such payment or delivery and that the Custodian shall
record the party to whom such payment or delivery is made.
The Custodian shall attend to all nondiscretionary details in connection with
the sale or purchase or other administration of Investments, except as otherwise
directed by an Instruction, and may make payments to itself or others for minor
expenses of administering Investments under this Agreement; provided that the
Fund shall have the right to request an accounting with respect to such
expenses.
<PAGE>
In fulfilling the duties set forth in Sections 6.6 through 6.10 above, the
Custodian shall provide to the Fund all material information pertaining to a
corporate action which the Custodian actually receives; provided that the
Custodian shall not be responsible for the completeness or accuracy of such
information. Any advance credit of cash or shares expected to be received as a
result of any corporate action shall be subject to actual collection and may,
when the Custodian deems collection unlikely, be reversed by the Custodian.
The Custodian may at any time or times in its discretion appoint (and may
at any time remove) agents (other than Subcustodians) to carry out some or all
of the administrative provisions of this Agreement (AGENTS), provided, however,
that the appointment of such agent shall not relieve the Custodian of its
administrative obligations under this Agreement.
7. CASH ACCOUNTS, DEPOSITS AND MONEY MOVEMENTS. Subject to the terms and
conditions set forth in this Section 7, eachFund hereby authorizes the Custodian
to open and maintain, with itself or with Subcustodians, cash accounts in United
States Dollars, in such other currencies as are the currencies of the countries
in which the Fund maintains Investments or in such other currencies as the Fund
shall from time to time request by Instruction.
7.1 TYPES OF CASH ACCOUNTS. Cash accounts opened on the books of the
Custodian (PRINCIPAL ACCOUNTS) shall be opened in the name of the Fund. Such
accounts collectively shall be a deposit obligation of the Custodian and shall
be subject to the terms of this Section 7 and the general liability provisions
contained in Section 9. Cash accounts opened on the books of a Subcustodian may
be opened in the name of the Fund or the Custodian or in the name of the
Custodian for its customers generally (AGENCY ACCOUNTS). Such deposits shall be
obligations of the Subcustodian and shall be treated as an
<PAGE>
Investment of the Fund. Accordingly, the Custodian shall be responsible for
exercising reasonable care in the administration of such accounts but shall not
be liable for their repayment in the event such Subcustodian, by reason of its
bankruptcy, insolvency or otherwise, fails to make repayment except as provided
in section 8.3.
7.2 PAYMENTS AND CREDITS WITH RESPECT TO THE CASH ACCOUNTS. The Custodian
shall make payments from or deposits to any of said accounts in the course of
carrying out its administrative duties, including but not limited to income
collection with respect to the Fund's Investments, and otherwise in accordance
with Instructions. The Custodian and its Subcustodians shall be required to
credit amounts to the cash accounts only when moneys are actually received in
cleared funds in accordance with banking practice in the country and currency of
deposit. Any credit made to any Principal or Agency Account before actual
receipt of cleared Funds shall be provisional and may be reversed by the
Custodian in the event such payment is not actually collected. Unless otherwise
specifically agreed in writing by the Custodian or any Subcustodian, all
deposits shall be payable only at the branch of the Custodian or Subcustodian
where the deposit is made or carried.
7.3 CURRENCY AND RELATED RISKS. The Fund bears risks of holding or
transacting in any currency. The Custodian shall not be liable for any loss or
damage arising from the applicability of any law or regulation now or hereafter
in effect, or from the occurrence of any event, which may delay or affect the
transferability, convertibility or availability of any currency in the country
(a) in which such Principal or Agency Accounts are maintained or (b) in which
such currency is issued, and in no event shall the Custodian be obligated to
make payment of a deposit denominated in a currency during the period during
which its transferability, convertibility or availability has been affected by
any such law,
<PAGE>
regulation or event. Without limiting the generality of the foregoing, neither
the Custodian nor any Subcustodian shall be required to repay any deposit made
at a foreign branch of either the Custodian or Subcustodian if such branch
cannot repay the deposit due to a cause for which the Custodian would not be
responsible in accordance with the terms of Section 9 of this Agreement unless
the Custodian or such Subcustodian expressly agrees in writing to repay the
deposit under such circumstances. All currency transactions in any account
opened pursuant to this Agreement are subject to exchange control regulations of
the United States and of the country where such currency is the lawful currency
or where the account is maintained. Any taxes, costs, charges or fees imposed on
the convertibility of a currency held by the Fund shall be for the account of
the Fund.
7.4 FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall, subject to the
terms of this Section, settle foreign exchange transactions (including
contracts, futures, options and options on futures) on behalf of and for the
account of the Fund with such currency brokers or banking institutions,
including Subcustodians, as the Fund may direct pursuant to Instructions. The
Custodian may act as principal in any foreign exchange transaction with the
Fund in accordance with Section 7.4.2 of this Agreement. The obligations of
the Custodian in respect of all foreign exchange transactions (whether or not
the Custodian shall act as principal in such transaction) shall be contingent on
the free, unencumbered transferability of the currency transacted on the actual
settlement date of the transaction.
7.4.1 THIRD PARTY FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall
process foreign exchange transactions (including without limitation
contracts, futures, options, and options on futures), where any third
party acts as principal counterparty to the Fund on the same basis it
performs duties as agent for the Fund with respect to any other of the
Fund's Investments. Accordingly the Custodian shall only be responsible for
delivering or receiving currency on behalf of the Fund in respect of such
contracts pursuant to Instructions. The Custodian shall not be responsible
for the failure of any counterparty (including any Subcustodian) in such
agency transaction to perform its obligations thereunder. The Custodian (a)
shall transmit cash and Instructions to and from the
<PAGE>
currency broker or banking institution with which a foreign exchange
contract or option has been executed pursuant hereto, (b) may make free
outgoing payments of cash in the form of Dollars or foreign currency
without receiving confirmation of a foreign exchange contract or option or
confirmation that the countervalue currency completing the foreign exchange
contract has been delivered or received or that the option has been
delivered or received, and (c) shall hold all confirmations, certificates
and other documents and agreements received by the Custodian and evidencing
or relating to such foreign exchange transactions in safekeeping. The Fund
accepts full responsibility for its use of third-party foreign exchange
dealers and for execution of said foreign exchange contracts and options
and understands that the Fund shall be responsible for any and all costs
and interest charges which may be incurred by the Fund or the Custodian as
a result of the failure or delay of third parties to deliver foreign
exchange.
7.4.2 FOREIGN EXCHANGE WITH THE CUSTODIAN AS PRINCIPAL. The
Custodian may undertake foreign exchange transactions with the Fund as
principal as the Custodian and the Fund may agree from time to time. In
such event, the foreign exchange transaction will be performed in
accordance with the particular agreement of the parties, or in the event a
principal foreign exchange transaction is initiated by Instruction in the
absence of specific agreement, such transaction will be performed in
accordance with the usual commercial terms of the Custodian.
7.5 DELAYS. In the event that a delay shall have been caused by the
negligence or willful misconduct of the Custodian in carrying out an Instruction
to credit or transfer cash, the Custodian shall be liable to the Fund: (a) with
respect to Principal Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Custodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected; and,
(b) with respect to Agency Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Subcustodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected. The
Custodian shall not be liable to the Fund for a delay caused by an event of
Force Majeure which shall have occurred and be continuing.
7.6 ADVANCES. If, for any reason in the conduct of its safekeeping duties
pursuant to Section 5 hereof or its administration of the Fund's assets pursuant
to Section 6 hereof, the Custodian or any Subcustodian advances monies to
facilitate settlement or otherwise for benefit of the Fund (whether or
<PAGE>
not any Principal or Agency Account shall be overdrawn either during, or at the
end of, any business day), the Fund hereby does:
7.6.1 acknowledge that the Fund shall have no right or title to any
Investments purchased with such Advance save a right to receive such
Investments upon: (a) the debit of the Principal or Agency Account; or, (b)
if such debit would produce an overdraft in such account, other
reimbursement of the associated Advance;
7.6.2 grant to the Custodian a security interest in all Investments of the
particular Fund; and,
7.6.3 agree that the Custodian may secure the resulting Advance by
perfecting a security interest in all Investments of the particular Fund
under Applicable Law.
Neither the Custodian nor any Subcustodian shall be obligated to advance monies
to the Fund, and in the event that such Advance occurs, any transaction giving
rise to an Advance shall be for the account and risk of the Fund and shall not
be deemed to be a transaction undertaken by the Custodian for its own account
and risk. If such Advance shall have been made by a Subcustodian or any other
person, the Custodian may assign the security interest and any other rights
granted to the Custodian hereunder to such Subcustodian or other person. If the
Fund shall fail to repay when due the principal balance of an Advance and
accrued and unpaid interest thereon, the Custodian or its assignee, as the case
may be, shall be entitled to utilize the available cash balance in any Agency or
Principal Account and to dispose of any Investments of the particular Fund to
the extent necessary to recover payment of all principal of, and interest on,
such Advance in full. Before disposing of any Investments as is necessary to
meet the Fund's obligation under an Advance, the Custodian shall inform the
Fund's Investment Adviser and dispose of those Investments designated by the
Investment Adviser as the Investments to be used to meet the Fund's obligation
under the Advance. The Custodian may assign any rights it has hereunder to a
Subcustodian or third party. Any security interest in Investments taken
hereunder shall be treated as financial assets
<PAGE>
credited to securities accounts under Articles 8 and 9 of the Uniform Commercial
Code (1997). Accordingly, the Custodian shall have the rights and benefits of a
secured creditor that is a securities intermediary under such Articles 8 and 9.
7.7 INTEGRATED ACCOUNT. For purposes hereof, deposits maintained in all
Principal Accounts (whether or not denominated in Dollars) shall collectively
constitute a single and indivisible current account with respect to the Fund's
obligations to the Custodian, or its assignee, and balances in such Principal
Accounts shall be available for satisfaction of the Fund's obligations under
this Section 7. The Custodian shall further have a right of offset against the
balances in any Agency Account maintained hereunder to the extent that the
aggregate of all Principal Accounts is overdrawn.
8. SUBCUSTODIANS AND SECURITIES DEPOSITORIES. Subject to the provisions
hereinafter set forth in this Section 8, the eachFund hereby authorizes the
Custodian to utilize Securities Depositories to act on behalf of the Fund and to
appoint from time to time and to utilize Subcustodians. With respect to
securities and funds held by a Subcustodian, either directly or indirectly
(including by a Securities Depository or Clearing Corporation), notwithstanding
any provisions of this Agreement to the contrary, payment for securities
purchased and delivery of securities sold may be made prior to receipt of
securities or payment, respectively, and securities or payment may be received
in a form, in accordance with (a) governmental regulations, (b) rules of
Securities Depositories and clearing agencies, (c) generally accepted trade
practice in the applicable local market, (d) the terms and characteristics of
the particular Investment, or (e) the terms of Instructions.
8.1 DOMESTIC SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Custodian may
deposit and/or
<PAGE>
maintain, either directly or through one or more agents appointed by the
Custodian, Property of the Fund in any Securities Depository in the United
States, including The Depository Trust Company, provided such Depository meets
applicable requirements of the Federal Reserve Bank or of the Securities and
Exchange Commission. The Custodian may, at any time and from time to time,
appoint any bank as defined in Section 2(a)(5) of the 1940 Act meeting the
requirements of a custodian under Section 17(f) of the 1940 Act and the rules
and regulations thereunder, to act on behalf of the Fund as a Subcustodian for
purposes of holding Investments of the Fund in the United States.
8.2 FOREIGN SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Custodian may
deposit and/or maintain non-U.S. Investments of the Fund in any non-U.S.
Securities Depository provided such Securities Depository meets the requirements
of an "eligible foreign custodian" under Rule 17f-5 promulgated under the 1940
Act, or any successor rule or regulation ("Rule 17f-5") or which by order of the
Securities and Exchange Commission is exempted therefrom. Additionally, the
Custodian may, at any time and from time to time, appoint (a) any bank, trust
company or other entity meeting the requirements of an ELIGIBLE FOREIGN
CUSTODIAN under Rule 17f-5 or which by order of the Securities and Exchange
Commission is exempted therefrom, or (b) any bank as defined in Section 2(a)(5)
of the 1940 Act meeting the requirements of a custodian under Section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act on behalf of the
Fund as a Subcustodian for purposes of holding Investments of the Fund outside
the United States. Such appointment of foreign Subcustodians shall be subject
to approval of the Fund in accordance with Subsections 8.2.1 and 8.2.2.
8.2.1 BOARD APPROVAL OF FOREIGN SUBCUSTODIANS. Unless and except to
the extent that review of certain matters concerning the appointment of
Subcustodians shall have been delegated to the Custodian pursuant to
Subsection 8.2.2, the Custodian shall, prior to the appointment of any
Subcustodian for purposes of holding Property of the Fund outside the
United States, obtain
<PAGE>
written confirmation of the approval of the Board of Trustees or Directors
of the Fund with respect to (a) the identity of a Subcustodian, (b) the
country or countries in which, and the Securities Depositories, if any,
through which, any proposed Subcustodian is authorized to hold Investments
of the Fund, and (c) the Subcustodian agreement which shall govern such
appointment. Each such duly approved country, Subcustodian and Securities
Depository shall be listed on Appendix A attached hereto as the same may
from time to time be amended.
8.2.2 DELEGATION OF BOARD REVIEW OF SUBCUSTODIANS. From time to
time, the Custodian may offer to perform, and the Fund may accept such
offer to perform certain reviews of Subcustodians and of Subcustodian
Contracts as delegate of the Fund's Board. In such event, the Custodian's
duties and obligations with respect to this delegated review will be
performed in accordance with the terms of a separate Foreign Custody
Manager Delegation Agreement between the Fund and the Custodian.
8.3 RESPONSIBILITY FOR SUBCUSTODIANS. The Custodian shall be liable to
the Fund for any loss or damage to the Fund caused by or resulting from the acts
or omissions of any Subcustodian listed on Appendix A to the extent that (i)
under the terms set forth in the Subcustodian Agreement between the Custodian
and the Subcustodian or in the Sub-subcustodian Agreement between a Subcustodian
and a Sub-subcustodian, the Subcustodian or Sub-subcustodian has failed to
perform in accordance with the standard of conduct imposed under such
Subcustodian Agreement or Sub-subcustodian Agreement, provided that the
Subcustodian Agreement or Sub-subcustodian Agreement requires that such
Subcustodian or Sub-subcustodian exercise reasonable care based on standards
applicable to Custodians in the relevant market, or (ii) such acts or omission
would be deemed to be negligence, gross negligence or willful misconduct under
the laws, circumstances and practices prevailing in the jurisdiction where the
act or omission occurred. In the countries indicated in Appendix B to this
Agreement, (as it may be amended from time to time with prospective effect
only), the liability of the Custodian for the acts or omissions of a
Subcustodian under this Section 8.3 shall be subject to the additional condition
that the Custodian actually recovers such loss or damage from the Subcustodian.
The foregoing condition to the Custodian's liability shall be operative only if
the Custodian undertakes, at its own expense, commercially
<PAGE>
reasonable means to enforce any contractual or other claims the Custodian, on
its own behalf or on behalf of the affected Fund, may have against the relevant
Subcustodian. At the election of the affected Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any such claim against
the relevant Subcustodian. In the event the affected Fund makes such an
election, the Custodian shall have no obligation to pursue such claims
independently, but shall cooperate with the Fund in the Fund's prosecution of
such claims. The foregoing condition to the Custodian's liability in such cases
shall in no way limit, condition or diminish: (a) the duty of care of the
Custodian under Section 9 hereof or Section 8 of the Foreign Custody Manager
Delegation Agreement; (b) the liability of the Custodian for the Custodian's own
negligence, bad faith, willful misconduct or other breach of such duty; or (c)
any other obligation arising hereunder or under the Foreign Custody Manager
Delegation Agreement.
8.4 NEW COUNTRIES. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which is to be held
in a country in which no Subcustodian is authorized to act in order that the
Custodian shall, if it deems appropriate to do so, have sufficient time to
establish a subcustodial arrangement in accordance herewith. In the event,
however, the Custodian is unable to establish such arrangements prior to the
time such investment is to be acquired, the Custodian is authorized to designate
at its discretion a local safekeeping agent, and the use of such local
safekeeping agent shall be at the sole risk of the Fund, and accordingly the
Custodian shall be responsible to the Fund for the actions of such agent if and
only to the extent the Custodian shall have recovered from such agent for any
damages caused the Fund by such agent.
9. RESPONSIBILITY OF THE CUSTODIAN. In performing its duties and
obligations hereunder, the
<PAGE>
Custodian shall use reasonable care under the facts and circumstances prevailing
in the market where performance is effected. Subject to the specific provisions
of this Section, the Custodian shall be liable for any direct damage incurred by
the Fund in consequence of the Custodian's negligence, bad faith or willful
misconduct. In no event shall the Custodian be liable hereunder for any
special, indirect, punitive or consequential damages arising out of, pursuant to
or in connection with this Agreement even if the Custodian has been advised of
the possibility of such damages. It is agreed that the Custodian shall have no
duty to assess the risks inherent in a Fund's Investments or to provide
investment advice with respect to such Investments and that the Fund as
principal shall bear any risks attendant to particular Investments such as
failure of counterparty or issuer.
9.1 LIMITATIONS OF PERFORMANCE. The Custodian shall not be responsible
under this Agreement for any failure to perform its duties, and shall not be
liable hereunder for any loss or damage in association with such failure to
perform, for or in consequence of the following causes:
9.1.1 FORCE MAJEURE. FORCE MAJEURE shall mean any circumstance or
event described below which is beyond the reasonable control of the
Custodian, a Subcustodian or any agent of the Custodian or a Subcustodian
and which adversely affects the performance by the Custodian of its
obligations hereunder, by the Subcustodian of its obligations under its
Subcustody Agreement or by any other agent of the Custodian or the
Subcustodian, including any event caused by, arising out of or involving
(a) an act of God, (b) accident, fire, water damage or explosion, (c) any
computer, system or other equipment failure or malfunction caused by any
computer virus or the malfunction or failure of any communications medium,
(d) any interruption of the power supply or other utility service, (e) any
strike or other work stoppage, whether partial or total, (f) any delay or
disruption resulting from or reflecting the occurrence of any Sovereign
Risk, (g) any disruption of, or suspension of trading in, the securities,
commodities or foreign exchange markets, whether or not resulting from or
reflecting the occurrence of any Sovereign Risk, (h) any encumbrance on the
transferability of a currency or a currency position on the actual
settlement date of a foreign exchange transaction, whether or not resulting
from or reflecting the occurrence of any Sovereign Risk, or (i) any other
cause similarly beyond the reasonable control of the Custodian.
9.1.2 COUNTRY RISK. COUNTRY RISK shall mean, with respect to the
acquisition, ownership, settlement or custody of Investments in a
jurisdiction, all risks relating to, or arising in consequence of, systemic
and markets factors affecting the acquisition, payment for or ownership of
Investments including (a) the prevalence of crime and corruption, (b) the
inaccuracy or unreliability of business and financial information, (c) the
instability or volatility of banking and
<PAGE>
financial systems, or the absence or inadequacy of an infrastructure to
support such systems, (d) custody and settlement infrastructure of the
market in which such Investments are transacted and held, (e) the acts,
omissions and operation of any Securities Depository, (f) the risk of the
bankruptcy or insolvency of banking agents, counterparties to cash and
securities transactions, registrars or transfer agents, and (g) the
existence of market conditions which prevent the orderly execution or
settlement of transactions or which affect the value of assets.
9.1.3 SOVEREIGN RISK. SOVEREIGN RISK shall mean, in respect of any
jurisdiction, including the United States of America, where Investments is
acquired or held hereunder or under a Subcustody Agreement, (a) any act of
war, terrorism, riot, insurrection or civil commotion, (b) the imposition
of any investment, repatriation or exchange control restrictions by any
governmental authority, (c) the confiscation, expropriation or
nationalization of any Investments by any governmental authority, whether
de facto or de jure, (iv) any devaluation or revaluation of the currency,
(d) the imposition of taxes, levies or other charges affecting Property,
(vi) any change in the Applicable Law, or (e) any other economic or
political risk incurred or experienced.
9.2. LIMITATIONS ON LIABILITY. The Custodian shall not be liable for any
loss, claim, damage or other liability arising from the following causes:
9.2.1 FAILURE OF THIRD PARTIES. The failure of any third party
including: (a) any issuer of Investments or book-entry or other agent of
and issuer; (b) any counterparty with respect to any Investment, including
any issuer of exchange-traded or other futures, option, derivative or
commodities contract; (c) failure of an Investment Adviser, Foreign Custody
Manager or other agent of aFund; or (d) failure of other third parties
similarly beyond the control or choice of the Custodian.
9.2.2 INFORMATION SOURCES. The Custodian may rely upon information
received from issuers of Investments or agents of such issuers,
information received from Subcustodians and from other commercially
reasonable sources such as commercial data bases and the like, but shall
not be responsible for specific inaccuracies in such information, provided
that the Custodian has relied upon such information in good faith, or for
the failure of any commercially reasonable information provider.
9.2.3 RELIANCE ON INSTRUCTION. Action by the Custodian or the
Subcustodian in accordance with an Instruction, even when such action
conflicts with, or is contrary to any provision of, the Fund's declaration
of trust, certificate of incorporation or by-laws, Applicable Law, or
actions by the trustees, directors or shareholders of the Fund.
9.2.4 RESTRICTED SECURITIES. The limitations inherent in the
rights, transferability or similar investment characteristics of a given
Investment of aFund.
10. INDEMNIFICATION.
10.1 BY THE TRUST AND THE FUND. Each Fund hereby indemnifies the
Custodian and each Subcustodian, and their respective agents, nominees and
the partners, employees, officers and directors, and agrees to hold each of
them harmless from and against all claims and liabilities, including
counsel fees and taxes, incurred or assessed against any of them in
<PAGE>
connection with the performance of this Agreement and any Instruction. If
a Subcustodian or any other person indemnified under the preceding
sentence, gives written notice of claim to the Custodian, the Custodian
shall promptly give written notice to the relevant Fund.
10.2 BY THE CUSTODIAN. The Custodian hereby indemnifies the Trust
and each Fund, and their agents, nominees and the trustees, employees,
officers and directors, and agrees to hold each of them harmless from and
against all claims and liabilities, including counsel fees and taxes,
incurred or assessed against any of them in connection with the performance
of this Agreement.
10.3 NOTICE OF LITIGATION, RIGHT TO PROSECUTE, ETC... No Fund shall be liable
for indemnification under this Section 10 unless the party seeking
indemnification shall have promptly notified such Fund in writing of the
commencement of any litigation or proceeding brought against such party seeking
indemnification in respect of which indemnity may be sought under this Section
10. With respect to such claims in such litigation or proceedings for which
indemnity by a Fund may be sought and subject and to applicable law and the
ruling of any court of competent jurisdiction, such Fund shall be entitled to
participate in any such litigation or proceeding and, after written notice from
such Fund to the party seeking indemnification, such Fund may assume the defense
of such litigation or proceeding with counsel of its choice at its own expense
in respect of that portion of the litigation for which such Fund may be subject
to an indemnification obligation; provided, however, the party seeking
indemnification shall be entitled to participate in (but not control) at its own
cost and expense, the defense of any such litigation or proceeding if such Fund
has not acknowledged in writing its obligation to indemnify the party seeking
indemnification with respect to such litigation or proceeding. If such Fund is
not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, the party
seeking indemnification shall reasonably prosecute such litigation or
proceeding. The party seeking indemnification shall not consent to the entry of
any judgement or enter into any settlement in any such litigation or proceeding
without providing each applicable Fund with adequate
<PAGE>
notice of any such settlement or judgement, and without each such Fund's prior
written consent. The party seeking indemnification shall submit written
evidence to each applicable Fund with respect to any cost or expense for which
they are seeking indemnification in such form and detail as such Fund may
reasonably request.
11. POWERS AND DUTIES OF THE CUSTODIAN WITH RESPECT TO ITS ROLE AS FINANCIAL
AGENT: Each Fund hereby also appoints the Custodian as the Fund's financial
agent. With respect to the appointment as financial agent, the Custodian shall
have and perform the following powers and duties:
11.1 RECORDS - To create, maintain and retain such records relating to
its activities and obligations under this Agreement as are required under the
1940 Act and the rules and regulations thereunder (including Section 31 thereof
and Rules 31a-1 and 31a-2 thereunder) and under applicable Federal and State
tax laws. All such records will be the property of the Fund and in the event of
termination of this Agreement shall be delivered to the successor custodian.
11.2 ACCOUNTS. - To keep books of account and render statements,
including interim monthly and complete quarterly financial statements, or copies
thereof, from time to time as reasonably requested by proper instructions.
11.3 ACCESS TO RECORDS - The books and records maintained by the
Custodian pursuant to Section 11.1 and 11.2 shall at all times during the
Custodian's regular business hours be open to inspection and audit by officers
of, attorneys for and auditors employed by the Fund and by employees and agents
of the Securities and Exchange Commission, provided that all such individuals
shall observe all security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian and such
regulations as may be reasonably imposed by the Custodian.
11.4 DISBURSEMENTS - Upon receipt of proper instructions, to pay or
cause to be paid, insofar, as funds are available for the purpose, bulls,
statements and other obligations of the Fund (including but not limited to
interest charges, taxes, management fees, compensation to Fund officers and
employees, and other operating expenses of the Fund).
12. MISCELLANEOUS.
12.1 PROXIES, ETC. The each Fund will promptly execute and deliver,
upon request, such proxies, powers of attorney or other instruments as may be
necessary or desirable for the Custodian to provide, or to cause any
Subcustodian to provide, custody services.
<PAGE>
12.2 ENTIRE AGREEMENT. Except as specifically provided herein, this
Agreement constitutes the entire agreement between the Trust and the Custodian
with respect to the subject matter hereof. Accordingly, this Agreement
supersedes any custody agreement or other oral or written agreements heretofore
in effect between the Trust and the Custodian with respect to the custody of the
Trust's Property.
12.3 WAIVER AND AMENDMENT. No provision of this Agreement may be
waived, amended or modified, and no addendum to this Agreement shall be or
become effective, or be waived, amended or modified, except by an instrument in
writing executed by the party against which enforcement of such waiver,
amendment or modification is sought; provided, however, that an Instruction
shall, whether or not such Instruction shall constitute a waiver, amendment or
modification for purposes hereof, shall be deemed to have been accepted by the
Custodian when it commences actions pursuant thereto or in accordance therewith.
12.4 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND BE GOVERNED BY THE FEDERAL LAWS OF THE UNITED
STATES AND, TO THE EXTENT NOT GOVERNED THEREBY, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW OF SUCH STATE. THE PARTIES
HERETO CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE BOROUGH OF
MANHATTAN.
12.5 NOTICES. Notices and other writings contemplated by this
Agreement, other than Instructions, shall be delivered (a) by hand, (b) by first
class registered or certified mail, postage prepaid,
<PAGE>
return receipt requested, (c) by a nationally recognized overnight courier or
(d) by facsimile transmission, provided that any notice or other writing sent by
facsimile transmission shall also be mailed, postage prepaid, to the party to
whom such notice is addressed. All such notices shall be addressed, as follows:
<PAGE>
If to the Trust or a Fund:
Morgan Grenfell Investment Trust
C/O Morgan Grenfell Capital Management
150 South Independence Square West
Philadelphia, PA 19106
Attn: Secretary
Telephone: (215) 418-3100
Facsimile: (215) 418-3066
If to the Custodian:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Attn: Manager, Securities Department
Telephone: (617) 772-1818
Facsimile: (617) 772-2263,
or such other address as the Trust a Fund or the Custodian may have
designated in writing to the other.
12.6 HEADINGS. Paragraph headings included herein are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions hereof.
12.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
the Trust and the Custodian.
12.8 CONFIDENTIALITY. The parties hereto agree that each shall
treat confidentially the terms and conditions of this Agreement and all
information provided by each party to the other regarding its business and
operations. All confidential information provided by a party hereto shall be
used by any other party hereto solely for the purpose of rendering or obtaining
services pursuant to this Agreement and, except as may be required in carrying
out this Agreement, shall not be disclosed to any third party without the prior
consent of such providing party. The foregoing shall not be applicable to any
<PAGE>
information that is publicly available when provided or thereafter becomes
publicly available other than through a breach of this Agreement, or that is
required to be disclosed by or to any bank examiner of the Custodian or any
Subcustodian, any Regulatory Authority, any auditor of the parties hereto, or by
judicial or administrative process or otherwise by Applicable Law.
12.9 ASSISTANCE BY THE CUSTODIAN AS TO CERTAIN MATTERS: The
Custodian may assist generally in the preparation of reports to the Fund
shareholders and others, audits of accounts, and other ministerial matters of
the like nature.
12.10 LIMITATION OF LIABILITY. A copy of the Fund's Declaration of
Trust is on file with the Secretary of State of the State of Delaware and notice
is hereby given that this Agreement has been executed on behalf of the Trust by
an officer of the Trust in such capacity and not individually. It is agreed
that obligations of the Trust hereunder shall not be binding personally upon any
of the Trustees, shareholders, officers, agents or employees of the Trust, but
shall bind only the Trust property of the Trust as provided in the Declaration
of Trust. No Fund of the Trust shall be liable for the obligations of any other
Fund of the Trust. No obligations of the Trust that relate to a particular Fund
shall be attributable to or affect any other Fund of the Trust but shall only
relate to the particular Fund.
12.11 CONVERSION TO THE EURO. The Custodian will take reasonable
steps to ensure that it has in place a euro conversion plan reasonably designed
to enable it to perform its obligations without interruption or error due to the
conversion of European currencies to the euro beginning on January 1, 1999. If
any changes are required, the Custodian will make the changes to its computer,
systems or other equipment at no cost to the Trust and in a commercially
reasonable time frame.
12.12 YEAR 2000. The Custodian will take reasonable steps to ensure
that its computer,
<PAGE>
systems or other equipment it will use to provide services under this Agreement
reflect the available state of the art technology to offer services that are
Year 2000 compliant, including, but not limited to, century recognition of
dates, calculations that correctly compute same century and multi-century
formulas and date values, and interface values that reflect the date issues
arising between now and the next one hundred years. If any changes are
required, the Custodian will make the changes to its computer systems or other
equipment at no cost to the Trust and in a commercially reasonable time frame.
13. DEFINITIONS. The following defined terms will have the respective
meanings set forth below.
13.1 ADVANCE shall mean any extension of credit by or through the
Custodian or by or through any Subcustodian and shall include amounts paid to
third parties for account of a particular Fund or in discharge of any expense,
tax or other item payable by suchFund.
13.2 AGENCY ACCOUNT shall mean any deposit account opened on the books of
a Subcustodian or other banking institution in accordance with Section 7.1.
13.3 AGENT shall have the meaning set forth in the last sentence of
Section 6.
13.4 APPLICABLE LAW shall mean with respect to each jurisdiction, all (a)
laws, statutes, treaties, regulations, guidelines (or their equivalents); (b)
orders, interpretations licenses and permits; and (c) judgments, decrees,
injunctions writs, orders and similar actions by a court of competent
jurisdiction; compliance with which is required or customarily observed in such
jurisdiction.
13.5 AUTHORIZED PERSON shall mean any person or entity authorized to give
Instructions on behalf of the Fund in accordance with Section 4.1.
13.6 BOOK-ENTRY AGENT shall mean an entity acting as agent for the issuer
of Investments for purposes of recording ownership or similar entitlement to
Investments, including without limitation a transfer agent or registrar.
13.7 CLEARING CORPORATION shall mean any entity or system established for
purposes of providing securities settlement and movement and associated
functions for a given market.
13.8 COUNTRY RISK shall have the meaning set forth in Section 9.1 hereof.
13.9 DELEGATION AGREEMENT shall mean any separate agreement entered into
between the Custodian and the Trust or its authorized representative with
respect to certain matters concerning the appointment and administration of
Subcustodians delegated to the Custodian pursuant to Rule 17f-5.
13.10 FORCE MAJEURE shall have the meaning set forth in Section 9.1
hereof
<PAGE>
13.11 FOREIGN CUSTODY MANAGER shall mean the Trust's foreign custody
manager appointed pursuant to Rule 17f-5 of the 1940 Act.
13.12 FUNDS TRANSFER SERVICES AGREEMENT shall mean any separate agreement
entered into between the Custodian and the Fund or its authorized representative
with respect to certain matters concerning the processing of payment orders from
Principal Accounts of the Fund.
13.13 INSTRUCTION(S) shall have the meaning assigned in Section 4.
13.14 INVESTMENT ADVISOR shall mean Morgan Grenfell Investment Services,
Morgan Grenfell Capital Management or any other person or entity who is
authorized to give Instructions with respect to the investment and reinvestment
of aFund's Investments.
13.15 INVESTMENTS shall mean any investment asset of aFund, including
without limitation securities, bonds, notes, and debentures as well as
receivables, derivatives, contractual rights or entitlements and other
intangible assets.
13.16 MARGIN ACCOUNT shall have the meaning set forth in Section 6.4
hereof.
13.17 PRINCIPAL ACCOUNT shall mean deposit accounts of the Fund carried
on the books of BBH&Co. as principal in accordance with Section 7.
13.18 SAFEKEEPING ACCOUNT shall mean an account established on the books
of the Custodian or any Subcustodian for purposes of segregating the interests
of aFund (or clients of the Custodian or Subcustodian) from the assets of the
Custodian or any Subcustodian.
13.19 SECURITIES DEPOSITORY shall mean a central or book entry system or
agency established under Applicable Law for purposes of recording the ownership
and/or entitlement to investment securities for a given market.
13.20 SUBCUSTODIAN shall mean each foreign bank appointed by the
Custodian pursuant to Section 8, but shall not include Securities Depositories.
13.21 SOVEREIGN RISK shall have the meaning set forth in Section 9.1
hereof.
13.22 TRI-PARTY AGREEMENT shall have the meaning set forth in Section 6.4
hereof.
13.23 1940 ACT shall mean the Investment Company Act of 1940, as amended.
14. COMPENSATION. Each Fund agrees to pay to the Custodian (a) a fee in an
amount set forth in the fee letter between the Trust and the Custodian in effect
on the date hereof or as amended from time to time, and (b) all out-of-pocket
expenses incurred by the Custodian, including the fees and expenses of all
Subcustodians, and payable from time to time. Amounts payable by the Trust
under and pursuant to this Section 14 shall be payable by wire transfer to the
Custodian at BBH&Co. in New York, New York.
<PAGE>
15. TERMINATION. This Agreement may be terminated by either party in
accordance with the provisions of this Section. The provisions of this
Agreement and any other rights or obligations incurred or accrued by any party
hereto prior to termination of this Agreement shall survive any termination of
this Agreement.
15.1 NOTICE AND EFFECT. This Agreement may be terminated by either
party by written notice effective no sooner than seventy-five days
following the date that notice to such effect shall be delivered to other
party at its address set forth in paragraph 12.5 hereof or such sooner date
as agreed to by the parties.
15.2 SUCCESSOR CUSTODIAN. In the event of the appointment of a
successor custodian, it is agreed that the Investments of the Fund held by
the Custodian or any Subcustodian shall be delivered to the successor
custodian in accordance with reasonable Instructions. The Custodian agrees
to cooperate with the Trust in the execution of documents and performance
of other actions necessary or desirable in order to facilitate the
succession of the new custodian. If no successor custodian shall be
appointed, the Custodian shall in like manner transfer each Fund's
Investments in accordance with Instructions.
15.3 DELAYED SUCCESSION. If no Instruction has been given as of the
effective date of termination, Custodian may at any time on or after such
termination date and upon ten days written notice to the Trust either (a)
deliver the Investments of the Trust held hereunder to the Fund at the
address designated for receipt of notices hereunder; or (b) deliver any
investments held hereunder to a bank or trust company having a
capitalization of $2M USD equivalent and operating under the Applicable Law
of the jurisdiction where such Investments are located, such delivery to be
at the risk of the Trust. In the event that Investments or moneys of the
Fund remain in the custody of the Custodian or its Subcustodians after the
date of termination owing to the failure of the Trust to issue Instructions
with respect to their disposition or owing to the fact that such
disposition could not be accomplished in accordance with such Instructions
despite diligent efforts of the Custodian, the Custodian shall be entitled
to compensation for its services with respect to such Investments and
moneys during such period as the Custodian or its Subcustodians retain
possession of such items and the provisions of this Agreement shall remain
in full force and effect until disposition in accordance with this Section
is accomplished.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed as of the date first above written.
MORGAN GRENFELL INVESTMENT TRUST
By: /s/ Tracie E. Richter
-------------------------------
BROWN BROTHERS HARRIMAN & CO.
By: /s/ Douglas A. Donahue
-------------------------------
<PAGE>
August 24, 1998
APPENDIX "A" TO THE CUSTODIAN AGREEMENT
BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
MORGAN GRENFELL INVESTMENT TRUST
The following are Funds for which the Custodian shall act as custodian under the
terms and conditions of a Custodian Agreement between Brown Brothers Harriman &
Co. and Morgan Grenfell Investment Trust dated August 24, 1998.
Morgan Grenfell International Equity Fund
Morgan Grenfell Global Equity Fund
Morgan Grenfell European Equity Growth Fund
Morgan Grenfell New Asia Fund
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Japanese Small Cap Equity Fund
Morgan Grenfell European Small Cap Equity Fund
Morgan Grenfell Emerging Markets Equity Fund
Morgan Grenfell Core Global Fixed Income Fund
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Emerging Markets Debt Fund
Morgan Grenfell Emerging Local Currency Debt Fund
(collectively, the "International 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 Total Return Bond Fund
Morgan Grenfell High Yield Bond Fund
Morgan Grenfell Smaller Companies Fund
Morgan Grenfell Microcap Fund
Morgan Grenfell Large Cap Growth Fund
(collectively the "Domestic Funds")
<PAGE>
APPENDIX B
COUNTRIES SUBJECT TO THE CONDITION ON THE CUSTODIAN'S LIABILITY AS SET FORTH IN
SECTION 8.3 (1)
CYPRUS
ESTONIA
JAMAICA
LITHUANIA
COSTA RICA
(1) This list of countries is subject to change from time to time. Certain
countries may be removed from this list while new markets may be, in each case
with prospective effect only.
<PAGE>
EXHIBIT (h)(1)
ADMINISTRATION AGREEMENT
MORGAN GRENFELL INVESTMENT TRUST
AGREEMENT made as of the 27th day of August, 1998, by and between MORGAN
GRENFELL INVESTMENT TRUST, a Delaware business trust (the "Trust"), on behalf of
each of the Funds listed on Appendix A hereto, as it may be amended from time to
time (collectively, the "Funds"), and MORGAN GRENFELL CAPITAL MANAGEMENT, INC.,
a Delaware corporation (the "Administrator").
The Trust is an open-end, management investment company, registered under
the Investment Company Act of 1940, as amended (the "1940 Act"). The
Administrator is an investment adviser registered under the Investment Advisers
Act of 1940, as amended.
The Trust desires the Administrator to render administrative services to
the Trust and to arrange for certain other services needed by the Trust, and the
Administrator is willing to render and arrange for such services upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, the parties hereto agree
as follows:
1. ADMINISTRATIVE AND OTHER SERVICES.
(a) Subject to the general supervision of the Board of Trustees of the
Trust, the Administrator will provide certain administrative services to
the Trust, and, at its own expense, shall arrange and contract for transfer
agency and fund accounting services for the Trust as the Trust may require.
Specifically, the Administrator will (i) provide supervision of all aspects
of the Trust's operations not referred to in Section 1 of the current
Investment Management Agreements between the Trust and the Trust's
investment advisers (the "Investment Management Agreement"); (ii) provide
the Trust with personnel to perform such executive, administrative,
accounting and clerical services as are reasonably necessary to provide
effective administration of the Trust; (iii) arrange for, at the Trust's
expense, the preparation for the Trust of all required tax returns; (iv)
arrange for (a) the preparation and submission of reports to existing
shareholders and (b) the periodic updating of the Trust's
<PAGE>
prospectus and statement of additional information and the preparation of
reports filed with the Securities and Exchange Commission and other
regulatory authorities; (v) maintain all of the Trust's records not
required to be maintained by the investment adviser pursuant to the
Investment Advisory Agreement; (vi) provide the Trust with adequate office
space and all necessary office equipment and services, including, without
limitation, telephone service, heat, utilities, stationery supplies and
similar items; and (vii) arrange for transfer agency-related and
shareholder relations services and facilities and the services of one or
more of its employees or officers, or employees or officers of its
affiliates, relating to such functions (including salaries and benefits,
office space and supplies, equipment and teaching).
(b) The Administrator shall engage: (i) a transfer agent registered as such
with the Securities and Exchange Commission to serve as the Trust's
transfer agent; and (ii) a fund accounting agent to provide fund accounting
services to the Trust, and shall supervise the services provided by them.
(c) The Administrator will also provide to the Trust's Board of
Trustees such periodic and special reports as the Board may reasonably
request, including but not limited to reports concerning the services of
the administrator, custodian, and fund accounting and transfer agents. The
Administrator shall for all purposes herein be deemed to be an independent
contractor and shall, except as otherwise expressly provided or authorized,
have no authority to act for or represent the Trust in any way or otherwise
be deemed an agent of the Trust.
(d) The Administrator will notify the Trust of any change in its
membership within a reasonable time after such change.
(e) The services hereunder are not deemed exclusive and the
Administrator shall be free to render similar services to others so long as
its services under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES. Except as otherwise provided in
Section 1 above and this Section 2, the Administrator will pay all costs it
incurs in connection with the performance of its duties under Section 1 of
this Agreement. The Administrator will pay the compensation and expenses
of all of its personnel and will make available, without expense to the
Trust, the services of such of its partners, officers and employees as may
duly be elected officers or Trustees of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. The
Administrator shall also pay the fees of the transfer agent
<PAGE>
and fund accounting agent engaged by it (other than such entities
out-of-pocket charges). The Administrator will not be required to pay any
expenses of the Trust other than those specifically allocated to the
Administrator in this Section 2. In particular, but without limiting the
generality of the foregoing, the Administrator will not be required to pay:
(i) fees and expenses of any investment adviser of the Trust;
(ii) organizational expenses of the Trust; (iii) fees and expenses incurred
by the Trust in connection with membership in investment company
organizations; (iv) brokers' commissions, transfer taxes, fees and other
expenses connected with the acquisition, disposition and valuation of
securities and other investments; (v) fees and charges for portfolio
pricing services to a pricing agent, if any; (vi) outside legal, accounting
or auditing expenses; (vii) interest, insurance premiums, taxes or
governmental fees; (viii) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Trust's
business; (ix) the cost of preparing stock certificates or any other
expenses, including, without limitation, clerical expenses of issue,
redemption or repurchase of shares of the Trust; (x) the expenses of and
fees for registering or qualifying shares of the Trust for sale and of
maintaining the registration of the Trust and registering the Trust as a
broker or a dealer, if applicable; (xi) the fees and expenses of Trustees
of the Trust who are not affiliated with the Administrator; (xii) the cost
of typesetting, printing and distributing reports and notices to
shareholders, the Securities and Exchange Commission and other regulatory
authorities; (xiii) any direct charges to shareholders approved by the
Board of Trustees of the Trust; or (xiv) costs in connection with annual or
special meetings of shareholders, including proxy material preparation,
printing and mailing. The Administrator shall not be required to pay
expenses of activities which are primarily intended to result in sales of
shares of the Trust.
3. COMPENSATION OF THE ADMINISTRATOR.
(a) For all services to be rendered and payments made as provided in
Sections 1 and 2 hereof, the Trust will cause each Fund to pay the
Administrator on the last day of each month a fee at an annual rate
equal to a percentage of the average daily net assets of such Fund as
set forth in APPENDIX A hereto. The "average daily net assets" of a
Fund shall be determined on the basis set forth in the Trust's
prospectus or otherwise consistent with the 1940 Act and the
regulations promulgated thereunder.
(b) In addition to the foregoing, the Administrator may from time to time
agree not to impose all or a portion of its fee otherwise payable
hereunder (in advance of the time such fee or portion thereof would
otherwise accrue) and/or undertake to pay or reimburse the Trust for
all or a portion of its expenses not otherwise required to be borne
<PAGE>
or reimbursed by the Administrator. Any such fee reduction or
undertaking may be discontinued or modified by the Administrator at
any time.
4. OTHER INTERESTS. It is understood that the Trustees and officers of the
Trust and shareholders of the Funds are or may be or become interested in
the Administrator as directors, officers, employees, shareholders or
otherwise and that directors, officers, employees and shareholders of the
Administrator are or may be or become similarly interested in the Funds,
and that the Administrator may be or become interested in the Funds as
shareholder or otherwise. It is also understood that directors, officers,
employees and shareholders of the Administrator may be or become interested
(as directors, trustees, officers, employees, stockholders or otherwise) in
other companies or entities (including, without limitation, other
investment companies) controlling, controlled by or under common control
with the Administrator or which the Administrator may in the future
organize, sponsor or acquire, or with which it may merge or consolidate,
and which may include the words "Morgan Grenfell" or any combination or
derivation thereof as part of their name, and that the Administrator or its
affiliates may enter into advisory or management or administration
agreements or other contracts or relationships with such other companies or
entities.
5. SUB-ADMINISTRATORS. The Administrator may employ, at its own expense, one
or more sub-administrators from time to time to perform such of the acts
and services of the Administrator and upon such terms and conditions as may
be agreed upon between the Administrator and such sub-administrators and
approved by the Board of Trustees of the Trust.
6. LIMITATION OF LIABILITY OF ADMINISTRATOR AND TRUST. The Administrator
shall not be liable for any error of judgment (including the selection,
appointment and retention of the Trust's transfer agent or fund accounting
agent) or mistake of law or for any loss suffered by the Trust in
connection with the matters to which this Agreement relates or loss arising
from the acts, omissions, errors or delays of the Trust's transfer agent or
fund accounting agent, except a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties
or from reckless disregard by the Administrator of its obligations and
duties under this Agreement. Any person, even though also employed by the
Administrator, who may be or become an employee of and paid by the Trust
shall be deemed, when acting within the scope of his employment by the
Trust, to be acting in such employment solely for the Trust and not as its
employee or agent. It is understood and expressly stipulated that none of
the trustees or shareholders of the Trust shall be personally liable
hereunder. None of the trustees, officers, agents or shareholders of the
Trust assume any personal liability for obligations entered into on behalf
of the Trust. All persons dealing
<PAGE>
with the Trust must look solely to the property of the Trust for the
enforcement of any claims against the Trust. No Fund shall be liable for
any claims against any other Fund of the Trust.
7. NAME OF THE TRUST. The Trust hereby agrees that in the event that neither
the Administrator nor any of its affiliates acts as the administrator or
investment adviser to the Trust, the name of the Trust and the Funds will
be changed to one that does not contain the name "Morgan Grenfell" or
otherwise suggest an affiliation with the Administrator.
8. CERTAIN DEFINITIONS. The terms "assignment" and "interested persons" when
used herein shall have the respective meanings specified in the Investment
Company Act of 1940, as amended, as now in effect or as hereafter amended
subject however, to such exemptions as may be granted by the Securities and
Exchange Commission by any rule, regulation or order.
9. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall become
effective on the date hereof. Unless terminated as herein provided, this
Agreement shall remain in full force and effect for two years from the date
hereof and shall continue in full force and effect for successive periods
of one year thereafter, but only so long as such continuance is
specifically approved at least annually by the vote of a majority of the
Board of Trustees of the Trust. This Agreement may, on 60 days' written
notice to the other party, be terminated at any time without the payment of
any penalty by the Trust or by the Administrator.
10. AMENDMENT OF THIS AGREEMENT. No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. MISCELLANEOUS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect. This Agreement
may be executed simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
13. YEAR 2000. The Administrator will take reasonable steps to ensure that its
computer, systems or other equipment it will use to provide services under
this Agreement reflect the available state of the art technology to offer
services that
<PAGE>
are Year 2000 compliant, including, but not limited to, century recognition
of dates, calculations that correctly compute same century and
multi-century formulas and date values, and interface values that reflect
the date issues arising between now and the next one hundred years. If any
changes are required, the Administrator will make the changes to its
computer, systems or other equipment at no cost to the Trust and in a
commercially reasonable time frame.
14. CONVERSION TO THE EURO. The Administrator will take reasonable steps to
ensure that it has in place a euro conversion plan reasonably designed to
enable it to perform its obligations without interruption or error due to
the conversion of European currencies to the euro beginning on January 1,
1999. If any changes are required, the Administrator will make the changes
to its computer, systems or other equipment at no cost to the Trust and in
a commercially reasonable time frame.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
MORGAN GRENFELL INVESTMENT TRUST
on behalf of each Fund listed on
Appendix A
By: /s/ Joan A. Binstock
-----------------------------------
Joan A. Binstock, Secretary
MORGAN GRENFELL CAPITAL
MANAGEMENT, INC.
By: /s/ James E. Minnick
-----------------------------------
James E. Minnick, President
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
Annual
Administration
Fund
Fee Rate
--------
<S> <C>
Domestic Fixed Income
- ---------------------
Municipal Bond Fund 12 bp
Short-Term Municipal Bond Fund 12 bp
Fixed Income Fund 12 bp
Short-Term Fixed Income Fund 12 bp
High Yield Bond Fund 12 bp
Domestic Equity
- ---------------
Microcap Fund 22 bp
Smaller Companies Fund 22 bp
Large Cap Growth Fund 22 bp
International Fixed Income
- --------------------------
International Fixed Income Fund 25 bp
Global Fixed Income Fund 25 bp
Emerging Markets Debt Fund 25 bp
Total Return Bond Fund 25 bp
Core Global Fixed Income Fund 25 bp
Local Currency Debt Fund 25 bp
International Equity
- --------------------
Emerging Markets Equity Fund 30 bp
International Equity Fund 30 bp
European Small Cap Equity Fund 30 bp
European Equity Growth Fund 30 bp
International Small Cap Equity Fund 30 bp
New Asia Fund 30 bp
Japanese Small Cap Equity Fund 30 bp
Global Equity Fund 30 bp
</TABLE>
<PAGE>
EXHIBIT (h)(4)
ACCOUNTING AGENCY AGREEMENT
THIS ACCOUNTING AGENCY AGREEMENT is made as of this 8th day of
September, 1998 by and between BROWN BROTHERS HARRIMAN & CO., a limited
partnership organized under the laws of the State of New York (the
"Accounting Agent"), and MORGAN GRENFELL INVESTMENT TRUST (the "Trust"), a
Delaware business trust, on behalf of each of the portfolios listed on
Appendix "A" (each a "Fund"), as amended from time to time, and MORGAN
GRENFELL CAPITAL MANAGEMENT INCORPORATED (the "Administrator"), a Delaware
corporation.
WHEREAS, the Trust is registered as a management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust has appointed the Accounting Agent as custodian of the
Trust's assets pursuant to a Custodian Agreement dated 8/24/98 (the
"Custodian Agreement") and
WHEREAS, the Trust desires to retain the Accounting Agent to render certain
fund accounting services to each Fund, and the Accounting Agent is willing to
render such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. EMPLOYMENT OF ACCOUNTING AGENT. The Trust hereby employs and
<PAGE>
appoints the Accounting Agent to act as each Fund's accounting agent on the
terms set forth in this Agreement, and the Accounting Agent accepts such
appointment.
2. DELIVERY OF DOCUMENTS. The Trust will (i) provide the Accounting
Agent with such documents or resolutions (including but not limited to
directions or resolutions of the Trust's Board of Trustees) which relate to or
affect the Accounting Agent's performance of its duties hereunder or which the
Accounting Agent may reasonably request; and (ii) notify the Accounting Agent
promptly of any matter which the Trust reasonably believes may affect the
performance by the Accounting Agent of its services under this Agreement.
3. DUTIES AS ACCOUNTING AGENT. - Subject to the supervision and direction
of the Board of Trustees and the Administrator, the Accounting Agent will
perform the following services:
(1) Serve as recordkeeper and net asset value calculation agent
responsible for performing those functions as set forth in
Section 4 below; and
(2) Create, maintain and retain such records relating to its
obligations under this Agreement as are required under the 1940
Act (including Section 31 thereof and Rules 31a-1 and 31a-2
thereunder).
4. CALCULATION OF NET ASSET VALUE - The Accounting Agent shall compute
and determine the net asset value per share of each Fund as of the close of
business on the New York Stock Exchange on each day on which such Exchange is
open, unless otherwise directed by Proper Instructions. Such computation and
determination shall be made in accordance with (1) the provisions of the
Trust's Agreement and
<PAGE>
Declaration of Trust and By-Laws, as they may from time to time be amended and
delivered to the Accounting Agent, (2) the votes of the Board of Trustees of the
Trust at the time in force and applicable, as they may from time to time be
delivered to the Accounting Agent, and (3) Proper Instructions. On each day
that the Accounting Agent shall compute the net asset value per share of a Fund,
the Accounting Agent shall provide the Fund's Adviser with written reports which
the Adviser will use to verify that portfolio transactions have been recorded
in accordance with the Fund's instructions and are reconciled with the Fund's
trading records.
In computing the net asset value of a Fund, the Accounting Agent may rely
upon any information furnished by Proper Instructions, including without
limitation any information (1) as to accrual of liabilities of the Fund and as
to liabilities of the Fund not appearing on the books of account kept by the
Accounting Agent, (2) as to the existence, status and proper treatment of
reserves, if any, authorized by the Fund, (3) as to the sources of quotations to
be used in computing the net asset value, including those listed in Appendix B,
(4) as to the fair value to be assigned to any securities or other property for
which price quotations are not readily available, and (5) as to the sources of
information with respect to "corporate actions" affecting portfolio securities
of the Fund, including those listed in Appendix B. (Information as to "corporate
actions" shall include information as to dividends, distributions, stock splits,
stock dividends, rights offerings, conversions, exchanges, recapitalizations,
mergers, redemptions, calls, maturity dates and similar transactions, including
the ex- and record dates and the amounts or other terms thereof.) The Fund or
the Administrator may instruct the Accounting Agent to utilize a particular
source for the valuation of a specific security or other property held by a Fund
and the Accounting Agent shall be protected in utilizing the valuation provided
by such source without further inquiry in order to effect calculation of the
Fund's net asset value. Notwithstanding anything in this Agreement to the
contrary, the Accounting Agent shall not be responsible for the failure of a
Fund,
<PAGE>
the Administrator or the Fund's Adviser to provide the Accounting Agent with
Proper Instructions regarding liabilities which ought to be included in the
calculation of the Fund's net asset value.
In like manner, the Accounting Agent shall compute and determine the net
asset value of a Fund as of such other times as the Board of Trustees of the
Trust from time to time may reasonably request.
The Accounting Agent shall not be held accountable or liable to a
Fund, any shareholder or former shareholder thereof, the Administrator or any
other person for any delays or losses, damages or expenses any of them may
suffer or incur resulting from (1) the Accounting Agent's failure to receive
timely and suitable (i) notification concerning quotations or corporate actions
relating to or affecting portfolio securities of the Fund, (ii) relevant
information known to the Fund, the Administrator or the Fund's Adviser which
would impact the calculation of net asset value but which is not communicated by
the Fund, the Administrator or the Adviser to the Accounting Agent or (2) any
errors in the computation of the net asset value based upon or arising out of
quotations or information as to corporate actions if received by the Accounting
Agent (i) from a source which the Accounting Agent was authorized pursuant to
this Agreement to rely upon including those sources listed on Appendix B hereto,
(ii) from a source which in the Accounting Agent's reasonable judgment was as
reliable a source for such quotations or information as the sources authorized
on the attached Appendix B
5. EXPENSES AND COMPENSATION. For the services to be rendered and the
facilities to be furnished by the Accounting Agent as provided for in this
Agreement, the Administrator on behalf of the Fund, shall pay the Accounting
Agent for its services rendered pursuant to this Agreement an accounting fee
based on such fee schedule as may from time to time be agreed upon in writing by
the Administrator and the
<PAGE>
Accounting Agent. In the event that the Administrator ceases to act as the
administrator to a Fund, such Fund shall pay the Accounting Agent such
accounting fee. In addition to accounting fees, the Accounting Agent shall bill
the Fund separately for any out-of-pocket disbursements of the Accounting Agent.
Out-of-pocket disbursements shall include, but shall not be limited to, postage,
including courier services; telephone; telecommunications; printing, duplicating
and photocopying charges; forms and supplies; filing fees; legal expenses; and
travel expenses. The foregoing fees and disbursements shall be billed to the
Fund by the Accounting Agent and shall be paid promptly by wire transfer or
other appropriate means to the Accounting Agent.
6. STANDARD OF CARE. The Accounting Agent shall be held only to the
exercise of reasonable care and diligence in carrying out the provisions of this
Agreement, provided that the Accounting Agent shall not thereby be required to
take any action which is in contravention of any applicable law, rule or
regulation or any order or judgment of any court of competent jurisdiction.
7. LIMITATION OF LIABILITY. (a) No party to this Agreement shall
incur any liability with respect to any telecommunications failures of
third-party providers, equipment or power failures of third-party providers, or
any failures to perform or delays in performance by postal or courier services
or other third-party information providers. No party to this Agreement shall
incur any liability under this Agreement if a party or any agent or entity
utilized by a party shall be prevented, forbidden or delayed from performing, or
omits to perform, any act or thing which this Agreement provides shall be
performed or omitted to be performed, by reason of (i) an act of God, (ii)
accident, fire, water damage or explosion, (iii) any computer, system or other
equipment failure or malfunction caused by any computer virus, or the
malfunction or
<PAGE>
failure of any communications medium caused by an event beyond the reasonable
control of the non-performing party, (iv) any interruption of the power supply
or other utility service, (v) any strike or other stoppage, whether partial or
total, (vi) any provision of any present or future law, regulation or order of
the United States or any state thereof, or of any foreign country or political
subdivision thereof, (vii) any act of war, terrorism, insurrection or
revolution; or other similar act or event beyond the party's control.
(b) Notwithstanding any other provision of this Agreement, no party
to this Agreement (the "Performing Party") shall be held accountable or liable
for any losses, damages or expenses to the other parties including a Fund or any
shareholder or former shareholder of a Fund or any other person may suffer or
incur, arising from acts, omissions, errors or delays of the Performing Party in
the performance of its obligations and duties hereunder, except a damage, loss
or expense resulting from the Performing Party's willful malfeasance, bad faith
or negligence in the performance of such obligations and duties. A Performing
Party shall in no event be required to take any action which is in contravention
of any applicable law, rule or regulation or any order or judgment of any court
of competent jurisdiction. Each Performing Party hereby agrees to indemnify the
other Performing Parties to this Agreement against and hold them harmless from
any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any act, omission, error or
delay or any claim, demand, action or suit, in connection with or arising out of
performance of the Performing Party's obligations and duties under this
Agreement, not resulting from the willful malfeasance, bad faith or negligence
of such other performing party in the performance of such obligations and
duties.
In the event of an act, omission, error or delay which leads to losses,
costs or expenses to the Trust or a Fund for which a Performing Party may be
liable, the Trust, the applicable Fund, the Administrator and the Accounting
Agent will consult and
<PAGE>
make good faith efforts to reach agreement on what actions should be taken in
order to mitigate any loss suffered by the Trust or such Fund or its present or
former shareholders, in order that the Performing Party's exposure to liability
shall be reduced to the extent possible after taking into account all relevant
factors and alternatives. It is understood that in attempting to reach agreement
on the actions to be taken or the amount of the loss, the Trust, the applicable
Fund, the Administrator and the Accounting Agent will consider such relevant
factors as the amount of the loss involved, the Fund's desire to avoid loss of
shareholder good will, and the appropriateness of limiting or eliminating the
benefit which shareholders or former shareholders might have obtained by reason
of the error.
(c) Notwithstanding anything else in this Agreement to the contrary,
the Performing Party's entire liability to any other party to this Agreement for
any loss or damage arising or resulting from its performance hereunder or for
any other cause whatsoever, and regardless of the form of action, shall be
limited to the other party's actual and direct out-of-pocket expenses and losses
which are incurred by such party. In no event and under no circumstances shall
the Accounting Agent, the Administrator, the Trust or a Fund be held liable to
the other party for consequential or indirect damages, loss of profits, damage
to reputation or business or any other special damages arising under or by
reason of any provision of this Agreement or for any act or omission hereunder.
8. RELIANCE BY THE ACCOUNTING AGENT ON PROPER INSTRUCTIONS AND OPINIONS
OF COUNSEL AND OPINIONS OF A FUND'S TREASURER. (a) The Accounting Agent
shall not be liable for, and shall be indemnified by each Fund against any and
all losses, costs, damages or expenses arising from or as a result of, any
action taken or omitted in reliance upon Proper Instructions believed by it to
be genuine and signed or authorized by the proper party or parties.
Proper Instructions shall include a written request, direction, instruction
or
<PAGE>
certification signed or initialed on behalf of a Fund by one or more persons as
the Board of Trustees of the Fund shall have from time to time authorized. Those
persons authorized to give Proper Instructions may be identified by the Board of
Trustees by name, title or position and will include at least one officer
empowered by the Board to name other individuals who are authorized to give
Proper Instructions on behalf of the Fund. Telephonic or other
oral instructions or instructions given by telefax transmission may be given by
any one of the above persons and will also be considered Proper Instructions if
the Accounting Agent believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved.
With respect to telefax transmissions, each Fund hereby acknowledges that
(i) receipt of legible instructions cannot be assured, (ii) the Accounting Agent
cannot verify that authorized signatures on telefax instructions are original,
and (iii) the Accounting Agent shall not be responsible for losses or expenses
incurred through actions taken in reliance on such telefax instructions provided
that the Accounting Agent believes such instructions to have been given by a
person authorized to give such instructions with respect to the transaction
involved and such instructions are legible. The Accounting Agent shall notify
the Fund if it receives instructions which are not legible and shall not act
until it receives legible instructions. Each Fund agrees that such telefax
instructions shall be conclusive evidence of the Fund's Proper Instruction to
the Accounting Agent to act or to omit to act.
Proper Instructions given orally will be confirmed by written instructions
in the manner set forth above, including by telefax, but the lack of such
confirmation shall in no way affect any action taken by the Accounting Agent in
reliance upon such oral instructions. Each Fund authorizes the Accounting Agent
to tape record any and all telephonic or other oral instructions given to the
Accounting Agent by or on behalf of the Fund (including any of its officers,
Trustees, employees or agents or any investment
<PAGE>
manager or the Administrator or an adviser or person or entity with similar
responsibilities which is authorized to give Proper Instructions on behalf of
the Fund to the Accounting Agent.)
(b) The Accounting Agent may consult with its own counsel in any
case where so doing appears to the Accounting Agent to be necessary or
desirable. The Accounting Agent may consult with a Fund's counsel only after
obtaining permission to do so from the Administrator or a Fund's Adviser. The
Accounting Agent shall not be considered to have engaged in any misconduct or to
have acted negligently and shall be without liability in acting upon the advice
of counsel of the Fund, provided the Administrator or a Fund's Adviser has
instructed the Accounting Agent to rely on such Fund counsel's advice.
(c) The Accounting Agent may consult with a certified public
accountant or the Fund's Treasurer in any case where so doing appears to the
Accounting Agent to be necessary or desirable. The Accounting Agent shall not
be considered to have engaged in any misconduct or to have acted negligently and
shall be without liability in acting upon the advice of the Fund's Treasurer.
9. TERMINATION OF AGREEMENT. (a) This Agreement shall continue in
full force and effect until terminated by the Accounting Agent, the
Administrator, the Trust or a Fund by an instrument in writing delivered or
mailed, postage prepaid, to the other party, such termination to take effect not
sooner than ninety (90) days after the date of such delivery or mailing unless a
shorter period is agreed by the parties. In the event a termination notice is
given by the Administrator, the Trust or a Fund all expenses associated with the
movement of records and materials and the conversion thereof shall be paid by
the Fund for which services shall cease to be performed hereunder, other than
expenses associated with a termination by the Administrator, the Trust or the
Fund due to a default of the Accounting Agent under Section 8(b) of this
<PAGE>
Agreement. In the event a termination notice is given by the Accounting Agent,
all expenses associated with the movement of records and materials and the
conversion thereof shall be paid by the Accounting Agent, other than expenses
associated with a termination by the Accounting Agent due to a default by the
Administrator, the Trust or a Fund under Section 8(b) of this Agreement. The
Accounting Agent shall be responsible for completing all actions in progress
when such termination notice is given unless otherwise agreed.
Notwithstanding anything in the foregoing provisions of this clause, if it
appears impracticable in the circumstances to effect an orderly delivery of the
necessary and appropriate records of the Accounting Agent to a successor within
the time specified in the notice of termination as aforesaid, the Accounting
Agent and the Fund agree that this Agreement shall remain in full force and
effect for such reasonable period as may be required to complete necessary
arrangements with a successor and as agreed to by the parties.
(b) If a party hereto shall fail to perform its duties and
obligations hereunder (a "Defaulting Party") resulting in material loss to
another party ("the "Non-Defaulting Party"), the Non-Defaulting Party may give
written notice thereof to the Defaulting Party, and if such material breach
shall not have been remedied within thirty (30) days after such written notice
is given, then the Non-Defaulting Party may terminate this Agreement by giving
thirty (30) days' written notice of such termination to the Defaulting Party.
If the Accounting Agent is the Non-Defaulting Party, its termination of this
Agreement shall not constitute a waiver of any other rights or remedies of the
Accounting Agent with respect to payment for services performed prior to such
termination or rights of the Accounting Agent to be reimbursed for out-of-pocket
expenses. In all cases, termination by the Non-Defaulting Party shall not
constitute a waiver by the Non-Defaulting Party of any other rights it might
have under this Agreement or otherwise against the Defaulting Party.
<PAGE>
10. AMENDMENT OF THIS AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof. No provision of this Agreement may be amended or terminated
except by a statement in writing signed by the party against which enforcement
of the amendment or termination is sought.
In connection with the operation of this Agreement, the Trust, the
Administrator and the Accounting Agent may agree in writing from time to time
on such provisions interpretive of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Agreement.
In the event any provision of this Agreement is determined to be void or
unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
The section headings and the use of defined terms in the singular or plural
tenses in this Agreement are for the convenience of the parties and in no way
alter, amend, limit or restrict the contractual obligations of the parties set
forth in this Agreement.
11. GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of the State of New York without giving effect to
conflicts of laws principles.
12. NOTICES. Notices and other writings delivered or mailed postage
prepaid to the Administrator, the Trust or a Fund addressed to the
Administrator, the Trust or a Fund at Morgan Grenfell Investment Trust c/o
Morgan Grenfell Capital
<PAGE>
Management Investments, 150 South Independence Sq-West Philadelphia, PA 19106 or
to such other address as the Administrator, the Trust or a Fund may have
designated to the Accounting Agent in writing, or to the Accounting Agent at 40
Water Street, Boston, MA 02109, Attention: Manager, Fund Accounting Department,
or to such other address as the Accounting Agent may have designated to the Fund
in writing, shall be deemed to have been properly delivered or given hereunder
to the respective addressee.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Administrator, the Trust, each Fund and the Accounting Agent
and their respective successors and assigns, provided that no party hereto may
assign this Agreement or any of its rights or obligations hereunder without the
written consent of the other party.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument. This Agreement
shall become effective when one or more counterparts have been signed and
delivered by each of the parties.
15. EXCLUSIVITY. The services furnished by the Accounting Agent
hereunder are not to be deemed exclusive, and the Accounting Agent shall be free
to furnish similar services to others.
16. AUTHORIZATION. The Trust hereby represents and warrants that the
execution and delivery of this Agreement have been authorized by the Trust's
Board of Trustees on behalf of each Fund and that this Agreement has been signed
on behalf of each Fund by an authorized officer of the Trust.
<PAGE>
A copy of the Trust's Declaration of Trust is on file with the Secretary of
State of the State of Delaware and notice is hereby given that this Agreement
has been executed on behalf of the Trust by an officer of the Trust in such
capacity and not individually. It is agreed that obligations of the Trust
hereunder shall not be binding personally upon any of the Trustees,
shareholders, officers, agents or employees of the Trust, but shall be bind only
the trust property as provided in the Declaration of Trust. No Fund of the
Trust shall be liable for the obligations of any other Fund of the Trust. NO
OBLIGATIONS OF THE TRUST THAT RELATE TO A PARTICULAR FUND SHALL BE ATTRIBUTABLE
TO OR AFFECT ANY OTHER FUND OF THE TRUST BUT SHALL ONLY RELATE TO THE PARTICULAR
FUND.
17. INTEGRATION. This Agreement sets forth all of the Accounting Agent's
duties with respect to the calculation of each Fund's net asset value. The
terms (and definitions) of the Custodian Agreement shall apply generally as to
matters not expressly covered in this Agreement.
18. LIMITATION ON THE ADMINISTRATOR'S LIABILITY. The Trust acknowledges
that the Trust, and not the Administrator, is responsible for the selection,
appointment and retention of the Accounting Agent and that the Administrator
shall in no event be liable or responsible to the Trust or a Fund for any
losses, damages or expenses the Trust or a Fund may suffer or incur, arising
from acts, omissions, errors or delays of the Accounting Agent in the
performance of its obligations and duties hereunder except to the extent such
loss, damage or expense is caused by the Administrator's negligent performance
of (or the negligent failure to perform) a duty under this Agreement, or by any
willful misconduct of the Administrator.
19. CONVERSION TO THE EURO. The Accounting Agent will take reasonable
steps to ensure that it has in place a euro conversion plan reasonably designed
to enable it to
<PAGE>
perform its obligations without interruption or error due to the conversion of
European currencies to the euro beginning on January 1, 1999. If any changes
are required, the Accounting Agent will make the changes to its computer,
systems or other equipment at no cost to the Trust and in a commercially
reasonable time frame.
20. YEAR 2000. The Accounting Agent will take reasonable steps to ensure
that its computer, systems or other equipment it will use to provide services
under this Agreement reflect the available state of the art technology to offer
services that are Year 2000 compliant, including, but not limited to, century
recognition of dates, calculations that correctly compute same century and
multi-century formulas and date values, and interface values that reflect the
date issues arising between now and the next one hundred years. If any changes
are require, the Accounting Agent will make the changes to its computer systems
or other equipment at no cost to the Trust and in a commercially reasonable time
frame.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
BROWN BROTHERS HARRIMAN & CO. MORGAN GRENFELL INVESTMENT TRUST, on behalf
of each portfolio listed on Appendix A
By: /s/ Douglas A. Donahue By: /s/ Tracie E. Richter
---------------------------------- -------------------------------
Name: Douglas A. Donahue Name: Tracie E. Richter
------------------- ---------------------
Title: Partner Title: Treasurer
------------------- --------------------
<PAGE>
August 24, 1998
APPENDIX "A" TO THE ACCOUNTING AGENCY AGREEMENT
BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
MORGAN GRENFELL INVESTMENT TRUST
The following are Funds for which the Accounting Agent shall act as accounting
agent under the terms and conditions of an Accounting Agency Agreement between
Brown Brothers Harriman & Co. and Morgan Grenfell Investment Trust dated
August 24, 1998.
Morgan Grenfell International Equity Fund
Morgan Grenfell Global Equity Fund
Morgan Grenfell European Equity Growth Fund (formerly Morgan Grenfell
European Equity Fund)
Morgan Grenfell New Asia Fund (formerly Morgan Grenfell Pacific Basin
Equity Fund)
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Japanese Small Cap Equity Fund
Morgan Grenfell European Small Cap Equity Fund
Morgan Grenfell Emerging Markets Equity Fund
Morgan Grenfell Core Global Fixed Income Fund
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Emerging Markets Debt Fund
Morgan Grenfell Emerging Local Currency Debt Fund
(collectively, the "International 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 Total Return Bond Fund
Morgan Grenfell High Yield Bond Fund
Morgan Grenfell Smaller Companies Fund
Morgan Grenfell Microcap Fund
Morgan Grenfell Large Cap Growth Fund
(collectively the "Domestic Funds")
<PAGE>
APPENDIX B
THE FOLLOWING AUTHORIZED SOURCES ARE TO BE USED FOR PRICING AND FOREIGN EXCHANGE
QUOTATIONS, CORPORATE ACTIONS, DIVIDENDS AND RIGHTS OFFERINGS:
AUTHORIZED SOURCES
BLOOMBERG
EXTEL (LONDON)
FUND MANAGERS
INTERACTIVE DATA CORPORATION
REPUTABLE BROKERS
REUTERS
SUBCUSTODIAN BANKS
TELEKURS
VALORINFORM (GENEVA)
REPUTABLE FINANCIAL PUBLICATIONS
STOCK EXCHANGES
FINANCIAL INFORMATION INC. CARD
JJ KENNY
FRI CORPORATION
MERRILL LYNCH PRICING SERVICE
MULLER
<PAGE>
EXHIBIT (h)(5)
FOREIGN CUSTODY MANAGER DELEGATION AGREEMENT
AGREEMENT made as of this 24th day of August 1998, between Morgan Grenfell
Investment Trust (the "Trust"), a Delaware business trust and a management
investment company registered with the Securities and Exchange Commission (the
"Commission") under the Investment Company Act of 1940, as amended, (the "Act"),
acting through its Board of Trustees or its duly appointed representative on
behalf of each series of the Trust listed on Appendix A or later added to
Appendix A and made a party to this agreement, (each a "Fund"), and BROWN
BROTHERS HARRIMAN & CO., a New York limited partnership with an office in
Boston, Massachusetts (the "Delegate").
WITNESSETH
WHEREAS each Fund has appointed the Delegate as custodian (the "Custodian")
of the Fund's Assets pursuant to a Custodian Agreement dated August 24, 1998
(the "Custodian Agreement");
WHEREAS each Fund may, from time to time, determine to invest and maintain
some or all of each Fund's Assets outside the United States;
WHEREAS the Board of Trustees of the Trust (the "Board") wishes to delegate
to the Delegate certain responsibilities with respect to the custody of each
Fund's Assets outside the United States;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Trust and the Delegate agree as follows. Capitalized
terms shall have the meaning indicated in Section 12 unless otherwise indicated.
1. MAINTENANCE OF FUND'S ASSETS ABROAD. The Trust, acting through its
Board or its duly authorized representative, hereby instructs the Delegate
pursuant to the terms of the Custodian Agreement to place and maintain each
Fund's Assets within
<PAGE>
the countries listed in Schedule 1 attached hereto (as such Schedule may be
amended from time to time in accordance herewith). Such instruction shall be
deemed to include an instruction to use any Compulsory Securities Depository in
any such country and shall represent an Instruction under the terms of the
Custodian Agreement. Countries may be added to Schedule 1 by written
instruction of a Fund that is accepted in writing by the Delegate as an
amendment to Schedule 1. With respect to amendments adding countries to
Schedule 1, each Fund acknowledges that - (a) the Delegate shall perform
services hereunder only with respect to the countries where it provides
custodial services to the Fund under the Custodian Agreement; (b) depending on
conditions in the particular country, advance notice may be required before the
Delegate shall be able to perform its duties hereunder in or with respect to
such country (such advance notice to be reasonable in light of the specific
facts and circumstances attendant to performance of duties in such country); and
(c) nothing in this Agreement shall require the Delegate to provide delegated or
custodial services in any country not listed in Schedule 1 until such amended
Schedule 1 has been accepted by the Delegate in accordance herewith. Unless
directed by an Instruction from an Authorized Person, the Delegate shall not
maintain a Fund's Assets in any jurisdiction not listed in Schedule 1.
2. DELEGATION. Pursuant to the provisions of Rule 17f-5 under the Act,
the Board hereby delegates to the Delegate, and the Delegate hereby accepts such
delegation and agrees to perform, only those duties set forth in this Agreement
concerning the safekeeping of each Fund's Assets in each of the countries set
forth in Schedule 1 hereto as amended from time to time. The Delegate is hereby
authorized to take such actions as are reasonably required to discharge its
duties under this Agreement, including, without limitation, to cause a Fund's
Assets to be placed with a particular Eligible Foreign Custodian in accordance
herewith.
3. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS AND CONTRACT ADMINISTRATION.
The Delegate shall perform the following duties with respect to the selection of
Eligible Foreign Custodians and administration of certain contracts governing
each Fund's foreign custodial arrangements:
(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. The Delegate shall place and
<PAGE>
maintain each Fund's Assets with an Eligible Foreign Custodian in each
jurisdiction to which this Agreement applies and as to which it has received an
Instruction to hold Fund's Assets. Before placing the Fund's Assets with an
Eligible Foreign Custodian that is not a Compulsory Securities Depository, the
Delegate shall have determined that each Fund's Assets will be subject to
reasonable care based on the standards applicable to custodians in the relevant
market after considering all factors relevant to the safekeeping of such assets
including without limitation:
(i) The Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical protections
available for certificated securities (if applicable), the controls and
procedures for dealing with any Securities Depository, the method of
keeping custodial records, and the security and data protection practices;
(ii) Whether the Eligible Foreign Custodian has the
requisite financial strength to provide reasonable care for each Fund's
Assets;
(iii) The Eligible Foreign Custodian's general reputation and standing
and, in the case of a Securities Depository, the depository's operating
history and number of participants; and
(iv) Whether each Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian, such as by virtue
of the existence of any offices of such Eligible Foreign Custodian in the
United States or such Eligible Foreign Custodian's appointment of an agent
for service of process in the United States or consent to jurisdiction in
the United States.
Although the Delegate shall place and maintain the Fund's Assets with Compulsory
Securities Depositories upon receipt of Instructions from the Fund's
representatives, the Delegate shall not be responsible for, or liable for any
loss in connection with, the selection of any such Depository.
(b) CONTRACT ADMINISTRATION. For each Eligible Foreign Custodian selected
by the Delegate pursuant to Section 3, the Delegate shall (or in the case of a
Securities Depository, may, under the rules or established practices or
procedures of the depository) enter into a written contract governing the Fund's
foreign custody
<PAGE>
arrangements. The Delegate shall determine that each such contract (or, in the
case of a Securities Depository that is not a Compulosry Securities Depository,
such a contract, the rules or established practices or procedures of the
depository, or any combination of the foregoing) provides reasonable care for
each Fund's Assets based on the standards applicable to custodians in the
relevant market. Each such contract shall, except as set forth in the last
paragraph of this subsection (b), include provisions that provide:
(i) For indemnification or insurance arrangements (or any
combination of the foregoing) such that each Fund will be adequately
protected against the risk of loss of the Fund's Assets held in accordance
with such contract;
(ii) That each Fund's Assets will not be subject to any right,
charge, security interest, lien or claim of any kind in favor of the
Eligible Foreign Custodian or its creditors except a claim of payment for
their safe custody or administration or, in the case of cash deposits,
liens or rights in favor of creditors of such Eligible Foreign Custodian
arising under bankruptcy, insolvency or similar laws;
(iii) That beneficial ownership of each Fund's Assets will be freely
transferable without the payment of money or value other than for safe
custody or administration;
(iv) That adequate records will be maintained identifying each Fund's
Assets as belonging to each Fund or as being held by a third party for the
benefit of each Fund;
(v) That each Fund's independent public accountants will be given
access to those records described in (iv) above or confirmation of the
contents of such records; and
(vi) That the Delegate will receive sufficient and timely periodic
reports with respect to the safekeeping of each Fund's Assets, including,
but not limited to, notification of any transfer to or from each Fund's
account or a third party account containing each Fund's Assets.
Such contract may contain, in lieu of any or all of the provisions
specified in this Section 3 (b), such other provisions that the Delegate
determines will provide, in their entirety, the same or a greater level of
care and protection for each Fund's Assets as the specified provisions, in
their entirety.
<PAGE>
4. MONITORING. The Delegate shall establish a system to monitor at
reasonable intervals (but at least annually) the initial and continuing
appropriateness of maintaining each Fund's Assets with each Eligible Foreign
Custodian that has been selected by the Delegate pursuant to Section 3 of this
Agreement. The Delegate shall monitor the initial and continuing
appropriateness of placement of each Fund's Assets in accordance with the
criteria established under Section 3(a) of this Agreement. The Delegate shall
monitor the initial and continuing appropriateness of the contracts governing
each Fund's foreign custody arrangements in accordance with the criteria
established under Section 3(b) of this Agreement. The Delegate will provide such
information with regard to Compulsory Securities Depositories as may be
reasonably available to assist the Board in making any determination requisite
under the Rule, with particular attention to matters contained in Section (c)(1)
of the Rule. Additionally, the Delegate shall provide such other information as
it may receive in the course of its providing global custody services within a
market as may be relevant to the Board's determination with respect to
Compulsory Securities Depositories.
5. REPORTING. The Delegate shall provide to the Board and/or the Fund's
investment adviser written reports specifying placement of each Fund's Assets
with each Eligible Foreign Custodian selected by the Delegate pursuant to
Section 3 of this Agreement and shall promptly report as to any material changes
to such foreign custody arrangements with the reports to be provided to the
Board at its regular quarterly meeting next following the event being reported,
unless the Delegate determines that the matter should be reported sooner, in
which case the report shall be made promptly following the occurrence of the
event and directed to the Trust's Secretary for forwarding to the Board. The
Delegate will prepare such a report with respect to any Eligible Foreign
Custodian that the Delegate has been instructed to use pursuant to Section 7
only to the extent specifically agreed to with respect to the particular
situation. The Delegate shall certify, at least annually, to the Board that
each
<PAGE>
Fund's foreign custody arrangements delegated to the Delegate under this
Agreement continue to meet the requirements of Rule 17f-5 under the Act and
shall provide such information regarding the Delegate to enable the Board to
determine that it is reasonable to rely on the Delegate to perform the
responsibilities delegated in this Agreement.
6. WITHDRAWAL OF FUND'S ASSETS. If the Delegate determines that an
arrangement with a specific Eligible Foreign Custodian selected by the Delegate
under Section 3 of this Agreement no longer meets the requirements of said
Section, the Delegate shall withdraw each Fund's Assets from the non-complying
arrangement as soon as reasonably practicable; PROVIDED, however, that if in the
reasonable judgment of the Delegate, such withdrawal would require liquidation
of any of the Fund's Assets or would materially impair the liquidity, value or
other investment characteristics of the Fund's Assets, it shall be the duty of
the Delegate to promptly provide information regarding the particular
circumstances to each Fund's Investment Adviser and to act only in accordance
with Instructions of each Fund or its investment adviser with respect to such
liquidation or other withdrawal.
7. DIRECTION AS TO ELIGIBLE FOREIGN CUSTODIAN. Notwithstanding this
Delegation Agreement, each Fund, acting through its Board, its investment
adviser or its other authorized representative, may direct the Delegate to place
and maintain each Fund's Assets with a particular Eligible Foreign Custodian.
In such event, the Delegate shall be entitled to rely on any such instruction as
an Instruction under the terms of the Custodian Agreement and may limit its
duties under this Delegation Agreement with respect to such arrangement by
describing any such limitations in writing with respect to each particular
instance.
8. STANDARD OF CARE. In carrying out its duties under this Agreement,
the Delegate agrees to exercise reasonable care, prudence and diligence such as
a person having responsibility for safekeeping each Fund's Assets would
exercise. The Delegate agrees to immediately notify the Board and/or a Fund's
investment adviser if, at any time, the Delegate believes it cannot perform, in
accordance with the foregoing standard of care, its duties hereunder generally
or with respect to any jurisdiction
<PAGE>
specified in Schedule 1.
9. REPRESENTATIONS. The Delegate hereby represents and warrants that it
is a U.S. Bank and that this Agreement has been duly authorized, executed and
delivered by the Delegate and is a legal, valid and binding agreement of the
Delegate.
Each Fund hereby represents and warrants that its Board has determined that
it is reasonable to rely on the Delegate to perform the delegated
responsibilities provided for herein and that this Agreement has been duly
authorized, executed and delivered by the Trust on behalf of each Fund and is a
legal, valid and binding agreement of each Fund.
10. EFFECTIVENESS; TERMINATION. This Agreement shall be effective as of
the date on which this Agreement shall have been accepted by the Delegate, as
indicated by the date set forth below the Delegate's signature. This Agreement
may be terminated at any time, without penalty, by written notice from the
terminating party to the non-terminating party. Such termination shall be
effective on the 75th day (or such other period as agreed by the parties)
following the date on which the non-terminating party shall receive the
foregoing notice. The foregoing to the contrary notwithstanding, this Agreement
shall be deemed to have been terminated concurrently with the termination of the
Custodian Agreement.
11. NOTICES. Notices and other communications under this Agreement are to
be made in accordance with the arrangements designated for such purpose under
the Custodian Agreement unless otherwise indicated in a writing referencing this
Agreement and executed by both parties.
12. DEFINITIONS. Capitalized terms in this agreement have the following
meanings:
a. COMPULSORY SECURITIES DEPOSITORY - shall mean a Securities Depository
the use of which is mandatory (i) under applicable law or regulation; (ii)
because securities cannot be withdrawn from the depository; or, (iii)
because maintaining securities outside the Securities Depository is not
consistent with
<PAGE>
local prevailing custodial practices.
b. ELIGIBLE FOREIGN CUSTODIAN - shall have the meaning set forth in Rule
17f-5(a)(1) of the Act and shall also include a U.S. Bank.
c. FUND'S ASSETS - shall mean any of the investments of a Fund (including
foreign currencies) for which the primary market is outside the United
States, and such cash and cash equivalents as are reasonably necessary to
effect each Fund's transactions in such investments.
d. INSTRUCTIONS - shall have the meaning set forth in the Custodian
Agreement.
e. SECURITIES DEPOSITORY - shall have the meaning set forth in Rule
17f-5(a)(6) of the Act.
f. SOVEREIGN RISK - shall have the meaning set forth in Section 9.1 of
the Custodian Agreement.
g. U.S. BANK - shall mean a bank which qualifies to serve as a custodian
of assets of investment companies under Section 17(f) of the Act.
13. GOVERNING LAW AND JURISDICTION. This Agreement shall be construed in
accordance with the federal laws of the United States and, to the extent not
governed thereby, the laws of the State of New York. The parties hereby submit
to the exclusive jurisdiction of the Federal courts sitting in the State of New
York or of the state courts of such State.
14. FEES. The Delegate shall perform its functions under this agreement
for the compensation determined under the Custodian Agreement.
15. INTEGRATION. This Agreement sets forth the Delegate's duties with
respect to the selection and monitoring of Eligible Foreign Custodians, the
administration of contracts with Eligible Foreign Custodians, the withdrawal of
assets from Eligible Foreign Custodians and the issuance of reports in
connection with such
<PAGE>
duties. The terms of the Custodian Agreement shall apply generally as to
matters not expressly covered in this Agreement, including dealings with the
Eligible Foreign Custodians in the course of discharge of the Delegate's
obligations under the Custodian Agreement. If and to the extent that there is
any inconsistency between this Agreement and the Custodian Agreement relating to
the Delegate's duties with respect to the selection and monitoring of Eligible
Foreign Custodians, this Agreement shall prevail.
16. PROVISION OF INFORMATION RELATING TO COUNTRY RISK. In addition to the
delegated duties set forth herein, and with respect to the jurisdictions
listed in Schedule 1, or added thereto pursuant to Section 1, the Delegate
agrees to provide annually to the Board and each Fund's investment adviser,
such information relating to Sovereign Risk, if available, as set forth
below, and agrees to provide, from time to time, written reports to the
Board and each Fund's investment adviser regarding any material change in
such information relating to Sovereign Risk, of which the Delegate becomes
aware. Information relating to Sovereign Risk includes:
COUNTRY INFORMATION
- Settlement Environment
- Depository
- Settlement Period
- Trading
- Security Registration
- Currency
- Foreign Investment Restrictions
- Entitlements
- Proxy Voting
- Foreign Taxation
<PAGE>
DEPOSITORY INFORMATION (IF APPLICABLE TO THE COUNTRY)
- Name
- Information relative to determining compulsory or voluntary status
of the facility
- Information as to the existence and merits of an alternative to a
compulsory facility (including matters relevant to practices with
regard to safekeeping, administration and settlement)
- Operational Capabilities (including rules, practices, procedures or
internal controls)
- Type of Entity
- Ownership Structure
- Operating History and Number of Participants
- Eligible instruments
- Security Form
- Financial Data
- Regulator
- External Auditor
Legal Opinions on the following Legal Questions
- Would the applicable foreign law restrict the access afforded the
independent public accountants of the Fund to books and records
kept by a foreign custodian?
- Would the applicable foreign law restrict the ability of the Fund
to recover it assets in the event of bankruptcy of the foreign
custodian?
- What are the foreseeable difficulties in converting the Fund's cash
into U.S. dollars?
<PAGE>
- The likelihood of expropriation, nationalization, friezes or
confiscation of the Fund's assets.
The Delegate may provide information under this subsection by means of its
regularly established mechanisms for the communication of client market
information. In the provision of information under this Section, the Delegate
shall be responsible to use reasonable care in the gathering of such information
and shall not otherwise be responsible for the completeness or specific accuracy
of such information. In the provision of information under this Section, the
Delegate may rely without limitation on reports and information distributed by
the Compulsory Securities Depository, governmental or regulatory reports and
reports of any auditor of a Compulsory Securities Depository. Provision of
information in accordance with this Section is not offered as financial,
investment or other professional advice.
17. LIMITATION OF LIABILITY. The Delegate shall indemnify and hold the
Fund, its officers, directors, employees or agents (collectively, the
"Indemnified Parties") harmless from and against any and all loss, damage,
liability, actions, suits, claims costs and expenses, including reasonable legal
fees (a "Claim") incurred or suffered by any Indemnified Party resulting from
the negligence, willful misfeasance or bad faith of the Delegate in the
performance of its duties under this Agreement. Notwithstanding the foregoing,
the Delegate shall not be liable for any Claim arising as a result of any acts
of God, earthquakes, fires, floods, storms or other disturbances of nature,
strikes, riots, nationalization, expropriation, currency restrictions, acts of
war, civil war or terrorism, insurrection, the interruption, loss or malfunction
of utilities, transportation or computers and computer facilities, the
unavailability of energy sources and other similar happenings or events.
Nothing in this Section 17shall be deemed to preclude the Fund or any
Indemnified Party from pursuing any rights it may have in law or in equity.
18. MOST FAVORED CLIENT. If at any time the Delegate shall be a party to
an agreement, to serve as a "foreign custody manager" (as defined in Rule
17f-5(a)(2) of the Act) to an investment company, that provides for either (a) a
standard of care with respect to the selection of Eligible Foreign Custodians in
any jurisdiction higher than that set forth in Section 3 of this Agreement or
(ii) a standard of care with respect to the exercise of the Delegate's duties
higher than that set forth in Section 8 of this Agreement, the Delegate agrees
to notify the Trust of this fact and to raise the applicable standard of care
hereunder to the standard specified in such other agreement.
19. DECLARATION OF TRUST. A copy of the Trust's Declaration of Trust is
on file with the Secretary
<PAGE>
of State of the The State of Delaware and notice is hereby given that this
Agreement has been executed on behalf of the Trust by an officer of the Trust in
such capacity and not individually. It is agreed that obligations of the Trust
hereunder shall not be binding personally upon any of the Trustees,
shareholders, officers, agents or employees of the Trust, but shall bind only
the trust property of the Trust as provided in the Declaration of Trust. No
Fund of the Trust shall be liable for the obligations of any other Fund of the
Trust. NO OBLIGATIONS OF THE TRUST THAT RELATE TO A PARTICULAR FUND SHALL BE
ATTRIBUTABLE TO OR AFFECT ANY OTHER FUND OF THE TRUST BUT SHALL ONLY RELATE TO
THE PARTICULAR FUND.
<PAGE>
NOW THEREFORE, each of the parties has caused this Agreement to be executed by
its duly authorized representatives, effective as of the date first above
written.
BROWN BROTHERS HARRIMAN & CO. MORGAN GRENFELL
INVESTMENT TRUST on behalf of
each series of the Trust set forth in
Appendix A
By: /s/ Douglas A. Donahue By: /s/ Tracie E. Richter
------------------------- -------------------------
Name: Name: Tracie E. Richter
------------------- -------------------
Title: Title: Treasurer & CFO
------------------ ------------------
Date: Date: 8/24/98
------------------ ------------------
<PAGE>
APPENDIX "A" TO THE ACCOUNTING AGENCY AGREEMENT
BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
MORGAN GRENFELL INVESTMENT TRUST
The following are Funds for which the Accounting Agent shall act as accounting
agent under the terms and conditions of an Accounting Agency Agreement between
Brown Brothers Harriman & Co. and Morgan Grenfell Investment Trust dated
August 24, 1998.
Morgan Grenfell International Equity Fund
Morgan Grenfell Global Equity Fund
Morgan Grenfell European Equity Growth Fund (formerly
Morgan Grenfell European Equity Fund)
Morgan Grenfell New Asia Fund (formerly Morgan Grenfell
Pacific Basin Equity Fund)
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Japanese Small Cap Equity Fund
Morgan Grenfell European Small Cap Equity Fund
Morgan Grenfell Emerging Markets Equity Fund
Morgan Grenfell Core Global Fixed Income Fund
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Emerging Markets Debt Fund
Morgan Grenfell Emerging Local Currency Debt Fund
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 Total Return Bond Fund
Morgan Grenfell High Yield Bond Fund
Morgan Grenfell Smaller Companies Fund
Morgan Grenfell Microcap Fund
Morgan Grenfell Large Cap Growth Fund
<PAGE>
APPENDIX B
THE FOLLOWING AUTHORIZED SOURCES ARE TO BE USED FOR PRICING AND FOREIGN EXCHANGE
QUOTATIONS, CORPORATE ACTIONS, DIVIDENDS AND RIGHTS OFFERINGS:
AUTHORIZED SOURCES
BLOOMBERG
EXTEL (LONDON)
FUND MANAGERS
INTERACTIVE DATA CORPORATION
REPUTABLE BROKERS
REUTERS
SUBCUSTODIAN BANKS
TELEKURS
VALORINFORM (GENEVA)
REPUTABLE FINANCIAL PUBLICATIONS
STOCK EXCHANGES
FINANCIAL INFORMATION INC. CARD
JJ KENNY
FRI CORPORATION
MERRILL LYNCH PRICING SERVICE
MULLER
<PAGE>
SCHEDULE 1
TO THE MORGAN GRENFELL INVESTMENT TRUST
FOREIGN CUSTODY MANAGER DELEGATION AGREEMENT
AS OF AUGUST 24, 1998
ARGENTINA
AUSTRALIA
AUSTRIA
BANGLADESH
BELGIUM
BOLIVIA
BOTSWANA
BRAZIL
BULGARIA
CANADA
CHILE
CHINA
COLOMBIA
CROATIA
CZECH REPUBLIC
DENMARK
ECUADOR
EGYPT
FINLAND
FRANCE
GERMANY
GREECE
HONG KONG
HUNGARY
INDIA
INDONESIA
IRELAND
ISRAEL
ITALY
JAPAN
JORDAN
KENYA
MALAYSIA
MAURITIUS
MEXICO
MOROCCO
NAMIBIA
<PAGE>
NETHERLANDS
NIGERIA
NORWAY
OMAN
PAKISTAN
PANAMA
PERU
PHILIPPINES
POLAND
PORTUGAL
ROMANIA
RUSSIA
SINGAPORE
SOUTH AFRICA
SOUTH KOREA
SPAIN
SWEDEN
SWITZERLAND
TAIWAN
THAILAND
TURKEY
UNITED KINGDOM
URUGUAY
VENEZUELA
ZAMBIA
