MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
Institutional Shares
885 Third Avenue
New York, New York 10022
February 25, 1998
(Revised March 6, 1998)
Morgan Grenfell Investment Trust (the "Trust") is an open-end management
investment company that includes thirteen distinct investment portfolios that
focus on international investing (the "Funds"). Morgan Grenfell Investment
Services Limited (the "Adviser" or "MGIS"), based in London England, serves as
investment adviser to the Funds. The Funds are designed for long-term investors
seeking to participate in foreign securities markets.
The investment objective of Morgan Grenfell International Equity Fund, Morgan
Grenfell Global Equity Fund, Morgan Grenfell European Equity Fund, Morgan
Grenfell Pacific Basin Equity Fund, Morgan Grenfell International Small Cap
Equity Fund, Morgan Grenfell Japanese Small Cap Equity Fund, Morgan Grenfell
European Small Cap Equity Fund and Morgan Grenfell Emerging Markets Equity Fund
(the "Equity Funds") is to maximize capital appreciation. The investment
objective of Morgan Grenfell Core Global Fixed Income Fund, Morgan Grenfell
Global Fixed Income Fund, Morgan Grenfell International Fixed Income Fund,
Morgan Grenfell Emerging Markets Debt Fund and Morgan Grenfell Emerging Local
Currency Debt Fund (the "Fixed Income Funds") is to maximize total return.
Information concerning investment portfolios of the Trust that focus on U.S.
investments is contained in a separate prospectus that may be obtained by
calling 1-800-550-6426.
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This Prospectus provides information about the Trust and each of the Funds that
investors should know before investing in institutional shares of the Funds.
Investors should carefully read this Prospectus and retain it for future
reference. For investors seeking more detailed information, the Statement of
Additional Information dated February 25, 1998, as amended or supplemented from
time to time, is available upon request without charge by calling the applicable
telephone number listed on the back cover or by writing SEI Financial Services
Company, 1 Freedom Valley Drive, Oaks, Pennsylvania 19456-0100. The Statement of
Additional Information, which is incorporated by reference into this Prospectus,
has been filed with the Securities and Exchange Commission. Not all of the Funds
are available in certain states. Please call 1-800-550-6426 to determine
availability in a particular state.
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INVESTMENTS IN EMERGING MARKETS CAN INVOLVE SIGNIFICANT RISKS, AND MORGAN
GRENFELL EMERGING MARKETS EQUITY FUND, MORGAN GRENFELL EMERGING MARKETS DEBT
FUND AND MORGAN GRENFELL EMERGING LOCAL CURRENCY DEBT FUND ARE DESIGNED FOR
AGGRESSIVE INVESTORS. IN ADDITION, MORGAN GRENFELL EMERGING MARKETS DEBT FUND
AND MORGAN GRENFELL EMERGING LOCAL CURRENCY DEBT FUND INVEST IN LOWER-QUALITY
DEBT SECURITIES (JUNK BONDS), WHICH PRESENT HIGHER RISKS OF UNTIMELY INTEREST
AND PRINCIPAL PAYMENTS, DEFAULT, AND PRICE VOLATILITY THAN HIGHER-QUALITY
SECURITIES, AND MAY PRESENT LIQUIDITY AND VALUATION PROBLEMS.
INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
Each Fund's primary investments are summarized below:
Morgan Grenfell International Equity Fund invests primarily in equity and
equity-related securities of companies in countries other than the United
States.
Morgan Grenfell Global Equity Fund invests primarily in equity and
equity-related securities of companies throughout the world.
Morgan Grenfell European Equity Fund invests primarily in equity and
equity-related securities of companies in Europe.
Morgan Grenfell Pacific Basin Equity Fund invests primarily in equity and
equity-related securities of companies in Pacific Basin countries.
Morgan Grenfell International Small Cap Equity Fund invests primarily in equity
and equity-related securities of small capitalization companies in countries
other than the United States.
Morgan Grenfell Japanese Small Cap Equity Fund invests primarily in equity and
equity-related securities of small capitalization companies in Japan.
Morgan Grenfell European Small Cap Equity Fund invests primarily in equity and
equity-related securities of small capitalization companies in Europe.
Morgan Grenfell Emerging Markets Equity Fund invests primarily in equity and
equity-related securities of companies in countries with emerging securities
markets.
Morgan Grenfell Core Global Fixed Income Fund invests primarily in investment
grade fixed income securities of issuers throughout the world.
Morgan Grenfell Global Fixed Income Fund invests primarily in fixed income
securities of issuers throughout the world.
Morgan Grenfell International Fixed Income Fund invests primarily in fixed
income securities of issuers in countries other than the United States.
Morgan Grenfell Emerging Markets Debt Fund invests primarily in fixed income
securities of issuers in countries with emerging securities markets.
Morgan Grenfell Emerging Local Currency Debt Fund invests primarily in fixed
income securities denominated in currencies of countries with emerging
securities markets.
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<PAGE>
TABLE OF CONTENTS
Page
Expense Information ...................................................... 4
Financial Highlights ..................................................... 6
Introduction to the Funds ................................................ 8
Investment Objectives and Policies ....................................... 11
Description of Securities and Investment Techniques
and Related Risks ................................................. 19
Additional Investment Information ........................................ 33
Management of the Funds .................................................. 35
Purchase of Institutional Shares ......................................... 37
Redemption of Institutional Shares ....................................... 39
Net Asset Value .......................................................... 41
Dividends, Distributions and Taxes ....................................... 42
Organization and Shares of the Trust ..................................... 43
Performance Information .................................................. 45
Appendix A................................................................ 46
Appendix B................................................................ 49
Appendix C................................................................ 54
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<PAGE>
EXPENSE INFORMATION
<TABLE>
<CAPTION>
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International
FUND NAME International Global European Pacific Basin Small Cap
Equity Fund Equity Fund* Equity Fund Equity Fund* Equity Fund
------------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
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Shareholder Transaction
Expenses:
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases............................ None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends....................................... None None None None None
Deferred Sales Charge
Imposed on Redemptions.......................... None None None None None
Exchange Fee.................................... None None None None None
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Annual Fund Operating Expenses
(as a percentage of average net
assets after reduction of advisory fee)
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Advisory fees .................................. 0.70% 0.70% 0.70% 0.70% 1.00%
Other Expenses.................................. 2.09% 0.70% 0.47% 0.70% 0.37%
Reduction of Advisory Fee
and Expense Limitation by Adviser**............ (1.89)% (0.50)% (0.27)% (0.50)% (0.12)%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Fund Operating
Expenses..................................... 0.90% 0.90% 0.90% 0.90% 1.25%
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<CAPTION>
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Japanese European Emerging Core
FUND NAME Small Cap Small Cap Markets Global Fixed Global Fixed
Equity Fund* Equity Fund Equity Fund Income Fund* Income Fund
------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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Shareholder Transaction
Expenses:
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases............................ None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends....................................... None None None None None
Deferred Sales Charge
Imposed on Redemptions.......................... None None None None None
Exchange Fee.................................... None None None None None
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Annual Fund Operating Expenses
(as a percentage of average net
assets after reduction of advisory fee)
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Advisory fees .................................. 1.00% 1.00% 1.00% 0.50% 0.50%
Other Expenses.................................. 0.70% 1.12% 0.44% 0.51% 0.27%
Reduction of Advisory Fee
and Expense Limitation by Adviser **............ (0.45)% (0.87)% (0.19)% (0.46)% (0.17)%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Fund Operating
Expenses..................................... 1.25% 1.25% 1.25% 0.55% 0.60%***
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<CAPTION>
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International Emerging Emerging
FUND NAME Fixed Markets Local Currency
Income Fund Debt Fund Debt Fund*
------------- --------- --------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Shareholder Transaction
Expenses:
- -------------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases............................ None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends....................................... None None None
Deferred Sales Charge
Imposed on Redemptions.......................... None None None
Exchange Fee.................................... None None None
- -------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net
assets after reduction of advisory fee)
- -------------------------------------------------------------------------------------------------
Advisory fees .................................. 0.50% 1.00% 0.60%
Other Expenses.................................. 0.56% 0.47% 0.56%
Reduction of Advisory Fee
and Expense Limitation by Adviser **............ (0.51)% (0.47)% (0.46)%
- -------------------------------------------------------------------------------------------------
Net Fund Operating
Expenses..................................... 0.55%*** 1.00%*** 0.70%
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</TABLE>
* Global Equity Fund, Pacific Basin Equity Fund, Japanese Small Cap Equity Fund,
Core Global Fixed Income Fund and Emerging Local Currency Debt Fund were not
operational during the fiscal year ended October 31, 1997.
** 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 institutional shares of each Fund, on an annual basis, to the
specified percentage of each Fund's assets shown in the above table as Net Fund
Operating Expenses. The above table and the following Example reflect this
voluntary agreement. In its sole discretion, the Advisor may terminate or modify
this voluntary agreement at any time after October 31, 1998. The purpose of this
voluntary agreement is to enhance a Fund's total return during the period when,
because of its smaller size, fixed expenses have a more significant impact on
total return. After giving effect to the Adviser's voluntary agreement, each
Fund's advisory fee is as follows: International Equity Fund 0%, Global Equity
Fund 0.20%, European Equity Fund 0.43%, Pacific Basin Equity Fund 0.20%,
International Small Cap Equity Fund 0.88%, Japanese Small Cap Equity Fund 0.55%,
European Small Cap Equity Fund 0.13%, Emerging Markets Equity Fund 0.81%, Core
Global Fixed Income Fund 0.04%, Global Fixed Income Fund 0.33%, International
Fixed Income Fund 0.09%, Emerging Markets Debt Fund 0.53% and Emerging Local
Currency Debt Fund 0.14% and the Other Expenses of International Equity Fund are
equal to the amount shown in the above table as Net Fund Operating Expenses. If
the Adviser's voluntary agreement were not in effect, the Fund Operating
Expenses for institutional shares of each Fund would be as follows:
International Equity Fund, 2.79%; Global Equity Fund, 1.40%; European Equity
Fund, 1.17%; Pacific Basin Equity Fund, 1.40%; International Small Cap Equity
Fund, 1.37%; Japanese Small Cap Equity Fund, 1.70%; European Small Cap Equity
Fund, 2.12%; Emerging Markets Equity Fund, 1.44%; Core Global Fixed Income Fund
1.01%, Global Fixed Income Fund, 0.77%; International Fixed Income Fund, 1.06%,
Emerging Markets Debt Fund, 1.47% and Emerging Local Currency Debt Fund, 1.16%.
*** Effective January 1, 1998, International Fixed Income Fund and Emerging
Markets Debt Fund reduced the net Fund operating expenses to 0.55% and 1.00%,
respectively. Effective March 6, 1998, Global Fixed Income Fund reduced the net
Fund operating expenses to 0.60%.
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<PAGE>
Example:
Investors in institutional shares would pay the following expenses on a
$1,000(1) investment assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
1 3 5 10
Year Years Years Years
---- ----- ----- -----
Morgan Grenfell International Equity Fund $ 9 $29 $50 $111
Morgan Grenfell Global Equity Fund $ 9 $29 $50 $111
Morgan Grenfell European Equity Fund $ 9 $29 $50 $111
Morgan Grenfell Pacific Basin Equity Fund $ 9 $29 $50 $111
Morgan Grenfell International Small Cap Equity Fund $13 $40 $69 $151
Morgan Grenfell Japanese Small Cap Equity Fund $13 $40 $69 $151
Morgan Grenfell European Small Cap Equity Fund $13 $40 $69 $151
Morgan Grenfell Emerging Markets Equity Fund $13 $40 $69 $151
Morgan Grenfell Global Fixed Income Fund $ 6 $19 $33 $ 75
Morgan Grenfell International Fixed Income Fund $ 6 $18 $31 $ 69
Morgan Grenfell Emerging Markets Debt Fund $10 $32 $55 $122
Morgan Grenfell Emerging Local Currency Debt Fund $ 7 $22 $39 $ 87
Morgan Grenfell Core Global Fixed Income Fund $ 6 $32 $31 $ 69
(1) The minimum initial investment required for institutional shares of each
Fund is $250,000. Exchanges may be made in amounts as low as $50,000. See
"Purchase of Institutional Shares - Exchange Privilege".
The purpose of the Expense Information Table and Example is to assist investors
in understanding the various direct and indirect costs and expenses that an
investment in institutional shares of a Fund will bear. For each Fund other than
Morgan Grenfell Global Equity Fund, Morgan Grenfell Pacific Basin Equity Fund,
Morgan Grenfell Japanese Small Cap Equity Fund, Morgan Grenfell Core Global
Fixed Income Fund and Morgan Grenfell Emerging Local Currency Debt Fund, "Other
Expenses" included in the Expense Information Table and Example are estimates
for the fiscal year ending October 31, 1998 that are based on actual expenses
incurred during the fiscal year ended October 31, 1997. Additionally, the
figures shown for Morgan Grenfell Emerging Markets Debt Fund reflect the
Adviser's voluntary agreement, effective as of March 1, 1997, to limit Fund
Operating Expenses for institutional shares of this Fund to 1.25% of average net
assets. For Morgan Grenfell Global Equity Fund, Morgan Grenfell Pacific Basin
Equity Fund, Morgan Grenfell Japanese Small Cap Equity Fund, Morgan Grenfell
Core Global Fixed Income Fund and Morgan Grenfell Emerging Local Currency Debt
Fund, "Other Expenses" are based on estimated average net assets for the current
fiscal year ending October 31, 1998. If the average net assets of any of these
Funds exceeds the applicable estimate for such year, then that Fund's "Other
Expenses" (as a percentage of average net assets) will be lower than the rate
shown in the table. Conversely, if any of these Funds' average net assets are
lower than the applicable estimate for such year, then that Fund's "Other
Expenses" (as a percentage of net assets) will be higher than the rate shown in
the table.
The Example assumes reinvestment of all dividends and distributions and that the
percentage amounts listed in the Expense Information Table remain the same each
year. If the Adviser were to discontinue its voluntary fee reductions, the
expenses contained in the Example could increase.
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<PAGE>
THE EXAMPLE IS DESIGNED FOR INFORMATION PURPOSES ONLY, AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR RETURN FOR ANY FUND. ACTUAL
EXPENSES AND RETURN VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE
SHOWN. For further information regarding advisory fees and other expenses of the
Funds, see "Management of the Funds."
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FINANCIAL HIGHLIGHTS
Set forth on the following page is selected data for an outstanding
institutional share of each of Morgan Grenfell International Equity Fund, Morgan
Grenfell European Equity Fund, Morgan Grenfell International Small Cap Equity
Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell Emerging
Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
during the period from inception to October 31, 1997. The data set forth below
have been audited by Price Waterhouse LLP, independent accountants, whose report
thereon was unqualified.
The information set forth on the following page should be read in conjunction
with the financial statements and notes thereto which appear in the Statement of
Additional Information. The Statement of Additional Information and the Trust's
annual report, which contains further information about the Funds' performance,
are available free of charge by calling 1-800-550-6426. No information is
presented on the following page for the Funds that had not commenced operations
by October 31, 1997.
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
For an Institutional Share Outstanding Throughout Each Period Ended October 31
Distri-
Net Distri- butions
Net Asset Net Realized butions from
Value Investment and from Net Realized Net Asset Net Assets
Beginning Income / Unrealized Investment Capital Value End Total End of
Year of Period (Loss) Gains/(Losses) Income Gains of Period Return Period (000)
---- --------- ------ -------------- ------ ----- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------
International Equity Fund
- -----------------------------------------------
1997 $11.88 $ 0.16 $ 0.28 $(0.15) $(0.55) $11.62 3.78% $ 4,954
1996 $10.95 $ 0.11 $ 1.25 $(0.43) -- $11.88 12.70% $ 3,423
1995(1)* $10.00 $ 0.08 $ 0.87 -- -- $10.95 9.50% $ 2,738
- -----------------------------------------------
European Equity Fund
- -----------------------------------------------
1997 $10.60 $ 0.25 $ 2.11 $(0.03) $(0.12) $12.81 22.48% $ 39,330
1996(2)* $10.00 $ -- $ 0.60 -- -- $10.60 6.00% $ 17,902
- -----------------------------------------------
International Small Cap Equity Fund
- -----------------------------------------------
1997 $ 9.96 $ 0.10 $(1.12) $(0.13) -- $ 8.81 (10.40)% $ 53,395
1996 $ 9.40 $ 0.03 $ 0.57 $(0.04) -- $ 9.96 6.43% $106,709
1995 $10.35 $ 0.03 $(0.72) $(0.04) $(0.22) $ 9.40 (6.67)% $ 90,917
1994(3)* $10.00 $ 0.02 $ 0.33 -- -- $10.35 3.50% $ 68,798
- -----------------------------------------------
European Small Cap Equity Fund
- -----------------------------------------------
1997 $12.54 $ 0.04 $(0.22) $(0.18) $(0.38) $11.80 (1.47)% $ 9,641
1996 $11.55 $ 0.12 $ 1.03 $(0.12) $(0.04) $12.54 10.06% $ 9,856
1995(4)* $10.00 $ 0.12 $ 1.44 $(0.01) -- $11.55 15.66% $ 9,336
- -----------------------------------------------
Emerging Markets Equity Fund
- -----------------------------------------------
1997 $ 8.80 $(0.03) $(0.85) $(0.01) $(0.22) $ 7.69 (10.31)% $ 94,101
1996 $ 8.11 $ 0.06 $ 0.75 $(0.03) $(0.09) $ 8.80 10.02% $ 88,279
1995 $11.00 $ 0.04 $(2.29) $(0.02) $(0.62) $ 8.11 (21.00)% $ 93,288
1994(5)* $10.00 $(0.01) $ 1.01 -- -- $11.00 10.00% $ 56,892
- -----------------------------------------------
Global Fixed Income Fund
- -----------------------------------------------
1997 $11.26 $ 0.35 $ 0.01 $(0.50) $(0.28) $10.84 3.34% $ 92,180
1996 $10.99 $ 0.59 $ 0.12 $(0.37) $(0.07) $11.26 6.60% $149,917
1995 $ 9.85 $ 0.35 $ 0.99 $(0.20) -- $10.99 13.88% $139,337
1994(6)* $10.00 $ 0.25 $(0.40) -- -- $ 9.85 (1.50)% $ 53,915
- -----------------------------------------------
International Fixed Income Fund
- -----------------------------------------------
1997 $11.30 $ 0.20 $(0.11) $(0.64) $(0.59) $10.16 0.82% $ 27,937
1996 $11.34 $ 0.86 $(0.12) $(0.66) $(0.12) $11.30 6.82% $ 21,155
1995 $ 9.94 $ 0.42 $ 1.03 $(0.05) -- $11.34 14.66% $ 27,603
1994(7)* $10.00 $ 0.29 $(0.35) -- -- $ 9.94 (0.60)% $ 15,238
- -----------------------------------------------
Emerging Markets Debt Fund
- -----------------------------------------------
1997 $13.36 $ 1.05 $ 0.40 $(1.32) $(1.54) $11.95 12.03% $187,455
1996 $10.55 $ 1.21 $ 2.60 $(1.00) -- $13.36 38.42% $102,431
1995 $10.19 $ 0.65 $(0.17) $(0.11) $(0.01) $10.55 4.85% $ 84,438
1994(8)* $10.00 $ 0.13 $ 0.06 -- -- $10.19 1.90% $ 16,248
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<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio of Net
of Investment
Expenses Income (Loss)
Ratio of Net to Average to Average
Ratio of Investment Net Assets Net Assets
Expenses to Income (Loss) (Excluding (Excluding Portfolio Average
Average to Average Expense Expense Turnover Commission
Year Net Assets Net Assets Limitations) Limitations) Rate Rate**
---- ---------- ---------- ------------ ------------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------
International Equity Fund
- -----------------------------------------------
1997 0.90% 0.97% 2.79% (0.92)% 55% $0.0325
1996 0.90% 0.72% 3.59% (1.97)% 39% $0.0221
1995 (1)* 0.90% 1.55% 2.73% (0.28)% 19% N/A
- -----------------------------------------------
European Equity Fund
- -----------------------------------------------
1997 0.90% 1.71% 1.17% 1.44% 45% $0.0381
1996(2)* 0.90% (0.41)% 1.40% (0.91)% 5% $0.0324
- -----------------------------------------------
International Small Cap Equity Fund
- -----------------------------------------------
1997 1.25% 0.16% 1.37% 0.04% 59% $0.0074
1996 1.25% 0.35% 1.38% 0.22% 47% $0.0170
1995 1.25% 0.41% 1.48% 0.18% 62% N/A
1994(3)* 1.25% 0.34% 1.67% (0.08)% 41% N/A
- -----------------------------------------------
European Small Cap Equity Fund
- -----------------------------------------------
1997 1.25% 0.58% 2.12% (0.29)% 44% $0.0656
1996 1.25% 0.96% 2.50% (0.29)% 49% $0.0327
1995(4)* 1.25% 1.25% 2.24% 0.26% 34% N/A
- -----------------------------------------------
Emerging Markets Equity Fund
- -----------------------------------------------
1997 1.25% 0.68% 1.44% 0.49% 94% $0.0006
1996 1.25% 0.63% 1.52% 0.36% 69% $0.0003
1995 1.25% 0.44% 1.55% 0.14% 49% N/A
1994(5)* 1.36% (0.12)% 1.79% (0.55)% 45% N/A
- -----------------------------------------------
Global Fixed Income Fund
- -----------------------------------------------
1997 0.65% 5.30% 0.77% 5.18% 179% N/A
1996 0.75% 5.39% 0.79% 5.35% 223% N/A
1995 0.78% 5.61% 0.87% 5.52% 147% N/A
1994(6)* 0.85% 5.71% 1.28% 5.28% 173% N/A
- -----------------------------------------------
International Fixed Income Fund
- -----------------------------------------------
1997 0.65% 5.00% 1.06% 4.59% 174% N/A
1996 0.75% 5.41% 1.03% 5.13% 235% N/A
1995 0.78% 5.51% 1.15% 5.14% 187% N/A
1994(7)* 0.85% 5.66% 1.42% 5.09% 130% N/A
- -----------------------------------------------
Emerging Markets Debt Fund
- -----------------------------------------------
1997 1.32% 7.15% 1.47% 7.00% 472% N/A
1996 1.50% 10.15% 1.92% 9.73% 227% N/A
1995 1.79% 10.97% 2.05% 10.71% 266% N/A
1994(8)* 1.90% 7.04% 2.60% 6.34% 52% N/A
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</TABLE>
(1) International Equity Fund commenced operations on 5/15/95.
(2) European Equity Fund commenced operations on 9/3/96.
(3) International Small Cap Equity Fund commenced operations on 1/3/94.
(4) European Small Cap Equity Fund commenced operations on 11/1/94.
(5) Emerging Markets Equity Fund commenced operations on 2/2/94.
(6) Global Fixed Income Fund commenced operations on 1/3/94.
(7) International Fixed Income Fund commenced operations on 3/15/94.
(8) Emerging Markets Debt Fund commenced operations on 8/4/94.
* All ratios, excluding total return and portfolio turnover rate for the
period, are annualized.
** Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal
years beginning after September 1, 1995.
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<PAGE>
INTRODUCTION TO THE FUNDS
Morgan Grenfell Investment Trust (the "Trust") offers a number of mutual funds,
each of which is a separate series of the Trust. This Prospectus relates solely
to the Funds. Information regarding the Trust's other mutual funds (the
"Domestic Funds"), which invest primarily in U.S. securities markets, is
contained in a separate prospectus that may be obtained by calling
1-800-550-6426.
Under normal market conditions, the Funds will invest primarily in foreign
securities. Investing primarily in foreign securities and across international
borders presents growth opportunities and potentially higher returns than could
be achieved by investing solely in the United States. International investing
permits participation in the economies of countries with business cycles and
stock and bond market performance often different from that in the United States
and, with more than one-half of the world's stock and bond market value outside
the United States, it can help broaden the investments of a portfolio otherwise
solely invested in domestic securities. International investments also involve
certain risks not normally associated with domestic investments. The Funds are
designed for long-term investors comfortable with the special risk and return
characteristics of investing internationally. See "Description of Securities and
Investment Techniques and Related Risks."
MGIS, a member of the London-based Morgan Grenfell Asset Management, which is a
fully owned subsidiary of Deutsche Morgan Grenfell Group, serves as the
investment adviser to each of the Funds. Morgan Grenfell Asset Management has
been managing international investments for over thirty years and now has over
US$15.5 billion of assets under management. Within the Deutsche Morgan Grenfell
Group, MGIS has specialized in delivering international investment management
services to U.S. investors in both equity and fixed income markets.
This prospectus relates solely to institutional shares of the Funds. The Funds
offer another class of shares (service shares), which is subject to different
expenses and therefore has different performance than institutional shares.
Information regarding service shares may be obtained by calling 1-800-550-6426.
Geographic and Issuer Focus
For purposes of each Fund's investment objective and policies, a company is
considered to be located in a particular country if it (1) is organized under
the laws of that country and has a principal place of business in that country
or (2) derives 50% or more of its total revenues from business in that country.
European Equity Fund, Pacific Basin Equity Fund, Japanese Small Cap Equity Fund
and European Small Cap Equity Fund focus their respective investments in the
particular region or country reflected in their names. In contrast,
International Equity Fund, Global Equity Fund, International Small Cap Equity
Fund, Core Global Fixed Income Fund, Global Fixed Income Fund and International
Fixed Income Fund may spread their investments across world markets.
International Small Cap Equity Fund, Japanese Small Cap Equity Fund and European
Small Cap Equity Fund focus their investments on equity securities of companies
with market capitalizations that are small relative to the market
capitalizations of other issuers in the same market. Each of these Funds has its
own policy regarding what constitutes a small capitalization company. See
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Page 8
<PAGE>
"Investment Objective and Policies." Small capitalization companies may offer
greater opportunities for capital growth than larger, more mature companies, but
investments in small capitalization companies also involve special risks. See
"Description of Securities and Investment Techniques and Related Risks--Small
Capitalization Companies."
Emerging Markets Equity Fund, Emerging Markets Debt Fund and Emerging Local
Currency Debt Fund seek to attain their objectives by focusing on what are, in
the Adviser's view, the most promising markets and companies in the world's
rapidly developing countries. While emerging markets are highly volatile and
subject to change with political or economic developments, they offer the
opportunity for substantial stock market growth.
Each of the Fixed Income Funds is non-diversified under the Investment Company
Act of 1940 (the "1940 Act") and, therefore, may be more susceptible than the
Equity Funds to developments affecting any single issuer of portfolio
securities. See "Description of Securities and Investment Techniques and Related
Risks--Diversification." Each of the Equity Funds is diversified under the 1940
Act.
Certain of the Funds have no operating history and there can be no assurance
that any Fund will achieve its investment objective.
Selection of Portfolio Securities
Equity and Equity-Related Securities. Equity and equity-related securities in
which the Equity Funds may invest include common stock, preferred stock, and
warrants, purchased call options and other rights to acquire stocks. See
"Description of Securities and Investment Techniques and Related Risks." In
selecting equity and equity-related securities for the Equity Funds' portfolios,
the Adviser will focus on those companies which have earnings growth that, in
the Adviser's view, has not been sufficiently reflected in the market price of
the security. The Equity Funds may also invest in equity and equity-related
securities where the fundamental value of the issuer is believed to be greater
than its current market price. Fundamental value will be determined by taking
into account various factors including earnings per share, the ratio of book
value to market price, and the company's cash flow and dividend yield. While
individual security selection is an important part of the investment process,
macro-economic factors such as prospects for relative economic growth among
countries, regions or geographic areas, expected levels of inflation and
political policies influencing business conditions will also be considered.
Fixed Income Securities. Fixed income securities in which the Equity Funds and
Fixed Income Funds may invest include U.S. and foreign government securities and
corporate fixed income securities. See "Description of Securities and Investment
Techniques and Related Risks--Fixed Income Securities." In managing the Fixed
Income Funds, the Adviser uses a top-down approach which gives primary emphasis
to the relative attractiveness of bond markets and currencies. Markets are
selected after consideration is given to their risk and return outlook under
various economic scenarios. Currencies are evaluated separately, and the
underlying currency mix of each Fund's position in fixed income securities
generally is designed to enhance returns during periods of relative U.S. dollar
weakness and to protect return during periods of relative U.S. dollar strength.
These investment decisions require consideration of macro-economic factors such
as inflation, interest rates, monetary and fiscal policies, taxation and
political climate. The Adviser also considers the characteristics of individual
securities and issuers.
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The fixed income securities in which each Fund may invest may have stated
maturities ranging from overnight to 1000 years. Each Fixed Income Fund's
weighted average maturity will vary based upon the Adviser's assessment of
economic and market conditions.
Investment Techniques and Risk Factors
Foreign Securities. Investing in the securities of foreign issuers and of
companies whose securities are principally traded outside the United States
involves considerations and potential risks not typically associated with
investing in the securities of U.S. issuers whose securities are principally
traded in the United States. For example, in many foreign countries, securities
markets are less liquid, more volatile and less subject to governmental
regulation than U.S. securities markets. Also, in many foreign countries, there
is less publicly available information about foreign issuers. Moreover, the
value of the securities of foreign issuers held in a Fund's portfolio will be
affected by changes in currency exchange rates, which may be incurred due to
either changes in securities prices expressed in local currencies or due to
movements in exchange rates, or both. See "Description of Securities and
Investment Techniques and Related Risks--Foreign Securities."
Foreign Currency Transactions. To attempt to manage exposure to fluctuations in
currency exchange rates and, in some circumstances, to seek to profit from
exchange rate fluctuations, each Fund may employ certain currency management
techniques, including forward foreign currency exchange contracts, options and
futures on currencies and currency swaps. In addition, each Fund may also employ
a variety of active investment management techniques, including entering into
options, futures, options on futures, interest rate swaps and when-issued and
forward commitment transactions in order to hedge its positions against
potential adverse changes in future foreign currency exchange rates and for
non-hedging purposes. Whether for hedging or non-hedging purposes, the use of
these techniques entails special risks. See "Description of Securities and
Investment Techniques and Related Risks--Currency Management Techniques."
Fixed Income Securities. The net asset value of the shares of the Funds
investing in fixed income securities will change in response to fluctuations in
interest rates and in currency exchange rates. When interest rates decline, the
value of fixed income securities generally can be expected to rise. Conversely,
when interest rates rise, the value of fixed income securities generally can be
expected to decline. The performance of investments in fixed income securities
denominated in a foreign currency generally can be expected to increase when the
value of the foreign currency appreciates. A rise in foreign interest rates or a
decline in the value of foreign currencies relative to the U.S. dollar generally
can be expected to depress the value of a Fund's investments in securities
denominated in a foreign currency. See "Description of Securities and Investment
Techniques and Related Risks--Fixed Income Securities."
Lower Quality Fixed Income Securities. The Emerging Markets Debt Fund, the
Emerging Local Currency Debt Fund and, to a lesser extent, the Global Fixed
Income Fund may invest in fixed income securities which are unrated or rated in
the lowest rating categories by Standard & Poor's Ratings Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's") (i.e., ratings of BB or
lower by Standard & Poor's or Ba or lower by Moody's). Securities rated BB or Ba
or below (or comparable unrated securities) are considered speculative, and
payments of principal and interest thereon may be questionable. In some cases,
these securities may be highly speculative, have poor prospects for reaching
investment grade standing and be in default. See "Description of Securities and
Investment Techniques and Related Risks--Fixed Income Securities." A chart
showing the distribution of Emerging Markets Debt Fund's assets across the
various ratings categories is set forth in Appendix A.
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Temporary Defensive Investments. When market conditions warrant, in the judgment
of the Adviser, each Fund may, for temporary defensive purposes, invest up to
100% of its total assets in U.S. or, subject to tax requirements, Canadian
dollars, U.S. Government securities maturing within one year (including
repurchase agreements collateralized by such securities) and commercial paper of
U.S. or foreign issuers, cash equivalents and certain high grade fixed income
securities. See "Description of Securities and Investment Techniques and Related
Risks--Temporary Defensive Investments."
Year 2000 Compliance. Certain management and shareholder account services
provided to the Funds and their shareholders depend on the proper functioning of
computer systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way dates are encoded and calculated. If
left uncorrected, this software flaw could have an adverse effect on the
handling of security trades and pricing and shareholder account services. The
Adviser and the Trust's administrator, principal underwriter, transfer agent and
custodian have been actively working on necessary changes to their computer
systems to deal with the year 2000. Although there can be no assurance that
these systems will be properly adapted in time for that event, the management of
the Trust expects that they will be.
INVESTMENT OBJECTIVES AND POLICIES
International Equity Fund
The investment objective of the International Equity Fund is to maximize capital
appreciation. Under normal circumstances, the Fund pursues this objective by
investing at least 65% of its total assets in equity and equity-related
securities (but not less than 60% directly in stocks) of companies located in
countries other than the United States. The Fund will focus on securities traded
in equity markets of the countries represented in the Morgan Stanley Capital
International-Europe Australia Far East Index (the "EAFE(R) Index") but may
decide, on a stock-specific basis, to make investments in other foreign markets.
The EAFE(R) Index includes the equity markets of Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and
the United Kingdom. Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity and equity-related securities of
companies in at least three foreign countries.
The Fund may invest more than 25% of its total assets in each of Japan and the
United Kingdom. Investing in these countries to this extent will cause the Fund
to be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks-Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of issuers located in the United States.
Global Equity Fund
The investment objective of the Global Equity Fund is to maximize capital
appreciation. Under normal circumstances, the Fund pursues this objective by
investing at least 65% of its total assets in equity and equity-related
securities (but not less than 60% directly in stocks) of companies in at
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least three countries. These countries may include Austria, Belgium, Denmark,
Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal,
Spain, Sweden, Switzerland, the United Kingdom, the United States, Canada,
Mexico, Japan, Hong Kong, Singapore, Australia, Malaysia, Indonesia, the
Philippines, Thailand, and New Zealand. At the discretion of the Adviser, the
Fund may invest in equity and equity-related securities of companies located in
other countries.
The Fund may invest more than 25% of its total assets in each of Japan, the
United States and the United Kingdom. Investing in these countries to this
extent will cause the Fund to be particularly susceptible to the effects of
political and economic developments in these countries. See "Description of
Securities and Investment Techniques and Related Risks--Region and Country
Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents and
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser) of issuers
located anywhere in the world.
European Equity Fund
The investment objective of the European Equity Fund is to maximize capital
appreciation. Under normal circumstances, the Fund pursues this objective by
investing at least 65% of its total assets in equity and equity-related
securities (but not less than 60% directly in stocks) of companies located in
European countries, including Austria, Belgium, Denmark, Finland, France,
Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden,
Switzerland and the United Kingdom. At the discretion of the Adviser, the Fund
may invest in equity and equity-related securities of companies located in other
European countries.
The Fund may invest more than 25% of its total assets in each of France, Germany
and the United Kingdom, reflecting the dominance of these countries' stock
markets in Europe. Investing in these countries to this extent will cause the
Fund to be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of issuers located in non-European countries,
including the United States.
Pacific Basin Equity Fund
The investment objective of the Pacific Basin Equity Fund is to maximize capital
appreciation. Under normal circumstances, the Fund pursues this objective by
investing at least 65% of its total assets in equity and equity-related
securities (but not less than 60% directly in stocks) of companies located in
Pacific Basin countries, including Japan, Australia, Malaysia, Singapore, Hong
Kong, Thailand, the Philippines, Indonesia, Taiwan, South Korea and New Zealand.
At the discretion of the Adviser, the Fund may invest in other Pacific Basin
countries.
The Fund may invest more than 25% of its total assets in each of Japan and Hong
Kong, reflecting the dominance of these stock markets in the Pacific Basin.
Investing in Japan and Hong Kong to
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this extent will cause the Fund to be particularly susceptible to the effects of
political and economic developments in Japan, Hong Kong and China. See
"Description of Securities and Investment Techniques and Related Risks--Region
and Country Investing."
Up to 35% of Fund's total assets may be invested in cash equivalents, investment
grade fixed income securities (i.e., securities rated BBB, Baa, or higher by
Standard & Poor's, Moody's or comparable rating agency, or, if unrated,
determined to be of comparable quality by the Adviser), and equity and
equity-related securities of issuers located in countries outside the Pacific
Basin, including the United States.
International Small Cap Equity Fund
The investment objective of the International Small Cap Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization companies located in countries other than the United States.
Small capitalization companies are: (i) companies ranked according to market
capitalization in the bottom 25% of issuers listed on a stock exchange, (ii)
companies listed on a secondary market (e.g., the Tokyo Stock Exchange Second
Section, the Singapore SESDAQ Market) and (iii) companies whose securities are
not listed on a stock exchange or secondary market.
The Fund will focus on companies located in countries represented in the NatWest
Euro Pacific Index, but may decide, on a stock-specific basis, to make
investments in companies located outside of these countries. The Nat West Euro
Pacific Index includes the equity markets of Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malasia,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland,
Thailand and the United Kingdom. Under normal market conditions, the Fund will
invest at least 65% of its total assets in equity and equity-related securities
issued by small capitalization companies in at least three different foreign
countries.
The Fund may invest more than 25% of its total assets in each of Japan and the
United Kingdom. Investing in these countries to this extent will cause the Fund
to be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of large and medium capitalization companies located
outside the United States and companies of any size located in the United
States.
Japanese Small Cap Equity Fund
The investment objective of the Japanese Small Cap Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization companies located in Japan. Small capitalization companies are:
(i) companies ranked according to market capitalization in the bottom 20% of
issuers listed on the Tokyo Stock Exchange, (ii) companies listed on a Japanese
secondary market (e.g., the Tokyo Stock Exchange Second Section) and (iii)
companies whose securities are not listed on a stock
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exchange or secondary market. Investing in Japanese companies to this extent
will cause the Fund to be particularly susceptible to the effects of social,
political and economic events that occur in Japan. See "Description of
Securities and Investment Techniques and Related Risks--Region and Country
Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of large and medium capitalization companies located
in Japan and companies of any size located in countries other than Japan,
including the United States.
European Small Cap Equity Fund
The investment objective of the European Small Cap Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization companies located in European countries, including Austria,
Belgium, Denmark, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg,
Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. At the
discretion of the Adviser, the Fund may invest in other European countries.
Small capitalization companies are: (i) companies ranked according to market
capitalization in the bottom 25% of issuers listed on a European stock exchange,
(ii) companies listed on a European secondary market and (iii) companies whose
securities are not listed on a stock exchange or secondary market.
The Fund may invest more than 25% of its total assets in each of Germany, France
and the United Kingdom, reflecting the dominance of these countries' stock
markets in Europe. Investing in these countries to this extent will cause the
Fund to be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of large and medium capitalization companies located
in European countries and companies of any size located in non-European
countries, including the United States.
Emerging Markets Equity Fund
The investment objective of the Emerging Markets Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies that are located in countries with emerging securities markets; that
is, countries with securities markets that are, in the opinion of the Adviser,
emerging as investment markets but that have yet to reach a level of maturity
associated with developed foreign stock markets, especially in terms of foreign
investor participation. Countries with emerging securities markets include:
Algeria, Argentina, Bangladesh, Brazil, Bulgaria, Chile, China, Colombia, Costa
Rica, Cyprus, Czech Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia,
Jordan, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, South
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Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela and Vietnam. At
the discretion of the Adviser, the Fund may invest in other countries with
emerging securities markets.
Investments in securities of companies located in countries with emerging
securities markets may offer greater opportunities for capital growth than
investments in securities traded in developed markets. However, investing in
emerging securities markets also involves risks that are not present in
developed markets. See "Description of Securities and Investment Techniques and
Related Risks--Foreign Securities."
The Fund may invest more than 25% of its total assets in each of Brazil,
Malaysia and Mexico. Investing in these countries to this extent will cause the
Fund to be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of issuers traded in developed markets, including the
U.S. securities markets.
Core Global Fixed Income Fund
The investment objective of the Core Global Fixed Income Fund is to maximize
total return, emphasizing current income and, to a lesser extent, providing
opportunities for capital growth consistent with reasonable investment risk.
Under normal circumstances, the Fund pursues this objective by investing at
least 65% of its total assets in fixed income securities of issuers in at least
three countries, which may include: Austria, Belgium, Denmark, Finland, France,
Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden,
Switzerland, the United Kingdom, the United States, Canada, Japan, Australia and
New Zealand. At the discretion of the Adviser, the Fund may invest in fixed
income securities of issuers located in other countries.
The fixed income securities in which the Fund invests consist primarily of high
grade debt obligations of foreign governments or their agencies,
instrumentalities, political subdivisions and authorities; debt obligations
issued or guaranteed by international or supranational entities; U.S. Government
securities and high grade fixed income securities of U.S. and foreign corporate
issuers. High grade securities include securities rated within the three highest
grades by Moody's (Aaa, Aa and A), Standard & Poor's (AAA, AA and A) or
comparable rating agency or, if unrated, determined to be of comparable quality
by the Adviser. The Fund may also invest in governmental and corporate fixed
income securities that are rated in the fourth highest grade by Moody's (Baa),
Standard & Poor's (BBB) or comparable rating agency or, if unrated, determined
to be of comparable quality by the Adviser. Securities rated in the fourth
highest grade by any of the major rating agencies have speculative
characteristics. See "Description of Securities and Investment Techniques and
Related Risks--Fixed Income Securities" for a description of these risks and
Appendix A to this Prospectus for a description of the various ratings
categories.
The Fund may invest more than 25% of its total assets in each of Japan, the
United States, Germany and the United Kingdom. Investing in these countries to
this extent will cause the Fund to be particularly susceptible to the effects of
political and economic developments in these countries, See "Description of
Securities and Investment Techniques and Related Risks--Region and Country
Investing." Up to 35% of the Fund's total assets may be invested in cash
equivalents.
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Global Fixed Income Fund
The investment objective of the Global Fixed Income Fund is to maximize total
return, emphasizing current income and, to a lesser extent, providing
opportunities for capital growth consistent with reasonable investment risk.
Under normal circumstances, the Fund pursues this objective by investing at
least 65% of its total assets in fixed income securities of issuers in at least
three countries, which may include: Austria, Belgium, Denmark, Finland, France,
Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden,
Switzerland, the United Kingdom, the United States, Canada, Japan, Australia and
New Zealand. At the discretion of the Adviser, the Fund may invest in fixed
income securities of issuers located in other countries.
The fixed income securities in which the Fund invests consist primarily of debt
obligations of foreign governments or their agencies, instrumentalities,
political subdivisions and authorities; debt obligations issued or guaranteed by
international or supranational entities; U.S. Government securities and fixed
income securities of U.S. and foreign corporate issuers. Most of the Fund's
investments in fixed income securities generally will be in securities rated
within the four highest grades by Moody's (Aaa, Aa, A and Baa), Standard &
Poor's (AAA, AA, A and BBB) or comparable rating agency or, if unrated,
determined to be of comparable quality by the Adviser. However, the Fund may
invest up to 15% of its total assets in fixed income securities rated below
these levels or, if unrated, determined to be of comparable quality by the
Adviser, including securities of issuers in emerging markets. These securities,
which are known as below investment grade securities, involve greater price
volatility and risk of loss of principal and income than investment grade
securities. See "Description of Securities and Investment Techniques and Related
Risks--Fixed Income Securities" for a description of these risks and Appendix A
to this Prospectus for a description of the various ratings categories.
The Fund may invest more than 25% of its total assets in each of Japan, the
United States, Germany and the United Kingdom. Investing in these countries to
this extent will cause the Fund to be particularly susceptible to the effects of
political and economic developments in these countries, See "Description of
Securities and Investment Techniques and Related Risks--Region and Country
Investing." Up to 35% of the Fund's total assets may be invested in cash
equivalents.
International Fixed Income Fund
The investment objective of the International Fixed Income Fund is to maximize
total return, emphasizing current income and, to a lesser extent, providing
opportunities for capital growth consistent with reasonable investment risk.
Under normal circumstances, the Fund pursues this objective by investing at
least 65% of its total assets in fixed income securities of issuers in at least
three countries other than the United States, including Austria, Belgium,
Denmark, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom, Canada, Japan,
Australia, and New Zealand. At the discretion of the Adviser, the Fund may
invest in fixed income securities of issuers located in other foreign countries.
The fixed income securities in which the Fund invests consist primarily of high
grade debt obligations of foreign governments or their agencies,
instrumentalities, political subdivisions and authorities; debt obligations
issued or guaranteed by international or supranational entities and high grade
fixed income securities of foreign corporate issuers. High grade securities
include securities rated within the three highest grades by Moody's (Aaa, Aa and
A), Standard & Poor's (AAA, AA
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and A) or comparable rating agency or, if unrated, determined to be of
comparable quality by the Adviser. The Fund may invest up to 10% of its total
assets in governmental and corporate fixed income securities that are rated in
the fourth highest grade by Moody's (Baa), Standard & Poor's (BBB) or comparable
rating agency or, if unrated, determined to be of comparable quality by the
Adviser. Securities rated in the fourth highest grade by any of the major rating
agencies have speculative characteristics. See "Description of Securities and
Investment Techniques and Related Risks--Fixed Income Securities" for a
description of these risks and Appendix A attached to this Prospectus for a
description of the various ratings categories.
The Fund may invest more than 25% of its total assets in each of Germany,
France, Japan, Italy and the United Kingdom. Investing in these countries to
this extent will cause the Fund to be particularly susceptible to the effects of
political and economic developments in these countries. See "Description of
Securities and Investment Techniques and Related Risks--Region and Country
Investing."
Up to 35% of the Fund's total assets may be invested in fixed income securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
Emerging Markets Debt Fund
The investment objective of the Emerging Markets Debt Fund is to maximize total
return. Under normal circumstances, the Fund pursues this objective by investing
at least 65% of its total assets in fixed income securities of issuers located
in countries with emerging securities markets, including Algeria, Argentina,
Bangladesh, Brazil, Bulgaria, Chile, China, Colombia, Costa Rica, Croatia,
Cyprus, Czech Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia, Ivory
Coast, Jordan, Kazakhstan, Malaysia, Mexico, Morocco, Pakistan, Panama, Peru,
the Philippines, Poland, Portugal, Russia, South Africa, Thailand, Turkey,
Uruguay, Venezuela and Vietnam. At the discretion of the Adviser, the Fund may
invest in fixed income securities of issuers in other countries that have
emerging securities markets. Investments in emerging securities markets may
offer greater opportunities for total return than investments in securities
traded in developed markets. However, investing in emerging securities markets
also involves risks that are not present in developed markets. See "Description
of Securities and Investment Techniques and Related Risks--Foreign Securities."
Under normal market conditions, the Fund's investments in emerging securities
markets will consist principally of (i) loans, debt instruments and fixed income
securities issued or guaranteed by sovereign governments or their agencies and
instrumentalities, (ii) sub-participations in such loans, debt instruments and
fixed income securities and (iii) financial instruments, such as call options,
the value of which are dependent on the prices of such loans, debt instruments
and fixed income securities. The loans and debt instruments in which the Fund
may invest may be denominated in a major currency, such as the U.S. dollar or
the German Deutschemark, or in the local currency. The price of loans and debt
instruments denominated in a local currency may be linked to the value of a
major currency. The Fund's investments may include so-called "Brady Bonds,"
which recently have been issued by the governments of Argentina, Brazil,
Bulgaria, Costa Rica, Dominican Republic, Equador, Jordan, Mexico, Nigeria,
Poland, Panama, the Philippines, Uruguay and Venezuela, as well as
non-performing or semi-performing instruments with potential to be converted
into securities under a Brady plan or otherwise to appreciate in value as debt
servicing prospects improve. See "Description of Securities and Investment
Techniques and Related Risks--Fixed Income Securities." The Fund's investments
in emerging securities markets
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may also include fixed income securities of
non-governmental issuers located in countries with emerging securities markets.
Fixed income securities in which the Fund may invest may be of any credit
quality, including securities not paying interest currently, zero coupon bonds,
securities that pay interest in the form of other securities (i.e., "pay in
kind" or PIK securities) and securities in default. Fixed income securities
having low credit quality involve greater price volatility and risk of loss of
principal and income. For a description of these and other risks of investing in
lower quality fixed income securities, see "Description of Securities and
Investment Techniques and Related Risks--Fixed Income Securities." See Appendix
A to this Prospectus for a description of the various ratings categories of
Moody's and Standard & Poor's and a chart showing the distribution of the Fund's
assets across the various ratings categories.
The Fund may invest more than 25% of its total assets in each of Mexico and
Brazil. Investing in these countries to this extent will cause the Fund to be
particularly susceptible to the effects of political and economic developments
in these countries. See "Description of Securities and Investment Techniques and
Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in fixed income securities
issued or guaranteed by the U.S. Government.
Emerging Local Currency Debt Fund
The investment objective of the Emerging Local Currency Debt Fund is to maximize
total return. Under normal circumstances, the Fund pursues this objective by
investing at least 65% of its total assets in local currency-denominated debt
instruments of issuers located in countries with emerging securities markets,
including Algeria, Argentina, Bangladesh, Brazil, Bulgaria, Chile, China,
Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Ecuador, Egypt, Greece,
Hungary, India, Indonesia, Ivory Coast, Jordan, Kazakhstan, Malaysia, Mexico,
Morocco, Pakistan, Panama, Peru, the Philippines, Poland, Portugal, Russia,
South Africa, Thailand, Turkey, Uruguay, Venezuela and Vietnam. At the
discretion of the Adviser, the Fund may invest in instruments in other
currencies of countries that have emerging securities markets. Investments in
emerging securities markets may offer greater opportunities for total return
than investments in securities traded in developed markets. However, investing
in emerging securities markets also involves risks that are not present in
developed markets. See "Description of Securities and Investment Techniques and
Related Risks--Foreign Securities."
In making investments for the Fund, the Adviser will give primary emphasis to
the relative attractiveness of the local currencies in which the investments are
denominated. Accordingly, the Fund will not generally attempt to hedge foreign
currency exchange rate risks associated with positions it takes in such
investments. The Fund may use forward foreign currency exchange contracts,
options, futures, swaps, interest rate caps and floors and when-issued and
forward commitment transactions for non-hedging and hedging purposes. However,
because the Fund generally will not use these techniques to attempt to hedge
currency exchange rate risks, the Fund's return may be more dependent on the
Adviser's judgment as to the relative attractiveness of the local currencies in
which the Fund's investments are denominated.
Under normal market conditions, the Fund's investments in emerging securities
markets will consist principally of (i) debt instruments and fixed income
securities issued or guaranteed by sovereign
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governments or their agencies and instrumentalities, (ii) financial instruments,
such as call options, the value of which are dependent on the prices of such
debt instruments and fixed income securities. The Fund's investments in emerging
securities markets may also include fixed income securities of non-governmental
issuers located in countries with emerging securities markets and fixed deposits
denominated in foreign currencies.
The securities in which the Fund may invest may be of any credit quality,
including securities not paying interest currently, zero coupon bonds,
securities that pay interest in the form of other securities (i.e., "pay in
kind" or PIK securities) and securities in default. Bonds having low credit
quality involve greater price volatility and risk of loss of principal and
income. For a description of these and other risks of investing in lower quality
bonds, see "Description of Securities and Other Investment Techniques and
Related Risks--Fixed Income Securities." See Appendix A to this Prospectus for a
description of the various ratings categories of Moody's and Standard & Poor's.
The Fund may invest more than 25% of its total assets in Mexico. Investing in
Mexico to this extent will cause the Fund to be particularly susceptible to the
effects of political and economic developments in this country. See "Description
of Securities and Investment Techniques and Related Risks--Region and Country
Investing."
Up to 35% of the Fund's total assets may be invested in fixed income securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and in short-dated investments with commercial banks
denominated in U.S. Dollars.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES AND RELATED RISKS
Foreign Securities
General. Subject to their respective investment objectives and policies, the
Funds may invest in securities of foreign issuers, including U.S.
dollar-denominated and non-dollar denominated foreign equity and fixed income
securities and in certificates of deposit issued by foreign banks and foreign
branches of U.S. banks. While investments in securities of foreign issuers and
non-U.S. dollar denominated securities may offer investment opportunities not
available in the United States, such investments also involve significant risks
not typically associated with investing in domestic securities. In many foreign
countries, there is less publicly available information about foreign issuers,
and there is less government regulation and supervision of foreign stock
exchanges, brokers and listed companies. Also in many foreign countries,
companies are not subject to uniform accounting, auditing, and financial
reporting standards comparable to those applicable to domestic issuers. Security
trading practices and custody arrangements abroad may offer less protection to
the Funds' investments and there may be difficulty in enforcing legal rights
outside the United States. Settlement of transactions in some foreign markets
may be delayed or may be less frequent than in the United States which could
affect the liquidity of the Funds' portfolios. Additionally, in some foreign
countries, there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of securities, property, or other Fund assets,
political or social instability or diplomatic developments which could affect
investments in foreign securities.
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To the extent the Funds' investments are denominated in foreign currencies, the
Funds' net asset values may be affected favorably or unfavorably by fluctuations
in currency exchange rates and by changes in exchange control regulations. For
example, if the Adviser increases a Fund's exposure to a foreign currency, and
that currency's value subsequently falls, the Adviser's currency management may
result in increased losses to the Fund. Similarly, if the Adviser hedges a
Fund's exposure to a foreign currency, and that currency's value rises, the Fund
will lose the opportunity to participate in the currency's appreciation. The
Funds will incur transaction costs in connection with conversions between
currencies.
Investments in American, European, Global and International Depository Receipts.
The Funds may invest in foreign securities in the form of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global Depository
Receipts ("GDRs") or International Depository Receipts ("IDRs"). ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs and
IDRs are receipts issued in Europe typically by non-U.S. banking and trust
companies that evidence ownership of either foreign or U.S. securities. GDRs are
receipts issued by either a U.S. or non-U.S. banking institution evidencing
ownership of the underlying foreign securities. Generally, ADRs, in registered
form, are designed for use in U.S. securities markets and EDRs, GDRs and IDRs,
in bearer form, are designed for use in European securities markets. An ADR,
EDR, GDR or IDR may be denominated in a currency different from the currency in
which the underlying foreign security is denominated.
Investments in Emerging Markets. Each of the Funds may invest to varying degrees
in one or more countries with emerging securities markets. These countries are
generally located in Latin America, Europe, the Middle East, Africa and Asia.
Political and economic structures in many of these countries may be undergoing
significant evolution and rapid development, and these countries may lack the
social, political and economic stability characteristic of more developed
countries. Certain of these countries may have in the past failed to recognize
private property rights and, at times, may have nationalized or expropriated the
assets of private companies. As a result, these risks, including the risk of
nationalization or expropriation of assets, may be heightened. In addition,
unanticipated political or social developments may affect the value of a Fund's
investments in these countries, as well as the availability of additional
investments in these countries. The small size and inexperience of the
securities markets in certain of these countries and the limited volume of
trading in securities in these countries may make the Funds' investments in
these countries illiquid and more volatile than investments in most Western
European countries, and the Funds may be required to establish special custodial
or other arrangements before making certain investments in some of these
countries. There may be little financial or accounting information available
with respect to issuers located in certain of these countries, and it may be
difficult as a result to assess the value or prospects of an investment in these
countries. The laws of some foreign countries may limit the Funds' ability to
invest in securities of certain issuers located in those countries.
Region and Country 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.
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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, each
Fund may enter into forward foreign currency exchange contracts or currency swap
agreements, purchase securities indexed to foreign currencies, and buy and sell
options and futures contracts relating to foreign currencies and options on such
futures contracts. See "Forward Foreign Currency Transactions," "Interest Rate
and Currency Swaps," "Options" and "Futures and Options on Futures" below. The
Funds may use currency hedging techniques in the normal course of business to
lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies. Other currency management strategies allow
the Adviser to hedge portfolio securities, to shift investment exposure from one
currency to another, or to attempt to profit from anticipated declines in the
value of a foreign currency relative to the U.S. dollar. There is no overall
limitation on the amount of assets that any of the Funds may commit to currency
management strategies. Although the Adviser may attempt to manage currency
exchange rate risks, there is no assurance that the Adviser will do so, or do so
at an appropriate time or that the Adviser will be able to predict exchange
rates accurately.
Securities held by a Fund are generally denominated in the currency of the
foreign market in which the investment is made. However, securities held by each
Fund may be denominated in the currency of a country other than the country in
which the investment is made. For example, Emerging Markets Debt Fund often
purchases foreign securities that are denominated in U.S. dollars. The Funds may
also invest in securities denominated in the European Currency Unit ("ECU"),
which is a "basket" consisting of specified amounts of the currencies of certain
member countries of the European Community. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community from time to time to reflect changes in their relative values. In
addition, the Funds may invest in securities denominated in other currency
"baskets."
Forward Foreign Currency Transactions. Each of the Funds may conduct foreign
currency exchange transactions on a spot (i.e., cash) basis at the rate
prevailing in the foreign currency exchange market or by entering into forward
currency exchange contracts ("forward currency contracts") to purchase or sell
foreign currencies. A Fund may purchase or sell forward currency contracts for
hedging purposes, except that the Emerging Local Currency Debt Fund generally
does not expect to do so. Each Fund may also purchase or sell forward currency
contracts for non-hedging purposes when the Adviser anticipates that the foreign
currency will appreciate or
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depreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held in a Fund's
portfolio. When purchased or sold for non-hedging purposes, forward currency
contracts are speculative.
Each Fund may enter into forward currency contracts to purchase foreign currency
to attempt to protect against an anticipated rise in the U.S. dollar price of
securities that it intends to purchase. Each Fund may enter into contracts to
sell foreign currency 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. Contracts
to sell foreign currency could limit any potential gain which might be realized
by a Fund if the value of the hedged currency increased.
A Fixed Income Fund may sell U.S. dollars and buy foreign currency forward in
order to gain exposure to a currency which is expected to appreciate against the
U.S. dollar. This speculative strategy allows a Fund to benefit from currency
appreciation potential without requiring it to purchase a local fixed income
instrument, for which prospects may be relatively unattractive. It is the
Adviser's intention that each Fund's net U.S. dollar currency exposure generally
will not fall below zero (i.e., that net short positions in the U.S. dollar
generally will not be taken).
If a Fund enters into a forward currency contract to sell foreign currency for
non-hedging purposes or to buy foreign currency for any purpose, the forward
currency contract generally will not have a term greater than one year. The
forecasting of short-term currency market movements is extremely difficult and
there can be no assurance that short-term hedging strategies will be successful.
When a Fund enters into a forward currency contract to sell foreign currency for
non-hedging purposes or to buy foreign currency for any purpose, the Fund will
be required to place cash or liquid securities in a segregated account, which
will be marked to market daily, in an amount equal to the value of the total
assets committed to the consummation of the forward currency contract. If the
value of the securities placed in the segregated account declines, additional
cash or securities will be placed in the account so that the value of the
account will equal the amount of the Fund's commitment with respect to the
contract.
Forward currency contracts are subject to the risk that the counterparty to such
contract will default on its obligations. Since a forward currency contract is
not guaranteed by an exchange or clearinghouse, a default on the contract would
deprive a Fund of unrealized profits, transaction costs or the benefits of a
currency hedge or force a Fund to cover its purchase or sale commitments, if
any, at the current market price. The Funds will not enter into forward currency
contracts unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty is determined to be investment grade
by the Adviser. The Adviser will monitor the claims-paying ability of the
counterparty on an ongoing basis.
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. For example, a
Fund wishing to acquire a particular security that is denominated in French
Francs, but wishing to seek exposure to a second currency and not the Franc, may
simultaneously enter into a forward contract to sell an equivalent value of
Francs in exchange for such foreign currency. Synthetic investment positions
will typically involve the purchase of U.S. dollar-denominated securities
together with a forward contract to purchase the currency to which the Fund
seeks exposure and to sell U.S. dollars. This may be done because the range of
highly liquid short-term instruments available in the U.S. may provide greater
liquidity to a Fund than actual purchases of foreign currency-denominated
securities in addition to providing superior returns in some cases. Depending on
(a) each Fund's liquidity needs, (b) the relative yields of
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securities denominated in different currencies and (c) spot and forward currency
rates, a significant portion of a Fund's assets may be invested in synthetic
investment positions, subject to compliance with the tax requirements for
qualification as a regulated investment company. See "Taxes."
There is a risk in adopting a synthetic investment position. It is impossible to
forecast with absolute precision what the market value of a particular security
will be at any given time. If the value of the U.S. dollar-denominated security
is not exactly matched with a Fund's obligation under a forward currency
contract on the date of maturity, the Fund may be exposed to some risk of loss
from fluctuations in the value of the U.S. dollar. Although the Adviser will
attempt to hold such mismatching to a minimum, there can be no assurance that
the Adviser will be able to do so.
Cross-Hedging. At the discretion of the Adviser, each of the Fixed Income Funds
may employ the currency hedging strategy known as "cross-hedging" by using
forward currency contracts, currency options or a combination of both. When
engaging in cross-hedging, a Fund seeks to protect against a decline in the
value of a foreign currency in which certain of its portfolio securities are
denominated by selling that currency forward into a different foreign currency
for the purpose of diversifying the Fund's total currency exposure or gaining
exposure to a foreign currency that is expected to appreciate.
For a description of the Funds' transactions in currency options, futures and
swaps, see "Options--Currency Options," "Futures Contracts and Options on
Futures Contracts" and "Interest Rate and Currency Swaps."
Small Capitalization Companies
The Japanese Small Cap Equity Fund, the European Small Cap Equity Fund and the
International Small Cap Equity Fund each invests a significant portion of its
assets in smaller, lesser-known, foreign companies which the Adviser believes
offer greater growth potential than larger, more mature, better-known companies.
Investing in the securities of these companies, however, also involves greater
risk and the possibility of greater portfolio price volatility. Among the
reasons for the greater price volatility of these small companies and unseasoned
stocks are the less certain growth prospects of smaller firms, the lower degree
of liquidity in the markets for such stocks and the greater sensitivity of small
companies to changing economic conditions in their geographic region. For
example, securities of these companies involve higher investment risk than that
normally associated with larger firms due to the greater business risks of small
size and limited product lines, markets, distribution channels and financial and
managerial resources.
Options
Written Options. 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
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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 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
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.
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When a Fund writes an option on a stock index, it will cover the option by
depositing cash or liquid securities or a combination of both in an amount equal
to the market value of the option, in a segregated account, which will be marked
to market daily, with the custodian, and will maintain the account while the
option is open. Alternatively, and only in the case of a written call option on
a stock index, the Fund may cover the written option by owning an offsetting
call option.
Futures Contracts and Options on Futures Contracts
When deemed advisable by the Adviser, each of the Funds may enter into financial
futures contracts and purchase and write options on futures contracts to attempt
to hedge against changes in interest rates, securities prices or currency
exchange rates or for certain non-hedging purposes. A Fund may engage in futures
and related options transactions for hedging and non-hedging purposes as defined
in regulations of the Commodity Futures Trading Commission. A Fund will not
enter into futures contracts or options thereon for non-hedging purposes, if
immediately thereafter, the aggregate initial margin and premiums required to
establish non-hedging positions in futures contracts and options on futures will
exceed 5% of the net asset value of the Fund's portfolio, after taking into
account unrealized profits and losses on any such positions and excluding the
amount by which such options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Funds to purchase securities or currencies, require the Funds to
segregate assets with a value equal to the amount of the Fund's obligations.
Limitations and Risks Associated With Transactions In Forward Foreign Currency
Exchange Contracts, Options, Futures Contracts and Options on Futures Contracts
Each of the Funds' active management techniques involves (1) liquidity risk that
contractual positions cannot be easily closed out in the event of market changes
or generally in the absence of a liquid secondary market, (2) correlation risk
that changes in the value of hedging positions may not match the securities
market and foreign currency fluctuations intended to be hedged, and (3) market
risk that an incorrect prediction of securities prices or exchange rates by the
Adviser may cause a Fund to perform worse than if such positions had not been
taken. The ability to terminate over-the-counter options is more limited than
with exchange traded options and may involve the risk that the counterparty to
the option will not fulfill its obligations.
The use of options, futures and forward currency contracts is a highly
specialized activity which involves investment techniques and risks that are
different from those associated with ordinary portfolio transactions. Gains and
losses on investments in options and futures depend on the Adviser's ability to
predict the direction of stock prices, interest rates, currency movements and
other economic factors. The loss that may be incurred by a Fund in entering into
futures contracts and written options thereon and forward currency contracts is
potentially unlimited. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times, render certain
facilities of an options clearing entity or other entity performing the
regulatory and liquidity functions of an options clearing entity inadequate, and
thereby result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders. Options and futures
traded on foreign exchanges generally are not regulated by U.S. authorities, and
may offer less liquidity and less protection to a Fund in the event of default
by the other party to the contract.
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Except as set forth above under "Futures Contracts and Options on Futures
Contracts" there is no limit on the percentage of a Fund's assets that may be
invested in futures contracts and related options or forward currency contracts.
A Fund may not invest more than 25% of its total assets in purchased protective
put options. A Fund's transactions in options, forward currency contracts,
futures contracts and options on futures contracts may be limited by the
requirements for qualification of the Fund as a regulated investment company for
tax purposes. See "Taxes" in the Statement of Additional Information.
Fixed Income Securities
General. In order to achieve their respective investment objectives, the Funds
may invest in a broad range of U.S. and non-U.S. fixed income securities. In
periods of declining interest rates, a Fund's yield (its income from portfolio
investments over a stated period of time) may tend to be higher than prevailing
market rates, and in periods of rising interest rates, the yield of the Fund may
tend to be lower. Also, when interest rates are falling, the inflow of net new
money to each Fund from the continuous sale of its shares will likely be
invested in portfolio instruments producing lower yields than the balance of the
Fund's portfolio, thereby reducing the yield of the Fund. In periods of rising
interest rates, the opposite can be true. To the extent a Fund invests in fixed
income securities, its net asset value can generally be expected to change as
general levels of interest rates fluctuate. The value of fixed income securities
in a Fund's portfolio generally varies inversely with changes in interest rates.
Prices of fixed income securities with longer effective maturities are more
sensitive to interest rate changes than those with shorter effective maturities.
The Fixed Income Funds may invest up to 5% of their net assets in inverse
floating rate securities, which have greater volatility risk than ordinary fixed
income securities.
Risk Factors of Lower Quality Securities. The Emerging Markets Debt Fund 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 or BBB
by Standard & Poor's or, if unrated, determined to be of comparable quality by
the 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" in the
Statement of Additional Information for special tax considerations associated
with investing in high yield bonds structured as zero coupon, payment-in-kind,
or increasing rate securities.
Lower quality fixed income securities will also be affected by the market's
perception of their credit quality, especially during times of adverse
publicity, and the outlook for economic growth. In the past, economic downturns
or an increase in interest rates have, under certain circumstances,
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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 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.
Foreign Government Securities. The foreign government securities in which the
Funds may invest generally consist of debt obligations issued or guaranteed by
national, state or provincial governments or similar political subdivisions.
Foreign government securities also include debt obligations of supranational or
quasi-governmental entities. Quasi-governmental and supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
Japanese Development Bank, the Asian Development Bank and the InterAmerican
Development Bank. Foreign government securities also include mortgage-related
securities issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies. For a description of
the risks associated with all investments in foreign securities, see "Foreign
Securities" above.
The Emerging Markets Debt Fund may also invest in so-called "Brady Bonds." The
Fund may invest in Brady Bonds and other sovereign debt securities of countries
that have restructured or are in the process of restructuring sovereign debt
pursuant to the Brady Plan. Brady Bonds are debt securities issued under the
framework of the Brady Plan, an initiative announced by U.S. Treasury Secretary
Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their
outstanding external indebtedness (generally, commercial bank debt). In
restructuring its external debt under the Brady Plan framework, a debtor nation
negotiates with its existing bank lenders as well as multilateral institutions
such as the World Bank and the International Monetary Fund (the "IMF"). The
Brady Plan framework, as it has developed, contemplates the exchange of
commercial bank debt for newly issued bonds (Brady Bonds). The World Bank and/or
the IMF support the restructuring by providing funds pursuant to loan agreements
or other arrangements which enable the debtor nation to collateralize the new
Brady Bonds or to repurchase outstanding bank debt at a discount. Under these
arrangements with the World Bank and/or the IMF, debtor nations have been
required to agree to the implementation of certain domestic monetary and fiscal
reforms. Such reforms have included the liberalization of trade and foreign
investment, the privatization of state-owned enterprises and the setting of
targets for public spending and borrowing. These policies and programs seek to
promote the debtor country's ability to service its external obligations and
promote its economic growth and development. Investors should recognize that the
Brady Plan only sets forth general guiding principles for economic reform and
debt reduction, emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors. The Adviser believes that
economic reforms undertaken by countries in connection with the
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issuance of Brady Bonds make the debt of countries which have issued or have
announced plans to issue Brady Bonds an attractive opportunity for investment.
Brady Bonds have recently been issued by Argentina, Brazil, Bulgaria, Costa
Rica, Dominican Republic, Equador, Jordan, Mexico, Nigeria, Panama, Poland, the
Philippines, Uruguay and Venezuela and may be issued by other countries. Over
$130 billion in principal amount of Brady Bonds have been issued to date, the
largest proportion having been issued by Argentina and Brazil. Brady Bonds may
involve a high degree of risk, may be in default or present the risk of default.
As of November 1, 1997, the Fund is not aware of the occurrence of any payment
defaults on Brady Bonds. Investors should recognize however, that Brady Bonds
have been issued only recently, and, accordingly, they do not have a long
payment history. Agreements implemented under the Brady Plan to date are
designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt, bonds issued at a discount of face value of such debt, bonds
bearing an interest rate which increases over time and bonds issued in exchange
for the advancement of new money by existing lenders. Certain Brady Bonds have
been collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds, although
the collateral is not available to investors until the final maturity of the
Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and
the debtor nations' reserves. In addition, the first two or three interest
payments on certain types of Brady Bonds may be collateralized by cash or
securities agreed upon by creditors. Although Brady Bonds may be collateralized
by U.S. Government securities, repayment of principal and interest is not
guaranteed by the U.S. Government.
Registered Loans. The Emerging Markets Debt Fund may invest in loan obligations
issued or guaranteed by sovereign governments or their agencies and
instrumentalities. The ownership of these loans is registered in the books of an
agent bank and/or the borrower and transfers of ownership are effected by
assignment agreements. Documentation for these assignments includes a signed
notice of assignment, which is sent to the agent and/or borrower for
registration shortly after the execution of the assignment agreement. Prior to
the notice of assignment being registered with the agent and/or borrower, the
borrower or its agent will make any payments of principal and interest to the
last registered owner.
Given the volume of secondary market trading in registered loans, the agent
and/or borrower's books may be out of date, making it difficult for 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
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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 without interest, it will treat
both the borrower and the purchaser of the loan as issuers for purposes of this
policy.
U.S. Government Securities. The Funds may invest in obligations issued or
guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (iii) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association ("FNMA")), or (iv) only
the credit of the issuer. No assurance can be given that the U.S. Government
will provide financial support to U.S. Government agencies or instrumentalities
in the future.
The Funds may also invest in separately traded principal and interest components
of U. S. Government securities if such components are traded independently under
the Separate Trading of Registered Interest and Principal of Securities program
("STRIPS") or any similar program sponsored by the U.S. Government.
Custodial Receipts. Each Fund may acquire custodial receipts which are typically
issued by a custodian bank or investment brokerage firm. These receipts
represent unmatured interest coupons that have been separated ("stripped") by a
custodian bank or investment brokerage firm, and evidence ownership of future
interest payments, principal payments or both on certain notes or bonds issued
by the U.S. Government or its agencies or instrumentalities. For certain
securities law purposes, custodial receipts are not considered U.S. Government
securities.
Mortgage-Backed and Asset-Backed Securities
The Funds may invest in mortgage-backed securities, which represent direct or
indirect participations in, or are collateralized by and payable from, mortgage
loans secured by real property. These include collateralized mortgage
obligations ("CMOs") and various "stripped" mortgage-backed securities ("SMBS").
CMOs are issued in multiple classes, each with a specified fixed or adjustable
interest rate and final maturity date. Principal payments may be made to the
various classes in either a sequential order or simultaneously. SMBS typically
are issued in two classes, with one receiving only interest payments from a pool
of mortgage loans ("IOs") and the other receiving only principal payments
("POs"). The Funds may also invest in asset-backed securities, which represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sales, installment loan contracts, leases of various types
of real and personal property and receivables from revolving credit (credit
card) agreements and other categories of receivables. Such securities are
generally issued by trusts and special purpose corporations.
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Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying mortgage-backed and
asset-backed securities can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Accordingly,
the market values of such securities will vary with changes in market interest
rates generally and in yield differentials among various kinds of U.S.
Government securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities because asset-backed securities generally do not have
the benefit of a security interest in collateral that is comparable to mortgage
assets. In addition, there is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
Interest Rate, Mortgage and Currency Swaps and Interest Rate Caps and Floors
The Fixed Income Funds may enter into interest rate, mortgage and currency swaps
for hedging and non-hedging purposes. The Fixed Income Funds may also enter into
other types of interest rate swap arrangements such as caps and floors. A Fund
will typically use interest rate swaps to adjust the effective duration of its
portfolio, to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities
the Fund anticipates purchasing at a future date. Interest rate swaps involve
the exchange by a Fund with another party of their respective commitments to pay
or receive interest, such as an exchange of fixed rate payments for floating
rate payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The principal amount,
however, is tied to a reference pool or pools of mortgages. Currency swaps
involve the exchange of rights to make or receive payments in specified
currencies. In a typical cap or floor arrangement, one party agrees to make
payments only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate falls
below an agreed upon level. Since interest rate and currency swaps and interest
rate caps and floors are individually negotiated, the Funds would enter into
such arrangements in the expectation of achieving an acceptable degree of
correlation between their hedged portfolio investments and their interest rate
and currency swap positions.
The Funds will enter into interest rate and mortgage swaps only on a net basis,
which means that the two payment streams are netted out, with a Fund receiving
or paying, as the case may be, only the net amount of the two payments. Interest
rate and mortgage swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate and mortgage swaps is limited to the net amount of interest
payments that a Fund is contractually obligated to make. If the other party to
an interest rate or mortgage swap defaults, a Fund's risk of loss consists of
the net amount of interest payments that the Fund is contractually entitled to
receive. The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each interest rate swap, mortgage swap, and
interest rate caps and floors, will be accrued on a daily basis, and an amount
of cash or liquid securities having an aggregate net asset value at least equal
to such accrued excess will be maintained in a segregated account, which will be
marked to market daily, by the Fund's custodian. In contrast, currency swaps
usually involve the delivery of the entire principal amount of one designated
currency in exchange for the other designated currency. Therefore, the entire
principal value of a currency
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swap is subject to the risk that the other party to the swap will default on its
contractual delivery obligations. A Fund will segregate, in an account
maintained by the Fund's custodian, an amount of cash or liquid securities
having an aggregate net asset value equal to the entire amount of the Fund's
obligation in a currency swap.
The use of interest rate, mortgage and currency swaps and interest rate caps and
floors is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Adviser is incorrect in its forecasts of market values,
interest rates or currency exchange rates, the investment performance of a Fund
may be less favorable than it would have been if these investment techniques
were not used.
Convertible Securities and Preferred Stocks
Subject to their investment policies, the Funds may invest in convertible
securities, which may include corporate notes or preferred stock but are
ordinarily long-term debt obligations of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all fixed income
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities generally rank senior to common stocks in an issuer's
capital structure and are consequently of higher quality and entail less risk
than the issuer's common stock. However, the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. In evaluating a
convertible security, the Adviser will give primary emphasis to the
attractiveness of the underlying common stock. The convertible debt securities
in which each Fund may invest are subject to the same rating criteria as the
Fund's investments in non-convertible securities.
Diversification
Each of the Fixed Income Funds is "non-diversified" under the 1940 Act.
Accordingly, they are subject only to certain federal tax diversification
requirements and to the policies adopted by the Adviser. With respect to 50% of
its total assets, each Fixed Income Fund may invest up to 25% of its total
assets in the securities of any one issuer (except that this limitation does not
apply to U.S. Government securities). With respect to the remaining 50% of its
total assets, a Fixed Income Fund may not invest more than 5% of its total
assets in the securities of any one issuer (except U.S. Government securities)
nor acquire more than 10% of the outstanding voting securities of any issuer.
These federal tax diversification requirements (which also apply to the Equity
Funds) apply only at taxable quarter-ends and are subject to certain
qualifications and exceptions. To the extent that a Fixed Income Fund does not
meet standards for being "diversified" under the 1940 Act, it will be more
susceptible to developments affecting any single issuer of portfolio securities.
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Temporary Defensive Investments
For temporary defensive purposes, each of the Funds may invest all or part of
its portfolio in U.S. or, subject to tax requirements, Canadian currencies, U.S.
Government securities maturing within one year (including repurchase agreements
collateralized by such securities), commercial paper of U.S. or foreign issuers,
and cash equivalents.
Commercial paper represents short-term unsecured promissory notes issued in
bearer form by U.S. or foreign corporations and finance companies. The
commercial paper purchased by the Funds consists of U.S. dollar-denominated
obligations of domestic or foreign issuers. Each Fund may also invest in
commercial paper which at the date of investment is rated at least A-2 by
Standard & Poor's or P-2 by Moody's, or their equivalent ratings, or, if not
rated, is issued or guaranteed as to payment of principal and interest by
companies which are rated, at the time of purchase, A or better by Standard &
Poor's or Moody's, or their equivalents, and other debt instruments, including
unrated instruments, not specifically described if such instruments are deemed
by the Adviser to be of comparable quality.
Cash equivalents include obligations of banks which at the date of investment
have capital, surplus and undivided profits (as of the date of their most
recently published financial statements) in excess of US$ 100 million. Bank
obligations in which the Funds may invest include certificates of deposit,
bankers' acceptances and fixed time deposits. Bank obligations also include U.S.
dollar-denominated obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks, all of the same type as domestic bank obligations. A
Fund will invest in the obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks only when the Adviser determines that the credit risk
with respect to the instrument is minimal.
Additional Investment Techniques
Mortgage Dollar Rolls. The Funds may enter into mortgage "dollar rolls" in which
a Fund sells securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, a Fund forgoes
principal and interest paid on the securities. A Fund is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") or fee income as well as by
the interest earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of dollar roll for which there is an offsetting cash position
or a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. The Funds may enter into both
covered and uncovered rolls.
When-Issued Securities and Forward Commitments. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase. When-issued securities or forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. When a Fund purchases securities on a
forward commitment or when-issued basis, the Fund's custodian will maintain in a
segregated account cash or liquid securities having a value (determined daily)
at least equal to the amount of the Fund's purchase commitment.
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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).
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.
Illiquid Securities. Each Fund will not invest more than 15% of its net assets
in illiquid securities, which include repurchase agreements and fixed time
deposits maturing in more than seven days and securities that are not readily
marketable.
Lending Securities. For the purpose of realizing income, each Fund may lend to
broker-dealers portfolio securities amounting to not more than 33 1/3% of its
total assets taken at current value. These transactions must be fully
collateralized at all times but involve some credit risk to a Fund if the other
party should default on its obligation and the Fund is delayed in or prevented
from recovering the collateral. Voting rights with respect to a portfolio
security pass to the borrower when the security is loaned by a Fund, but the
Trustees (or the Adviser) are required to call the loan if necessary to vote on
a material event affecting the Fund's investment in the loaned security.
Other Investment Companies. Each Fund may invest up to 10% of its total assets,
calculated at the time of purchase, in the securities of other 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.
ADDITIONAL INVESTMENT INFORMATION
Investment Restrictions
Each Fund has adopted certain fundamental investment restrictions which are
described in detail in the Statement of Additional Information. Those investment
restrictions designated as fundamental in the Statement of Additional
Information can be changed only with shareholder approval. Each Fund's
investment objective and all other investment restrictions and policies are
nonfundamental and can be changed by the Board of Trustees of the Trust at any
time without shareholder approval.
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Each Fund has fundamental investment restrictions with respect to borrowing,
lending, diversification of investments, senior securities, pledging of assets,
underwriting, real estate investments and commodities. See "Investment
Restrictions" in the Statement of Additional Information.
Portfolio Transactions
The Adviser is responsible for making specific decisions to buy and sell
portfolio securities for the Funds. The Adviser is also responsible for
selecting brokers and dealers to effect these transactions and negotiating, if
possible, brokerage commissions and dealers' charges. The Funds generally
purchase and sell foreign securities in foreign countries, since the best
available market for foreign securities is often on foreign markets. In
transactions on foreign markets, brokerage commissions generally are fixed and
are often higher than in the United States where commissions are negotiated. In
the over-the-counter markets, securities generally are traded on a net basis
with the dealers acting as principal for their own accounts without a stated
commission.
The primary consideration in selecting broker-dealers to execute portfolio
security transactions is the execution of such portfolio transactions at the
most favorable prices. Consideration may also be given to the broker-dealer's
sale of shares of the Funds. Subject to this requirement and the provisions of
Section 28(e) of the Securities Exchange Act of 1934, as amended, securities may
be bought from or sold to broker-dealers who have furnished statistical,
research and other information or services to the Adviser. Higher commissions
may be paid to broker-dealers that provide research services. See "Portfolio
Transactions and Brokerage Commissions" in the Statement of Additional
Information for a more detailed discussion of portfolio transactions. The
Trustees will periodically review each Fund's portfolio transactions.
Pursuant to procedures established by the Trustees, subject to applicable
regulations, and consistent with the above policy of obtaining the most
favorable overall price, the Adviser may place securities transactions with
brokers with whom it or the Distributor is affiliated.
No Fund will effect principal transactions with an affiliated broker or dealer.
Portfolio Turnover
It is estimated that, under normal circumstances, the portfolio turnover rate of
each of the Equity Funds will not exceed 150%. It is estimated that, under
normal circumstances, the portfolio turnover rate of each of the Fixed Income
Funds will be approximately 200% or higher. A high rate of portfolio turnover
(i.e., 100% or higher) will result in correspondingly higher transaction costs
to a Fund. However, these costs generally are lower for funds that invest in
fixed income securities than for funds that invest in equity securities. A high
rate of portfolio turnover 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, 1997.
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MANAGEMENT OF THE FUNDS
The Board of Trustees of the Trust is responsible for the overall supervision
and management of the Funds. The day-to-day operations of the Funds, including
investment decisions, have been delegated to the Adviser. The Statement of
Additional Information contains general background information regarding each
Trustee and executive officer of the Trust.
The Adviser
MGIS, located at 20 Finsbury Circus, London, England, acts as investment adviser
to each Fund pursuant to the terms of investment advisory contracts between the
Trust, on behalf of each Fund, and MGIS (the "Advisory Contracts"). MGIS is
registered as an investment adviser with the Commission and provides a full
range of international investment advisory services to institutional clients.
All of the outstanding voting stock of MGIS is owned by Morgan Grenfell Asset
Management, Ltd. ("MGAM"), which is a wholly-owned subsidiary of Deutsche Bank
AG, an international commercial and investment banking group. As of December 31,
1997, MGIS managed approximately $15.5 billion in assets.
Under its Advisory Contracts with the Trust, the Adviser manages each Fund's
business and investment affairs. For these services, the Adviser is entitled to
a monthly fee at an annual rate of each Fund's average daily net assets as
follows:
Annual Rate
-----------
Morgan Grenfell International Equity Fund 0.70%
Morgan Grenfell Global Equity Fund 0.70%
Morgan Grenfell European Equity Fund 0.70%
Morgan Grenfell Pacific Basin Equity Fund 0.70%
Morgan Grenfell International Small Cap Equity Fund 1.00%
Morgan Grenfell Japanese Small Cap Equity Fund 1.00%
Morgan Grenfell European Small Cap Equity Fund 1.00%
Morgan Grenfell Emerging Markets Equity Fund 1.00%
Morgan Grenfell 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%
As further described in "Expense Information," the Adviser has voluntarily
agreed to reduce its advisory fee and to make arrangements to limit certain
other expenses of each Fund to the extent necessary to limit the Fund's
operating expenses to a specified percentage of its average net assets. For the
fiscal period ended October 31, 1997, this voluntary agreement was in effect,
and Morgan Grenfell International Equity Fund, Morgan Grenfell European Equity
Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity
Fund, Morgan Grenfell Global Fixed Income Fund, Morgan
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Grenfell International Fixed Income Fund and Morgan Grenfell Emerging Markets
Debt Fund paid advisory fees equal to 0%, 0.43%, 0.13%, 0.88%, 0.81%, 0.38%,
0.09% and 0.99% of their respective average daily net assets. The advisory fees
to which the Adviser is entitled for International Small Cap Equity Fund,
Japanese Small Cap Equity Fund, European Small Cap Equity Fund, Emerging Markets
Equity Fund and Emerging Markets Debt Fund are higher than those for most mutual
funds, but the Trustees believe that these fees are warranted by the resources
needed to evaluate and invest in the particular markets on which these Funds
focus.
Each Fund that has commenced operations is managed by a team of MGIS investment
professionals with expertise in the region(s) and types of investments in which
the Fund invests. For a description of the business experience and other
credentials of each investment professional involved in managing the Funds'
portfolios, see Appendix B to this Prospectus.
The Trust, on behalf of each Fund, is responsible for all of the Fund's expenses
other than those expressly assumed by the Adviser under the terms of the
Advisory Contracts. The expenses borne by each Fund include the Fund's advisory
fee, transfer agent fee and taxes and its proportionate share of custodian fees,
expenses of issuing reports to shareholders, legal fees, auditing and tax fees,
blue sky fees, fees of the Commission, insurance expenses and disinterested
Trustees' fees.
Administrator and Distributor
The Trust has entered into an Administration Agreement with SEI Financial
Management Corporation ("SEI Financial Management" or the "Administrator"), 1
Freedom Valley Drive, Oaks, Pennsylvania 19456-0100. The Administrator generally
assists in all matters relating to the administration of the Funds, including
the coordination and monitoring of any third parties furnishing services to the
Funds, the preparation and maintenance of financial and accounting records, and
the provision of the necessary office space, equipment and personnel to perform
administrative and clerical functions.
Pursuant to the Administration Agreement, SEI Financial Management receives from
all series of the Trust and other funds advised by Morgan Grenfell Capital
Management, Inc. an aggregate monthly fee at the following annual rates of the
aggregate average daily net assets ("aggregate assets") of such funds:
0.10% of aggregate net assets up to $1 billion
0.07% of the next $500 million of aggregate net assets
0.05% of the next $1 billion of aggregate net assets
0.04% of aggregate net assets exceeding $2.5 billion
Each Fund that offers its shares pays the Administrator a minimum annual fee
that currently equals $60,000.
SEI Financial Services Company (the "Distributor"), 1 Freedom Valley Drive,
Oaks, Pennsylvania 19456-0100, serves as the distributor of institutional shares
of the Funds pursuant to a Distribution Agreement with the Trust and assists in
the sale of institutional shares of the Funds.
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Custodian and Transfer Agent
The Trust has entered into a Custodian Agreement with The Northern Trust Company
("Northern Trust" or the "Custodian"), pursuant to which Northern Trust serves
as custodian of the Funds' assets. The Custodian is located at Fifty South
LaSalle Street, Chicago, Illinois 60675.
DST Systems, Inc. (the "Transfer Agent"), 1004 Baltimore, Kansas City , Missouri
64105, serves as the transfer agent of the Funds. The Transfer Agent maintains
the records of each record shareholder's account, processes purchases and
redemptions of the Funds' shares, acts as dividend and distribution disbursing
agent and performs other shareholder servicing functions.
Additional information regarding the services performed by the Administrator,
Distributor, Custodian and Transfer Agent is provided in the Statement of
Additional Information.
PURCHASE OF INSTITUTIONAL SHARES
Institutional shares of any Fund may be purchased by an investor on any Business
Day at the net asset value next determined after receipt of the investor's order
in good order by the Transfer Agent. A "Business Day" means any day on which the
New York Stock Exchange (the "NYSE") is open. Shareholders will be entitled to
dividends payable with respect their shares of a Fund if they are shareholders
of the Fund on the record date for such dividend. There is no sales charge in
connection with purchases of institutional shares. The Trust reserves the right,
in its sole discretion, to reject any purchase offer and to suspend the offering
of shares.
Payments for institutional shares must be denominated in U.S. dollars. The
minimum initial investment for any record shareholder account with a Fund is
US$250,000 and subsequent investments will be accepted in any amount. The Trust
reserves the right to vary the initial investment minimum and to establish
minimums for additional investments at any time. In addition, the Trust may
waive the minimum initial investment requirement for any investor. The Trust
does not issue share certificates.
Purchases by Mail
Institutional shares may be purchased initially by completing the Account
Application accompanying this Prospectus and mailing it, together with a check
in the amount of $250,000 or more drawn on a U.S. bank payable to the
appropriate Fund for each account an investor wishes to open, to:
By Regular Mail: By Overnight Mail:
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Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7 Tower)
1004 Baltimore Kansas City, MO 64105
Third party checks, credit card checks and cash will not be accepted.
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the Transfer Agent, at the above address, a check payable to
the appropriate Fund, along with
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<PAGE>
either (i) a subsequent order form which may be obtained from the Transfer Agent
or (ii) a letter stating the amount of the investment, the name of the Fund and
the account number in which the investment is to be made. Investors should
indicate the name of the appropriate Fund and account number on all
correspondence.
Purchases by Wire
Investors having an account with a commercial bank that is a member of the
Federal Reserve System may purchase institutional shares of any Fund by
requesting their bank to transmit funds by wire to:
United Missouri Bank, N.A.
ABA No. 10-10-00695
For: Account Number 98-7052-395-7
Further Credit: [appropriate Fund name]
The investor's name and account number must be specified in the wire. In
addition, investors should be aware that some banks may charge wire fees.
Initial Purchases: Before making an initial investment by wire, an investor must
first telephone 1-800-407-7301 to be assigned an account number. The investor
may then transmit funds by wire through the wire procedures described above. The
investor's name, account number, taxpayer identification or social security
number, and address must be specified in the wire. In addition, investors making
initial investments by wire must promptly complete the Account Application
accompanying this Prospectus and forward it to the Transfer Agent at:
By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7 Tower)
1004 Baltimore Kansas City, MO 64105
Subsequent Purchases: Additional investments may be made at any time through the
wire procedures described above, which must include the investor's name and
account number.
Reports to Shareholders and Confirmations
Shareholders of each Fund receive an annual report containing audited financial
statements and a semiannual report. All transactions in institutional shares of
a Fund and dividends and distributions paid by a Fund are reflected in
confirmations issued by the Transfer Agent at the time of the transaction and/or
in monthly statements issued by the Transfer Agent. A year-to-date statement
will be provided by the Transfer Agent. Shareholders with inquiries regarding a
Fund may call Morgan Grenfell Investment Trust at 1-800-550-6426 or write to
Morgan Grenfell Investment Trust at P.O. Box 419165, Kansas City, MO 64141-6165.
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Exchange Privilege
The Funds provide a telephone exchange privilege and a written exchange
privilege. Institutional shares of a Fund may be exchanged in amounts as low as
$50,000 for institutional shares of any other Fund or institutional shares of
any Domestic Fund. A shareholder should obtain and read the prospectus relating
to institutional shares of a Domestic Fund and consider its investment
objective, policies and fees before making an exchange into that Fund. Exchanges
will be permitted only in those states in which the relevant fund is available
for sale.
If a shareholder elects the telephone exchange privilege on the Account
Application, the shareholder will be able to effect the exchange of
institutional shares in its account in one Fund for institutional shares in any
other Fund described in this Prospectus by telephone, as long as all accounts
are identically registered. A shareholder can exchange institutional shares by
telephone by calling 1-800-407-7301 before 4:00 p.m., Eastern time, on any
Business Day. Institutional shares exchanged will be valued at their respective
net asset values next determined after the telephone exchange request is
received. Neither the Funds nor their agents will be liable for any loss
incurred by a shareholder as a result of following instructions communicated by
telephone that they reasonably believe to be genuine. To confirm that telephone
exchange requests are genuine, the Funds will employ reasonable procedures such
as providing written confirmation of telephone exchange transactions and tape
recording of telephone exchange requests. If a Fund does not employ such
reasonable procedures, it may be liable for any loss incurred by a shareholder
due to a fraudulent or other unauthorized telephone exchange request. The Funds
reserve the right to refuse any request made by any shareholder.
In addition to using the telephone exchange privilege, shareholders in any of
the Funds may exchange their institutional shares for institutional shares in
any other Fund by submitting a written request, in proper form, to the Transfer
Agent. Institutional shares exchanged in this manner will be valued at their
respective net asset values next determined after the receipt of the written
exchange request.
An exchange is treated a taxable transaction for shareholders that are subject
to tax. Investors will receive 60 days written notice prior to any change in a
Fund's exchange procedures.
REDEMPTION OF INSTITUTIONAL SHARES
How To Redeem
Shareholders may redeem institutional shares of a Fund without charge upon
request on any Business Day by placing redemption requests with the Transfer
Agent prior to 4:00 p.m., Eastern Time. Institutional shares are redeemed at the
net asset value next determined after receipt of the redemption request by the
Transfer Agent. Institutional shares subject to a redemption request will earn
any dividends for which the record date is the day the request is received.
Redemption requests may be made by telephoning Morgan Grenfell Investment Trust
at 1-800-407-7301 or by a written request addressed to the Transfer Agent in
accordance with the procedures set forth below. A written request must specify
the number of institutional shares to be redeemed, the Fund from which
institutional shares are being redeemed, the account number, payment
instructions and the exact registration on the account, and should be forwarded
to the Transfer Agent at:
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By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7 Tower)
1004 Baltimore Kansas City, MO 64105
Signatures must be guaranteed in accordance with the procedures set forth below
under "Payment of Redemption Proceeds." A shareholder may request redemptions by
telephone if the optional telephone redemption privilege is elected on the
Account Application. In order to verify the authenticity of telephone redemption
requests, the Transfer Agent's telephone representatives will request that the
caller provide certain information unique to the account. If the caller is
unable to provide this information, telephone redemption requests will not be
processed and the redemption will have to be completed by mail. As long as the
Transfer Agent's telephone representatives comply with the procedures described
above, neither the Trust nor the Transfer Agent will be liable for any losses
due to fraudulent or unauthorized transactions. Finally, it may be difficult to
implement telephone redemptions in times of drastic economic or market changes.
Payment of Redemption Proceeds
Redemption proceeds ordinarily will be wired to the bank account designated on
the Account Application, unless payment by check has been requested. Normally,
redemption proceeds will be wired within no more than seven days after the
Transfer Agent receives the appropriate redemption request documents, including
any additional documentation that may be required by the Transfer Agent in order
to establish that a redemption request has been properly authorized. Frequently,
redemption proceeds will be wired on the next Business Day after the Transfer
Agent's receipt of such documents. In addition, the payment of redemption
proceeds for institutional shares of a Fund recently purchased by check may be
delayed for up to 15 calendar days from the purchase date. After a wire has been
initiated by the Transfer Agent, neither the Transfer Agent nor the Trust
assumes any further responsibility for the performance of intermediaries or the
shareholder's bank in the transfer process. If a problem with such performance
arises, the shareholder should deal directly with such intermediaries or bank.
Shareholders may request that redemption payments be made by Federal Reserve
wire or Automated Clearing House (ACH) wire. REDEMPTION PAYMENTS MADE BY FEDERAL
RESERVE WIRE CANNOT BE MADE ON FEDERAL HOLIDAYS RESTRICTING WIRE TRANSFERS.
There is no charge for ACH wire transactions; however, such transactions will
not be posted to a shareholder's bank account until the second Business Day
following the transaction.
A shareholder may change the bank designated to receive redemption proceeds by
providing written notice to the Transfer Agent which has been signed by the
shareholder or its authorized representative. This signature must be guaranteed
by a bank, a securities broker or dealer, a credit union having authority to
issue signature guarantees, a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association, a
national securities exchange, a registered securities association or a clearing
agency, provided that such institution satisfies standards established by the
Transfer Agent. The Transfer Agent may also require additional documentation in
connection with a request to change a designated bank.
If the Board of Trustees determines that it is appropriate in order to protect
the best interests of a Fund and its shareholders, the Fund, under the limited
circumstances described below, may satisfy all or part of a redemption request
by delivering portfolio securities to a redeeming investor.
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However, the Trust, on behalf of each Fund, has elected, pursuant to Rule 18f-1
under the 1940 Act, to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder. Only redemptions in excess of this limit may be paid in
kind. In-kind payments would not have to constitute a cross-section of a Fund's
portfolio. Investors receiving redemption payment in portfolio securities will
not have eliminated their investment exposure by their redemption as would
investors receiving their redemption payment in cash. Instead these investors
will be subject to risks inherent in owning such securities, including market
value and currency fluctuations, difficulties in selling securities in
particular markets and repatriating the sales proceeds, and the political and
other risks described under "Description of Securities and Investment Techniques
and Related Risks - Foreign Securities." In addition, a shareholder generally
will incur additional expenses, such as brokerage commissions and currency
conversion fees or expenses, on the sale or other disposition of securities
received from a Fund. Any portfolio securities paid or distributed to a
redeeming shareholder would be valued as described under "Net Asset Value."
NET ASSET VALUE
The net asset value per share of each Fund is normally calculated as of the
close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on each
Business Day. The net asset value of each class of a Fund's shares is determined
by adding the value of all securities, cash and other assets of the Fund
attributable to such class, subtracting liabilities (including accrued expenses
and dividends payable) attributable to such class and dividing the result by the
total number of outstanding Fund shares of such class.
For purposes of calculating each Fund's net asset value per share, equity
securities traded on a recognized foreign or U.S. securities exchange are valued
at their last sale price on the principal exchange on which they are traded on
the valuation day prior to the time of valuation or, if no sale prior to the
time of valuation occurs, at the bid price. Unlisted equity securities for which
current market quotations are readily available are valued at their most recent
bid price prior to the time of valuation. Debt securities and other fixed-income
investments owned by the Funds are valued at prices supplied by independent
pricing agents, which prices reflect broker-dealer supplied valuations and
electronic data processing techniques. Short-term obligations maturing in sixty
days or less may be valued at amortized cost, which does not take into account
unrealized gains or losses on portfolio securities. Amortized cost valuation
involves initially valuing a security at its cost, and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the security's market value. While this
method provides certainty in valuation, it may result in periods in which the
value of the security, as determined by the amortized cost method, may be higher
or lower than the price a Fund would receive if the Fund sold the security.
Other assets and assets whose market value does not, in the opinion of the
Adviser, reflect fair value are valued at fair value using methods determined in
good faith by the Board of Trustees.
Certain portfolio securities held by each Fund are listed on foreign exchanges
which trade at times and on days when the NYSE is closed. As a result, the net
asset value of each class of each Fund may be significantly affected by such
trading at times and on days when shareholders have no ability to redeem shares
of the Fund.
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<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares and pays dividends from net investment income, if any, and
distributes net short-term capital gain, if any, at least annually. Each Fund
also distributes at least annually substantially all of the net long-term
capital gain, if any, which it realizes for each taxable year and may make
distributions at any other times when necessary to satisfy applicable tax
requirements. Capital losses, including any capital loss carryovers from prior
years, are taken into account in determining the amounts of short-term and
long-term capital gains to be distributed. From time to time, a portion of a
Fund's distributions may constitute a return of capital for tax purposes.
Dividends and distributions are made in additional institutional shares of the
same Fund or, at the shareholder's election, in cash. The election to reinvest
dividends and distributions or receive them in cash may be changed at any time
upon written notice to the Transfer Agent. If no election is made, all dividends
and capital gain distributions will be reinvested.
Taxes
Each Fund is treated as a separate entity for federal income tax purposes and
has elected or intends to elect to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and to qualify for such treatment for each taxable year. To qualify as
a regulated investment company, each Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders. As a regulated investment company, a
Fund will not be subject to federal income or excise tax on any net investment
income or net realized capital gain that is distributed to its shareholders in
accordance with certain timing and other requirements of the Code.
Dividends paid by a Fund from its net investment income, certain net realized
foreign exchange gains, and the excess of net short-term capital gain over net
long-term capital loss will be taxable to shareholders as ordinary income.
Dividends paid by a Fund from any excess of net long-term capital gain over net
short-term capital loss will be taxable to a shareholder as capital gain
regardless of how long the shareholder has held its shares. It is anticipated
that future tax regulations implementing federal tax legislation enacted on
August 5, 1997 will provide that distributions of long-term capital gains to
individuals or other noncorporate taxpayers will be subject to different maximum
tax rates, depending on the dates on which the gains are recognized and the
applicable Fund's holding periods for the assets that produce the gains. These
tax consequences will apply regardless of whether distributions are received in
cash or reinvested in shares. Certain distributions declared in October,
November or December and paid in January of the following year are taxable to
shareholders as if received on December 31 of the year in which they are
declared.
Shareholders will be informed annually about the amount and character of
distributions received from a Fund for federal income tax purposes and foreign
taxes, if any, passed through to shareholders, as described below.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on dividends, redemptions and exchanges
if they fail to furnish their correct taxpayer identification number and certain
certifications or if they are otherwise subject to backup
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withholding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject to
non-resident alien withholding tax at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends from a
Fund and, unless a current IRS Form W-8 or acceptable substitute for Form W-8 is
on file, to backup withholding on certain other payments from a Fund.
Because each Fund invests in foreign securities, it may be subject to foreign
withholding or other foreign taxes on income earned on such securities (possibly
including, in some cases, capital gains). In any year in which any of the Funds
qualifies, it may make an election that would generally permit its shareholders
to take a credit or a deduction for their proportionate shares of qualified
foreign taxes paid by such Fund, subject to applicable holding period
requirements and other restrictions or limitations under the Code. Each such
shareholder would then treat as additional income (in addition to actual
dividends and distributions) his or her proportionate share of the amount of
qualified foreign taxes paid by such Fund. For some years, a Fund may be unable
or may not elect to pass such taxes and foreign tax credits and deductions with
respect to such taxes through to its shareholders.
Investors should consider the tax implications of buying institutional shares
immediately prior to a distribution. Investors who purchase institutional shares
shortly before the record date for a distribution will pay a per share price
that includes the value of the anticipated distribution and will be taxed on any
taxable distribution even though the distribution represents a return of a
portion of the purchase price.
Redemptions and exchanges of institutional shares are taxable events for
shareholders that are subject to tax.
In addition to federal taxes, a shareholder may be subject to state, local or
foreign taxes on dividends, capital gain distributions, or the proceeds of
redemptions or exchanges. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent
distributions of a Fund are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. Government Securities, provided in some states that certain thresholds for
holdings of U.S. Government Securities and/or reporting requirements are
satisfied. The Funds may not satisfy such requirements in some states or
localities. Shareholders should consult their tax advisors regarding the
application to them of the federal tax legislation referred to above and any
other specific questions about federal, state, local or foreign taxes and
special rules that may be applicable to certain classes of investors, such as
retirement plans, financial institutions, tax-exempt entities, insurance
companies and non-U.S. persons.
ORGANIZATION AND SHARES OF THE TRUST
The Trust was formed as a business trust under the laws of the State of Delaware
on September 13, 1993, and commenced investment operations on January 3, 1994.
The Board of Trustees of the Trust is responsible for the overall management and
supervision of the affairs of the Trust. The Declaration of Trust authorizes the
Board of Trustees to create separate investment series or portfolios of shares.
As of the date hereof, the Trustees have established the thirteen Funds
described in this Prospectus 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
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the date hereof, the Trustees have established two classes of shares:
institutional shares and service shares.
The shares of each class represent an interest in the same portfolio of
investments of a Fund. Each class has equal rights to voting, redemption,
dividends and liquidation , except that only service shares bear service fees
and each class may bear other expenses properly attributable to the particular
class. Also, holders of service shares of each Fund have exclusive voting rights
with respect to the service plan adopted by their Fund.
When issued, shares of the Funds are fully paid and nonassessable. In the event
of liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to shareholders. Shares of the
Funds entitle their holders to one vote per share, are freely transferable and
have no preemptive, subscription or conversion rights.
Shares of a Fund will be voted separately with respect to matters pertaining to
that Fund except for the election of Trustees and the ratification of
independent accountants. For example, shareholders of each Fund are required to
approve the adoption of any investment advisory agreement relating to such Fund
and any change in the fundamental investment restrictions of such Fund. Approval
by the shareholders of one Fund is effective only as to that Fund. The Trust
does not intend to hold shareholder meetings, except as may be required by the
1940 Act. The Trust's Declaration of Trust provides that special meetings of
shareholders shall be called for any purpose, including the removal of a
Trustee, upon written request of shareholders entitled to vote at least 10% of
the outstanding shares of the Trust, or Fund, as the case may be. In addition,
if ten or more shareholders of record who have held shares for at least six
months and who hold in the aggregate either shares having a net asset value of
$25,000 or 1% of the outstanding shares, whichever is less, seek to call a
meeting for the purpose of removing a Trustee, the Trust has agreed to provide
certain information to such shareholders and generally to assist their efforts.
As of January 30, 1998, the James R. Trueman Irrev. Subchapter S Trust owned
beneficially 29.15% of the outstanding shares of the International Fixed Income
Fund, the TRW Master Trust owned beneficially 63.17% and the Pitney Bowes
Retirement Plan owned beneficially 36.81% of the outstanding shares of the
European Small Cap Equity Fund, the Motorola Pension Fund owned beneficially
31.86% and the Motorola Employees Savings & Profit Sharing Trust owned
beneficially 29.42% and the Public Employees' Retirement Association owned
beneficially 28.94% of the outstanding shares of the Emerging Markets Equity
Fund, the Louisiana Municipal Police Employees Retirement System owned
beneficially 98.09% of the outstanding shares of the European Equity Fund, and
Morgan Grenfell Capital Management, Inc. owned beneficially 64.62% and Deutsche
Morgan Grenfell C. J. Lawrence Inc. owned beneficially 27.96% of the outstanding
shares of the International Equity Fund, and Delta Airlines, Inc. Master
Retirement Trust owned beneficially 45.31% of the outstanding shares of the
International Small Cap Equity Fund.
Certain of the Trustees and officers of the Trust reside outside the United
States, and substantially all the assets of these persons are located outside
the United States. It may not be possible, therefore, for investors to effect
service of process within the United States upon these persons or to enforce
against them, in United States courts or foreign courts, judgments obtained in
United States courts predicated upon the civil liability provisions of the
federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws. See "Trustees and Officers" in the Statement of
Additional Information.
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As of the date of this Prospectus, the Administrator owned 100% of the
outstanding shares of Global Equity Fund, Pacific Basin Equity Fund and Japanese
Small Cap Equity Fund.
PERFORMANCE INFORMATION
From time to time, performance information, such as total return and yield for a
institutional shares of a Fund, may be quoted in advertisements or in
communications to shareholders. A Fund's total return may be calculated on an
annualized and aggregate basis for various periods (which periods will be stated
in the advertisement). Average annual return reflects the average percentage
change per year in value of an investment in institutional shares of a Fund.
Aggregate total return reflects the total percentage change over the stated
period. In calculating total return, dividends and capital gain distributions
made by the Fund during the period are assumed to be reinvested in the Fund's
institutional shares. A Fund's yield reflects a Fund's overall rate of income on
portfolio investments as a percentage of the institutional share price. Yield is
computed by annualizing the result of dividing the net investment income per
institutional share over a 30-day period by the net asset value per
institutional share on the last day of that period.
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding the Fund may discuss
performance as reported by various financial publications. The performance of a
Fund may be compared in publications to the performance of various indices and
investments for which reliable performance data is available. In addition, the
performance of a Fund may be compared in publications to averages, performance
rankings or other information prepared by recognized mutual fund statistical
services.
Performance quotations of a Fund represent the Fund's past performance and,
consequently, should not be considered representative of the future performance
of the Fund. The value of institutional shares, when redeemed, may be more or
less than the original cost. Any fees charged by banks or other institutional
investors directly to their customer accounts in connection with investments in
institutional shares of a Fund are not at the direction or within the control of
the Funds and will not be included in the Funds' calculations of total return.
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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.
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Ca--Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Standard & Poor's Ratings Group ("Standard & Poor's") describes
classifications of fixed income securities (not including commercial paper) as
follows:
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from the AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Debt rated BB, B, CCC or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
D--Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
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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*:
Percentage of
Standard & Poor's (Moody's) Ratings Total Investments
- ----------------------------------- -----------------
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%
* 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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APPENDIX B
PORTFOLIO MANAGER INFORMATION
Funds Portfolio Managers
- ----- ------------------
Morgan Grenfell International Equity Fund Patrick Disney
Patrick Deane
Alex Tedder
Graham Bamping
William Thomas
Morgan Grenfell Global Equity Fund Patrick Disney
Patrick Deane
Alex Tedder
Graham Bamping
William Thomas
David Heape
Morgan Grenfell European Equity Fund Richard Wilson
Marco Ricci
Morgan Grenfell Pacific Basin Equity Fund Graham Bamping
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
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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
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
Graham Bamping Pacific Basin Director, Morgan Grenfell
Equity Markets Investment Services ("MGIS")
(since 1987); Portfolio Manager,
Pacific Basin (since 1989);
Portfolio Manager, Singapore
(1981-1983); Research, Far East
(1980- 1981); Research, UK
(1978-1980).
Richard Curling European Equities Director, MGAM (since 1996);
Director, MGIM (since 1989); Fund
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).
- --------------------------------------------------------------------------------
Page 50
<PAGE>
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, MGCM (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).
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).
- --------------------------------------------------------------------------------
Page 51
<PAGE>
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 Portfolio Manager, European
Markets Equities Emerging Markets, MGIS (since
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
Markets, Small 1996); Portfolio Manager, Finsbury
Capitalization Asset Management (1993-1995);
Companies Manager, Barclays De Zoette Wedd
(1991-1992); Manager, KPMG Peat
Marwick (1986- 1991).
Andrew Williamson Emerging Markets - Fund Manager, MGIS (since 1996);
South Africa Morgan Grenfell & Co.
(1993 - 1996).
- --------------------------------------------------------------------------------
Page 52
<PAGE>
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).
- --------------------------------------------------------------------------------
Page 53
<PAGE>
APPENDIX C
TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of
redemptions and exchanges be reported to the IRS and that 31% be withheld if you
fail to provide your correct Taxpayer Identification Number (TIN) and the
certifications in Section H or you are otherwise subject to backup withholding.
Amounts withheld and forwarded to the IRS can be credited as a payment of tax
when completing your Federal income tax return.
For most individual taxpayers, the TIN is the social security number.
Special rules apply for certain accounts. For example, for an account
established under the Uniform Gift to Minor's Act, the TIN of the minor should
be furnished. If you do not have a TIN, you may apply for one using forms
available at local offices of the Social Security Administration or the IRS.
Recipients exempt from backup withholding, including corporations and
certain other entities, should provide their TIN and write "exempt" after their
signature in section H of the application to avoid possible erroneous
withholding. Non-resident aliens and foreign entities may be subject to
withholding of up to 30% on certain distributions received from the Funds and
must provide certain certifications on IRS Form W-8 to avoid backup withholding
with respect to other payments. For further information, see Internal Revenue
Code Sections 1441, and 1442 and 3406 and/or consult your tax adviser.
- --------------------------------------------------------------------------------
Page 54
<PAGE>
Morgan Grenfell Investment Trust
885 Third Avenue
New York, New York 10022
Investment Adviser
Morgan Grenfell Investment Services Limited
20 Finsbury Circus
London, England EC2M 1NB
Administrator and Shareholder
Servicing Agent
SEI Financial Management Corporation
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Distributor
SEI Financial Services Company
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Custodian
The Northern Trust Company
Fifty South LaSalle Street
Chicago, Illinois 60675
Transfer Agent
DST Systems, Inc.
SEI Division CT-7 Tower
1004 Baltimore
Kansas City, Missouri 64105
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Service Information
Existing accounts, new accounts, prospectuses,
Statements of Additional Information
applications, and service forms - 1-800-550-6426
Telephone Exchanges - 1-800-407-7301
Share Price and Performance
Information - 1-800-550-6426
- --------------------------------------------------------------------------------
Page 55
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
Institutional Shares
No-Load Open-End Funds
885 Third Avenue
New York, New York 10022
February 25, 1998
(Revised March 6, 1998)
Morgan Grenfell Investment Trust (the "Trust") is an open-end management
investment company consisting of a number of investment portfolios. This
Prospectus offers institutional shares of the following investment portfolios of
the Trust: Morgan Grenfell Fixed Income Fund, Morgan Grenfell Municipal Bond
Fund, Morgan Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term
Municipal Bond Fund, Morgan Grenfell Total Return Bond Fund, Morgan Grenfell
High Yield Bond Fund, Morgan Grenfell Smaller Companies Fund, Morgan Grenfell
Microcap Fund and Morgan Grenfell Large Cap Growth Fund (each a "Fund"). Each
Fund other than Morgan Grenfell Total Return Bond Fund is diversified.
Information concerning investment portfolios of the Trust that focus on
international investments (the "International Funds") is contained in a separate
prospectus that may be obtained by calling 1-800-550-6426.
----------------------------------------
This Prospectus provides information about the Trust and each of the Funds that
investors should know before investing in institutional shares of the Funds.
Investors should carefully read this Prospectus and retain it for future
reference. For investors seeking more detailed information, the Statement of
Additional Information dated February 25, 1998, as amended or supplemented from
time to time, is available upon request without charge by calling 1-800-550-6426
or by writing to SEI Financial Services Company, 1 Freedom Valley Drive, Oaks,
Pennsylvania 19456-0100. The Statement of Additional Information, which is
incorporated by reference into this Prospectus, has been filed with the
Securities and Exchange Commission (the "Commission"). Not all of the Funds are
available in certain states. Please call 1-800-550-6426 to determine
availability in a particular state.
----------------------------------------
INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
MORGAN GRENFELL HIGH YIELD BOND FUND MAY INVEST UP TO 100% OF ITS ASSETS IN
LOWER QUALITY BONDS, COMMONLY KNOWN AS "JUNK BONDS." MORGAN GRENFELL TOTAL
RETURN BOND FUND MAY INVEST UP TO 15% OF ITS ASSETS IN SUCH BONDS. THESE
INVESTMENTS ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN INVESTMENTS IN
HIGHER QUALITY BONDS. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING IN THESE FUNDS. SEE "INVESTMENT OBJECTIVES AND POLICIES" AND
"DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES AND RELATED RISKS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Page 1
<PAGE>
The investment objective of Morgan Grenfell Fixed Income Fund and Morgan
Grenfell Short-Term Fixed Income Fund is to seek a high level of income
consistent with the preservation of capital. The investment objective of Morgan
Grenfell Municipal Bond Fund and Morgan Grenfell Short-Term Municipal Bond Fund
is to seek a high level of income exempt from federal income tax, consistent
with the preservation of capital. The investment objective of Morgan Grenfell
Total Return Bond Fund is to maximize total return consistent with the
preservation of capital. The investment objective of the Morgan Grenfell High
Yield Bond Fund is to seek high current income and, as a secondary objective,
capital growth. The primary investment objective of Morgan Grenfell Smaller
Companies Fund and Morgan Grenfell Large Cap Growth Fund is to maximize capital
appreciation. The sole objective of Morgan Grenfell Microcap Fund is to maximize
capital appreciation.
Each Fund's primary investments are summarized below:
Morgan Grenfell Fixed Income Fund invests primarily in U.S. dollar-denominated
debt securities, including U.S. and non-U.S. government securities, corporate
debt securities and debentures, mortgage-backed and asset-backed securities and
taxable municipal debt securities, and repurchase agreements with respect to the
foregoing. The Fund expects to maintain a dollar weighted effective average
portfolio maturity of between five and ten years.
Morgan Grenfell Municipal Bond Fund invests primarily in municipal debt
securities that pay interest exempt from U.S. federal income tax. The Fund
expects to maintain a dollar weighted effective average portfolio maturity of
between five and ten years.
Morgan Grenfell Short-Term Fixed Income Fund invests in the same types of
securities as Morgan Grenfell Fixed Income Fund, but expects to maintain a
dollar weighted effective average portfolio maturity of no longer than three
years.
Morgan Grenfell Short-Term Municipal Bond Fund invests in the same types of
securities as Morgan Grenfell Municipal Bond Fund, but expects to maintain a
dollar weighted effective average portfolio maturity of no longer than three
years.
Morgan Grenfell Total Return Bond Fund invests primarily in U.S.
dollar-denominated, investment grade bonds of domestic and foreign issuers. The
Fund may invest up to 20% of its assets in securities denominated in foreign
currencies and up to 15% of its assets in certain below investment grade
securities. The Fund expects to maintain a dollar weighted effective average
portfolio maturity of between five and ten years.
Morgan Grenfell High Yield Bond Fund invests primarily in U.S.
dollar-denominated bonds that are below investment grade. The Fund expects to
maintain a dollar weighted effective average portfolio maturity of between five
and ten years.
Morgan Grenfell Smaller Companies Fund invests primarily in equity and
equity-related securities of small capitalization U.S. companies.
Morgan Grenfell Microcap Fund invests primarily in equity and equity-related
securities of micro capitalization U.S. companies. Micro capitalization or
"microcap" companies are the smallest capitalization U.S. companies.
Morgan Grenfell Large Cap Growth Fund invests primarily in equity and
equity-related securities of large capitalization U.S. companies.
- --------------------------------------------------------------------------------
Page 2
<PAGE>
TABLE OF CONTENTS
Page
Expense Information 4
Financial Highlights 6
Introduction to the Funds 8
Risk Factors 9
Investment Objectives and Policies 10
Description of Securities and Investment Techniques
and Related Risks 16
Additional Investment Information 25
Management of the Funds 27
Purchase of Institutional Shares 29
Redemption of Institutional Shares 32
Net Asset Value 33
Dividends, Distributions and Taxes 34
Organization and Shares of the Trust 36
Performance Information 37
Appendix A (The Adviser's Microcap Investment Results) 39
Appendix B (Tax Certification Instructions) 41
- --------------------------------------------------------------------------------
Page 3
<PAGE>
EXPENSE INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Short- Total High Large
Fixed Fixed Term Return Yield Smaller Cap
Income Municipal Income Municipal Bond Bond Companies Microcap Growth
Shareholder Transaction Expenses Fund Bond Fund Fund Bond Fund Fund* Fund* Fund Fund Fund*
------ --------- ----------- --------- ------- ------- --------- -------- ------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge
Imposed on Purchases .............. None None None None None None None None None
Maximum Sales Charge
Imposed on Reinvested Dividends ... None None None None None None None None None
Deferred Sales Charge Imposed
on Redemptions ................... None None None None None None None None None
Exchange Fee ...................... None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net assets)
Advisory fees ..................... 0.40% 0.40% 0.40% 0.40% 0.45% 0.50% 1.00% 1.50% 0.75%
Other Expenses .................... 0.20% 0.21% 0.69% 0.62% 0.31% 0.31% 1.63% 1.75% 0.48%
Reduction of Advisory Fee
and Expense Limitation
by Adviser ** ..................... (0.05)% (0.06)% (0.54)% (0.47)% (0.16)% (0.16)% (1.38)% (1.76)% (0.23)%
Net Fund Operating Expenses
(after advisory fee reduction
and expense limitation) **......... 0.55% 0.55% 0.55% 0.55% 0.60% 0.65% 1.25% 1.49%*** 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total Return Bond Fund, High Yield Bond Fund and Large Cap Growth Fund were
not operational during the fiscal year ended October 31, 1997.
** 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 institutional shares of each Fund, on an annualized
basis, to the specified percentages of each Fund's assets shown in the
above table as Net Fund Operating Expenses. The above table and the
following example reflect this voluntary agreement. In its sole discretion,
the Adviser may terminate or modify this voluntary agreement at any time
after October 31, 1998. The purpose of the voluntary agreement is to
enhance a Fund's total return during the period when, because of its
smaller size, fixed expenses have a more significant impact on total
return. After giving effect to the Adviser's voluntary agreement, each
Fund's advisory fee is as follows: Fixed Income Fund 0.35%, Municipal Bond
Fund 0.33%, Short-Term Fixed Income Fund 0%, Short-Term Municipal Bond Fund
0%, Total Return Bond Fund 0.29%, High Yield Bond Fund 0.34%, Smaller
Companies Fund 0%, Microcap Fund 0.0% and Large Cap Growth Fund 0.52%; and
the Other Expenses of each of Short-Term Fixed Income Fund and Short-Term
Municipal Bond Fund, Smaller Companies Fund and Microcap Fund are equal to
the respective amounts shown in the above table as Net Fund Operating
Expenses. If the Adviser's voluntary agreement was not in effect, the Fund
Operating Expenses for institutional shares of each Fund would be as
follows: Fixed Income Fund 0.60%, Municipal Bond Fund 0.61%, Short-Term
Fixed Income Fund 1.09%, Short-Term Municipal Bond Fund 1.02%, Total Return
Bond Fund 0.76%, High Yield Bond Fund 0.81%, Smaller Companies Fund 2.63%,
Microcap Fund 3.39% and Large Cap Growth Fund 1.23%.
*** Effective June 23, 1997, the Microcap Fund reduced the net Fund operating
expenses to 1.49%.
- --------------------------------------------------------------------------------
Page 4
<PAGE>
Example:
Investors in institutional shares would pay the following expenses on a
$1,000(1) investment assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
1 3 5 10
Year Years Years Years
---- ----- ----- -----
Morgan Grenfell Fixed Income Fund $ 6 $18 $31 $ 69
Morgan Grenfell Municipal Bond Fund $ 6 $18 $31 $ 69
Morgan Grenfell Short-Term Fixed Income Fund $ 6 $18 $31 $ 69
Morgan Grenfell Short-Term Municipal Bond Fund $ 6 $18 $31 $ 69
Morgan Grenfell Total Return Bond Fund $ 6 $19 $33 $ 75
Morgan Grenfell High Yield Bond Fund $ 7 $21 $36 $ 81
Morgan Grenfell Smaller Companies Fund $13 $40 $69 $151
Morgan Grenfell Microcap Fund $15 $47 $81 $178
Morgan Grenfell Large Cap Growth Fund $10 $32 $55 $122
(1) The minimum initial investment required for institutional shares of each
Fund is $250,000. Exchanges may be made in amounts as low as $50,000. See
"Purchase of Shares--Exchange Privilege."
The purpose of the Expense Information Table and Example is to assist investors
in understanding the various direct and indirect costs and expenses that an
investment in institutional shares of a Fund will bear. "Other Expenses"
included in the Expense Information Table and Example for each Fund other than
Morgan Grenfell Total Return Bond Fund, Morgan Grenfell High Yield Bond Fund and
Morgan Grenfell Large Cap Growth Fund are estimates for the fiscal year ending
October 31, 1998 that are based on actual expenses incurred during the fiscal
year ended October 31, 1997. "Other Expenses" for Morgan Grenfell Total Return
Bond Fund, Morgan Grenfell High Yield Bond Fund and Morgan Grenfell Large Cap
Growth Fund are based on estimated average net assets for the current fiscal
year ending October 31, 1998. If the average net assets of any of these Funds
exceeds the applicable estimate for such year, then that Fund's "Other Expenses"
(as a percentage of average net assets) will be lower than the rate shown in the
table. Conversely, if any of these Funds' average net assets are lower than the
applicable estimate for such year, then that Fund's "Other Expenses" (as a
percentage of average net assets) will be higher than the rate shown in the
table.
The Example assumes reinvestment of all dividends and distributions and that the
percentage amounts listed in the Expense Information Table remain the same each
year. If the Adviser were to discontinue its voluntary fee reductions, the
expenses contained in the Example could increase.
THE EXAMPLE IS DESIGNED FOR INFORMATION PURPOSES ONLY, AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR RETURN FOR ANY FUND. ACTUAL
EXPENSES AND RETURN VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE
SHOWN. For further information regarding advisory fees and other expenses of the
Funds, see "Management of the Funds."
- --------------------------------------------------------------------------------
Page 5
<PAGE>
FINANCIAL HIGHLIGHTS
Selected audited data for an outstanding institutional share of each Fund other
than Morgan Grenfell Total Return Bond Fund, Morgan Grenfell High Yield Bond
Fund and Morgan Grenfell Large Cap Growth Fund are presented for periods prior
to and ending October 31, 1997. This data, insofar as it relates to the periods
ended October 31, 1995, October 31, 1996 and October 31, 1997, has been audited
by Price Waterhouse LLP, the Funds' independent accountants. The data for
periods prior to and ending October 31, 1994 for Morgan Grenfell Fixed Income
Fund and Morgan Grenfell Municipal Bond Fund have been audited by these Funds'
prior independent accountants. This information should be read in conjunction
with the Funds' audited financial statements as of October 31, 1997 and the
notes thereto, which appear in the Funds' Statement of Additional Information.
The Funds' annual report, which contains additional performance information, and
Statement of Additional Information are available free of charge by calling
1-800-550-6426.
No data is shown below for Morgan Grenfell Total Return Bond Fund, Morgan
Grenfell High Yield Bond Fund or Morgan Grenfell Large Cap Growth Fund because
these Funds had not commenced operations on or prior to October 31, 1997.
- --------------------------------------------------------------------------------
Page 6
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For an Institutional Share Outstanding Throughout Each Period Ended October 31
Net
Net Asset Net Realized Distributions Distributions
Value Investment and from Net from Realized Net Asset
Beginning Income / Unrealized Investment Capital Value End Total
Year of Period (Loss) Gains/(Losses) Income Gains of Period Return
- ---- --------- ------ -------------- ------ ----- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------
Fixed Income Fund
- -------------------------------------
1997 $10.51 $ 0.68 $ 0.25 $(0.68) -- $10.76 9.22%
1996 $10.62 $ 0.68 $(0.04) $(0.68) $(0.07) $10.51 6.27%
1995 $ 9.93 $ 0.70 $ 0.69 $(0.70) -- $10.62 14.53%
1994 $10.95 $ 0.64 $(0.91) $(0.64) $(0.11) $ 9.93 (2.58)%
1993 $ 9.92 $ 0.64 $ 1.03 $(0.64) -- $10.95 17.28%
1992 (1) $10.00 $ 0.06 $(0.08) $(0.06) -- $ 9.92 (1.61)%
- -------------------------------------
Municipal Bond Fund
- -------------------------------------
1997 $10.99 $ 0.57 $ 0.22 $(0.57) $(0.09) $11.12 7.49%
1996 $10.86 $ 0.60 $ 0.13 $(0.60) -- $10.99 6.90%
1995 $10.37 $ 0.61 $ 0.49 $(0.61) -- $10.86 10.90%
1994 $11.36 $ 0.60 $(0.61) $(0.60) $(0.38) $10.37 (0.15)%
1993 $10.56 $ 0.67 $ 0.84 $(0.67) $(0.04) $11.36 14.68%
1992(2) $10.00 $ 0.60 $ 0.56 $(0.60) -- $10.56 13.42%
- ------------------------------------------
Short-Term Fixed Income Fund
- ------------------------------------------
1997 $10.00 $ 0.58 $ 0.06 $(0.58) -- $10.06 6.61%
1996 $10.01 $ 0.60 $(0.01) $(0.60) -- $10.00 6.09%
1995(3) $10.00 $ 0.37 $ 0.01 $(0.37) -- $10.01 3.82%(#)
- ------------------------------------------
Short-Term Municipal Bond Fund
- ------------------------------------------
1997 $10.13 $ 0.52 $ 0.16 $(0.52) $(0.01) $10.28 6.93%
1996 $10.13 $ 0.54 $ 0.04 $(0.54) $(0.04) $10.13 5.90%
1995(4) $10.00 $ 0.30 $ 0.13 $(0.30) -- $10.13 4.39%(#)
- ------------------------------------------
Smaller Companies Fund
- ------------------------------------------
1997 $13.10 $(0.03) $ 2.87 -- $(1.22) $14.72 23.29%
1996 $10.55 $(0.02) $ 2.61 $(0.04) -- $13.10 24.58%
1995(5) $10.00 $ 0.03 $ 0.52 -- -- $10.55 5.50%(#)
- -------------------------------------
Microcap Fund
- -------------------------------------
1997 (6) $10.00 $(0.04) $ 2.66 -- -- $12.62 26.20%(#)
<CAPTION>
Ratio of Net
Ratio of Investment
Expenses Income (Loss)
Ratio of Net to Average to Average
Ratio of Investment Net Assets Net Assets
Net Assets Expenses to Income(Loss) (Excluding (Excluding Portfolio Average
End of Average to Average Expense Expense Turnover Commission
Year Period (000) Net Assets Net Assets Limitations) Limitations) Rate Rate*
- ---- ------------ ---------- ---------- ------------ ------------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------
Fixed Income Fund
- -------------------------------------
1997 $1,103,121 0.55% 6.50% 0.60% 6.45% 178% N/A
1996 $ 758,003 0.55% 6.52% 0.61% 6.46% 176% N/A
1995 $ 494,221 0.54% 6.81% 0.63% 6.72% 182% N/A
1994 $ 239,556 0.54% 6.22% 0.66% 6.10% 251% N/A
1993 $ 147,917 0.55% 6.01% 0.72% 5.84% 196% N/A
1992(1) $ 25,528 0.55% 5.24% 1.66% 4.13% 148% N/A
- -------------------------------------
Municipal Bond Fund
- -------------------------------------
1997 $ 361,461 0.54% 5.19% 0.61% 5.12% 67% N/A
1996 $ 252,152 0.55% 5.50% 0.61% 5.44% 66% N/A
1995 $ 221,058 0.54% 5.75% 0.62% 5.67% 63% N/A
1994 $ 165,677 0.54% 5.60% 0.67% 5.47% 94% N/A
1993 $ 148,022 0.55% 5.94% 0.75% 5.74% 160% N/A
1992(2) $ 94,700 0.55% 6.31% 0.79% 6.07% 143% N/A
- ------------------------------------------
Short-Term Fixed
Income Fund
- ------------------------------------------
1997 $ 17,083 0.53% 5.77% 1.09% 5.21% 186% N/A
1996 $ 6,751 0.53% 6.00% 1.29% 5.24% 124% N/A
1995(3) $ 4,140 0.52% 5.86% 2.84% 3.54% 90% N/A
- ------------------------------------------
Short-Term Municipa
Bond Fund
- ------------------------------------------
1997 $ 19,950 0.53% 5.14% 1.02% 4.65% 95% N/A
1996 $ 9,132 0.53% 5.34% 1.58% 4.29% 129% N/A
1995(4) $ 3,724 0.52% 4.60% 2.16% 2.96% 62% N/A
- ------------------------------------------
Smaller Companies
Fund
- ------------------------------------------
1997 $ 5,724 1.25% (0.29)% 2.63% (1.67)% 122% $0.0552
1996 $ 4,115 1.25% (0.23)% 2.55% (1.53)% 141% $0.0560
1995(5) $ 2,638 1.25% 0.94% 2.28% (0.09)% 23% N/A
- -------------------------------------
Microcap Fund
- -------------------------------------
1997(6) $ 3,276 1.63% (0.49)% 3.39% (2.25)% 272% $0.0634
- ------------------------------------------------------------------------------------------------------------------------------------
(#) Returns are for the period indicated and have not been annualized.
* Average commission rate paid per share for security purchases and sales during the period. Presentation of the rate is only
required for fiscal years beginning after September 1, 1995.
(1) Fixed Income Fund commenced operations on 9/18/92. All ratios for the
period have been annualized.
(2) Municipal Bond Fund commenced operations on 12/13/91. All ratios for the period have been annualized.
(3) Short-Term Fixed Income Fund commenced operations on 3/13/95. All ratios for the period have been annualized.
(4) Short-Term Municipal Bond Fund commenced operations on 3/6/95. All ratios for the period have been annualized.
(5) Smaller Companies Fund commenced operations on 6/30/95. All ratios for the period have been annualized.
(6) Microcap Fund commenced operations on 12/18/96. All ratios for the period have been annualized.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Page 7
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INTRODUCTION TO THE FUNDS
Morgan Grenfell Investment Trust (the "Trust") offers a number of mutual funds,
each of which is a separate series of the Trust. This Prospectus relates solely
to the Funds. Information regarding the Trust's other mutual funds (the
"International Funds"), which invest primarily in non-U.S. securities, is
contained in a separate prospectus that may be obtained by calling
1-800-550-6426.
The Adviser, with offices in Philadelphia and New York City, serves as
investment adviser to each of the Funds. The Adviser is a U.S. investment
management subsidiary of London-based Morgan Grenfell Asset Management. Together
with the Adviser and its other investment management subsidiaries, Morgan
Grenfell Asset Management now has over US$146.46 billion under management.
This prospectus relates solely to institutional shares of the Funds. The Funds
offer another class of shares (service shares), which is subject to different
expenses and therefore has different performance than institutional shares.
Information regarding service shares may be obtained by calling 1-800-550-6426.
As of the date of this Prospectus, Morgan Grenfell Total Return Bond Fund,
Morgan Grenfell High Yield Bond Fund and Morgan Grenfell Large Cap Growth Fund
had not commenced operations and, therefore, had no operating history. There can
be no assurance that any Fund will be able to achieve its investment objectives.
General Portfolio Management Strategies
Fixed Income Investments. In selecting fixed income investments (including
municipal securities) for Fixed Income Fund, Short-Term Fixed Income Fund,
Municipal Bond Fund, Short-Term Municipal Bond Fund, Total Return Bond Fund and
High Yield Bond Fund, the Adviser seeks to achieve these Funds' investment
objectives by identifying fixed income securities and sectors which it believes
to be undervalued relative to the market and alternative sectors rather than
forecasting changes in the interest rate environment. Fixed income securities
may be undervalued for a variety of reasons, such as market inefficiencies
relating to lack of market information about particular securities and sectors,
supply and demand shifts and lack of market penetration by some issuers.
Equity Investments. In selecting equity investments for Large Cap Growth Fund,
Smaller Companies Fund and Microcap Fund (the "Equity Funds"), the Adviser looks
for companies whose earnings it believes will grow both faster than inflation
and faster than the economy in general. An Equity Fund may invest in such a
company if the Adviser believes that such growth is not yet fully reflected in
the market price of the company's securities. In managing the Smaller Companies
Fund and the Microcap Fund, the Adviser may also consider the fundamental value
of a company, and may invest in a company where it believes that value is not
fully recognized in the marketplace. Fundamental value is determined by taking
into account various factors including earnings per share, the ratio of book
value to market price, and the company's cash flow and dividend yield.
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In selecting equity investments, the Adviser considers a number of
company-specific factors, including quality of management, a leading or dominant
position in a major product line, a sound financial position, and a relatively
high rate of return on invested capital so that future growth can be financed
from internal sources. The Adviser also considers a company's record of dividend
payments and/or the likelihood that the company will pay dividends in the
future. However, consistent with their investment objectives, each Equity Fund
may purchase securities of companies that are not expected to pay dividends in
the foreseeable future.
RISK FACTORS
General. An investment in any of the Funds is neither insured nor guaranteed by
the U.S. Government, or any agency thereof or any other entity. The value of
each Fund's portfolio securities, and thus the net asset value of its shares
will fluctuate as a result of market factors, including interest rate and stock
market changes, such that the value of the shares, when redeemed, may be more or
less than their original cost.
Derivative Instruments. Certain of the Funds may employ investment techniques,
including options and futures contracts and other investments that may be
considered derivative instruments. These may entail special risks. For example,
there is no limit on the percentage of assets of an Equity Fund that may be at
risk with respect to futures and related options. See "Investment Objectives and
Policies" and "Description of Securities and Investment Techniques and Related
Risks."
Below Investment Grade Bonds. 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. See "Description of Securities and Investment
Techniques and Related Risks-Below Investment Grade Bonds."
Diversification. The Total Return Bond Fund is non-diversified under the
Investment Company Act of 1940 (the "1940 Act") and, therefore, may be more
susceptible than the other Funds to developments affecting any single issuer of
portfolio securities. See "Description of Securities and Investment Techniques
and Related Risks-Diversification." Each of the other Funds is diversified under
the 1940 Act.
Year 2000 Compliance. Certain management and shareholder account services
provided to the Funds and their shareholders depend on the proper functioning of
computer systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way dates are encoded and calculated. If
left uncorrected, this software flaw could have an adverse effect on the
handling of security trades and pricing and shareholder account services. The
Adviser and the Trust's administrator, principal underwriter, transfer agent and
custodian have been actively working on necessary changes to their computer
systems to deal with the year 2000. Although there can be no assurance that
these systems will be properly adapted in time for that event, the management of
the Trust expects that they will be.
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INVESTMENT OBJECTIVES AND POLICIES
Fixed Income Fund and Short-Term Fixed Income Fund
The investment objective of the Fixed Income Fund and the Short-Term Fixed
Income Fund is to seek a high level of income consistent with the preservation
of capital. Under normal circumstances, the Fixed Income Fund expects to
maintain a dollar weighted effective average portfolio maturity of 5 to 10
years, and the Short-Term Fixed Income Fund expects to maintain a dollar
weighted effective average portfolio maturity of no more than 3 years. Because
of its shorter portfolio maturity, it is expected that the Short-Term Fixed
Income Fund's per share net asset value will be less volatile in response to
changes in interest rates. However, under normal conditions, it is expected that
the Fixed Income Fund will have a higher yield than the Short-Term Fixed Income
Fund.
Each Fund normally invests at least 80% of its assets in fixed income securities
of all types, including (i) U.S. Treasury obligations; (ii) obligations issued
or guaranteed as to principal and interest by agencies and instrumentalities of
the U.S. Government; (iii) custodial receipts evidencing separately traded
principal and interest components of U.S. Government obligations; (iv) corporate
bonds and debentures; (v) equipment lease and trust certificates; (vi)
mortgage-backed securities and asset-backed securities; (vii) U.S. dollar
denominated securities of the Government of Canada and its provincial and local
governments, U.S dollar denominated securities issued or guaranteed by other
foreign governments, their political subdivisions, agencies or instrumentalities
and U.S. dollar denominated obligations of supranational entities; (viii)
taxable municipal securities, and state, municipal or private activity bonds;
and (ix) repurchase agreements involving any of the foregoing. Certain of these
securities may have floating or variable rates of interest or include put
features providing the Fund the right to sell the security at face value prior
to maturity. The existence in a Fund's portfolio of floating and variable rate
securities and securities with put features will have the effect of shortening
its dollar weighted average maturity. Each Fund may purchase securities on a
when-issued basis. Neither Fund's investments in U.S. dollar denominated
securities of non-U.S. issuers will exceed 25% of its total assets.
Subject to its portfolio maturity policy, each Fund may purchase securities with
any stated remaining maturity. In determining the maturity of mortgage-backed
securities, the Adviser will use the expected life of such securities, which is
based upon the anticipated prepayment patterns of the underlying mortgages. In
determining the effective maturity of callable securities, the call date may be
used as the effective maturity if interest rates have fallen since the bonds
original issue date.
Each Fund invests primarily in fixed income securities that, at the time of
purchase, are either rated in one of the three highest rating categories
assigned by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("Standard & Poor's"), Duff & Phelps, Inc. ("Duff") or Fitch
Investors Service, Inc. ("Fitch") or unrated securities determined by the
Adviser to be of comparable quality. However, each Fund may also invest up to
15% of its assets in fixed income securities that are, at the time of purchase,
either rated within the fourth highest rating category assigned by Moody's,
Standard & Poor's, Duff or Fitch, or unrated but determined by the Adviser to be
of comparable quality. See "Description of Securities and Investment Techniques
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and Related Risks--Fixed Income Securities." In the event any security held by
either Fund is downgraded below the rating categories set forth above, the
Adviser will review the security and determine whether to retain or dispose of
that security, provided that neither Fund may hold, at any time, more than 5% of
its net assets in fixed income securities that are not investment grade. Fixed
income securities rated in one of the four highest ratings categories and
unrated securities determined by the Adviser to be of comparable quality are
referred to herein as "investment grade fixed income securities." Fixed income
securities in the lowest investment grade category are considered medium grade
securities. Such securities have speculative characteristics, involve greater
risk of loss than higher quality securities, and are more sensitive to changes
in the issuer's capacity to pay.
Under normal conditions, each Fund may hold up to 20% of its total assets in
cash or money market instruments in order to maintain liquidity, or in the event
that the Adviser determines that securities meeting the Fund's investment
objective and policies are not otherwise readily available for purchase. For a
definition of money market instruments and these Funds' policies on temporary
defensive investments, see "Description of Securities and Investment Techniques
and Related Risks--Additional Investment Techniques."
Municipal Bond Fund and Short-Term Municipal Bond Fund
The investment objective of the Municipal Bond Fund and the Short-Term Municipal
Bond Fund (the "Municipal Funds") is to seek a high level of income exempt from
regular federal income tax (i.e., excluded from gross income for federal income
tax purposes), consistent with the preservation of capital. However, there is no
restriction on the percentage of either Municipal Fund's assets that may be
invested in obligations the interest on which is a preference item for purposes
of the federal alternative minimum tax. Under normal circumstances, the
Municipal Bond Fund expects to maintain a dollar weighted effective average
portfolio maturity of 5 to 10 years, and the Short-Term Municipal Bond Fund
expects to maintain a dollar weighted effective average portfolio maturity of no
more than 3 years. Because of its shorter portfolio maturity, it is expected
that the Short-Term Municipal Bond Fund's per share net asset value will be less
volatile in response to changes in interest rates. However, under normal
conditions, it is expected that the Municipal Bond Fund will have a higher yield
than the Short-Term Municipal Bond Fund.
Subject to its portfolio maturity policy, each Fund may purchase securities with
any stated remaining maturity. In determining the maturity of mortgage-backed
securities, the Adviser will use the expected life of such securities, which is
based upon the anticipated prepayment patterns of the underlying mortgages. In
determining the effective maturity of callable securities, the call date may be
used as the effective maturity if interest rates have fallen since the bonds
original issue date.
Under normal market conditions, each Municipal Fund invests at least 80% of its
net assets in municipal securities the interest on which is exempt from regular
federal income tax, and invests at least 65% of its total assets in municipal
bonds. Municipal bonds consist of (i) securities, including municipal leases,
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
The issuers of these municipal securities may be located in all 50 U.S. states,
the District of Columbia, Puerto
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Rico and other U.S. territories and possessions. Certain of these securities may
have variable and floating rates of interest or include "put" features providing
the Fund the right to sell the securities at face value prior to maturity. The
existence in a Fund's portfolio of variable and floating rate securities and
securities having put features will have the effect of shortening its average
dollar weighted portfolio maturity. The Municipal Funds may purchase securities
on a when-issued basis.
The Municipal Funds' investments in municipal notes may include, but are not
limited to, general obligation notes, tax anticipation notes (notes sold to
finance working capital needs of the issuers in anticipation of receiving taxes
on a future date), revenue anticipation notes (notes sold to provide needed cash
prior to receipt of expected non-tax revenues from a specific source), bond
anticipation notes, certificates of indebtedness, demand notes and construction
loan notes and participation rights therein. Investments in any of the notes
described above will be limited to those obligations that, at the time of
purchase, are rated MIG-1 or V-MIG-1 by Moody's, rated SP-1 by Standard &
Poor's, or are unrated but are determined by the Adviser to be of comparable
quality.
The Municipal Funds' investments in municipal bonds may include, but are not
limited to, general obligation bonds, revenue or special obligation bonds, and
private activity and industrial development bonds. Each Municipal Fund may
invest 25% or more of its total assets in private activity and industrial
development bonds if the interest paid on them is exempt from regular federal
income tax. See "Description of Securities and Investment Techniques--Fixed
Income Securities."
Except as noted below, municipal bonds in which a Municipal Fund invests must be
rated A or better by Moody's or by Standard & Poor's at the time of investment
or, if unrated, must be determined by the Adviser to be of comparable quality.
Each Municipal Fund may, however, invest up to 15% of its assets in bonds that,
at the time of purchase, are rated Baa by Moody's or BBB by Standard & Poor's,
or, if unrated, determined by the Adviser to be of comparable quality. Municipal
securities in the lowest investment grade category are considered medium grade
securities. Such securities have speculative characteristics, involve greater
risk of loss than higher quality securities, and are more sensitive to changes
in the issuer's capacity to pay.
The Municipal Funds' investments in tax-exempt commercial paper will be limited
to obligations that, at the time of purchase, are rated at least A-1 by Standard
& Poor's or Prime-1 by Moody's, or that are unrated but are determined by the
Adviser to be of comparable quality. The Municipal Funds may purchase other
types of tax-exempt instruments as long as they are of a quality equivalent to
the long-term bond or commercial paper ratings stated above. In the event any
security held by either Municipal Fund is downgraded below the rating categories
set forth above, the Adviser will review the security and determine whether to
retain or dispose of that security, provided that neither Municipal Fund will
hold, at any time, more than 5% of its net assets in securities that are rated
below investment grade.
Under normal circumstances, each Municipal Fund may invest up to 20% of its
total assets in certain taxable securities in order to maintain liquidity. In
addition, for temporary defensive purposes during periods when the Adviser
determines that market conditions warrant, each Municipal Fund may invest
without limit in such taxable securities. Such taxable securities include: U.S.
Treasury obligations (including separately traded interest and principal
component parts of U.S. Treasury obligations, transferable through the federal
book-entry system and known as Separately Traded Registered Interest and
Principal Securities or "STRIPS"); other marketable obligations issued or
guaranteed as to principal and interest by agencies or instrumentalities of the
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U.S. Government whether or not backed by the full faith and credit of the U.S.
Treasury; short-term instruments of U.S. commercial banks or savings and loan
institutions (not including foreign branches of U.S. banks or U.S. branches of
foreign banks) that are members of the Federal Reserve System or the Federal
Deposit Insurance Corporation and that have total assets of $1 billion or more
as shown on their last published financial statements at the time of investment;
repurchase agreements involving any of the foregoing obligations; and, to the
extent permitted by applicable law, shares of other investment companies
investing solely in the foregoing obligations.
Distributions by a Fund that are derived from income from taxable securities
held by the Fund will generally be taxable to shareholders as ordinary income.
Total Return Bond Fund
The investment objective of the Total Return Bond Fund is to maximize total
return consistent with the preservation of capital. Under normal circumstances,
the Fund expects to maintain a dollar weighted effective average portfolio
maturity of 5 to 10 years and to invest at least 65% of its total assets in U.S.
dollar-denominated investment grade bonds. For purposes of this policy, "bonds"
include the U.S. dollar- denominated fixed income securities in which the Fixed
Income Fund and the Short-Term Fixed Income Fund may invest, convertible
securities, and securities (including equity securities) of other investment
companies that invest primarily in any one or more of the foregoing types of
securities.
Under normal circumstances, the Fund may invest up to 35% of its total assets in
cash, money market instruments and, subject to the limits described below,
foreign currency-denominated bonds and below investment grade bonds, including
below investment grade bonds of issuers located in countries with emerging
securities markets. The Fund may not invest more than 20% of its total assets in
foreign currency-denomintated bonds and, at the discretion of the Adviser, the
Fund may use certain techniques to hedge its foreign currency exposure back into
the U.S. dollar. See "Description of Securities and Investment Techniques and
Related Risks--Currency Management Techniques."
Also, the Fund may not invest more than 15% of its total assets in below
investment grade bonds, and may not invest more than 10% of its total assets in
below investment grade bonds of issuers located in countries with emerging
securities markets. The Fund's investments in below investment grade bonds will
be limited to securities that are rated B or higher by Moody's, Standard &
Poor's, Duff or Fitch and unrated securities determined by the Adviser to be of
comparable quality, provided that this quality limitation will not apply to the
Fund's investments in other investment companies. Below investment grade bonds
involve greater price volatility and risk of loss of principal and income than
investment grade bonds. See "Description of Securities and Investment Techniques
and Related Risks--Below Investment Grade Bonds." In the event a security held
by the Fund is downgraded below the rating categories set forth above, the
Adviser will review the security and determine whether to retain or dispose of
that security.
For a description of the Fund's policy on temporary defensive investments, see
"Description of Securities and Investment Techniques and Related
Risks--Additional Investment Techniques."
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High Yield Bond Fund
The investment objective of the High Yield Bond Fund is to seek high current
income and, as a secondary objective, capital growth. Under normal
circumstances, the Fund expects to maintain a dollar weighted effective average
remaining portfolio maturity of 5 to 10 years and to invest at least 65% of its
total assets in below investment grade bonds. For purposes of this policy,
"bonds" include the types of fixed income securities in which the Fixed Income
Fund and the Short-Term Fixed Income Fund may invest (without regard to credit
quality), as well as U.S. dollar-denominated convertible and nonconvertible
fixed income securities of domestic and foreign issuers.
Below investment grade bonds generally offer higher yields than investment grade
bonds, but involve greater price volatility and risk of loss of principal and
income. The Fund's investments in these securities may be of any credit quality
and may include securities not paying interest currently, zero coupon bonds,
securities that pay interest in the form of other securities (i.e., "pay in
kind" or PIK securities) and securities in default. For a description of these
and other risks of investing in below investment grade bonds, see "Description
of Securities and Investment Techniques and Related Risks--Below Investment
Grade Bonds."
Under normal conditions, 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 Adviser determines that securities meeting the Fund's investment
objective and policies are not otherwise readily available for purchase. For a
definition of money market instruments and the Fund's policy on temporary
defensive investments, see "Description of Securities and Investment Techniques
and Related Risks--Additional Investment Techniques."
Smaller Companies Fund
The primary investment objective of the Smaller Companies Fund is to maximize
capital appreciation. The Fund seeks current income as its secondary investment
objective. Under normal market conditions, the Fund pursues these objectives by
investing at least 65% of its total assets in equity and equity-related
securities (but not less than 60% directly in stocks) of small capitalization
U.S. companies. Equity securities in which the Fund may invest include common
stocks and preferred stocks, while equity-related securities include warrants,
purchased call options and other rights to acquire stocks. See "Description of
Securities and Investment Techniques and Related Risks."
For purposes of the Fund's investment policies, small capitalization companies
are those ranked (at time of investment) according to market capitalization in
the bottom 20% of the Wilshire 5000 Index. The Adviser believes that investments
in equity and equity-related securities of many small capitalization companies,
although involving greater risk, provide the opportunity for greater capital
growth than investments in larger, better-known companies. For a description of
the risks associated with investing in small capitalization companies, see
"Description of Securities and Investment Techniques and Related Risks--Small
and Micro Capitalization Companies."
Up to 35% of the Fund's total assets may be invested in investment grade fixed
income securities (see definition on page - ), cash equivalents and equity and
equity-related securities of medium and large capitalization companies. In the
event any fixed income security held by the Fund is downgraded below investment
grade, the Adviser will review the security and determine whether to
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retain or dispose of it. In no event, however, will the Fund hold more than 5%
of its net assets in fixed income securities that are not investment grade. Up
to 5% of the Fund's net assets (measured at time of investment) may be invested
in the securities of non-U.S. issuers of all sizes.
Microcap Fund
The investment objective of the Microcap Fund is to maximize capital
appreciation. Under normal market conditions, the Fund pursues this objective by
investing at least 65% of its total assets in common stocks of micro
capitalization U.S. companies and securities convertible into such stocks. For
purposes of the Fund's investment policies, micro capitalization companies are
those ranked (at the time of investment) according to market capitalization in
the bottom 5% of the U.S. equity market, including both listed and unlisted
companies.
The Adviser believes that investments in many micro capitalization companies,
although involving greater risk, provide the opportunity for greater capital
growth than investments in larger, better-known companies. In particular, the
Adviser believes that the inefficiencies in this sector of the marketplace often
provide opportunities for investment gains. The Fund's investments in securities
of U.S. micro capitalization companies will be limited to securities traded on a
U.S. exchange or in the over-the-counter market. For a description of the risks
associated with investing in micro capitalization companies, see "Description of
Securities and Investment Techniques and Related Risks--Small and Micro
Capitalization Companies."
Up to 25% of the Fund's total assets may be invested in securities of non-U.S.
companies with individual market capitalizations that would place them in the
bottom 5% of the U.S. equity market. For liquidity purposes, the Fund will
normally invest a portion of its assets (no more than 35%) in high quality debt
securities 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 rated,
at the time of purchase, Aaa or Aa by Moody's or AAA or AA by Standard & Poor's
or determined by the Adviser to be of comparable quality.
Large Cap Growth Fund
The primary investment objective of the Large Cap Growth Fund is to maximize
capital appreciation. The Fund seeks current income as its secondary investment
objective. Under normal market conditions, the Fund pursues these objectives by
investing at least 65% of its total assets in equity and equity-related
securities (but not less than 60% directly in stocks) of large capitalization
U.S. companies. The Fund may invest in the same types of equity and
equity-related securities as the Smaller Companies Fund (see above).
For purposes of the Fund's investment policies, large capitalization companies
are those ranked (at time of investment) according to market capitalization in
the top 25% of the Wilshire 5000 Index, a broad-based index that includes nearly
all U.S. public companies. The Adviser believes that the equity and
equity-related securities of many large capitalization companies offer
significant potential for capital growth, but with less risk than investments in
smaller capitalization companies.
Up to 35% of the Fund's total assets may be invested in investment grade fixed
income securities (see definition on page - ), cash equivalents and equity and
equity-related securities of small and
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medium capitalization companies. In the event any fixed income security held by
the Fund is downgraded below investment grade, the Adviser will review the
security and determine whether to retain or dispose of it. In no event, however,
will the Fund hold more than 5% of its net assets in fixed income securities
that are not investment grade. Up to 5% of the Fund's net assets (measured at
time of investment) may be invested in the securities of non-U.S. issuers of all
sizes.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES AND RELATED RISKS
Fixed Income Securities
General. Each Fund may invest in fixed income securities. In periods of
declining interest rates, the yield (income from portfolio investments over a
stated period of time) of a Fund that invests in fixed income securities may
tend to be higher than prevailing market rates, and in periods of rising
interest rates, the yield of the Fund may tend to be lower. Also, when interest
rates are falling, the inflow of net new money to such a Fund will likely be
invested in portfolio instruments producing lower yields than the balance of the
Fund's portfolio, thereby reducing the yield of the Fund. In periods of rising
interest rates, the opposite can be true. The net asset value of a Fund
investing in fixed income securities can generally be expected to change as
general levels of interest rates fluctuate. The value of fixed income securities
in a Fund's portfolio generally varies inversely with changes in interest rates.
Prices of fixed income securities with longer effective maturities are more
sensitive to interest rate changes than those with shorter effective maturities.
Private Activity and Industrial Development Bonds. 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.
Variable or Floating Rate Instruments and Variable Rate Demand Instruments. Each
of the Funds other than the Equity Funds may invest in variable or floating rate
instruments and variable
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rate demand instruments, including variable amount master demand notes. These
instruments will normally involve industrial development or revenue bonds that
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate) at a major commercial bank. In
addition, the interest rate on these securities may be reset daily, weekly or on
some other reset period and may have a floor or ceiling on interest rate
changes. A Fund holding such an instrument can demand payment of the obligation
at all times or at stipulated dates on short notice (not to exceed 30 days) at
par plus accrued interest.
U.S. Government Securities. The Funds may invest in obligations issued or
guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (iii) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association, or (iv) only the credit
of the issuer. No assurance can be given that the U.S. Government will provide
financial support to U.S. Government agencies or instrumentalities in the
future.
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."
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
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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.
Below Investment Grade Bonds. 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 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.
Securities of Foreign Issuers
General. Each of the Funds other than the Municipal Funds may invest to varying
extents in securities of foreign issuers and supranational entities. Investments
in the securities of foreign issuers and supranational entities may subject the
Funds to investment risks that differ in some respects from those related to
investments in securities of U.S. issuers. Such risks include future adverse
political and economic developments, possible imposition of withholding taxes on
income or sales proceeds, possible seizure, nationalization or expropriation of
foreign deposits, possible establishment of exchange controls or taxation at the
source or fluctuation in value due to changes in currency exchange rates.
Foreign issuers of securities often engage in business practices different from
those of domestic issuers of similar securities and there may be less
information publicly available about foreign issuers. In addition, foreign
issuers are, generally speaking, subject to less government supervision and
regulation and different accounting treatment than are those in the United
States.
Foreign Government Securities. The foreign government securities in which each
Fund (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. 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
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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.
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. Transactions in these instruments, together with transactions in
forward contracts and currency options, are referred to below collectively as
"Currency-Related Transactions." The instruments involved in Currency-Related
Transactions may be considered derivative instruments. A Fund may enter into
Currency-Related Transactions to attempt to 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 options and currency swap agreements may be illiquid and are
subject to the risk that the counterparty will default on its obligations. For
more information on these instruments, see the Statement of Additional
Information.
Mortgage-Backed and Asset-Backed Securities
The Fixed Income 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
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values of such securities will vary with changes in market interest rates
generally and in yield differentials among various kinds of U.S. Government
securities and other mortgage-backed and asset-backed securities. Asset-backed
securities present certain risks that are not presented by mortgage-backed
securities because asset-backed securities generally do not have the benefit of
a security interest in collateral that is comparable to mortgage assets. In
addition, there is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities. Many mortgage and asset-backed securities may be considered
derivative instruments. No Fund will invest 25% or more of its total assets in
collateralized mortgage obligations or in asset-backed securities (in each case,
excluding U.S. Government Securities).
Options
Written Options. 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 a Fund, the Fund may suffer a loss
equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. All options written
by a Fund are covered. In the case of a call option, this means that the Fund
will own the securities subject to the option or an offsetting call option as
long as the written option is outstanding, or will have the absolute and
immediate right to acquire other securities that are the same as those subject
to the written option. In the case of a put option, this means that the Fund
will deposit cash or 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
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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.
Futures Contracts and Options on Futures Contracts
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.
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 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
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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 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" in the Statement of
Additional Information. Options, futures contracts and options on futures
contracts are derivative instruments.
Small and Micro Capitalization Companies
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.
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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 fixed income
securities of an issuer convertible at a stated exchange rate into common stock
of the issuer. The market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities generally rank senior to common stocks in an issuer's
capital structure and are consequently of higher quality and entail less risk
than the issuer's common stock. However, the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value 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.
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" in the Funds' Statement of Additional Information. 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.
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Additional Investment Techniques
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
(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.
When-Issued Securities and Forward Commitments. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase for equity securities, and up to 45
days after such date for fixed income securities. When-issued securities or
forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. When a Fund purchases
securities on a forward commitment or when-issued basis, the Fund's custodian
will maintain in a segregated account cash or liquid securities having a value
(determined daily) at least equal to the amount of the Fund's purchase
commitment.
Repurchase Agreements. Each Fund may enter into repurchase agreements. In a
repurchase agreement, a Fund buys a security subject to the right and obligation
to sell it back to the other party at the same price plus accrued interest. The
Fund's custodian will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 102% of
the repurchase price, but repurchase agreements involve some credit risk to a
Fund if the other party defaults on its obligation and the Fund is delayed in or
prevented from liquidating the collateral. A Fund will enter into repurchase
agreements only with financial institutions deemed to present minimal risk of
bankruptcy during the term of the agreement based on guidelines established and
periodically reviewed by the Trust's Board of Trustees.
Illiquid Securities. Each Fund other than the Municipal Bond Fund and Short-Term
Municipal Bond Fund will not invest more than 15% of its net assets in illiquid
securities. Municipal Bond Fund and Short-Term Municipal Bond Fund will not
invest more than 10% of its total assets in illiquid securities. Illiquid
securities include repurchase agreements and fixed time deposits maturing in
more than seven days and securities that are not readily marketable.
Restricted Securities. Each 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.
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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 transferrable and traded on
exchanges. While the market value of a warrant tends to be more volatile than
that of the securities underlying the warrant, the market value of a warrant may
not necessarily change with that of the underlying security. A warrant ceases to
have value if it is not exercised prior to any expiration date to which the
warrant is subject.
Lending Securities. For the purpose of realizing income, each Fund other than
the Fixed Income Fund and the Municipal Bond Fund may lend to broker-dealers
portfolio securities amounting to not more than 33 1/3% of its total assets
taken at current value. These transactions must be fully collateralized by cash,
cash equivalents or U.S. Government securities at all times. They nevertheless
involve some credit risk to a Fund if the other party should default on its
obligation and the Fund is delayed in or prevented from recovering the
collateral. Voting rights with respect to a portfolio security pass to the
borrower when the security is loaned by a Fund, but the Adviser is required to
call the loan if necessary to vote on a material event affecting the Fund's
investment in the loaned security.
Other Investment Companies. Each Fund may invest in the aggregate no more than
10% of its total assets, calculated at the time of purchase, in the securities
of other 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 such
investment company, except that, in accordance with an exemptive order expected
to be issued by the Comission, 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. For a description of the Municipal Funds' policy with respect to
temporary defensive investments, see "Investment Objectives and
Policies--Municipal Bond Fund and Short-Term Municipal Bond Fund."
ADDITIONAL INVESTMENT INFORMATION
Investment Restrictions
Each Fund has adopted certain fundamental investment restrictions which are
described in detail in the Statement of Additional Information. In addition, the
policy of each of Morgan Grenfell
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Municipal Bond Fund and Morgan Grenfell Short-Term Municipal Bond Fund to invest
at least 80% of its net assets in tax-exempt securities (the "80% Policy") has
been designated as fundamental. These Funds' 80% Policy and the investment
restrictions designated as fundamental in the Statement of Additional
Information can be changed only with shareholder approval. Each Fund's
investment objective and all other investment restrictions and policies are
nonfundamental and can be changed by the Board of Trustees of the Trust at any
time without shareholder approval. Each Fund's shareholders will, however, be
given 30 days' advance written notice of any change in a Fund's investment
objective.
Each Fund has fundamental investment restrictions with respect to borrowing,
lending, diversification of investments, senior securities, pledging of assets,
underwriting, real estate investments and commodities. See "Investment
Restrictions" in the Statement of Additional Information.
Portfolio Transactions
The Adviser is responsible for making specific decisions to buy and sell
portfolio securities for the Funds. The Adviser is also responsible for
selecting brokers and dealers to effect these transactions and negotiating, if
possible, brokerage commissions and dealers' charges. Securities traded in the
over-the-counter markets and fixed income securities generally are traded on a
net basis with the dealers acting as principal for their own accounts without a
stated commission.
The primary consideration in selecting broker-dealers to execute portfolio
security transactions is the execution of such portfolio transactions at the
most favorable prices. Consideration may also be given to the broker-dealer's
sale of shares of the Funds. Subject to the most favorable price requirement and
the provisions of Section 28(e) of the Securities Exchange Act of 1934, as
amended, securities may be bought from or sold to broker-dealers who have
furnished statistical, research and other information or services to the
Adviser. Higher commissions may be paid to broker-dealers that provide research
services. See "Portfolio Transactions and Brokerage Commissions" in the
Statement of Additional Information for a more detailed discussion of portfolio
transactions. The Trustees will periodically review each Fund's portfolio
transactions.
Pursuant to procedures established by the Trustees, subject to applicable
regulations and consistent with the above policy of obtaining the most favorable
overall price, the Adviser may place securities transactions with SEI Financial
Services Company, the Funds' distributor (the "Distributor"), and brokers with
whom the Adviser or the Distributor is affiliated. No Fund will effect principal
transactions with an affiliated broker.
Portfolio Turnover
It is estimated that, under normal circumstances, the portfolio turnover rate of
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
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taxable to shareholders as ordinary income). (see "Portfolio Transactions"). See
"Financial Highlights" for the Funds' portfolio turnover rates for the fiscal
year ended October 31, 1997.
MANAGEMENT OF THE FUNDS
The Board of Trustees of the Trust is responsible for the overall supervision
and management of the Funds. The day-to-day operations of the Funds, including
investment decisions, have been delegated to the Adviser. The Statement of
Additional Information contains general background information regarding each
Trustee and executive officer of the Trust.
The Adviser
MGCM, 885 Third Avenue, New York, New York, acts as investment adviser to each
Fund pursuant to the terms of investment advisory contracts between the Trust,
on behalf of the Funds, and MGCM (the "Advisory Contracts"). MGCM is registered
as an investment adviser with the Commission and provides a full range of
investment advisory services to institutional clients. All of the outstanding
voting stock of MGCM is owned by Morgan Grenfell Asset Management ("MGAM"),
which is an indirect wholly-owned subsidiary of Deutsche Bank AG, an
international commercial and investment banking group. As of September 30, 1997,
MGCM managed approximately $9.69 billion in assets.
Under its Advisory Contracts with the Trust, the Adviser manages each Fund's
business and investment affairs. For these services, the Adviser is entitled to
a monthly fee at an annual rate of each Fund's average daily net assets as
follows:
Annual Rate
-----------
Morgan Grenfell Fixed Income Fund 0.40%
Morgan Grenfell Municipal Bond Fund 0.40%
Morgan Grenfell Short-Term Fixed Income Fund 0.40%
Morgan Grenfell Short-Term Municipal Bond Fund 0.40%
Morgan Grenfell Total Return Bond Fund 0.45%
Morgan Grenfell High Yield Bond Fund 0.50%
Morgan Grenfell Smaller Companies Fund 1.00%
Morgan Grenfell Microcap Fund 1.50%
Morgan Grenfell Large Cap Growth Fund 0.75%
The advisory fees to which the Adviser is entitled for Smaller Companies Fund,
Microcap Fund and Large Cap Growth Fund are higher than the fees paid by most
funds but the Adviser believes they are comparable to the fees paid by funds
having similar investment objectives. As described in "Expense Information," the
Adviser has voluntarily agreed to reduce its advisory fee and to make
arrangements to limit certain other expenses to the extent necessary to limit
each Fund's operating expenses to a specified level. For the fiscal period ended
October 31, 1997, this voluntary agreement was in effect for each Fund (other
than Morgan Grenfell Total Return Bond Fund, Morgan Grenfell High Yield Bond
Fund and Morgan Grenfell Large Cap Growth Fund, which were not in operation
during such year). During this year, 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
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Morgan Grenfell Microcap Fund paid advisory fees equal to 0.35%, 0.33%, 0%, 0%,
0% and 0% of their respective average daily net assets.
The Trust, on behalf of each Fund, is responsible for all of the Fund's expenses
other than those expressly assumed by the Adviser under the terms of the
Advisory Contracts. The expenses borne by each Fund include the Fund's advisory
fee, transfer agent fee and taxes and its proportionate share of custodian fees,
expenses of issuing reports to shareholders, legal fees, auditing and tax fees,
blue sky fees, fees of the Commission, insurance expenses and disinterested
Trustees' fees.
Each Fund other than the Equity Funds and the High Yield Bond Fund is managed
utilizing a team approach led by David W. Baldt, Exectuive 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.
The High Yield Bond Fund is managed by a committee consisting of investment
professionals employed by the Adviser. This committee makes investment decisions
for the Fund.
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's
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.
Administrator and Distributor
The Trust has entered into an Administration Agreement with SEI Financial
Management Corporation ("SEI Financial Management" or the "Administrator"), 1
Freedom Valley Drive, Oaks, Pennsylvania 19456-0100, pursuant to which SEI
Financial Management receives from all series of the Trust and other funds
advised by Morgan Grenfell Capital Management, Inc. an aggregate monthly fee at
the following annual rates of the aggregate average daily net assets ("aggregate
assets") of such funds:
0.10% of aggregate assets under $1 billion
0.07% of next $500 million of aggregate assets
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0.05% of next $1 billion of aggregate assets
0.04% of aggregate assets exceeding $2.5 billion
Each Fund pays the Administrator a minimum annual fee that currently equals
$60,000.
The Administrator generally assists in all matters relating to the
administration of the Funds, including the coordination and monitoring of any
third parties furnishing services to the Funds, the preparation and maintenance
of financial and accounting records, and the provision of the necessary office
space, equipment and personnel to perform administrative and clerical functions.
SEI Financial Services Company (the "Distributor"), 1 Freedom Valley Drive,
Oaks, Pennsylvania 19456-0100, serves as the distributor of institutional shares
of the Funds pursuant to a Distribution Agreement with the Trust and assists in
the sale of institutional shares of the Funds.
Custodian and Transfer Agent
The Trust has entered into a Custodian Agreement with The Northern Trust Company
("Northern"), pursuant to which Northern serves as custodian of the assets of
each Fund.
DST Systems, Inc. (the "Transfer Agent"), 1004 Baltimore, Kansas City, Missouri
64105, serves as the transfer agent of the Funds. The Transfer Agent maintains
the records of each record shareholder's account, processes purchases and
redemptions of the Funds' institutional shares, acts as dividend and
distribution disbursing agent and performs other shareholder servicing
functions.
Additional information regarding the services performed by the Administrator,
the Distributor, the Custodian and the Transfer Agent is provided in the
Statement of Additional Information.
PURCHASE OF INSTITUTIONAL SHARES
Institutional shares of any Fund may be purchased on any Business Day at the net
asset value next determined after receipt of the investor's order in good order
by the Transfer Agent. A "Business Day" means any day on which the New York
Stock Exchange (the "NYSE") is open. Shareholders will be entitled to dividends
payable with respect to their shares of a Fund if they are shareholders of the
Fund on the record date for such dividend. There is no sales charge in
connection with purchases of institutional shares. The Trust reserves the right,
in its sole discretion, to reject any purchase offer and to suspend the offering
of shares.
Payments for institutional shares must be denominated in U.S. dollars. The
minimum initial investment for any record shareholder account with a Fund is
US$250,000 and subsequent investments will be accepted in any amount. The Trust
reserves the right to vary the initial investment minimum and to establish
minimums for additional investments at any time. In addition, the Trust may
waive the minimum initial investment requirement for any investor. The Trust
does not issue share certificates.
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Purchases by Mail
Institutional shares may be purchased initially by completing the Account
Application accompanying this Prospectus and mailing it, together with a check
in the amount of $250,000 or more drawn on a U.S. bank payable to the
appropriate Fund for each account an investor wishes to open, to:
By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7)
1004 Baltimore
Kansas City, MO 64105
Third party checks, credit card checks and cash will not be accepted.
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the Transfer Agent, at the above address, a check payable to
the appropriate Fund, along with either (i) a subsequent order form which may be
obtained from the Transfer Agent or (ii) a letter stating the amount of the
investment, the name of the Fund and the account number in which the investment
is to be made. Investors should indicate the name of the appropriate Fund and
account number on all correspondence.
Purchases by Wire
Investors having an account with a commercial bank that is a member of the
Federal Reserve System may purchase institutional shares of any Fund by
requesting their bank to transmit funds by wire to:
United Missouri Bank, N.A.
ABA No. 10-10-00695
For: Account Number 98-7052-395-7
Further Credit: [appropriate Fund name]
The investor's name and account number must be specified in the wire. In
addition, investors should be aware that some banks may charge wire fees.
Initial Purchases: Before making an initial investment by wire, an investor must
first telephone 1-800-407-7301 to be assigned a wire account number. The
investor may then transmit funds by wire through the wire procedures described
above. The investor's name, account number, social security or other taxpayer
identification number, and address must be specified in the wire. In addition,
investors making initial investments by wire must promptly complete the Account
Application accompanying this Prospectus and forward it to the Transfer Agent
at:
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<PAGE>
By Regular Mail: By Overnight Mail:
- -------------------- -----------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7)
1004 Baltimore
Kansas City, MO 64105
Subsequent Purchases: Additional investments may be made at any time through the
wire procedures described above, which must include the investor's name and
account number.
Reports to Shareholders and Confirmations
Shareholders of each Fund receive an annual report containing audited financial
statements and a semiannual report. All transactions in institutional shares of
a Fund and dividends and distributions paid by a Fund are reflected in
confirmations issued by the Transfer Agent at the time of the transaction and/or
in monthly statements issued by the Transfer Agent. A year-to-date statement
will be provided by the Transfer Agent. Shareholders with inquiries regarding a
Fund may call Morgan Grenfell Investment Trust at 1-800-550-6426 or write to
Morgan Grenfell Investment Trust at P.O. Box 419165, Kansas City, MO 64141-6165.
Exchange Privilege
The Funds provide a telephone exchange privilege and a written exchange
privilege. Institutional shares of a Fund may be exchanged in amounts as low as
$50,000 for institutional shares of any other Fund or any institutional
International Fund. A shareholder should obtain and read the prospectus relating
to institutional shares of an International Fund and consider its investment
objective, policies and fees before making an exchange into that fund. Exchanges
will be permitted only in those states in which the relevant fund is available
for sale.
If a shareholder elects the telephone exchange privilege on the Account
Application, the shareholder will be able to effect the exchange of
institutional shares in its account in one Fund for institutional shares in any
other Fund descibed in this Prospectus by telephone, as long as all accounts are
identically registered. A shareholder can exchange shares by telephone by
calling 1-800-407-7301 before 4:00 p.m., Eastern time, on any Business Day.
Shares exchanged will be valued at their respective net asset values next
determined after the telephone exchange request is received. Neither the Funds
nor their agents will be liable for any loss incurred by a shareholder as a
result of following instructions communicated by telephone that they reasonably
believe to be genuine. To confirm that telephone exchange requests are genuine,
the Funds will employ reasonable procedures such as providing written
confirmation of telephone exchange transactions and tape recording of telephone
exchange requests. If a Fund does not employ such reasonable procedures, it may
be liable for any loss incurred by a shareholder due to a fraudulent or other
unauthorized telephone exchange request. The Funds reserve the right to refuse
any request made by any shareholder.
In addition to using the telephone exchange privilege, shareholders in any of
the Funds may exchange their institutional shares for institutional shares in
any other Fund by submitting a written request, in proper form, to the Transfer
Agent. Institutional shares exchanged in this manner will
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<PAGE>
be valued at their respective net asset values next determined after the receipt
of the written exchange request.
An exchange is a taxable transaction for shareholders that are subject to tax.
Investors will receive 60 days' written notice prior to any change in a Fund's
exchange procedures.
REDEMPTION OF INSTITUTIONAL SHARES
How To Redeem
Shareholders may redeem institutional shares of a Fund without charge upon
request on any Business Day by placing redemption requests with the Transfer
Agent prior to 4:00 p.m., Eastern Time. Institutional shares are redeemed at the
net asset value next determined after receipt of the redemption request by the
Transfer Agent. Institutional shares subject to a redemption request will earn
any dividends for which the record date is the day the request is received.
Redemption requests may be made by telephoning Morgan Grenfell Investment Trust
at 1-800-407-7301 or by a written request addressed to the Transfer Agent in
accordance with the procedures set forth below. A written request must specify
the number of institutional shares to be redeemed, the Fund from which
institutional shares are being redeemed, the account number, payment
instructions and the exact registration on the account. Signatures must be
guaranteed in accordance with the procedures set forth below under "Payment of
Redemption Proceeds." Written requests for redemptions should be forwarded to
the Transfer Agent at:
By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7)
1004 Baltimore
Kansas City, MO 64105
A shareholder may request redemptions by telephone if the optional telephone
redemption privilege is elected on the Account Application. In order to verify
the authenticity of telephone redemption requests, the Transfer Agent's
telephone representatives will request that the caller provide certain
information unique to the account. If the caller is unable to provide this
information, telephone redemption requests will not be processed and the
redemption will have to be completed by mail. As long as the Transfer Agent's
telephone representatives comply with the procedures described above, neither
the Trust nor the Transfer Agent will be liable for any losses due to fraudulent
or unauthorized transactions. Finally, it may be difficult to implement
telephone redemptions in times of drastic economic or market changes.
Payment of Redemption Proceeds
Redemption proceeds ordinarily will be wired to the bank account designated on
the Account Application, unless payment by check has been requested. Normally,
redemption proceeds will be wired within no more than seven days after the
Transfer
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Agent receives the appropriate redemption request documents, including
any additional documentation that may be required by the Transfer Agent in order
to establish that a redemption request has been properly authorized. Frequently,
redemption proceeds will be wired on the next Business Day after the Transfer
Agent's receipt of such documents. In addition, the payment of redemption
proceeds for institutional shares of a Fund recently purchased by check may be
delayed for up to 15 calendar days from the purchase date. After a wire has been
initiated by the Transfer Agent, neither the Transfer Agent nor the Trust
assumes any further responsibility for the performance of intermediaries or the
shareholder's bank in the transfer process. If a problem with such performance
arises, the shareholder should deal directly with such intermediaries or bank.
Shareholders may request that redemption payments be made by Federal Reserve
wire or Automated Clearing House (ACH) wire. Redemption payments made by Federal
Reserve wire cannot be made on Federal holidays restricting wire transfers.
There is no charge for ACH wire transactions; however, such transactions will
not be posted to a shareholder's bank account until the second Business Day
following the transaction.
A shareholder may change the bank designated to receive redemption proceeds by
providing written notice to the Transfer Agent which has been signed by the
shareholder or its authorized representative. This signature must be guaranteed
by a bank, a securities broker or dealer, a credit union having authority to
issue signature guarantees, a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association, a
national securities exchange, a registered securities association or a clearing
agency, provided that such institution satisfies standards established by the
Transfer Agent. The Transfer Agent may also require additional documentation in
connection with a request to change a designated bank.
If the Board of Trustees determines that it is appropriate in order to protect
the best interests of a Fund and its shareholders, the Fund, under the limited
circumstances described below, may satisfy all or part of a redemption request
by delivering portfolio securities to a redeeming investor. However, the Trust,
on behalf of each Fund, has elected, pursuant to Rule 18f-1 under the 1940 Act,
to redeem its shares solely in cash up to the lesser of $250,000 or 1% of the
net asset value of the Fund during any 90-day period for any one shareholder.
Only redemptions in excess of this limit may be paid in kind. In-kind payments
would not have to constitute a cross-section of a Fund's portfolio. Investors
receiving redemption payment in portfolio securities will not have eliminated
their investment exposure by their redemption as would investors receiving their
redemption payment in cash. Instead these investors will be subject to risks
inherent in owning such securities, including market value and currency
fluctuations, difficulties in selling securities in particular markets and
repatriating the sales proceeds, and the political and other risks described
under "Description of Securities and Investment Techniques and Related Risks -
Foreign Securities." In addition, a shareholder generally will incur additional
expenses, such as brokerage commissions and, in the case of foreign currency
denominated securities, currency conversion fees or expenses, on the sale or
other disposition of securities received from a Fund. Any portfolio securities
paid or distributed to a redeeming shareholder would be valued as described
under "Net Asset Value."
NET ASSET VALUE
The net asset value per share of each Fund is normally calculated as of the
close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on each
Business Day. The net asset value of each class of a Fund's shares is determined
by adding the value of all securities, cash and other assets
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<PAGE>
attributable to such class of the Fund, subtracting liabilities attributable to
such class(including accrued expenses and dividends payable) and dividing the
result by the total number of outstanding Fund shares of such class.
For purposes of calculating each Fund's net asset value per share, equity
securities traded on a recognized securities exchange are valued at their last
sale price on the principal exchange on which they are traded on the valuation
day or, if no sale occurs, at the bid price. Unlisted equity securities for
which current market quotations are readily available are valued at their most
recent bid price. Debt securities and other fixed-income investments owned by
the Funds are valued at prices supplied by independent pricing agents, which
prices reflect broker-dealer supplied valuations and electronic data processing
techniques. Short-term obligations maturing in sixty days or less may be valued
at amortized cost, which does not take into account unrealized gains or losses
on portfolio securities. Amortized cost valuation involves initially valuing a
security at its cost, and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the security's market value. While this method provides
certainty in valuation, it may result in periods in which the value of the
security, as determined by the amortized cost method, may be higher or lower
than the price a Fund would receive if the Fund sold the security. Other assets
and assets whose market value does not, in the opinion of the Adviser, reflect
fair value are valued at fair value using methods determined in good faith by
the Board of Trustees.
Certain portfolio securities held by the Funds (not including the Municipal
Funds) may be listed on foreign exchanges which trade on days when the NYSE is
closed. As a result, the net asset value of each class of a Fund may be
significantly affected by such trading on days when shareholders have no ability
to redeem shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Equity Fund declares and pays dividends from net investment income, if any,
and distributes net short-term capital gain, if any, at least annually. Each of
the other Funds distributes substantially all of its net investment income in
the form of dividends declared daily and paid monthly. Each Fund, including the
Equity Funds, also distributes at least annually substantially all of the net
long-term capital gain, if any, which it realizes for each taxable year and may
make distributions at any other times when necessary to satisfy applicable tax
requirements. Capital losses, including any capital loss carryovers from prior
years, are taken into account in determining the amounts of short-term and
long-term capital gains to be distributed.
From time to time, a portion of a Fund's distributions may constitute a return
of capital for tax purposes. Dividends and distributions are made in additional
institutional shares of the same Fund or, at the shareholder's election, in
cash. The election to reinvest dividends and distributions or receive them in
cash may be changed at any time upon written notice to the Transfer Agent. If no
election is made, all dividends and capital gain distributions will be
reinvested.
Taxes
Each Fund is treated as a separate entity for federal income tax purposes and
has elected or intends to elect to be treated as a regulated investment company
under Subchapter M of the Code. Each
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<PAGE>
Fund intends to qualify for such treatment for each taxable year. To qualify as
a regulated investment company, each Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders. As a regulated investment company, a
Fund will not be subject to federal income or excise tax on any net investment
income or net realized capital gain that is distributed to its shareholders in
accordance with certain timing and other requirements of the Code.
Dividends paid by a Fund from its net investment income (except for tax-exempt
interest earned by the Municipal Funds), certain net realized foreign exchange
gains, and the excess of net short-term capital gain over net long-term capital
loss will be taxable to shareholders as ordinary income. Dividends paid by a
Fund from any excess of net long-term capital gain over net short-term capital
loss will be taxable to a shareholder as capital gain regardless of how long the
shareholder has held its shares. It is anticipated that future tax regulations
implementing federal tax legislation enacted on August 5, 1997 will provide that
distributions of long-term capital gains to individuals or other noncorporate
taxpayers will be subject to different maximum tax rates, depending on the dates
on which the gains are recognized and the applicable Fund's holding periods for
the assets that produce the gains. These tax consequences will apply regardless
of whether distributions are received in cash or reinvested in shares. A portion
of the dividends paid to corporate shareholders by the Equity Funds from
dividends they receive from U.S. domestic corporations may qualify for the
dividends-received deduction for corporate shareholders, subject to holding
period requirements and debt-financing limitations under the Code. Certain
distributions declared in October, November or December and paid in January of
the following year are taxable to shareholders as if received on December 31 of
the year in which they are declared. Shareholders will be informed annually
about the amount and character of distributions received from a Fund for federal
income tax purposes.
Each Municipal Fund intends to satisfy certain requirements of the Code so that
it may distribute the tax-exempt interest it receives as "exempt-interest
dividends," as defined in the Code. Distributions paid by a Municipal Fund that
are attributable to interest on tax-exempt obligations and that the Municipal
Fund designates as exempt-interest dividends will be excluded from gross income
for federal income tax purposes, although all or a portion of such a
distribution may increase a shareholder's liability (if any) for the federal
alternative minimum tax and the entire distribution may be includable in the tax
base for determining taxability of social security or railroad retirement
benefits. Distributions by a Municipal Fund from sources other than tax-exempt
interest will generally be taxable as described in the preceding paragraph.
Persons who are "substantial users" (or related persons to such substantial
users) of facilities financed by industrial development or certain private
activity bonds should consult their own tax advisers before purchasing shares of
a Municipal Fund. Interest on indebtedness incurred or continued to purchase or
carry shares of a Municipal Fund is not deductible to the extent attributable to
such Fund's distributions that are exempt-interest dividends.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on dividends (other than
exempt-interest dividends), redemptions and exchanges if they fail to furnish
their correct taxpayer identification number and certain certifications or if
they are otherwise subject to back-up withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to non-resident alien withholding tax at
the rate of 30% (or a lower rate provided by an applicable tax treaty) on
amounts treated as ordinary dividends from a Fund and, unless a current IRS Form
W-8
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or acceptable substitute for Form W-8 is on file, to backup witholding on
certain other payments from a Fund.
A Fund that invests in foreign securities may be subject to foreign withholding
or other foreign taxes on income earned on such securities (possibly including,
in some cases, capital gains). The Funds anticipate that they generally will not
be eligible to elect to pass such taxes or any associated foreign tax credits or
deductions through to their shareholders, but will provide appropriate
information to shareholders in the event such an election is made for any Fund.
Investors should consider the tax implications of buying institutional shares
immediately prior to a distribution (other than a daily dividend).Investors who
purchase institutional shares shortly before the record date for such a
distribution will pay a per share price that includes the value of the
anticipated distribution and will be taxed on any taxable distribution even
though the distribution represents a return of a portion of the purchase price.
Redemptions and exchanges of institutional shares are taxable events for
shareholders that are subject to tax.
In addition to federal taxes, a shareholder may be subject to state, local or
foreign taxes on dividends, capital gain distributions, or the proceeds of
redemptions or exchanges. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent a Fund's
distributions are derived from interest on (or, in the case of intangible
property taxes, the value of its assets is attributable to) certain U.S.
Government obligations and/or municipal obligations of certain issuers located
in the state or locality imposing the applicable taxes. In some states, such an
exemption may be available only if certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. The Funds may not
satisfy such requirements in some states or localities. Shareholders should
consult their tax advisors regarding the application to them of the federal tax
legislation referred to above and any other specific questions about federal,
state, local or foreign taxes and special rules that may be applicable to
certain classes of investors, such as retirement plans, financial institutions,
tax-exempt entities, insurance companies and non-U.S. persons.
ORGANIZATION AND SHARES OF THE TRUST
The Trust was formed as a business trust under the laws of the State of Delaware
on September 13, 1993, and commenced investment operations on January 3, 1994.
The Board of Trustees of the Trust is responsible for the overall management and
supervision of the affairs of the Trust. The Declaration of Trust authorizes the
Board of Trustees to create separate investment series or portfolios of shares.
As of the date hereof, the Trustees have established the Funds described in this
Prospectus and 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.
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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 hold in the aggregate either shares having a net asset value of
$25,000 or 1% of the outstanding shares, whichever is less, seek to call a
meeting for the purpose of removing a Trustee, the Trust has agreed to provide
certain information to such shareholders and generally to assist their efforts.
Certain of the Trustees and officers of the Trust reside outside the United
States, and substantially all the assets of these persons are located outside
the United States. It may not be possible, therefore, for investors to effect
service of process within the United States upon these persons or to enforce
against them, in United States courts or foreign courts, judgments obtained in
United States courts predicated upon the civil liability provisions of the
federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws. See "Trustees and Officers" in the Statement of
Additional Information.
As of January 30, 1998, the Adviser owned 58.97% and Deutsche Morgan Grenfell C.
J. Lawrence owned 32.95% of the outstanding shares of the Smaller Companies
Fund, Bankers Trust Company owned 39.66% of the outstanding shares of the
Municipal Bond Fund, Deutsche Morgan Grenfell C. J. Lawrence Inc. owned 40.22%
of the outstanding shares of the Microcap Fund and Charles Schwab & Co., Inc.
owned 28.71% of the outstanding shares of the Short-Term Municipal Bond Fund.
PERFORMANCE INFORMATION
From time to time, performance information, such as total return and yield for
institutional shares of a Fund, may be quoted in advertisements or in
communications to shareholders. A Fund's total return may be calculated on an
annualized and aggregate basis for various periods (which periods
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will be stated in the advertisement). Average annual return reflects the average
percentage change per year in value of an investment in institutional shares of
a Fund. Aggregate total return reflects the total percentage change over the
stated period. In calculating total return, dividends and capital gain
distributions made by the Fund during the period are assumed to be reinvested in
the Fund's institutional shares. A Fund's yield reflects a Fund's overall rate
of income on portfolio investments as a percentage of the institutional share
price. Yield is computed by annualizing the result of dividing the net
investment income per institutional share over a 30-day period by the net asset
value per 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 institutional shares, when redeemed, may be more or
less than the original cost. Any fees charged by banks or other institutional
investors directly to their customer accounts in connection with investments in
institutional shares of a Fund are not at the direction or within the control of
the Funds and will not be included in the Funds' calculations of total return.
- --------------------------------------------------------------------------------
Page 38
<PAGE>
APPENDIX A
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 Capital Management, Inc. (the "Adviser" or "MGCM") in accordance with
the microcap investment strategy (the "MGCM 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 Funds'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 MGCM 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. See "Investment
Objectives and Policies". Because of the similarities in investment strategies
and techniques, the Adviser believes that the accounts included in the MGCM
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 MGCM 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 MGCM 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 MGCM Microcap Composite
might have been lower.
The investment results of the MGCM 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 MGCM 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 MGCM 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 MGCM.
- --------------------------------------------------------------------------------
Page 39
<PAGE>
PERFORMANCE OF MORGAN GRENFELL MICROCAP FUND
Total Return for Year Ended
December 31, 1997 19.80%
Annualized Total Return for Period
From December 18, 1996 to
December 31, 1997 21.80%
PERFORMANCE OF MGCM MICROCAP COMPOSITE AND RUSSELL 2000
Average Annual Total Return
---------------------------
MGCM Microcap
Composite
Year (Net of Fees) Russell 2000
- ---- ------------ -------------
1997 18.77% 22.40%
1996 50.49% 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)%
- --------------------------------------------------------------------------------
MGCM Microcap
Composite
(Net of Fees) Russell 2000
------------- ------------
Annualized Total Return For
Period From December 31, 1986
to December 31, 1997 18.53% 25.70%
- --------------------------------------------------------------------------------
Page 40
<PAGE>
APPENDIX B
TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of redemptions and
exchanges be reported to the IRS and that 31% be withheld if you fail to provide
your correct Taxpayer Identification Number (TIN) and the certifications in
Section H or you are otherwise subject to backup withholding. Amounts withheld
and forwarded to the IRS can be credited as a payment of tax when completing
your Federal income tax return.
For most individual taxpayers, the TIN is the social security number. Special
rules apply for certain accounts. For example, for an account established under
the Uniform Gift to Minor's Act, the TIN of the minor should be furnished. If
you do not have a TIN, you may apply for one using forms available at local
offices of the Social Security Administration or the IRS.
Recipients exempt from backup withholding, including corporations and certain
other entities, should provide their TIN and write "exempt" after their
signature in section H of the application to avoid possible erroneous
withholding. Non-resident aliens and foreign entities may be subject to
withholding of up to 30% on certain distributions received from the Funds and
must provide certain certifications on IRS Form W-8 to avoid backup withholding
with respect to other payments. For further information, see Internal Revenue
Code Sections 1441, 1442 and 3406 and/or consult your tax adviser.
- --------------------------------------------------------------------------------
Page 41
<PAGE>
Morgan Grenfell Investment Trust
885 Third Avenue
New York, New York 10022
Investment Adviser
Morgan Grenfell Capital Management, Inc.
885 Third Avenue
New York, New York 10022
Administrator and Shareholder
Servicing Agent
SEI Financial Management Corporation
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Distributor
SEI Financial Services Company
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Custodian
The Northern Trust Company
Fifty South LaSalle Street
Chicago, Illinois 60675
Transfer Agent
DST Systems, Inc.
SEI Division CT-7
1004 Baltimore
Kansas City, Missouri 64105
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Service Information
Existing accounts, new accounts, prospectuses,
statements of additional information,
applications, and service forms - 1-800-550-6426
Telephone Exchanges - 1-800-407-7301
Share Price and Performance
Information - 1-800-550-6426
- --------------------------------------------------------------------------------
Page 42
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
Service Shares
885 Third Avenue
New York, New York 10022
February 25, 1998
(Revised March 6, 1998)
Morgan Grenfell Investment Trust (the "Trust") is an open-end
management investment company that includes the following five distinct
investment portfolios that focus on international fixed income investing: 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 and Morgan Grenfell Emerging Local Currency Debt Fund (the
"Funds"). The investment objective of each Fund is to maximize total return;
Morgan Grenfell Investment Services Limited (the "Adviser" or "MGIS"), based in
London England, serves as investment adviser to the Funds. The Funds are
designed for long-term investors seeking to participate in foreign fixed income
markets.
Information concerning investment portfolios of the Trust that focus on
U.S. investments (the "Domestic Funds") and international equity investments
(the "International Equity Funds") is contained in separate prospectuses that
may be obtained by calling 1-800-550-6426.
- ------------------------------------------------------------------------------
This Prospectus provides information about the Trust and each of the
Funds that investors should know before investing in service shares of the
Funds. Investors should carefully read this Prospectus and retain it for future
reference. For investors seeking more detailed information, the Statement of
Additional Information dated February 25, 1998 as amended or supplemented from
time to time, is available upon request without charge by calling the applicable
telephone number listed on the back cover or by writing SEI Financial Services
Company, 1 Freedom Valley Drive, Oaks, Pennsylvania 19456-0100. The Statement of
Additional Information, which is incorporated by reference into this Prospectus,
has been filed with the Securities and Exchange Commission. Not all of the Funds
are available in certain states. Please call 1-800-550-6426 to determine
availability in a particular state.
- ------------------------------------------------------------------------------
INVESTMENTS IN EMERGING MARKETS CAN INVOLVE SIGNIFICANT RISKS, AND
MORGAN GRENFELL EMERGING MARKETS DEBT FUND AND MORGAN GRENFELL EMERGING LOCAL
CURRENCY DEBT FUND ARE DESIGNED FOR AGGRESSIVE INVESTORS. IN ADDITION, MORGAN
GRENFELL EMERGING MARKETS DEBT FUND AND MORGAN GRENFELL EMERGING LOCAL CURRENCY
DEBT FUND INVEST IN LOWER-QUALITY DEBT SECURITIES (JUNK BONDS), WHICH PRESENT
HIGHER RISKS OF UNTIMELY INTEREST AND PRINCIPAL PAYMENTS, DEFAULT, AND PRICE
VOLATILITY THAN HIGHER-QUALITY SECURITIES, AND MAY PRESENT LIQUIDITY AND
VALUATION PROBLEMS.
SERVICE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Page -1-
<PAGE>
Each Fund's primary investments are summarized below:
Morgan Grenfell Core Global Fixed Income Fund invests primarily in
investment grade fixed income securities of issuers throughout the
world.
Morgan Grenfell Global Fixed Income Fund invests primarily in fixed
income securities of issuers throughout the world.
Morgan Grenfell International Fixed Income Fund invests primarily in
fixed income securities of issuers in countries other than the United
states.
Morgan Grenfell Emerging Markets Debt Fund invests primarily in fixed
income securities of issuers in countries with emerging securities
markets.
Morgan Grenfell Emerging Local Currency Debt Fund invests primarily in
fixed income securities denominated in currencies of countries with
emerging securities markets.
- --------------------------------------------------------------------------------
Page -2-
<PAGE>
TABLE OF CONTENTS
Page
----
Expense Information 4
Financial Highlights 6
Introduction to the Funds 9
Investment Objectives and Polices 11
Description of Securities and Investment Techniques
and Related Risks 15
Additional Investment Information 27
Management of the Funds 28
Purchase of Service Shares 30
Redemption of Service Shares 33
Net Asset Value 35
Dividends, Distributions and Taxes 35
Organization and Shares of the Trust 37
Performance Information 38
Appendix A........................................... 39
Appendix B........................................... 41
Appendix C........................................... 42
- --------------------------------------------------------------------------------
Page -3-
<PAGE>
EXPENSE INFORMATION
(Service Shares)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CORE
FUND NAME GLOBAL FIXED GLOBAL FIXED INTERNATIONAL EMERGING MARKETS EMERGING LOCAL
INCOME FUND INCOME FUND FIXED INCOME FUND DEBT FUND CURRENCY DEBT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses:
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases .................... None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends................................ None None None None None
Deferred Sales Charge
Imposed on Redemptions................... None None None None None
Exchange Fee ............................ None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)
- ------------------------------------------------------------------------------------------------------------------------------------
Advisory fees ........................... 0.50% 0.50% 0.50% 1.00% 0.60%
Other Expenses** ........................ 0.76% 0.52% 0.81% 0.71% 0.81%
Reduction of Advisory Fee
and Expense Limitation by Adviser *** ... (0.46)% (0.17)% (0.51)% (0.46)% (0.46)%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Fund Operating Expenses***............ 0.80% 0.85%**** 0.80%**** 1.25%**** 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Service Shares for International Fixed Income Fund, Global Fixed Income Fund,
Core Global Fixed Income Fund and Emerging Local Currency Debt Fund were not
operational during the fiscal year ended October 31, 1997.
** The figure shown as other expenses for service shares of each Fund includes
service fees of 0.25% of the Fund's average net assets attributable to service
shares. For more information on service fees and a description of the
circumstances in which service shares will be converted to institutional shares
(another class of Fund shares), see "Management of the Funds--Service Plans."
***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 service shares of each Fund, on an annual basis, to the specified
percentage of each Fund's assets shown in the above table as Net Fund Operating
Expenses. The above table and the following Example reflect this voluntary
agreement. In it sole discretion, the Adviser may terminate or modify this
voluntary agreement at any time after October 31, 1998. The purpose of this
voluntary agreement is to enhance a Fund's total return during the period when,
because of its smaller size, fixed expenses have a more significant impact on
total return. After giving effect to the Adviser's voluntary agreement, each
Fund's advisory fee is as follows: Core Global Fixed Income Fund 0.04%, Global
Fixed Income Fund 0.33%, International Fixed Income Fund 0%, Emerging Markets
Debt Fund 0.53% and Emerging Local Currency Debt Fund 0.14%. If the Adviser's
voluntary agreement were not in effect, the Fund Operating Expenses for service
shares of each Fund would be as follows: Core Global Fixed Income Fund 1.26%,
Global Fixed Income Fund 1.02%, International Fixed Income Fund 1.31%, Emerging
Markets Debt Fund 1.71% and Emerging Local Currency Debt Fund 1.41%.
****Effective January 1, 1998, International Fixed Income Fund and Emerging
Markets Debt Fund reduced the net Fund operating expenses to 0.80% and 1.25%,
respectively. Effective March 6, 1998, Global Fixed Income Fund reduced the net
Fund operating expenses to 0.85%.
- --------------------------------------------------------------------------------
Page -4-
<PAGE>
Example:
Investors in service shares would pay the following expenses on a
$1,000 investment assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
1 3 5 10
Year Years Years Years
---- ----- ----- -----
Morgan Grenfell Core Global Fixed Income Fund $8 $26 $44 $ 99
Morgan Grenfell Global Fixed Income Fund $9 $27 $47 $105
Morgan Grenfell International Fixed Income Fund $8 $26 $44 $ 99
Morgan Grenfell Emerging Markets Debt Fund $13 $40 $69 $151
Morgan Grenfell Emerging Local Currency Debt Fund $10 $30 $53 $117
The purpose of the Expense Information Table and Example is to assist
investors in understanding the various direct and indirect costs and expenses
that an investment in service shares of a Fund will bear. "Other Expenses"
included in the Expense Information Table and Example for each Fund other than
Morgan Grenfell Core Global Fixed Income Fund and Morgan Grenfell Emerging Local
Currency Debt Fund are estimates for the fiscal year ending October 31, 1998
that are based on actual expenses incurred during the fiscal year ended October
31, 1997, except that the figures shown assume that the service fees were in
effect throughout the year ended October 31, 1997. Additionally, the figures
shown in the Expense Information Table and Example reflect the Adviser's
voluntary agreement, effective as of March 1, 1997, to limit Fund Operating
Expenses for service shares of Emerging Markets Debt Fund to 1.50% of average
net assets. "Other Expenses" for Morgan Grenfell Core Global Fixed Income Fund
and Morgan Grenfell Emerging Local Currency Debt Fund are based on estimated
average net assets for the current fiscal year ended October 31, 1998. If the
average net assets of either of these Funds exceeds the estimate for such year,
then its "Other Expenses" (as a percentage of average net assets) will be lower
than the rate shown in the table. Conversely, if the Fund's average net assets
are lower than the estimate for such year, then its "Other Expenses" (as a
percentage of average net assets) will be higher than the rate shown in the
table.
The Example assumes reinvestment of all dividends and distributions
and that the percentage amounts listed in the Expense Information Table remain
the same each year. If the Adviser were to discontinue its voluntary fee
reductions, the expenses contained in the Example could increase.
THE EXAMPLE IS DESIGNED FOR INFORMATION PURPOSES ONLY, AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR RETURN FOR ANY FUND. ACTUAL
EXPENSES AND RETURN VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE
SHOWN. For further information regarding advisory and service fees and other
expenses of the Funds, see "Management of the Funds."
- --------------------------------------------------------------------------------
Page -5-
<PAGE>
FINANCIAL HIGHLIGHTS
Set forth below are selected audited data for an outstanding service
share of Morgan Grenfell Emerging Markets Debt Fund for the fiscal period ended
October 31, 1997. The data set forth below have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. Morgan
Grenfell Emerging Markets Debt Fund was the only Fund that had service shares
outstanding prior to October 31, 1997.
Selected audited data for an outstanding institutional share of Morgan
Grenfell Global Fixed Income Fund and Morgan Grenfell International Fixed Income
Fund are also presented below for periods prior to and ending October 31, 1997.
This data has been audited by Price Waterhouse LLP, independent accountants,
whose report thereon was unqualified.
The information set forth below should be read in conjunction with the
financial statements and notes thereto which appear in the Statement of
Additional Information. The Statement of Additional Information and the Trust's
annual report, which contains further information about the Funds' performance,
are available free of charge by calling 1-800-550-6426.
No data are shown below for Morgan Grenfell Core Global Fixed Income
Fund and Morgan Grenfell Emerging Local Currency Debt Fund because these Funds
had not commenced operations on or prior to October 31, 1997.
- --------------------------------------------------------------------------------
Page -6-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Service Share Outstanding Throughout Period Ended October 31
<TABLE>
<CAPTION>
Net
Net Asset Net Realized Distributions Distributions Ratio of
Value Investment and from Net from Realized Net Asset Net Assets Expenses to
Beginning Income / Unrealized Investment Capital Value End Total End of Average
Year of Period (Loss) Gains/(Losses) Income (3) Gains of Period Return Period (000) Net Assets
---- --------- ------ -------------- ---------- ----- --------- ------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------
Emerging Markets Debt Fund (1)
- ------------------------------------
1997* $ 13.61 $ 0.03 $ (1.69) $ - $ - $ 11.95 (12.20)% $ 132 1.50%
<CAPTION>
Ratio of Net
Ratio of Investment
Expenses Income (Loss)
Ratio of Net to Average to Average
Investment Net Assets Net Assets
Income (Loss) (Excluding (Excluding Portfolio
to Average Expense Expense Turnover
Year Net Assets Limitations) Limitations) Rate
---- ---------- ------------ ------------ ----
<S> <C> <C> <C> <C>
- ------------------------------
Emerging Markets Debt Fund (1)
- ------------------------------
1997 18.65% 1.71% 18.44% 472%
</TABLE>
- --------------------------------------------------------------------------------
(1) Service Shares of the Emerging Markets Debt Fund commenced operation on
10/23/97.
* All ratios, excluding total return and portfolio turnover rate for the period,
are annualized.
- --------------------------------------------------------------------------------
Page -7-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For an Institutional Share Outstanding Throughout Each Period Ended October 31
<TABLE>
<CAPTION>
Net
Net Asset Net Realized Distributions Distributions
Value Investment and from Net from Realized Net Asset
Beginning Income / Unrealized Investment Capital Value End
Year of Period (Loss) Gains/(Losses) Income (3) Gains of Period
---- --------- ------ -------------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------
Global Fixed Income Fund
- --------------------------------------------------
1997 $ 11.26 $ 0.35 $ 0.01 $ (0.50) $ (0.28) $ 10.84
1996 $ 10.99 $ 0.59 $ 0.12 $ (0.37) $ (0.07) $ 11.26
1995 $ 9.85 $ 0.35 $ 0.99 $ (0.20) - $ 10.99
1994 (1)* $ 10.00 $ 0.25 $(0.40) - - $ 9.85
- --------------------------------------------------
International Fixed Income Fund
- --------------------------------------------------
1997 $ 11.30 $ 0.20 $ (0.11) $ (0.64) $ (0.59) $ 10.16
1996 $ 11.34 $ 0.86 $ (0.12) $ (0.66) $ (0.12) $ 11.30
1995 $ 9.94 $ 0.42 $ 1.03 $ (0.05) - $ 11.34
1994 (2)* $ 10.00 $ 0.29 $ (0.35) - - $ 9.94
<CAPTION>
Ratio of Net
Ratio of Investment
Expenses Income (Loss)
Ratio of Net to Average to Average
Ratio of Investment Net Assets Net Assets
Net Assets Expenses to Income (Loss) (Excluding (Excluding Portfolio
Total End of Average to Average Expense Expense Turnover
Year Return Period (000) Net Assets Net Assets Limitations) Limitations) Rate
---- ------ ------------ ---------- ---------- ------------ ------------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------
Global Fixed Income Fund
- --------------------------------------------------
1997 3.34% $ 92,180 0.65% 5.30% 0.77% 5.18% 179%
1996 6.60% $ 149,917 0.75% 5.39% 0.79% 5.35% 223%
1995 13.88% $ 139,337 0.78% 5.61% 0.87% 5.52% 147%
1994 (1)* (1.50)% $ 53,915 0.85% 5.71% 1.28% 5.28% 173%
- --------------------------------------------------
International Fixed Income Fund
- --------------------------------------------------
1997 0.82% $ 27,937 0.65% 5.00% 1.06% 4.59% 174%
1996 6.82% $ 21,155 0.75% 5.41% 1.03% 5.13% 235%
1995 14.66% $ 27,603 0.78% 5.51% 1.15% 5.14% 187%
1994 (2)* (0.60)% $ 15,238 0.85% 5.66% 1.42% 5.09% 130%
</TABLE>
- --------------------------------------------------------------------------------
(1) Global Fixed Income Fund commenced operations on 1/3/94.
(2) International Fixed Income Fund commenced operations on 3/15/94.
(3) Distributions from net investment income include distributions of certain
foreign currency gains and losses
* All ratios, excluding total return and portfolio turnover rate for the period,
are annualized.
- --------------------------------------------------------------------------------
Page -8-
<PAGE>
INTRODUCTION TO THE FUNDS
Morgan Grenfell Investment Trust (the "Trust") offers a number of
mutual funds, each of which is a separate series of the Trust. This Prospectus
relates solely to the Funds. Information regarding investment portfolios of the
Trust that focus on U.S. investments (the "Domestic Funds") and international
equity investments (the "International Equity Funds") is contained in separate
prospectuses that may be obtained by calling 1-800-550-6426.
Under normal market conditions, the Funds will invest primarily in
foreign fixed income securities. Investing primarily in foreign fixed income
securities and across international borders presents growth opportunities and
potentially higher returns than could be achieved by investing solely in the
United States. International investing permits participation in the economies of
countries with business cycles and stock and bond market performance often
different from that in the United States and, with more than one-half of the
world's stock and bond market value outside the United States, it can help
broaden the investments of a portfolio otherwise solely invested in domestic
securities. International investments also involve certain risks not normally
associated with domestic investments. The Funds are designed for long-term
investors comfortable with the special risk and return characteristics of
investing internationally. See "Description of Securities and Investment
Techniques and Related Risks."
MGIS, which is a fully owned subsidiary of London-based Morgan Grenfell
Asset Management, serves as the investment adviser to each of the Funds. Morgan
Grenfell Asset Management has been managing international investments for over
thirty years and now has over US$15.5 billion of assets under management. Within
the Morgan Grenfell Asset Management group, MGIS has specialized in delivering
international investment management services to U.S. investors in both fixed
income and equity markets.
This prospectus relates solely to service shares of the Funds. Service
shares may be purchased through financial planners, investment advisers,
broker-dealers and other institutions ("Service Organizations"). Some Service
Organizations may provide omnibus accounting services for groups of individuals
who beneficially own the service shares ("Omnibus Accounts"). Omnibus Accounts
include pension and retirement plans (such as 401 (k) plans, 457 plans and 403
(b) plans) and programs through which Service Organizations provide personal
and/or account maintenance services to groups of individuals, whether or not
such individuals invest on a tax-deferred basis. Investors may only purchase
service shares through Service Organizations. See "Purchase of Service Shares"
for further information.
The Funds offer another class of shares (institutional shares), which
is subject to different expenses and therefore has different performance than
service shares. Information regarding institutional shares may be obtained by
calling 1-800-550-6426. As described below under "Management of Funds -- Service
Plans", all or a portion of a Fund's outstanding service shares will be
converted to institutional shares of the same Fund under certain circumstances.
Investment Focus and Non-Diversification
Emerging Markets Debt Fund and Emerging Local Currency Debt Fund seek
to attain their objectives by focusing on what are, in the Adviser's view, the
most promising markets and companies in the world's rapidly developing
countries. While emerging markets are highly volatile and subject to change with
political or economic developments, they offer the opportunity for substantial
growth. In contrast to Emerging Markets Debt Fund, Core Global Fixed Income
Fund, Global Fixed Income Fund and International Fixed Income Fund may spread
their investments across world markets.
- --------------------------------------------------------------------------------
Page -9-
<PAGE>
Each of the Funds is non-diversified under the Investment Company Act
of 1940 (the "1940 Act") and, therefore, may be more susceptible than a more
diversified mutual fund to developments affecting any single issuer of portfolio
securities. See "Description of Securities and Investment Techniques and Related
Risks--Diversification." There can be no assurance that a Fund will achieve its
investment objective.
Selection of Portfolio Securities
Fixed income securities in which the Funds may invest include U.S. and
foreign government securities and corporate fixed income securities. See
"Description of Securities and Investment Techniques and Related Risks--Fixed
Income Securities." In managing the Funds, the Adviser uses a top-down approach
which gives primary emphasis to the relative attractiveness of bond markets and
currencies. Markets are selected after consideration is given to their risk and
return outlook under various economic scenarios. Currencies are evaluated
separately, and the underlying currency mix of each Fund's position in fixed
income securities generally is designed to enhance returns during periods of
relative U.S. dollar weakness and to protect return during periods of relative
U.S. dollar strength. These investment decisions require consideration of
macro-economic factors such as inflation, interest rates, monetary and fiscal
policies, taxation and political climate. The Adviser also considers the
characteristics of individual securities and issuers.
The fixed income securities in which each Fund may invest may have
stated maturities ranging from overnight to 1000 years. Each Fund's weighted
average maturity will vary based upon the Adviser's assessment of economic and
market conditions.
Investment Techniques and Risk Factors
Foreign Securities. Investing in the securities of foreign issuers and
of companies whose securities are principally traded outside the United States
involves considerations and potential risks not typically associated with
investing in the securities of U.S. issuers whose securities are principally
traded in the United States. For example, in many foreign countries, securities
markets are less liquid, more volatile and less subject to governmental
regulation than U.S. securities markets. Also, in many foreign countries, there
is less publicly available information about foreign issuers. Moreover, the
value of the securities of foreign issuers held in a Fund's portfolio will be
affected by changes in currency exchange rates, which may be incurred due to
either changes in securities prices expressed in local currencies or due to
movements in exchange rates, or both. See "Description of Securities and
Investment Techniques and Related Risks--Foreign Securities."
Foreign Currency Transactions. To attempt to manage exposure to
fluctuations in currency exchange rates and, in some circumstances, to seek to
profit from exchange rate fluctuations, each Fund may employ certain currency
management techniques, including forward foreign currency exchange contracts,
options and futures on currencies and currency swaps. In addition, each Fund may
also employ a variety of active investment management techniques, including
entering into options, futures, options on futures, interest rate swaps and
when-issued and forward commitment transactions in order to hedge its positions
against potential adverse changes in future foreign currency exchange rates and
for non-hedging purposes. Whether for hedging or non-hedging purposes, the use
of these techniques entails special risks. See "Description of Securities and
Investment Techniques and Related Risks--Currency Management Techniques."
Fixed Income Securities. The net asset value of the shares of the Funds
will change in response to fluctuations in interest rates and in currency
exchange rates. When interest rates decline, the value of fixed income
securities generally can be expected to rise. Conversely, when interest rates
rise, the value of fixed income securities generally can be expected to decline.
The performance of investments in fixed income securities denominated in a
foreign currency generally can be expected to increase when the value of the
foreign currency appreciates. A rise in foreign interest rates or a
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decline in the value of foreign currencies relative to the U.S. dollar generally
can be expected to depress the value of a Fund's investments in securities
denominated in a foreign currency. See "Description of Securities and Investment
Techniques and Related Risks--Fixed Income Securities."
Lower Quality Fixed Income Securities. The Emerging Markets Debt Fund,
the Emerging Local Currency Debt Fund and, to a lesser extent, the Global Fixed
Income Fund may invest in fixed income securities which are unrated or rated in
the lowest rating categories by Standard & Poor's Ratings Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's") (i.e., ratings of BB or
lower by Standard & Poor's or Ba or lower by Moody's). Securities rated BB or Ba
or below (or comparable unrated securities) are considered speculative, and
payments of principal and interest thereon may be questionable. In some cases,
these securities may be highly speculative, have poor prospects for reaching
investment grade standing and be in default. See "Description of Securities and
Investment Techniques and Related Risks--Fixed Income Securities." A chart
showing the distribution of Emerging Markets Debt Fund's assets across the
various ratings categories is set forth in Appendix A.
Temporary Defensive Investments. When market conditions warrant, in the
judgment of the Adviser, each Fund may, for temporary defensive purposes, invest
up to 100% of its total assets in U.S. or, subject to tax requirements, Canadian
dollars, U.S. Government securities maturing within one year (including
repurchase agreements collateralized by such securities) and commercial paper of
U.S. or foreign issuers, cash equivalents and certain high grade fixed income
securities. See "Description of Securities and Investment Techniques and Related
Risks--Temporary Defensive Investments."
Year 2000 Compliance. Certain management and shareholder account
services provided to the Funds and their shareholders depend on the proper
functioning of computer systems. Many computer systems in use today cannot
distinguish the year 2000 from the year 1900 because of the way dates are
encoded and calculated. If left uncorrected, this software flaw could have an
adverse effect on the handling of security trades and pricing and shareholder
account services. The Adviser and the Trust's administrator, principal
underwriter, transfer agent and custodian have been actively working on
necessary changes to their computer systems to deal with the year 2000. Although
there can be no assurance that these systems will be properly adapted in time
for that event, the management of the Trust expects that they will be.
INVESTMENT OBJECTIVES AND POLICIES
Core Global Fixed Income Fund
The investment objective of the Core Global Fixed Income Fund is to maximize
total return, emphasizing current income and, to a lesser extent, providing
opportunities for capital growth consistent with reasonable investment risk.
Under normal circumstances, the Fund pursues this objective by investing at
least 65% of its total assets in fixed income securities of issuers in at least
three countries, which may include: Austria, Belgium, Denmark, Finland, France,
Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden,
Switzerland, the United Kingdom, the United States, Canada, Japan, Australia and
New Zealand. At the discretion of the Adviser, the Fund may invest in fixed
income securities of issuers located in other countries.
The fixed income securities in which the Fund invests consist primarily of high
grade debt obligations of foreign governments or their agencies,
instrumentalities, political subdivisions and authorities; debt obligations
issued or guaranteed by international or supranational entities; U.S. Government
securities and high grade fixed income securities of U.S. and foreign corporate
issuers. High grade securities include securities rated within the three highest
grades by Moody's (Aaa, Aa and A), Standard & Poor's (AAA, AA and A) or
comparable rating agency or, if unrated, determined to be
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<PAGE>
of comparable quality by the Adviser. The Fund may also invest in governmental
and corporate fixed income securities that are rated in the fourth highest grade
by Moody's (Baa), Standard & Poor's (BBB) or comparable rating agency or, if
unrated, determined to be of comparable quality by the Adviser. Securities rated
in the fourth highest grade by any of the major rating agencies have speculative
characteristics. See "Description of Securities and Investment Techniques and
Related Risks--Fixed Income Securities" for a description of these risks and
Appendix A to this Prospectus for a description of the various ratings
categories.
The Fund may invest more than 25% of its total assets in each of Japan, the
United States, Germany and the United Kingdom. Investing in these countries to
this extent will cause the Fund to be particularly susceptible to the effects of
political and economic developments in these countries, See "Description of
Securities and Investment Techniques and Related Risks-Country Investing". Up to
35% of the Fund's total assets may be invested in cash equivalents.
Global Fixed Income Fund
The investment objective of the Global Fixed Income Fund is to maximize total
return, emphasizing current income and, to a lesser extent, providing
opportunities for capital growth consistent with reasonable investment risk.
Under normal circumstances, the Fund pursues this objective by investing at
least 65% of its total assets in fixed income securities of issuers in at least
three countries, which may include: Austria, Belgium, Denmark, Finland, France,
Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden,
Switzerland, the United Kingdom, the United States, Canada, Japan, Australia and
New Zealand. At the discretion of the Adviser, the Fund may invest in fixed
income securities of issuers located in other countries.
The fixed income securities in which the Fund invests consist primarily of debt
obligations of foreign governments or their agencies, instrumentalities,
political subdivisions and authorities; debt obligations issued or guaranteed by
international or supranational entities; U.S. Government securities and fixed
income securities of U.S. and foreign corporate issuers. Most of the Fund's
investments in fixed income securities generally will be in securities rated
within the four highest grades by Moody's (Aaa, Aa, A and Baa), Standard &
Poor's (AAA, AA, A and BBB) or comparable rating agency or, if unrated,
determined to be of comparable quality by the Adviser. However, the Fund may
invest up to 15% of its total assets in fixed income securities rated below
these levels or, if unrated, determined to be of comparable quality by the
Adviser, including securities of issuers in emerging markets. These securities,
which are known as below investment grade securities, involve greater price
volatility and risk of loss of principal and income than investment grade
securities. See "Description of Securities and Investment Techniques and Related
Risks--Fixed Income Securities" for a description of these risks and Appendix A
to this Prospectus for a description of the various ratings categories.
The Fund may invest more than 25% of its total assets in each of Japan, the
United States, Germany and the United Kingdom. Investing in these countries to
this extent will cause the Fund to be particularly susceptible to the effects of
political and economic developments in these countries, See "Description of
ecurities and Investment Techniques and Related Risks--Country Investing". Up to
35% of the Fund's total assets may be invested in cash equivalents.
International Fixed Income Fund
The investment objective of the International Fixed Income Fund is to
maximize total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital growth consistent with reasonable investment
risk. Under normal circumstances, the Fund pursues this objective by investing
at least 65% of its total assets in fixed income securities of issuers in at
least three countries other than the United States, including Austria, Belgium,
Denmark, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom,
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Canada, Japan, Australia, and New Zealand. At the discretion of the Adviser, the
Fund may invest in fixed income securities of issuers located in other foreign
countries.
The fixed income securities in which the Fund invests consist primarily
of high grade debt obligations of foreign governments or their agencies,
instrumentalities, political subdivisions and authorities; debt obligations
issued or guaranteed by international or supranational entities and high grade
fixed income securities of foreign corporate issuers. High grade securities
include securities rated within the three highest grades by Moody's (Aaa, Aa and
A), Standard & Poor's (AAA, AA and A) or comparable rating agency or, if
unrated, determined to be of comparable quality by the Adviser. The Fund may
invest up to 10% of its total assets in governmental and corporate fixed income
securities that are rated in the fourth highest grade by Moody's (Baa), Standard
& Poor's (BBB) or comparable rating agency or, if unrated, determined to be of
comparable quality by the Adviser. Securities rated in the fourth highest grade
by any of the major rating agencies have speculative characteristics. See
"Description of Securities and Investment Techniques and Related Risks--Fixed
Income Securities" for a description of these risks and Appendix A attached to
this Prospectus for a description of the various ratings categories.
The Fund may invest more than 25% of its total assets in each of
Germany, France, Japan, Italy and the United Kingdom. Investing in these
countries to this extent will cause the Fund to be particularly susceptible to
the effects of political and economic developments in these countries. See
"Description of Securities and Investment Techniques and Related Risks-Country
Investing".
Up to 35% of the Fund's total assets may be invested in fixed income
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
Emerging Markets Debt Fund
The investment objective of the Emerging Markets Debt Fund is to
maximize total return. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in fixed income
securities of issuers located in countries with emerging securities markets,
including Algeria, Argentina, Bangladesh, Brazil, Bulgaria, Chile, China,
Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Ecuador, Egypt, Greece,
Hungary, India, Indonesia, Ivory Coast, Jordan, Kazahkstan, Malaysia, Mexico,
Morocco, Pakistan, Panama, Peru, the Philippines, Poland, Portugal, Russia,
South Africa, Thailand, Turkey, Uruguay, Venezuela and Vietnam. At the
discretion of the Adviser, the Fund may invest in fixed income securities of
issuers in other countries that have emerging securities markets. Investments in
emerging securities markets may offer greater opportunities for total return
than investments in securities traded in developed markets. However, investing
in emerging securities markets also involves risks that are not present in
developed markets. See "Description of Securities and Investment Techniques and
Related Risks--Foreign Securities."
Under normal market conditions, the Fund's investments in emerging
securities markets will consist principally of (i) loans, debt instruments and
fixed income securities issued or guaranteed by sovereign governments or their
agencies and instrumentalities, (ii) sub-participations in such loans, debt
instruments and fixed income securities and (iii) financial instruments, such as
forward contracts and call options, the value of which are dependent on the
prices of such loans, debt instruments and fixed income securities. The loans
and debt instruments in which the Fund may invest may be denominated in a major
currency, such as the U.S. dollar or the German Deutschemark, or in the local
currency. The price of loans and debt instruments denominated in a local
currency may be linked to the value of a major currency. The Fund's investments
may include so-called "Brady Bonds," which recently have been issued by the
governments of Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic,
Equador, Jordan, Mexico, Nigeria, Panama, Poland, Philippines, Uruguay and
Venezuela, as well as non-performing or semi-
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performing instruments with potential to be converted into securities under a
Brady plan or otherwise to appreciate in value as debt servicing prospects
improve. See "Description of Securities and Investment Techniques and Related
Risks--Fixed Income Securities." The Fund's investments in emerging securities
markets may also include fixed income securities of companies located in
countries with emerging securities markets.
Fixed income securities in which the Fund may invest may be of any
credit quality, including securities not paying interest currently, zero coupon
bonds, securities that pay interest in the form of other securities (i.e., "pay
in kind" or PIK securities) and securities in default. Fixed income securities
having low credit quality involve greater price volatility and risk of loss of
principal and income. For a description of these and other risks of investing in
lower quality fixed income securities, see "Description of Securities and
Investment Techniques and Related Risks--Fixed Income Securities." See Appendix
A to this Prospectus for a description of the various ratings categories of
Moody's and Standard & Poor's and a chart showing the distribution of the Fund's
assets across the various ratings categories.
The Fund may invest more than 25% of its total assets in each of Mexico
and Brazil. Investing in these countries to this extent will cause the Fund to
be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks-Country Investing."
Up to 35% of the Fund's total assets may be invested in fixed income
securities issued or guaranteed by the U.S. Government.
Emerging Local Currency Debt Fund
The investment objective of the Emerging Local Currency Debt Fund is to
maximize total return. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in local
currency-denominated debt instruments of issuers located in countries with
emerging securities markets, including Algeria, Argentina, Bangladesh, Brazil,
Bulgaria, Chile, China, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic,
Ecuador, Egypt, Greece, Hungary, India, Indonesia, Ivory Coast, Jordan,
Kazakhstan, Malaysia, Mexico, Morocco, Pakistan, Panama, Peru, the Philippines,
Poland, Portugal, Russia, South Africa, Thailand, Turkey, Uruguay, Venezuela and
Vietnam. At the discretion of the Adviser, the Fund may invest in instruments in
other currencies of countries that have emerging securities markets. Investments
in emerging securities markets may offer greater opportunities for total return
than investments in securities traded in developed markets. However, investing
in emerging securities markets also involves risks that are not present in
developed markets. See "Description of Securities and Investment Techniques and
Related Risks--Foreign Securities."
In making investments for the Fund, the Adviser will give primary
emphasis to the relative attractiveness of the local currencies in which the
investments are denominated. Accordingly, the Fund will not generally attempt to
hedge foreign currency exchange rate risks associated with positions it takes in
such investments. The Fund may use forward foreign currency exchange contracts,
options, futures, swaps, interest rate caps and floors and when-issued and
forward commitment transactions for non-hedging and hedging purposes. However,
because the Fund generally will not use these techniques to attempt to hedge
currency exchange rate risks, the Fund's return may be more dependent on the
Adviser's judgment as to the relative attractiveness of the local currencies in
which the Fund's investments are denominated.
Under normal market conditions, the Fund's investments in emerging
securities markets will consist principally of (i) debt instruments and fixed
income securities issued or guaranteed by sovereign governments or their
agencies and instrumentalities, and (ii) financial instruments, such as call
options, the value of which are dependent on the prices of such debt instruments
and fixed income securities. The Fund's investments in emerging securities
markets may also include fixed income securities of non-
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<PAGE>
governmental issuers located in countries with emerging securities markets and
fixed deposits denominated in foreign currencies.
The securities in which the Fund may invest may be of any credit
quality, including securities no paying interest currently, zero coupon bonds,
securities that pay interest in the form of other securities (i.e., "pay in
kind" or PIK securities) and securities in default. Bonds having low credit
quality involve greater price volatility and risk of loss of principal and
income. For a description of these and other risks of investing in lower quality
bonds, see "Description of Securities and Other Investment Techniques and
Related Risk--Fixed Income Securities." See Appendix A to this Prospectus for a
description of the various ratings categories of Moody's and Standard & Poor's.
The Fund may invest more than 25% of its total assets in Mexico.
Investing in Mexico to this extent will cause the Fund to be particularly
susceptible to the effects of political and economic developments in this
country. See "Description of Securities and Investment Techniques and Related
Risks-Country Investing."
Up to 35% of the Fund's total assets may be invested in fixed income
securities issued or guaranteed by the U.S. Government or its agenciies or
instrumentalities, and in short-dated investments with commercial banks
denominated in U.S. Dollars.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES AND RELATED RISKS
Foreign Securities
General. Subject to their respective investment objectives and
policies, the Funds may invest in U.S. dollar-denominated and non-dollar
denominated foreign fixed income securities and in certificates of deposit
issued by foreign banks and foreign branches of U.S. banks. While investments in
securities of foreign issuers and non-U.S. dollar denominated securities may
offer investment opportunities not available in the United States, such
investments also involve significant risks not typically associated with
investing in domestic securities. In many foreign countries, there is less
publicly available information about foreign issuers, and there is less
government regulation and supervision of foreign stock exchanges, brokers and
listed companies. Also in many foreign countries, companies are not subject to
uniform accounting, auditing, and financial reporting standards comparable to
those applicable to domestic issuers. Security trading practices and custody
arrangements abroad may offer less protection to the Funds' investments and
there may be difficulty in enforcing legal rights outside the United States.
Settlement of transactions in some foreign markets may be delayed or may be less
frequent than in the United States which could affect the liquidity of the
Funds' portfolios. Additionally, in some foreign countries, there is the
possibility of expropriation or confiscatory taxation, limitations on the
removal of securities, property, or other Fund assets, political or social
instability or diplomatic developments which could affect investments in foreign
securities.
To the extent the Funds' investments are denominated in foreign
currencies, the Funds' net asset values may be affected favorably or unfavorably
by fluctuations in currency exchange rates and by changes in exchange control
regulations. For example, if the Adviser increases a Fund's exposure to a
foreign currency, and that currency's value subsequently falls, the Adviser's
currency management may result in increased losses to the Fund. Similarly, if
the Adviser hedges a Fund's exposure to a foreign currency, and that currency's
value rises, the Fund will lose the opportunity to participate in the currency's
appreciation. The Funds will incur transaction costs in connection with
conversions between currencies.
Investments in Emerging Markets. Each of the Funds may invest to
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varying degrees in one or more countries with emerging securities markets. These
countries are generally located in Latin America, Europe, the Middle East,
Africa and Asia. Political and economic structures in many of these countries
may be undergoing significant evolution and rapid development, and these
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of these countries may have in the past
failed to recognize private property rights and, at times, may have nationalized
or expropriated the assets of private companies. As a result, these risks,
including the risk of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the value of a Fund's investments in these countries, as well as the
availability of additional investments in these countries. The small size and
inexperience of the securities markets in certain of these countries and the
limited volume of trading in securities in these countries may make the Funds'
investments in these countries illiquid and more volatile than investments in
most Western European countries, and the Funds may be required to establish
special custodial or other arrangements before making certain investments in
some of these countries. There may be little financial or accounting information
available with respect to issuers located in certain of these countries, and it
may be difficult as a result to assess the value or prospects of an investment
in these countries. The laws of some foreign countries may limit the Funds'
ability to invest in securities of certain issuers located in those countries.
Country Concentration. Each Fund may concentrate its investments in one
or more foreign countries. Concentration of a Fund's investments in a particular
country will subject the Fund, to a greater extent than if its investments in
such country were more limited, to the risks of adverse securities markets,
exchange rates and social, political or economic developments which may occur in
that country.
Currency Management Techniques
General. The performance of foreign currencies relative to that of the
U.S. dollar is an important factor in each Fund's performance and the Adviser
may manage the Fund's exposure to various currencies to seek to take advantage
of the yield, risk and return characteristics that different currencies can
provide. Currency exchange rates may fluctuate significantly over short periods
of time causing, together with other 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, each Fund may enter into forward foreign currency exchange
contracts or currency swap agreements, purchase securities indexed to foreign
currencies, and buy and sell options and futures contracts relating to foreign
currencies and options on such futures contracts. See "Forward Foreign Currency
Transactions," "Interest Rate and Currency Swaps," "Options" and "Futures and
Options on Futures" below. The Funds may use currency hedging techniques in the
normal course of business to lock in an exchange rate in connection with
purchases and sales of securities denominated in foreign currencies. Other
currency management strategies allow the Adviser to hedge portfolio securities,
to shift investment exposure from one currency to another, or to attempt to
profit from anticipated declines in the value of a foreign currency relative to
the U.S. dollar. There is no overall limitation on the amount of assets that any
of the Funds may commit to currency
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management strategies. Although the Adviser may attempt to manage currency
exchange rate risks, there is no assurance that the Adviser will do so, or do so
at an appropriate time or that the Adviser will be able to predict exchange
rates accurately.
Securities held by a Fund are generally denominated in the currency of
the foreign market in which the investment is made. However, securities held by
a Fund may be denominated in the currency of a country other than the country in
which the security's issuer is located. For example, Emerging Markets Debt Fund
often purchases foreign securities that are denominated in U.S. dollars. The
Funds may also invest in securities denominated in the European Currency Unit
("ECU"), which is a "basket" consisting of specified amounts of the currencies
of certain member countries of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community from time to time to reflect changes in their relative
values. In addition, the Funds may invest in securities denominated in other
currency "baskets."
Forward Foreign Currency Transactions. Each of the Funds may conduct
foreign currency exchange transactions on a spot (i.e., cash) basis at the rate
prevailing in the foreign currency exchange market or by entering into forward
currency exchange contracts ("forward currency contracts") to purchase or sell
foreign currencies. A Fund may purchase or sell forward currency contracts for
hedging purposes except that the Emerging Local Currency Debt Fund generally
does not expect to do so. Each Fund may also purchase or sell forward currency
contracts for non-hedging purposes when the Adviser anticipates that the foreign
currency will appreciate or depreciate in value, but securities denominated or
quoted in that currency do not present attractive investment opportunities and
are not held in a Fund's portfolio. When purchased or sold for non-hedging
purposes, forward currency contracts are speculative.
Each Fund may enter into forward currency contracts to purchase foreign
currency to attempt to protect against an anticipated rise in the U.S. dollar
price of securities that it intends to purchase. A Fund may enter into contracts
to sell foreign currency to 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. Contracts
to sell foreign currency could limit any potential gain which might be realized
by a Fund if the value of the hedged currency increased.
A Fund may sell U.S. dollars and buy foreign currency forward in order
to gain exposure to a currency which is expected to appreciate against the U.S.
dollar. This speculative strategy allows a Fund to benefit from currency
appreciation potential without requiring it to purchase a local fixed income
instrument, for which prospects may be relatively unattractive. It is the
Adviser's intention that each Fund's net U.S. dollar currency exposure generally
will not fall below zero (i.e., that net short positions in the U.S. dollar
generally will not be taken).
If a Fund enters into a forward currency contract to sell foreign
currency for non-hedging purposes or to buy foreign currency for any purpose,
the forward currency contract generally will not have a term greater than one
year. The forecasting of short-term currency market movements is extremely
difficult and there can be no assurance that short-term hedging strategies will
be successful.
When a Fund enters into a forward currency contract to sell foreign
currency for non-hedging purposes or to buy foreign currency for any purpose,
the Fund will be required to place cash or liquid securities in a segregated
account, which will be marked to market daily, in an amount equal to the value
of the total assets committed to the consummation of the forward currency
contract. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account so that
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the value of the account will equal the amount of the Fund's commitment with
respect to the contract.
Forward currency contracts are subject to the risk that the
counterparty to such contract will default on its obligations. Since a forward
currency contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive a Fund of unrealized profits, transaction costs or
the benefits of a currency hedge or force a Fund to cover its purchase or sale
commitments, if any, at the current market price. The Funds will not enter into
forward currency contracts unless the credit quality of the unsecured senior
debt or the claims-paying ability of the counterparty is determined to be
investment grade by the Adviser. The Adviser will monitor the claims-paying
ability of the counterparty on an ongoing basis.
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.
For example, a Fund wishing to acquire a particular security that is denominated
in French Francs, but wishing to seek exposure to a second currency and not the
Franc, may simultaneously enter into a forward contract to sell an equivalent
value of Francs in exchange for such foreign currency. Synthetic investment
positions will typically involve the purchase of U.S. dollar-denominated
securities together with a forward contract to purchase the currency to which
the Fund seeks exposure and to sell U.S. dollars. This may be done because the
range of highly liquid short-term instruments available in the U.S. may provide
greater liquidity to a Fund than actual purchases of foreign
currency-denominated securities in addition to providing superior returns in
some cases. Depending on (a) each Fund's liquidity needs, (b) the relative
yields of securities denominated in different currencies and (c) spot and
forward currency rates, a significant portion of a Fund's assets may be invested
in synthetic investment positions, subject to compliance with the tax
requirements for qualification as a regulated investment company. See "Taxes."
There is a risk in adopting a synthetic investment position. It is
impossible to forecast with absolute precision what the market value of a
particular security will be at any given time. If the value of the U.S.
dollar-denominated security is not exactly matched with a Fund's obligation
under a forward currency contract on the date of maturity, the Fund may be
exposed to some risk of loss from fluctuations in the value of the U.S. dollar.
Although the Adviser will attempt to hold such mismatching to a minimum, there
can be no assurance that the Adviser will be able to do so.
Cross-Hedging. At the discretion of the Adviser, each of the Funds may
employ the currency hedging strategy known as "cross-hedging" by using forward
currency contracts, currency options or a combination of both. When engaging in
cross-hedging, a Fund seeks to protect against a decline in the value of a
foreign currency in which certain of its portfolio securities are denominated by
selling that currency forward into a different foreign currency for the purpose
of diversifying the Fund's total currency exposure or gaining exposure to a
foreign currency that is expected to appreciate.
For a description of the Funds' transactions in currency options,
futures and swaps, see "Options--Currency Options," "Futures Contracts and
Options on Futures Contracts" and "Interest Rate and Currency Swaps."
Options
Written Options. The Funds may write (sell) covered put and call
options on fixed income securities and enter into related closing transactions.
A Fund may receive fees (referred to as "premiums") for granting the rights
evidenced by the options. However, in return for the premium, the Fund assumes
certain risks. For example, in the case of a written call option, the Fund
forfeits the right to any appreciation in the underlying security while the
option is outstanding. A put option gives to its purchaser the right to compel
the Fund to purchase an underlying security from the option holder at the
specified price at any time during the option period. In contrast, a call option
written by the Fund gives to its purchaser the right to compel the
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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.
Futures Contracts and Options on Futures Contracts
When deemed advisable by the Adviser, each of the Funds may enter into
financial futures contracts and purchase and write options on futures contracts
to attempt to hedge against changes in interest rates, securities prices or
currency exchange rates or for certain non-hedging purposes. A Fund may engage
in futures and related options transactions for hedging and non-hedging purposes
as defined in regulations of the Commodity Futures Trading Commission. A Fund
will not enter into futures contracts or options thereon for non-hedging
purposes, if immediately thereafter, the aggregate initial margin and premiums
required to establish non-hedging positions in futures contracts and options on
futures will exceed 5% of the net asset value of the Fund's portfolio, after
taking into account unrealized profits and losses on any such positions and
excluding the amount by which such options were in-the-money at the time of
purchase. Transactions in futures contracts and options on futures involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating the Funds to purchase securities or
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currencies, require the Funds to segregate assets with a value equal to the
amount of the Fund's obligations.
Limitations and Risks Associated With Transactions In Forward Foreign Currency
Exchange Contracts, Options, Futures Contracts and Options on Futures Contracts
Each of the Funds' active management techniques involves (1) liquidity
risk that contractual positions cannot be easily closed out in the event of
market changes or generally in the absence of a liquid secondary market, (2)
correlation risk that changes in the value of hedging positions may not match
the securities market and foreign currency fluctuations intended to be hedged,
and (3) market risk that an incorrect prediction of securities prices or
exchange rates by the Adviser may cause a Fund to perform worse than if such
positions had not been taken. The ability to terminate over-the-counter options
is more limited than with exchange traded options and may involve the risk that
the counterparty to the option will not fulfill its obligations.
The use of options, futures and forward currency contracts is a highly
specialized activity which involves investment techniques and risks that are
different from those associated with ordinary portfolio transactions. Gains and
losses on investments in options and futures depend on the Adviser's ability to
predict the direction of stock prices, interest rates, currency movements and
other economic factors. The loss that may be incurred by a Fund in entering into
futures contracts and written options thereon and forward currency contracts is
potentially unlimited. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times, render certain
facilities of an options clearing entity or other entity performing the
regulatory and liquidity functions of an options clearing entity inadequate, and
thereby result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders. Options and futures
traded on foreign exchanges generally are not regulated by U.S. authorities, and
may offer less liquidity and less protection to a Fund in the event of default
by the other party to the contract.
Except as set forth above under "Futures Contracts and Options on
Futures Contracts" there is no limit on the percentage of a Fund's assets that
may be invested in futures contracts and related options or forward currency
contracts. A Fund may not invest more than 25% of its total assets in purchased
protective put options. A Fund's transactions in options, forward currency
contracts, futures contracts and options on futures contracts may be limited by
the requirements for qualification of the Fund as a regulated investment company
for tax purposes. See "Taxes" in the Statement of Additional Information.
Fixed Income Securities
General. In order to achieve their respective investment objectives,
the Funds may invest in a broad range of U.S. and non-U.S. fixed income
securities. In periods of declining interest rates, a Fund's yield (its income
from portfolio investments over a stated period of time) may tend to be higher
than prevailing market rates, and in periods of rising interest rates, the yield
of the Fund may tend to be lower. Also, when interest rates are falling, the
inflow of net new money to each Fund from the continuous sale of its shares will
likely be invested in portfolio instruments producing lower yields than the
balance of the Fund's portfolio, thereby reducing the yield of the Fund. In
periods of rising interest rates, the opposite can be true. To the extent a Fund
invests in fixed income securities, its net asset value can generally be
expected to change as general levels of interest rates fluctuate. The value of
fixed income securities in a Fund's portfolio generally varies inversely with
changes in interest rates. Prices of fixed income securities with longer
effective maturities are more sensitive to interest rate changes than those with
shorter effective maturities. The Funds may invest up to 5% of their net assets
in inverse floating rate securities, which have greater volatility risk than
ordinary fixed income securities.
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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 below Baa by Moody's
or BBB by Standard & Poor's or, if unrated, determined to be of comparable
quality by the 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" in the
Statement of Additional Information for special tax considerations associated
with investing in high yield bonds structured as zero coupon, payment-in-kind,
or increasing rate securities.
Lower quality fixed income securities will also be affected by the
market's perception of their credit quality, especially during times of adverse
publicity, and the outlook for economic growth. In the past, economic downturns
or an increase in interest rates have, under certain circumstances, caused a
higher incidence of default by the issuers of these securities and may do so in
the future, especially in the case of highly leveraged issuers. The market for
these lower quality fixed income securities is generally less liquid than the
market for investment grade fixed income securities. Therefore, the Adviser's
judgment may at times play a greater role in valuing these securities than in
the case of investment grade fixed income securities, and it also may be more
difficult under certain adverse market conditions to sell these lower rated
securities to meet redemption requests, to respond to changes in the market, or
to determine accurately a Fund's net asset value.
If a fixed income security that, at the time of purchase, satisfied a
Fund's minimum rating critiria (if any) 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. The International Fixed Income
Fund will not continue to hold fixed income securities that have been downgraded
below investment grade if more than 5% of that Fund's net assets would consist
of such securities.
Foreign Government Securities. The foreign government securities in
which the Funds may invest generally consist of debt obligations issued or
guaranteed by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational or quasi-governmental entities. Quasi-governmental and
supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the Japanese Development Bank, the Asian
Development Bank and the InterAmerican Development Bank. Foreign government
securities also include mortgage-related securities issued or guaranteed by
national, state or provincial governmental instrumentalities, including
quasi-governmental agencies. For a description of the risks associated with all
investments in foreign securities, see "Foreign Securities" above.
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The Emerging Markets Debt Fund may also invest in so-called "Brady
Bonds." The Fund may invest in Brady Bonds and other sovereign debt securities
of countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. Brady Bonds are debt securities
issued under the framework of the Brady Plan, an initiative announced by U.S.
Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations
to restructure their outstanding external indebtedness (generally, commercial
bank debt). In restructuring its external debt under the Brady Plan framework, a
debtor nation negotiates with its existing bank lenders as well as multilateral
institutions such as the World Bank and the International Monetary Fund (the
"IMF"). The Brady Plan framework, as it has developed, contemplates the exchange
of commercial bank debt for newly issued bonds (Brady Bonds). The World Bank
and/or the IMF support the restructuring by providing funds pursuant to loan
agreements or other arrangements which enable the debtor nation to collateralize
the new Brady Bonds or to repurchase outstanding bank debt at a discount. Under
these arrangements with the World Bank and/or the IMF, debtor nations have been
required to agree to the implementation of certain domestic monetary and fiscal
reforms. Such reforms have included the liberalization of trade and foreign
investment, the privatization of state-owned enterprises and the setting of
targets for public spending and borrowing. These policies and programs seek to
promote the debtor country's ability to service its external obligations and
promote its economic growth and development. Investors should recognize that the
Brady Plan only sets forth general guiding principles for economic reform and
debt reduction, emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors. The Adviser believes that
economic reforms undertaken by countries in connection with the issuance of
Brady Bonds make the debt of countries which have issued or have announced plans
to issue Brady Bonds an attractive opportunity for investment.
Brady Bonds have recently been issued by Argentina, Brazil, Bulgaria,
Costa Rica, Dominican Republic, Equador, Jordan, Mexico, Nigeria, Panama,
Poland, the Philippines, Uruguay and Venezuela and may be issued by other
countries. Over $130 billion in principal amount of Brady Bonds have been issued
to date, the largest proportion having been issued by Argentina and Brazil.
Brady Bonds may involve a high degree of risk, may be in default or present the
risk of default. As of November 1, 1997, the Fund is not aware of the occurrence
of any payment defaults on Brady Bonds. Investors should recognize however, that
Brady Bonds have been issued only recently, and, accordingly, they do not have a
long payment history. Agreements implemented under the Brady Plan to date are
designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt, bonds issued at a discount of face value of such debt, bonds
bearing an interest rate which increases over time and bonds issued in exchange
for the advancement of new money by existing lenders. Certain Brady Bonds have
been collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds, although
the collateral is not available to investors until the final maturity of the
Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and
the debtor nations' reserves. In addition, the first two or three interest
payments on certain types of Brady Bonds may be collateralized by cash or
securities agreed upon by creditors. Although Brady Bonds may be collateralized
by U.S. Government securities, repayment of principal and interest is not
guaranteed by the U.S. Government.
Registered Loans. The Emerging Markets Debt Fund may invest in loan
obligations issued or guaranteed by sovereign governments or their agencies and
instrumentalities. The ownership of these loans is registered in the books of an
agent bank and/or the borrower and transfers of ownership are effected by
assignment agreements. Documentation for these assignments includes a signed
notice of assignment, which is sent to the agent and/or borrower for
registration shortly after the execution of the assignment agreement. Prior to
the notice of assignment being registered with the agent and/or borrower, the
borrower or its agent will make any payments of principal and interest to the
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last registered owner.
Given the volume of secondary market trading in registered loans, the
agent and/or borrower's books may be out of date, making it difficult for the
Fund to establish independently whether the seller of a registered loan is the
owner of the loan. For this reason, the Fund will require a contractual warranty
from the seller to this effect. In addition, to assure the Fund's ability to
receive principal and interest owed to it but paid to a prior holder because of
delays in registration, the Fund will purchase registered loans only from
parties that agree to pay the amount of such principal and interest to the Fund
upon demand after the borrower's payment of such principal and interest to any
prior holder has been established.
Generally, registered loans trade in the secondary market with interest
(i.e., the right to accrued but unpaid interest is transferred to purchasers).
Occasionally, however, the Fund may sell a registered loan and retain the right
to such interest ("sell a loan without interest"). To assure the Fund's ability
to receive such interest, the Fund will make such sales only to parties that
agree to pay the amount of such interest to the Fund upon demand after the
borrower's payment of such interest to any subsequent holder of the loan has
been established. In this rare situation, the Fund's ability to receive such
interest (and, therefore, the value of shareholders' investments in the Fund
attributable to such interest) will depend on the creditworthiness of both the
borrower and the party who purchased the loan from the Fund.
To further assure the Fund's ability to receive interest and principal
on registered loans, the Fund will only purchase registered loans from, and sell
loans without interest to, parties determined to be creditworthy by the Adviser.
For purposes of the Fund's 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 without interest, it will treat
both the borrower and the purchaser of the loan as issuers for purposes of this
policy.
U.S. Government Securities. The Funds may invest in obligations issued
or guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (iii) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association ("FNMA")), or (iv) only
the credit of the issuer. No assurance can be given that the U.S. Government
will provide financial support to U.S. Government agencies or instrumentalities
in the future.
The Funds may also invest in separately traded principal and interest
components of U. S. Government securities if such components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS") or any similar program sponsored by the U.S.
Government.
Custodial Receipts. Each Fund may acquire custodial receipts which are
typically issued by a custodian bank or investment brokerage firm. These
receipts represent unmatured interest coupons that have been separated
("stripped") by a custodian bank or investment brokerage firm, and evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government or its agencies or
instrumentalities. For certain securities law purposes, custodial receipts are
not considered U.S. Government securities.
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Mortgage-Backed and Asset-Backed Securities
The Funds may invest in mortgage-backed securities, which represent
direct or indirect participations in, or are collateralized by and payable from,
mortgage loans secured by real property. These include collateralized mortgage
obligations ("CMOs") and various "stripped" mortgage-backed securities ("SMBS").
CMOs are issued in multiple classes, each with a specified fixed or adjustable
interest rate and final maturity date. Principal payments may be made to the
various classes in either a sequential order or simultaneously. SMBS typically
are issued in two classes, with one receiving only interest payments from a pool
of mortgage loans ("IOs") and the other receiving only principal payments
("POs"). The Funds may also invest in asset-backed securities, which represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sales, installment loan contracts, leases of various types
of real and personal property and receivables from revolving credit (credit
card) agreements and other categories of receivables. Such securities are
generally issued by trusts and special purpose corporations.
Mortgage-backed and asset-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result of
the pass-through of prepayments of principal on the underlying loans. During
periods of declining interest rates, prepayment of loans underlying
mortgage-backed and asset-backed securities can be expected to accelerate, and
thus impair a Fund's ability to reinvest the returns of principal at comparable
yields. Accordingly, the market values of such securities will vary with changes
in market interest rates generally and in yield differentials among various
kinds of U.S. Government securities and other mortgage-backed and asset-backed
securities. Asset-backed securities present certain risks that are not presented
by mortgage-backed securities because asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. In addition, there is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support payments on
these securities.
Interest Rate, Mortgage and Currency Swaps and Interest Rate Caps and Floors
The Funds may enter into interest rate, mortgage and currency swaps for
hedging and non-hedging purposes. The Funds may also enter into other types of
interest rate swap arrangements such as caps and floors. A Fund will typically
use interest rate swaps to adjust the effective duration of its portfolio, to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the Fund
anticipates purchasing at a future date. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The principal amount,
however, is tied to a reference pool or pools of mortgages. Currency swaps
involve the exchange of rights to make or receive payments in specified
currencies. In a typical cap or floor arrangement, one party agrees to make
payments only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate falls
below an agreed upon level. Since interest rate and currency swaps and interest
rate caps and floors are individually negotiated, the Funds would enter into
such arrangements in the expectation of achieving an acceptable degree of
correlation between their hedged portfolio investments and their interest rate
and currency swap positions.
The Funds will enter into interest rate and mortgage swaps only on a
net basis, which means that the two payment streams are netted out, with a Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate and mortgage swaps do not involve the delivery of
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securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate and mortgage swaps is limited to the net amount of
interest payments that a Fund is contractually obligated to make. If the other
party to an interest rate or mortgage swap defaults, a Fund's risk of loss
consists of the net amount of interest payments that the Fund is contractually
entitled to receive. The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each interest rate swap,
mortgage swap, and interest rate caps and floors, will be accrued on a daily
basis, and an amount of cash or liquid securities having an aggregate net asset
value at least equal to such accrued excess will be maintained in a segregated
account, which will be marked to market daily, by the Fund's custodian. In
contrast, currency swaps usually involve the delivery of the entire principal
amount of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. A Fund will segregate, in an account maintained by the Fund's
custodian, an amount of cash or liquid securities having an aggregate net asset
value equal to the entire amount of the Fund's obligation in a currency swap.
The use of interest rate, mortgage and currency swaps and interest rate
caps and floors is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates or currency exchange rates, the investment performance of
a Fund may be less favorable than it would have been if these investment
techniques were not used.
Convertible Securities and Preferred Stocks
Subject to their investment policies, the Funds may invest in
convertible securities, which may include corporate notes or preferred stock but
are ordinarily long-term debt obligations of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all fixed income
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities generally rank senior to common stocks in an issuer's
capital structure and are consequently of higher quality and entail less risk
than the issuer's common stock. However, the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. In evaluating a
convertible security, the Adviser will give primary emphasis to the
attractiveness of the underlying common stock. The convertible debt securities
in which each Fund may invest are subject to the same rating criteria as the
Fund's investments in non-convertible securities.
Diversification
Each of the Funds is "non-diversified" under the 1940 Act. Accordingly,
they are subject only to certain federal tax diversification requirements and to
the policies adopted by the Adviser. With respect to 50% of its total assets,
each Fund may invest up to 25% of its total assets in the securities of any one
issuer (except that this limitation does not apply to U.S. Government
securities). With respect to the remaining 50% of its total assets, a Fund may
not invest more than 5% of its total assets in the securities of any one issuer
(except U.S. Government securities) nor acquire more than 10% of the outstanding
voting securities of any issuer. These federal tax diversification requirements
apply only at taxable quarter-ends and are subject to certain qualifications and
exceptions. To the extent that a Fund does not meet standards for being
"diversified" under the 1940 Act, it
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will be more susceptible to developments affecting any single issuer of
portfolio securities.
Temporary Defensive Investments
For temporary defensive purposes, each of the Funds may invest all or
part of its portfolio in U.S. or, subject to tax requirements, Canadian
currencies, U.S. Government securities maturing within one year (including
repurchase agreements collateralized by such securities), commercial paper of
U.S. or foreign issuers, and cash equivalents.
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by U.S. or foreign corporations and finance companies. The
commercial paper purchased by the Funds consists of U.S. dollar-denominated
obligations of domestic or foreign issuers. Each Fund may also invest in
commercial paper which at the date of investment is rated at least A-2 by
Standard & Poor's or P-2 by Moody's, or their equivalent ratings, or, if not
rated, is issued or guaranteed as to payment of principal and interest by
companies which are rated, at the time of purchase, A or better by Standard &
Poor's or Moody's, or their equivalents, and other debt instruments, including
unrated instruments, not specifically described if such instruments are deemed
by the Adviser to be of comparable quality.
Cash equivalents include obligations of banks which at the date of
investment have capital, surplus and undivided profits (as of the date of their
most recently published financial statements) in excess of US$ 100 million. Bank
obligations in which the Funds may invest include certificates of deposit,
bankers' acceptances and fixed time deposits. Bank obligations also include U.S.
dollar-denominated obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks, all of the same type as domestic bank obligations. A
Fund will invest in the obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks only when the Adviser determines that the credit risk
with respect to the instrument is minimal.
Additional Investment Technique
Mortgage Dollar Rolls. The Funds may enter into mortgage "dollar rolls"
in which a Fund sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, a
Fund forgoes principal and interest paid on the securities. A Fund is
compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income as well as by the interest earned on the cash proceeds of the initial
sale. A "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. The Funds
may enter into both covered and uncovered rolls.
When-Issued Securities and Forward Commitments. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase. When-issued securities or forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. When a Fund purchases securities on a
forward commitment or when-issued basis, the Fund's custodian will maintain in a
segregated account cash or liquid securities having a value (determined daily)
at least equal to the amount of the Fund's purchase commitment.
Repurchase Agreements. Each Fund may enter into repurchase agreements.
In a repurchase agreement, a Fund buys a security subject to the right and
obligation to sell it back to the other party at the same price plus accrued
interest. These transactions must be fully collateralized at all times, but they
involve some credit risk to a Fund if the other party defaults
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on its obligations and the Fund is delayed in or prevented from liquidating the
collateral. A Fund will enter into repurchase agreements only with U.S. or
foreign banks having total assets of at least US$100 million (or its foreign
currency equivalent).
Reverse Repurchase Agreements. Each Fund may enter into reverse
repurchase agreements with banks and domestic broker-dealers. Reverse repurchase
agreements involve sales by a Fund of portfolio securities concurrently with an
agreement by the Fund to repurchase the same securities at a later date at a
fixed price. During the reverse repurchase agreement period, the Fund continues
to receive principal and interest payments on these securities. Each Fund will
deposit cash or liquid securities or a combination of both in a segregated
account, which will be marked to market daily, with its custodian equal in value
to its obligations with respect to reverse repurchase agreements. Reverse
repurchase agreements are considered borrowings, and as such are subject to the
limitations on borrowings by the Funds.
Illiquid Securities. Each Fund will not invest more than 15% of its net
assets in illiquid securities, which include repurchase agreements and fixed
time deposits maturing in more than seven days and securities that are not
readily marketable.
Lending Securities. For the purpose of realizing income, each Fund may
lend to broker-dealers portfolio securities amounting to not more than 33 1/3%
of its total assets taken at current value. These transactions must be fully
collateralized at all times but involve some credit risk to a Fund if the other
party should default on its obligation and the Fund is delayed in or prevented
from recovering the collateral. Voting rights with respect to a portfolio
security pass to the borrower when the security is loaned by a Fund, but the
Trustees (or the Adviser) are required to call the loan if necessary to vote on
a material event affecting the Fund's investment in the loaned security.
Other Investment Companies. Each Fund may invest up to 10% of its total
assets, calculated at the time of purchase, in the securities of other
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 other such investment company. A
Fund will indirectly bear its proportionate share of any management or other
fees paid by investment companies in which it invests, in addition to its own
fees.
ADDITIONAL INVESTMENT INFORMATION
Investment Restrictions
Each Fund has adopted certain fundamental investment restrictions which
are described in detail in the Statement of Additional Information. Those
investment restrictions designated as fundamental in the Statement of Additional
Information can be changed only with shareholder approval. Each Fund's
investment objective and all other investment restrictions and policies are
nonfundamental and can be changed by the Board of Trustees of the Trust at any
time without shareholder approval.
Each Fund has fundamental investment restrictions with respect to
borrowing, lending, diversification of investments, senior securities, pledging
of assets, underwriting, real estate investments and commodities. See
"Investment Restrictions" in the Statement of Additional Information.
Portfolio Transactions
The Adviser is responsible for making specific decisions to buy and
sell portfolio securities for the Funds. The Adviser is also responsible for
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selecting brokers and dealers to effect these transactions and negotiating, if
possible, brokerage commissions and dealers' charges. The Funds generally
purchase and sell foreign securities in foreign countries, since the best
available market for foreign securities is often on foreign markets. In
transactions on foreign markets, brokerage commissions generally are fixed and
are often higher than in the United States where commissions are negotiated. In
the over-the-counter markets, securities generally are traded on a net basis
with the dealers acting as principal for their own accounts without a stated
commission.
The primary consideration in selecting broker-dealers to execute
portfolio security transactions is the execution of such portfolio transactions
at the most favorable prices. Consideration may also be given to the
broker-dealer's sale of shares of the Funds. Subject to this requirement and the
provisions of Section 28(e) of the Securities Exchange Act of 1934, as amended,
securities may be bought from or sold to broker-dealers who have furnished
statistical, research and other information or services to the Adviser. Higher
commissions may be paid to broker-dealers that provide research services. See
"Portfolio Transactions and Brokerage Commissions" in the Statement of
Additional Information for a more detailed discussion of portfolio transactions.
The Trustees will periodically review each Fund's portfolio transactions.
Pursuant to procedures established by the Trustees, subject to
applicable regulations, and consistent with the above policy of obtaining the
most favorable overall price, the Adviser may place securities transactions with
brokers with whom it or the Distributor is affiliated. No Fund will effect
principal transactions with an affiliated broker or dealer.
Portfolio Turnover
It is estimated that, under normal circumstances, the portfolio
turnover rate of each of the Funds will be approximately 200% or higher. A high
rate of portfolio turnover (i.e., 100% or higher) will result in correspondingly
higher transaction costs to a Fund. However, these costs generally are lower for
funds that invest in fixed income securities than for funds that invest in
equity securities. A high rate of portfolio turnover 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, 1997.
MANAGEMENT OF THE FUNDS
The Board of Trustees of the Trust is responsible for the overall
supervision and management of the Funds. The day-to-day operations of the Funds,
including investment decisions, have been delegated to the Adviser. The
Statement of Additional Information contains general background information
regarding each Trustee and executive officer of the Trust.
The Adviser
MGIS, located at 20 Finsbury Circus, London, England, acts as
investment adviser to each Fund pursuant to the terms of investment advisory
contracts between the Trust, on behalf of each Fund, and MGIS (the "Advisory
Contracts"). 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 December 31, 1997, MGIS managed approximately
$15.5 billion in assets.
Under its Advisory Contracts with the Trust, the Adviser manages each
Fund's business and investment affairs. For these services, the Adviser is
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entitled to a monthly fee at an annual rate of each Fund's average daily net
assets as follows:
Annual Rate
-----------
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%
As further described in "Expense Information," the Adviser has
voluntarily agreed to reduce its advisory fee and to make arrangements to limit
certain other expenses of each Fund to the extent necessary to limit the Fund's
operating expenses to a specified percentage of its average net assets. For the
fiscal period ended October 31, 1997, this voluntary agreement was in effect,
and Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International
Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund paid advisory
fees equal to 0.38%, 0.09% and 0.99% of their respective average daily net
assets during such period.
Each Fund is managed by a team of MGIS investment professionals with
expertise in the region(s) and types of investments in which the Fund invests.
For a description of the business experience and other credentials of each
investment professional involved in managing the Funds' portfolios, see Appendix
B to this Prospectus.
The Trust, on behalf of each Fund, is responsible for all of the Fund's
expenses other than those expressly assumed by the Adviser under the terms of
the Advisory Contracts. The expenses borne by each Fund include service fees,
the Fund's advisory fee, transfer agent fee and taxes and its proportionate
share of custodian fees, expenses of issuing reports to shareholders, legal
fees, auditing and tax fees, blue sky fees, fees of the Commission, insurance
expenses and disinterested Trustees' fees.
Service Plans
The Trust, on behalf of each Fund, has adopted a service plan pursuant
to which each Fund pays service fees at an aggregate annual rate of up to 0.25%
of the Fund's average daily net assets attributable to service shares. Service
fees are payable to Service Organizations that have agreements with the Trust,
and are intended to compensate Service Organizations for providing personal
services and/or account maintenance services to their customers who invest in
service shares. Service Organizations that are fiduciaries or parties in
interest to Omnibus Accounts subject to the Employee Retirement Income Security
Act of 1974 (ERISA) should consult with their legal advisers regarding the
receipt of service fees. See the Statement of Additional Information for further
information.
In the event that an agreement between a Service Organization and the
Trust expires or is terminated, service shares beneficially owned by customers
of such Service Organization will convert automatically to institutional shares
of the same Fund. 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.
Information regarding institutional shares of the Trust may be obtained by
calling 1-800-550-6426.
Administrator and Distributor
The Trust has entered into an Administration Agreement with SEI
Financial Management Corporation ("SEI Financial Management" or the
"Administrator"), 1 Freedom Valley Drive, Oaks, Pennsylvania 19456-0100. The
Administrator generally assists in all matters relating to the administration of
the Funds, including the coordination and monitoring of any third parties
furnishing services to the Funds, the preparation and maintenance of financial
and accounting records, and the provision of the necessary office space,
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equipment and personnel to perform administrative and clerical functions.
Pursuant to the Administration Agreement, SEI Financial Management
receives from all series of the Trust and other funds advised by Morgan Grenfell
Capital Management, Inc. an aggregate monthly fee at the following annual rates
of the aggregate average daily net assets ("aggregate assets") of such funds:
0.10% of aggregate net assets up to $1 billion
0.07% of the next $500 million of aggregate net assets
0.05% of the next $1 billion of aggregate net assets
0.04% of aggregate net assets exceeding $2.5 billion
Each Fund that offers its shares pays the Administrator a minimum
annual fee that currently equals $60,000.
SEI Financial Services Company (the "Distributor"), 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456-0100, serves as the distributor of service
shares of the Funds pursuant to a Distribution Agreement with the Trust and
assists in the sale of service shares of the Funds.
Custodian and Transfer Agent
The Trust has entered into a Custodian Agreement with The Northern
Trust Company ("Northern Trust" or the "Custodian"), pursuant to which Northern
Trust serves as custodian of the Funds' assets. The Custodian is located at
Fifty South LaSalle Street, Chicago, Illinois 60675.
DST Systems, Inc. (the "Transfer Agent"), 1004 Baltimore, Kansas City,
Missouri 64105, serves as the transfer agent of the Funds. The Transfer Agent
maintains the records of each record shareholder's account, processes purchases
and redemptions of the Funds' service shares, acts as dividend and distribution
disbursing agent and performs other shareholder servicing functions.
Additional information regarding the services performed by Service
Organizations, the Administrator, the Distributor, the Custodian and the
Transfer Agent is provided in the Statement of Additional Information.
PURCHASE OF SERVICE SHARES
In order to make an initial investment in service shares of a Fund, an
investor must establish an account with a Service Organization. Investors may
invest in service shares through an Omnibus Account maintained by their Service
Organization. Alternatively, investors may invest in service shares by
establishing a shareholder account with the Trust (in addition to the account
with their Service Organization). Investors who invest through Omnibus Accounts
may be subject to minimums established by their Service Organizations for
initial and subsequent investments. Unless waived by the Trust, the minimum
initial investment for Omnibus Accounts and investors who establish shareholder
accounts with the Trust in each Fund is $250,000.
Investors who invest through Omnibus Accounts should submit purchase
orders to their Service Organization. Investors who establish shareholder
accounts with the Trust should submit purchase orders to the Transfer Agent as
described below. Service Shares of any Fund may be purchased by an investor on
any Business Day at the net asset value next determined after receipt of the
investor's order in good order by the investor's Service Organization or by the
Transfer Agent, as the case may be. A "Business Day" means any day on which the
New York Stock Exchange (the "NYSE") is open. For an investor who invests
through an Omnibus Account, the investor's Service Organization must receive the
investor's order before the close of regular trading on the NYSE (currently 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 are
responsible for promptly forwarding such investors' purchase
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orders to the Transfer Agent. For an investor who has a shareholder account with
the Trust, the Transfer Agent must receive the investor's purchase order before
the close of regular trading on the NYSE for the investor to receive that day's
net asset value.
There is no sales charge in connection with purchases of service
shares. Investors may be subject to transaction and/or account maintenance fees
imposed by their Service Organizations (no part of which will be received by the
Trust or the Adviser). Any such fees will be payable directly by the investor,
and not by the Fund. The Trust reserves the right, in its sole discretion, to
reject any purchase offer and to suspend the offering of service shares. The
Trust does not issue share certificates.
For investors who invest through Omnibus Accounts, payment for initial
and subsequent purchases of service shares should be made to the investors'
Service Organizations. These investors should contact their Service
Organizations for further details on how to purchase service shares. For
investors who have shareholder accounts with the Trust, payment for initial and
subsequent shares should be made by mail or wire as described below.
Purchases by Mail
Service shares may be purchased initially by completing the Account
Application accompanying this Prospectus and mailing it, together with a check
in the amount of $250,000 or more drawn on a U.S. bank payable to the
appropriate Fund to:
By Regular Mail: By Overnight Mail:
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7)
1004 Baltimore
Kansas City, MO 64105
Third party checks, credit card checks and cash will not be accepted.
Subsequent investments in an existing account in any Fund may be made
at any time by sending to the Transfer Agent, at the above address, a check
payable to the appropriate Fund, along with either (i) a subsequent order form
which may be obtained from the Transfer Agent or (ii) a letter stating the
amount of the investment, the name of the Fund and the account number in which
the investment is to be made. Investors should indicate the name of the
appropriate Fund and account number on all correspondence.
Purchases by Wire
Investors having an account with a commercial bank that is a member of
the Federal Reserve System may purchase service shares of any Fund by requesting
their bank to transmit funds by wire to:
United Missouri Bank, N.A.
ABA No. 10-10-00695
For: Account Number 98-7052-395-7
Further Credit: [appropriate Fund name]
The investor's name and account number must be specified in the wire.
In addition, investors should be aware that some banks may charge wire fees.
Initial Purchases: Before making an initial investment in service
shares by wire, an investor must first telephone 1-800-407-7301 to be assigned a
wire account number. The investor may then transmit funds by wire through the
wire procedures described above. The investor's name, account number, social
security or other taxpayer identification number, and address must be specified
in the wire. In addition, investors making initial investments by
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wire must promptly complete the Account Application accompanying this Prospectus
and forward it to the Transfer Agent at:
By Regular Mail: By Overnight Mail:
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7)
1004 Baltimore
Kansas City, MO 64105
Subsequent Purchases: Additional investments may be made at any time
through the wire procedures described above, which must include the investor's
name and account number.
Reports to Shareholders
Shareholders of each Fund receive an annual report containing audited
financial statements and a semiannual report. Shareholders should contact their
Service Organizations for information regarding the Funds. Also, shareholders
who have shareholder accounts with the Trust may contact Morgan Grenfell
Investment Trust for account information by calling 1-800-550-6426 or by writing
to Morgan Grenfell Investment Trust at P.O. Box 419165, Kansas City, MO
64141-6165.
Exchange Privilege
A shareholder may exchange service shares of a Fund for service shares
of a Domestic Fund or International Equity Fund, subject, in the case of
shareholders who invest through Omnibus Accounts, to any restrictions imposed by
the Service Organizations that maintain such accounts. A shareholder should
obtain and read the prospectus relating to service shares of a Domestic Fund or
International Equity Fund and consider its investment objective, policies and
fees before making an exchange into that fund. Exchanges will be permitted only
in those states in which service shares of the relevant fund is available for
sale. The Funds reserve the right to refuse any exchange request.
If a shareholder who has a shareholder account with the Trust elects
the telephone exchange privilege on the Account Application, the shareholder may
exchange service shares in its account in one Fund for service shares in any
other Fund described in this Prospectus by telephone (by calling
1-800-407-7301), as long as all accounts are identically registered. Service
Organizations, acting on behalf of their customers who invest in service shares
through Omnibus Accounts, may exchange service shares in one Fund for service
shares of any other Fund or Domestic Fund or International Equity Fund by
telephone, unless they indicate otherwise in writing to the Trust. For
shareholders who have shareholder accounts with the Trust, the Transfer Agent
must receive the shareholder's exchange request in proper order before the close
of regular trading on the NYSE (currently 4:00 p.m., Eastern time) for the
investor to receive that day's net asset values. Service Organizations are
responsible for promptly forwarding such investors' exchange requests to the
Transfer Agent. For an investor who establishes a shareholder account with the
Trust, the Transfer Agent must receive the investor's exchange request before
the close of regular trading on the NYSE for the investor to receive that day's
net asset values.
Neither the Funds nor their agents will be liable for any loss incurred
by a shareholder as a result of following instructions communicated by telephone
that they reasonably believe to be genuine. To confirm that telephone exchange
requests are genuine, the Funds will employ reasonable procedures such as
providing written confirmation of telephone exchange transactions and tape
recording of telephone exchange requests. If a Fund does not employ such
reasonable procedures, it may be liable for any loss incurred by a shareholder
due to a fraudulent or other unauthorized telephone exchange request.
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An exchange is treated as a sale of the service shares exchanged and,
therefore, may produce a gain or loss to the shareholder that is recognizable
for tax purposes. Investors will receive 60 days' written notice prior to any
change in a Fund's exchange procedures.
REDEMPTION OF SERVICE SHARES
How To Redeem
A shareholder may redeem service shares of a Fund without charge upon
request on any Business Day at the net asset value next determined after receipt
of the shareholder's redemption request by the shareholder's Service
Organization (as long as the Service Organization promptly forwards the
shareholder's redemption request to the Transfer Agent) or, in the case of
shareholders who have shareholder accounts with the Trust, by the Transfer
Agent. For a shareholder who invests through an Omnibus Account, the
shareholder's Service Organization must receive the shareholder's redemption
request before the close of regular trading on the NYSE (currently 4:00 p.m.,
Eastern Time) and promptly forward such request to the Transfer Agent for the
investor to receive that day's net asset value. Service Organizations are
responsible for promptly forwarding such investors' redemption requests to the
Transfer Agent. For a shareholder who has a shareholder account with the Trust,
the Transfer Agent must receive the shareholder's redemption request before the
close of regular trading on the NYSE for the shareholder to receive that day's
net asset value.
A shareholder who has a shareholder account with the Trust may request
redemptions by telephone (by calling 1-800-407-7301) if the optional telephone
redemption privilege is elected on the Account Application. Service
Organizations, acting on behalf of their customers who invest in service shares
through Omnibus Accounts, may redeem service shares by telephone, unless they
indicate otherwise in writing to the Trust. Alternatively, Service Organizations
and shareholders who have accounts with the Trust may submit redemption requests
in writing. A written redemption request must specify the number of shares to be
redeemed, the Fund from which service shares are being redeemed, the
shareholder's or Omnibus Account's account number with the Trust, payment
instructions and the exact registration of the Account and should be forwarded
to the Transfer Agent at:
By Regular Mail: By Overnight Mail:
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7)
1004 Baltimore
Kansas City, MO 64105
Signatures must be guaranteed in accordance with the procedures set forth below
under "Payment of Redemption Proceeds".
In order to verify the authenticity of telephone redemption requests,
the Transfer Agent's telephone representatives will request that the caller
provide certain information unique to the account. If the caller is unable to
provide this information, telephone redemption requests will not be processed
and the redemption will have to be completed by mail. As long as the Transfer
Agent's telephone representatives comply with the procedures described above,
neither the Funds nor their agents will be liable for any losses due to
fraudulent or unauthorized transactions. Finally, it may be difficult to
implement telephone redemptions in times of drastic economic or market changes.
Payment of Redemption Proceeds
For shareholders having accounts with the Trust, redemption proceeds
ordinarily will be wired to the bank account designated on the Account
Application, unless payment by check has been requested. For shareholders who
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invest through Omnibus Accounts, redemption proceeds ordinarily will be wired to
the Service Organization that maintains the Account, unless payment by check has
been requested. Normally, redemption proceeds will be wired within no more than
seven days after the Transfer Agent receives the appropriate redemption request
documents, including any additional documentation that may be required in order
to establish that a redemption request has been properly authorized. Frequently,
redemption proceeds will be wired on the next Business Day after the Transfer
Agent's receipt of such documents. In addition, the payment of redemption
proceeds for service shares of a Fund recently purchased by check will be
delayed for up to 15 calendar days from the purchase date. After a wire has been
initiated by the Transfer Agent, neither the Transfer Agent nor the Trust
assumes any further responsibility for the performance of intermediaries or
Service Organization's or shareholder's bank in the transfer process. If a
problem with such performance arises, the Service Organization or shareholder
should deal directly with such intermediaries or bank.
Service Organizations whose customers invest through Omnibus Accounts
and shareholders who have accounts with the Trust may request that the Trust
make redemption payments by Federal Reserve Wire or Automated Clearing House
(ACH) wire. Redemption payments by Federal Reserve wire cannot be made on
Federal holidays restricting wire transfers. There is no charge for ACH wire
transactions; however, such transactions will not be posted to a Service
Organization's or shareholder's bank account until the second Business Day
following the transaction.
A Service Organization or a shareholder who has an account with the
Trust may change the bank designated to receive redemption proceeds by providing
written notice to the Transfer Agent which has been signed by the Service
Organization or such shareholder or its authorized representative. This
signature must be guaranteed by a bank, a securities broker or dealer, a credit
union having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies standards established by the Transfer Agent. The Transfer Agent may
also require additional documentation in connection with a request to change a
designated bank.
If the Board of Trustees determines that it is appropriate in order to
protect the best interests of a Fund and its shareholders, the Fund, under the
limited circumstances described below, may satisfy all or part of a redemption
request by delivering portfolio securities to a redeeming investor. However, the
Trust, on behalf of each Fund, has elected, pursuant to Rule 18f-1 under the
1940 Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Only redemptions in excess of this limit may be paid in kind.
In-kind payments would not have to constitute a cross-section of a Fund's
portfolio. Investors receiving redemption payment in portfolio securities will
not have eliminated their investment exposure by their redemption as would
investors receiving their redemption payment in cash. Instead these investors
will be subject to risks inherent in owning such securities, including market
value and currency fluctuations, difficulties in selling securities in
particular markets and repatriating the sales proceeds, and the political and
other risks described under "Description of Securities and Investment Techniques
and Related Risks - Foreign Securities." In addition, a shareholder generally
will incur additional expenses, such as brokerage commissions and currency
conversion fees or expenses, on the sale or other disposition of securities
received from a Fund. Any portfolio securities paid or distributed to a
redeeming shareholder would be valued as described under "Net Asset Value."
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NET ASSET VALUE
The net asset value per share of each Fund is normally calculated as of
the close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on
each Business Day. The net asset value of each class of a Fund's shares is
determined by adding the value of all securities, cash and other assets of the
Fund attributable to such class, subtracting liabilities (including accrued
expenses and dividends payable) attributable to such class and dividing the
result by the total number of outstanding Fund shares of such class.
For purposes of calculating net asset value, debt securities and other
fixed-income investments owned by the Funds are valued at prices supplied by
independent pricing agents, which prices reflect broker-dealer supplied
valuations and electronic data processing techniques. Short-term obligations
maturing in sixty days or less may be valued at amortized cost, which does not
take into account unrealized gains or losses on portfolio securities. Amortized
cost valuation involves initially valuing a security at its cost, and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the security's market
value. While this method provides certainty in valuation, it may result in
periods in which the value of the security, as determined by the amortized cost
method, may be higher or lower than the price a Fund would receive if the Fund
sold the security. Other assets and assets whose market value does not, in the
opinion of the Adviser, reflect fair value are valued at fair value using
methods determined in good faith by the Board of Trustees.
Certain portfolio securities held by each Fund are listed on foreign
exchanges which trade at times and on days when the NYSE is closed. As a result,
the net asset value of each class of any such Fund may be significantly affected
by such trading at times and on days when shareholders have no ability to redeem
shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares and pays dividends from net investment income, if
any, and distributes net short-term capital gain, if any, at least annually.
Each Fund also distributes at least annually substantially all of the net
long-term capital gain, if any, which it realizes for each taxable year and may
make distributions at any other times when necessary to satisfy applicable tax
requirements. Capital losses, including any capital loss carryovers from prior
years, are taken into account in determining the amounts of short-term and
long-term capital gains to be distributed. From time to time, a portion of a
Fund's distributions may constitute a return of capital for tax purposes.
Dividends and distributions are made in additional service shares of the same
Fund or, at the shareholder's election, in cash. The election to reinvest
dividends and distributions or receive them in cash may be changed at any time
upon written notice to the Transfer Agent. If no election is made, all dividends
and capital gain distributions will be reinvested.
Taxes
Each Fund is treated as a separate entity for federal income tax
purposes and has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Each
Fund intends to qualify for such treatment for each taxable year. To qualify as
a regulated investment company, each Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders. As a regulated investment company, a
Fund will not be subject to federal income or excise tax on any net investment
income or net realized capital gain that is distributed
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to its shareholders in accordance with certain timing and other requirements of
the Code.
Dividends paid by a Fund from its net investment income, including
original issue discount and market discount income, certain net realized foreign
exchange gains, and the excess of net short-term capital gain over net long-term
capital loss will be taxable to shareholders as ordinary income. Dividends paid
by a Fund from any excess of net long-term capital gain over net short-term
capital loss will be taxable to a shareholder as capital gain regardless of how
long the shareholder has held its shares. It is anticipated that future tax
regulations implementing federal tax legislation enacted on August 5, 1997 will
provide that distributions of long-term capital gains to individuals or other
noncorporate taxpayers will be subject to different maximum tax rates, depending
on the dates on which the gains are recognized and the applicable Fund's holding
period for the assets that produce the gains. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. Certain distributions declared in October, November or December and paid
in January of the following year are taxable to shareholders as if received on
December 31 of the year in which they are declared. Shareholders will be
informed annually about the amount and character of distributions received from
a Fund for federal income tax purposes and foreign taxes, if any, passed through
to shareholders, as described below.
Individuals and certain other classes of shareholders may be subject to
31% backup withholding of federal income tax on dividends, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject to
non-resident alien withholding tax at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends from a
Fund and, unless a current IRS Form W-8 or acceptable substitute for Form W-8 is
on file, to backup withholding on certain other payments from a Fund.
Because each Fund invests in foreign securities, it may be subject to
foreign withholding or other foreign taxes on income earned on such securities
(possibly including, in some cases, capital gains). In any year in which any of
the Funds qualifies, it may make an election that would generally permit its
shareholders to take a credit or a deduction for their proportionate shares of
qualified foreign taxes paid by such Fund, subject to applicable holding period
requirements and other restrictions or limitations under the Code. Each such
shareholder would then treat as additional income (in addition to actual
dividends and distributions) his or her proportionate share of the amount of
qualified foreign taxes paid by such Fund. For some years, a Fund may be unable
or may not elect to pass such taxes and foreign tax credits and deductions with
respect to such taxes through to its shareholders.
Investors should consider the tax implications of buying service shares
immediately prior to a distribution. Investors who purchase shares shortly
before the record date for a distribution will pay a per share price that
includes the value of the anticipated distribution and will be taxed on any
taxable distribution even though the distribution represents a return of a
portion of the purchase price.
Redemptions and exchanges of service shares are taxable events for
shareholders that are subject to tax.
In addition to federal taxes, a shareholder may be subject to state,
local or foreign taxes on dividends, capital gain distributions, or the proceeds
of redemptions or exchanges. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent
distributions of a Fund are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. Government Securities, provided in some states that certain
- --------------------------------------------------------------------------------
Page -36-
<PAGE>
thresholds for holdings of U.S. Government Securities and/or reporting
requirements are satisfied. The Funds may not satisfy such requirements in some
states or localities. Shareholders should consult their tax advisors regarding
the application to them of the federal tax legislation referred to above and any
other specific questions about federal, state, local or foreign taxes and
special rules that may be applicable to certain classes of investors, such as
retirement plans, financial institutions, tax-exempt entities, insurance
companies and non-U.S. persons.
ORGANIZATION AND SHARES OF THE TRUST
The Trust was formed as a business trust under the laws of the State of
Delaware on September 13, 1993, and commenced investment operations on January
3, 1994. The Board of Trustees of the Trust is responsible for the overall
management and supervision of the affairs of the Trust. The Declaration of Trust
authorizes the Board of Trustees to create separate investment series or
portfolios of shares. As of the date hereof, the Trustees have established the
five Funds described in this Prospectus and seventeen 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: 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 liquidation, except that only service shares bear service fees and
each class may bear other expenses properly attributable to the particular
class. Also, holders of service shares of each Fund have exclusive voting rights
with respect to the service plan adopted by their Fund.
When issued, shares of the Funds are fully paid and nonassessable. In
the event of liquidation, shareholders are entitled to share pro rata in the net
assets of the applicable Fund available for distribution to shareholders. Shares
of the Funds entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights.
Shares of a Fund will be voted separately with respect to matters
pertaining to that Fund except for the election of Trustees and the ratification
of independent accountants. For example, shareholders of each Fund are required
to approve the adoption of any investment advisory agreement relating to such
Fund and any change in the fundamental investment restrictions of such Fund.
Approval by the shareholders of one Fund is effective only as to that Fund. The
Trust does not intend to hold shareholder meetings, except as may be required by
the 1940 Act. The Trust's Declaration of Trust provides that special meetings of
shareholders shall be called for any purpose, including the removal of a
Trustee, upon written request of shareholders entitled to vote at least 10% of
the outstanding shares of the Trust, or Fund, as the case may be. In addition,
if ten or more shareholders of record who have held shares for at least six
months and who hold in the aggregate either shares having a net asset value of
$25,000 or 1% of the outstanding shares, whichever is less, seek to call a
meeting for the purpose of removing a Trustee, the Trust has agreed to provide
certain information to such shareholders and generally to assist their efforts.
As of January 30, 1998, Donaldson Lufkin & Jenrette, Secs Corp., owned
beneficially 99.60% of the outstanding shares of the Emerging Markets Debt Fund.
Certain of the Trustees and officers of the Trust reside outside the
United States, and substantially all the assets of these persons are located
outside the United States. It may not be possible, therefore, for investors to
effect service of process within the United States upon these persons or to
enforce against them, in United States courts or foreign courts, judgments
- --------------------------------------------------------------------------------
Page -37-
<PAGE>
obtained in United States courts predicated upon the civil liability provisions
of the federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws. See "Trustees and Officers" in the Statement of
Additional Information.
PERFORMANCE INFORMATION
From time to time, performance information, such as total return and
yield for service shares of a Fund, may be quoted in advertisements or in
communications to shareholders. Total return for service shares of a Fund 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 service 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 service shares. A Fund's yield reflects a Fund's overall rate of
income on portfolio investments as a percentage of the service share price.
Yield is computed by annualizing the result of dividing the net investment
income per service share over a 30-day period by the net asset value per service
share on the last day of that period.
To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss performance as reported by various financial publications. The
performance of a Fund may be compared in publications to the performance of
various indices and investments for which reliable performance data is
available. In addition, the performance of a Fund may be compared in
publications to averages, performance rankings or other information prepared by
recognized mutual fund statistical services.
Performance quotations of a Fund represent the Fund's past performance
and, consequently, should not be considered representative of the future
performance of the Fund. The value of service 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
service shares of a Fund are not at the direction or within the control of the
Funds and will not be included in the Funds' calculations of total return.
- --------------------------------------------------------------------------------
Page -38-
<PAGE>
APPENDIX A
Description of Ratings Categories of
Moody's Investors Service, Inc. and
Standard & Poor's Ratings Group
Moody's Investors Service, Inc. ("Moody's") describes classifications
of fixed income securities (not including commercial paper) as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
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.
- --------------------------------------------------------------------------------
Page -39-
<PAGE>
Standard & Poor's Ratings Group ("Standard & Poor's") describes
classifications of fixed income securities (not including commercial paper) as
follows:
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from the AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Debt rated BB, B, CCC or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
D--Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Quality Distribution for Emerging Markets Debt Fund
During the fiscal year ended October 31, 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 and/or Moody's were, on a weighted average basis, as follows*:
Standard & Poor's (Moody's) Ratings Percentage of
Investments Total
- ----------------------------------- --------------
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%
* 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).
- --------------------------------------------------------------------------------
Page -40-
<PAGE>
APPENDIX B
PORTFOLIO MANAGER INFORMATION
Funds Portfolio Managers
- ----- ------------------
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
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
David Dowsett Emerging Markets Debt Portfolio Manager, Emerging
Markets Debt, MGIS (since
1995); Portfolio Manager,
Emerging Markets Debt, Morgan
Grenfell International Funds
Management Ltd. ("MGIFM")
(since 1994). BA, Durham
University (1991- 1994).
Annette Fraser Global Fixed Income Portfolio Manager, Fixed
Income Team, MGIS (since
1992); Fund Manager, MGIFM
(since 1990).
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).
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).
- --------------------------------------------------------------------------------
Page -41-
<PAGE>
APPENDIX C
TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of
redemptions and exchanges be reported to the IRS and that 31% be withheld if you
fail to provide your correct Taxpayer Identification Number (TIN) and the
certifications in Section H or you are otherwise subject to backup withholding.
Amounts withheld and forwarded to the IRS can be credited as a payment of tax
when completing your Federal income tax return.
For most individual taxpayers, the TIN is the social security number.
Special rules apply for certain accounts. For example, for an account
established under the Uniform Gift to Minor's Act, the TIN of the minor should
be furnished. If you do not have a TIN, you may apply for one using forms
available at local offices of the Social Security Administration or the IRS.
Recipients exempt from backup withholding, including corporations and
certain other entities, should provide their TIN and write "exempt" after their
signature in section H of the application to avoid possible erroneous
withholding. Non-resident aliens and foreign entities may be subject to
withholding of up to 30% on certain distributions received from the Funds and
must provide certain certifications on IRS Form W-8 to avoid backup withholding
with respect to other payments. For further information, see Internal Revenue
Code Sections 1441, 1442 and 3406 and/or consult your tax adviser.
Page -42-
<PAGE>
Morgan Grenfell Investment Trust
885 Third Avenue
New York, New York 10022
Investment Adviser
Morgan Grenfell Investment Services Limited
20 Finsbury Circus
London, England EC2M 1NB
Administrator and Shareholder
Servicing Agent
SEI Financial Management Corporation
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Distributor
SEI Financial Services Company
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Custodian
The Northern Trust Company
Fifty South LaSalle Street
Chicago, Illinois 60675
Transfer Agent
DST Systems, Inc.
SEI Division CT-7 Tower
1004 Baltimore
Kansas City, Missouri 64105
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Service Information
Existing accounts, new accounts, prospectuses, Statements of
Additional Information
applications, and service forms - 1-800-550-6426
Telephone Exchanges - 1-800-407-7301
Share Price and Performance
Information - 1-800-550-6426
(or contact your Service Organization)
- --------------------------------------------------------------------------------
Page -43-
<PAGE>
The audited financial statements of Morgan Grenfell Investment Trust are
incorporated by reference into this Statement of Additional Information by
reference from Morgan Grenfell Investment Trust's 1997 Annual Report to
Shareholders for the year ended October 31, 1997 (filed electronically on
December 29, 1997; file no. 811-08006; accession no. 0000935069-97-000214).
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
SERVICE SHARES
885 Third Avenue
New York, New York 10022
February 25, 1998
(Revised March 6, 1998)
Morgan Grenfell Investment Trust (the "Trust") is an open-end management
investment company consisting of a number of investment portfolios. This
Prospectus offers service shares of the following investment portfolios of the
Trust: Morgan Grenfell Fixed Income Fund, Morgan Grenfell Municipal Bond Fund,
Morgan Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term
Municipal Bond Fund, Morgan Grenfell Total Return Bond Fund, Morgan Grenfell
High Yield Bond Fund, Morgan Grenfell Smaller Companies Fund, Morgan Grenfell
Microcap Fund and Morgan Grenfell Large Cap Growth Fund (each a "Fund"). Each
Fund other than Morgan Grenfell Total Return Bond Fund is diversified.
Information concerning investment portfolios of the Trust that focus on
international investments (the "International Funds") is contained in separate
prospectuses that may be obtained by calling 1-800-550-6426.
The investment objective of Morgan Grenfell Fixed Income Fund and Morgan
Grenfell Short-Term Fixed Income Fund is to seek a high level of income
consistent with the preservation of capital. The investment objective of Morgan
Grenfell Municipal Bond Fund and Morgan Grenfell Short-Term Municipal Bond Fund
is to seek a high level of income exempt from federal income tax, consistent
with the preservation of capital. The investment objective of Morgan Grenfell
Total Return Bond Fund is to maximize total return consistent with the
preservation of capital. The investment objective of Morgan Grenfell High Yield
Bond Fund is to seek high current income and, as a secondary objective, capital
growth. The primary investment objective of Morgan Grenfell Smaller Companies
Fund and Morgan Grenfell Large Cap Growth Fund is to maximize capital
appreciation. The sole investment objective of Morgan Grenfell Microcap Fund is
to maximize capital appreciation.
This Prospectus provides information about the Trust and each of the Funds
that investors should know before investing in service shares of the Funds.
Investors should carefully read this Prospectus and retain it for future
reference. For investors seeking more detailed information, the Statement of
Additional Information dated February 25, 1998, as amended or supplemented from
time to time, is available upon request without charge by calling 1-800-550-6426
or by writing to SEI Financial Services Company, 1 Freedom Valley Drive, Oaks,
Pennsylvania 19456-0100. The Statement of Additional Information, which is
incorporated by reference into this Prospectus, has been filed with the
Securities and Exchange Commission. Not all of the Funds are available in
certain states. Please call 1-800-550-6426 to determine availability in a
particular state.
------------------------------------------------------
SERVICE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY.
MORGAN GRENFELL HIGH YIELD BOND FUND MAY INVEST UP TO 100% OF ITS ASSETS IN
LOWER QUALITY BONDS, COMMONLY KNOWN AS "JUNK BONDS." MORGAN GRENFELL TOTAL
RETURN BOND FUND MAY INVEST UP TO 15% OF ITS ASSETS IN SUCH BONDS. THESE
INVESTMENTS ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN INVESTMENTS IN
HIGHER QUALITY BONDS. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING IN THESE FUNDS. SEE "INVESTMENT OBJECTIVES AND POLIICES" AND
"DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES AND RELATED RISKS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Page - 1 -
<PAGE>
Each Fund's primary investments are summarized below:
Morgan Grenfell Fixed Income Fund invests primarily in U.S.
dollar-denominated debt securities, including U.S. and non-U.S. government
securities, corporate debt securities and debentures, mortgage-backed and
asset-backed securities and taxable municipal debt securities, and repurchase
agreements with respect to the foregoing. The Fund expects to maintain a dollar
weighted effective average portfolio maturity of between five and ten years.
Morgan Grenfell Municipal Bond Fund invests primarily in municipal debt
securities that pay interest exempt from U.S. federal income tax. The Fund
expects to maintain a dollar weighted effective average portfolio maturity of
between five and ten years.
Morgan Grenfell Short-Term Fixed Income Fund invests in the same types of
securities as Morgan Grenfell Fixed Income Fund, but expects to maintain a
dollar weighted effective average portfolio maturity of no longer than three
years.
Morgan Grenfell Short-Term Municipal Bond Fund invests in the same types
of securities as Morgan Grenfell Municipal Bond Fund, but expects to maintain a
dollar weighted effective average portfolio maturity of no longer than three
years.
Morgan Grenfell Total Return Bond Fund invests primarily in U.S.
dollar-denominated, investment grade bonds of domestic and foreign issuers. The
Fund may invest up to 20% of its assets in securities denominated in foreign
currencies and up to 15% of its assets in certain below investment grade
securities. The Fund expects to maintain a dollar weighted effective average
portfolio maturity of between five and ten years.
Morgan Grenfell High Yield Bond Fund invests primarily in U.S.
dollar-denominated bonds that are below investment grade. The Fund expects to
maintain a dollar weighted effective average portfolio maturity of between five
and ten years.
Morgan Grenfell Smaller Companies Fund invests primarily in equity and
equity-related securities of small capitalization U.S. companies.
Morgan Grenfell Microcap Fund invests primarily in equity and
equity-related securities of micro capitalization U.S. companies. Micro
capitalization or "microcap" companies are the smallest capitalization U.S.
companies.
Morgan Grenfell Large Cap Growth Fund invests primarily in equity and
equity-related securities of large capitalization U.S. companies.
- --------------------------------------------------------------------------------
Page - 2 -
<PAGE>
TABLE OF CONTENTS
Page
----
Expense Information 4
Financial Highlights 6
Introduction to the Funds 9
Risk Factors 10
Investment Objectives and Policies 11
Description of Securities and Investment Techniques
and Related Risks 16
Additional Investment Information 25
Management of the Funds 26
Purchase of Service Shares 28
Redemption of Service Shares 31
Net Asset Value 33
Dividends, Distribution and Taxes 33
Organization and Shares of the Trust 35
Performance Information 36
Appendix A (The Adviser's Microcap Investment Results) 38
- --------------------------------------------------------------------------------
Page - 3 -
<PAGE>
EXPENSE INFORMATION
<TABLE>
<CAPTION>
Short-Term
Fixed Income Municipal Fixed Income
Shareholder Transaction Expenses Fund* Bond Fund Fund*
----- --------- -----
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases ....................................... None None None
Maximum Sales Charge Imposed on
Reinvested Dividends ....................................... None None None
Deferred Sales Charge Imposed
on Redemptions ............................................ None None None
Exchange Fee ............................................... None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net assets after reduction of advisory fee)
Advisory fees .............................................. 0.40% 0.40% 0.40%
Other Expenses **........................................... 0.45% 0.46% 0.94%
Reduction of Advisory Fee and Expense (0.05)% (0.06)% (0.54)%
Limitation by Adviser ***...................................
Net Fund Operating Expenses (after
advisory fee reduction and expense
limitation) ................................................ 0.80% 0.80% 0.80%
====================================================================================================================================
<CAPTION>
Short-Term
Municipal Total Return High Yield
Shareholder Transaction Expenses Bond Fund* Bond Fund * Bond Fund *
---------- ----------- -----------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases ....................................... None None None
Maximum Sales Charge Imposed on
Reinvested Dividends ....................................... None None None
Deferred Sales Charge Imposed
on Redemptions ............................................ None None None
Exchange Fee ............................................... None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net assets after reduction of advisory fee)
Advisory fees .............................................. 0.40% 0.45% 0.50%
Other Expenses **........................................... 0.87% 0.56% 0.56%
Reduction of Advisory Fee and Expense (0.47)% (0.16)% (0.16)%
Limitation by Adviser ***...................................
Net Fund Operating Expenses (after
advisory fee reduction and expense
limitation) ................................................ 0.80% 0.85% 0.90%
====================================================================================================================================
<CAPTION>
Smaller Large Cap
Companies Microcap Growth
Shareholder Transaction Expenses Fund Fund Fund *
---- ----- ------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases ....................................... None None None
Maximum Sales Charge Imposed on
Reinvested Dividends ....................................... None None None
Deferred Sales Charge Imposed
on Redemptions ............................................ None None None
Exchange Fee ............................................... None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net assets after reduction of advisory fee)
Advisory fees .............................................. 1.00% 1.50% 0.75%
Other Expenses **........................................... 1.88% 2.00% 0.73%
Reduction of Advisory Fee and Expense (1.38)% (1.76)% (0.23)%
Limitation by Adviser ***...................................
Net Fund Operating Expenses (after
advisory fee reduction and expense
limitation) ................................................. 1.50% 1.74%**** 1.25%
</TABLE>
* Total Return Bond Fund, High Yield Bond Fund and Large Cap Growth Fund were
not operational during the fiscal year ended October 31, 1997; the Short-Term
Fixed Income Fund, Fixed Income Fund and Short-Term Municipal Bond Fund Service
Shares were not operational during this period as well.
** The figure shown as other expenses for service shares of each Fund includes
service fees of 0.25% of the Fund's average net assets attributable to service
shares. For more information on service fees and a description of the
circumstances in which service shares will be converted to institutional shares
(another class of Fund shares), see "Management of the Funds--Service Plans."
*** 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 service shares of each Fund, on an annualized basis, to the
specified percentages of each Fund's assets shown in the above table as Net Fund
Operating Expenses. The above table and the following example reflect this
voluntary agreement. In its sole discretion, the Adviser may terminate or modify
this voluntary agreement at any time after October 31, 1998. The purpose of the
voluntary agreement is to enhance a Fund's total return during the period when,
because of its smaller size, fixed expenses have a more significant impact on
total return. After giving effect to the Adviser's voluntary agreement, each
Fund's advisory fee is as follows: Fixed Income Fund 0.35%, Municipal Bond Fund
0.34%, Short-Term Fixed Income Fund 0%, Short-Term Municipal Bond Fund 0%, Total
Return Bond Fund 0.29%, High Yield Bond Fund 0.34%, Smaller Companies Fund 0%,
Microcap Fund 0%, and Large Cap Growth Fund 0.52%; and the Other Expenses of
Short-Term Fixed Income Fund, Short-Term Municipal Bond Fund, Microcap Fund and
Smaller Companies Fund are equal to the respective amounts shown in the above
table as Net Fund Operating Expenses. If the Adviser's voluntary agreement was
not in effect, the Fund Operating Expenses for service shares of each Fund would
be as follows: Fixed Income Fund 0.85%, Municipal Bond Fund 0.86%, Short-Term
Fixed Income Fund 1.34%, Short-Term Municipal Bond Fund 1.27%, Total Return Bond
Fund 1.01%, High Yield Bond Fund 1.06%, Smaller Companies Fund 2.79%, Microcap
Fund 3.52% and Large Cap Growth Fund 1.48%.
****Effective June 23, 1997, the Microcap Fund reduced the net Fund operating
expenses to 1.74%.
- --------------------------------------------------------------------------------
Page - 4 -
<PAGE>
Example:
Investors in service shares would pay the following expenses on a $1,000
investment assuming (1) a 5% annual return and (2) redemption at the endof each
time period:
1 3 5 10
Year Years Years Years
---- ----- ----- -----
Morgan Grenfell Fixed Income Fund $8 $26 $44 $99
Morgan Grenfell Municipal Bond Fund $8 $26 $44 $99
Morgan Grenfell Short-Term Fixed Income Fund $8 $26 $44 $99
Morgan Grenfell Short-Term Municipal Bond Fund $8 $26 $44 $99
Morgan Grenfell Total Return Bond Fund $9 $27 $47 $105
Morgan Grenfell High Yield Bond Fund $9 $29 $50 $111
Morgan Grenfell Smaller Companies Fund $15 $47 $82 $179
Morgan Grenfell Microcap Fund $18 $55 $94 $205
Morgan Grenfell Large Cap Growth Fund $13 $40 $69 $151
The purpose of the Expense Information Table and Example is to assist
investors in understanding the various direct and indirect costs and expenses
that an investment in service shares of a Fund will bear. "Other Expenses"
included in the Expense Information Table and Example for each Fund other than
Morgan Grenfell Total Return Bond Fund, Morgan Grenfell High Yield Bond Fund and
Morgan Grenfell Large Cap Growth Fund are estimates for the fiscal year ending
October 31, 1998 that are based on actual expenses incurred during the fiscal
year ended October 31, 1997, except that the figures shown assume that service
fees were in effect throughout the year ended October 31, 1997. "Other Expenses"
for Morgan Grenfell Total Return Bond Fund, Morgan Grenfell High Yield Bond Fund
and Morgan Grenfell Large Cap Growth Fund are based on estimated average net
assets for the current fiscal year ending October 31, 1998. If the average net
assets of any of these Funds exceeds the applicable estimate for such year, then
its "Other Expenses" (as a percentage of average net assets) will be lower than
the rate shown in the table. Conversely, if the Fund's average net assets are
lower than the applicable estimate for such year, then its "Other Expenses" (as
a percentage of net assets) will be higher than the rate shown in the table.
The Example assumes reinvestment of all dividends and distributions and
that the percentage amounts listed in the Expense Information Table remain the
same each year. If the Adviser were to discontinue its voluntary fee reductions,
the expenses contained in the Example could increase.
THE EXAMPLE IS DESIGNED FOR INFORMATION PURPOSES ONLY, AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR RETURN FOR ANY FUND. ACTUAL
EXPENSES AND RETURN VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE
SHOWN. For further information regarding advisory and service fees and other
expenses of the Funds, see "Management of the Funds."
- --------------------------------------------------------------------------------
Page - 5 -
<PAGE>
FINANCIAL HIGHLIGHTS
Selected audited data for an outstanding service share of Morgan Grenfell
Municipal Bond Fund, Morgan Grenfell Smaller Companies Fund and Morgan Grenfell
Microcap Fund are presented for the respective periods from inception (of
service shares of such Funds) to October 31, 1997. This data have been audited
by Price Waterhouse LLP, the Funds' independent accountants. Morgan Grenfell
Municipal Bond Fund, Morgan Grenfell Smaller Companies Fund and Morgan Grenfell
Microcap Fund were the only Funds that had service shares outstanding prior to
October 31, 1997.
Selected audited data for an outstanding institutional share of Morgan
Grenfell Fixed Income Fund, Morgan Grenfell Short-Term Fixed Income Fund and
Morgan Grenfell Short-Term Municipal Bond Fund are also presented below, for
periods prior to and ending October 31, 1997. This data, insofar as it relates
to the periods ended October 31, 1995, October 31, 1996 and October 31, 1997,
have been audited by Price Waterhouse LLP, the Funds' independent accountants.
The data for periods prior to and ending October 31, 1994 for Morgan Grenfell
Fixed Income Fund and Morgan Grenfell Municipal Bond Fund were audited by these
Funds' prior independent accountants.
This information should be read in conjunction with the Funds' audited
financial statements as of October 31, 1997 and the notes thereto, which appear
in the Funds' Statement of Additional Information. The Funds' annual report,
which contains additional performance information, and Statement of Additional
Information are available free of charge by calling 1-800-550-6426.
No data are shown below for Morgan Grenfell Large Cap Growth Fund, Morgan
Grenfell Total Return Bond Fund and Morgan Grenfell High Yield Bond Fund because
these Funds had not commenced operations on or prior to October 31, 1997.
- --------------------------------------------------------------------------------
Page - 6 -
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For a Service Share Outstanding Throughout Each Period Ended October 31 (1)
Net
Net Asset Net Realized Distributions Distributions
Value Investment and from Net from Realized Net Asset
Beginning Income / Unrealized Investment Capital Value End
Year of Period (Loss) Gains/(Losses) Income Gains of Period
- ---- --------- ------ -------------- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------
Municipal Bond Fund
- ----------------------------------
1997 (2) $ 11.11 $ 0.14 - $ (0.14) - $ 11.11
- ----------------------------------------------------
Smaller Companies Fund
- ----------------------------------------------------
1997 (3) $ 13.77 $(0.03) $ 0.97 - - $ 14.71
- ----------------------------------
Microcap Fund
- ----------------------------------
1997 (4) $ 12.12 $ (0.02) $ 0.52 - - $ 12.62
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of
Expenses
Ratio of Net to Average
Ratio of Investment Net Assets
Net Assets Expenses to Income(Loss) (Excluding
Total End of Average to Average Expense
Year Return# Period (000) Net Assets Net Assets Limitations)
- ---- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------
Municipal Bond Fund
- ----------------------------------
1997 (2) 1.22% $ 192 0.79% 4.95% 0.85%
- ----------------------------------------------------
Smaller Companies Fund
- ----------------------------------------------------
1997 (3) 7.45% $ 6 1.50% (0.77)% 2.79%
- ----------------------------------
Microcap Fund
- ----------------------------------
1997 (4) 3.87% $ 10 1.74% (1.15)% 3.52%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of Net
Investment
Income(Loss)
to Average
Net Assets
(Excluding Portfolio Average
Expense Turnover Commission
Year Limitations) Rate Rate*
- ---- ------------ ---- -----
<S> <C> <C> <C>
- ----------------------------------
Municipal Bond Fund
- ----------------------------------
1997 (2) 4.89% 67% N/A
- ----------------------------------------------------
Smaller Companies Fund
- ----------------------------------------------------
1997 (3) (2.06)% 122% $0.0552
- ----------------------------------
Microcap Fund
- ----------------------------------
1997 (4) (2.93)% 272% $0.0634
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(#) Returns are for the period indicated and have not been annualized.
* Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal
years beginning after September 1, 1995.
(1) Fixed Income Fund, Short-Term Fixed Income Fund, Short-Term Municipal Bond
Fund Service Share Classes had not commenced operations as of October 31,
1997.
(2) Municipal Bond Fund Service Shares commenced operations on 7/31/97. All
ratios for the period have been annualized (except total return and
portfolio turnover).
(3) Smaller Companies Fund Service Shares commenced operations on 7/14/97. All
ratios for the period have been annualized (except total return and
portfolio turnover).
(4) Microcap Fund Service Shares commenced operations on 8/22/97. All ratios
for the period have been annualized (except total return and portfolio
turnover).
- --------------------------------------------------------------------------------
Page - 7 -
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For an Institutional Share Outstanding Throughout Each Period Ended October 31
Net
Net Asset Net Realized Distributions
Value Investment and from Net
Beginning Income / Unrealized Investment
Year of Period (Loss) Gains/(Losses) Income
- ---- --------- ------ -------------- ------
<S> <C> <C> <C> <C>
- --------------------------------------------------
Fixed Income Fund
- --------------------------------------------------
1997 $ 10.51 $ 0.68 $ 0.25 $ (0.68)
1996 $ 10.62 $ 0.68 $(0.04) $ (0.68)
1995 $ 9.93 $ 0.70 $ 0.69 $ (0.70)
1994 $ 10.95 $ 0.64 $(0.91) $ (0.64)
1993 $ 9.92 $ 0.64 $ 1.03 $ (0.64)
1992 (1) $ 10.00 $ 0.06 $(0.08) $ (0.06)
- -----------------------------------------------------------------------------
Short-Term Fixed Income Fund
- -----------------------------------------------------------------------------
1997 $ 10.00 $ 0.58 $ 0.06 $ (0.58)
1996 $ 10.01 $ 0.60 $(0.01) $ (0.60)
1995 (2) $ 10.00 $ 0.37 $ 0.01 $ (0.37)
- -----------------------------------------------------------------------------
Short-Term Municipal Bond Fund
- -----------------------------------------------------------------------------
1997 $ 10.13 $ 0.52 $ 0.16 $ (0.52)
1996 $ 10.13 $ 0.54 $ 0.04 $ (0.54)
1995 (3) $ 10.00 $ 0.30 $ 0.13 $ (0.30)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Distributions Ratio of
from Realized Net Asset Net Assets Expenses to
Capital Value End Total End of Average
Year Gains of Period Return Period (000) Net Assets
- ---- ----- --------- ------ ------------ ----------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------
Fixed Income Fund
- --------------------------------------------------
1997 - $ 10.76 9.22% $ 1,103,121 0.55%
1996 $ (0.07) $ 10.51 6.27% $ 758,003 0.55%
1995 - $ 10.62 14.53% $ 494,221 0.54%
1994 $ (0.11) $ 9.93 (2.58)% $ 239,556 0.54%
1993 - $ 10.95 17.28% $ 147,917 0.55%
1992 (1) - $ 9.92 (1.61)% $ 25,528 0.55%
- -----------------------------------------------------------------------------
Short-Term Fixed Income Fund
- -----------------------------------------------------------------------------
1997 - $ 10.06 6.61% $ 17,083 0.53%
1996 - $ 10.00 6.09% $ 6,751 0.53%
1995 (2) - $ 10.01 3.82%(#) $ 4,140 0.52%
- -----------------------------------------------------------------------------
Short-Term Municipal Bond Fund
- -----------------------------------------------------------------------------
1997 $ (0.01) $ 10.28 6.93% $ 19,950 0.53%
1996 $ (0.04) $ 10.13 5.90% $ 9,132 0.53%
1995 (3) - $ 10.13 4.39%(#) $ 3,724 0.52%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of
Expenses
Ratio of Net to Average
Investment Net Assets
Income(Loss) (Excluding
to Average Expense
Year Net Assets Limitations)
- ---- ---------- ------------
<S> <C> <C>
- ------------------------------
Fixed Income Fund
- ------------------------------
1997 6.50% 0.60%
1996 6.52% 0.61%
1995 6.81% 0.63%
1994 6.22% 0.66%
1993 6.01% 0.72%
1992 (1) 5.24% 1.66%
- --------------------------------------------------------
Short-Term Fixed Income Fund
- --------------------------------------------------------
1997 5.77% 1.09%
1996 6.00% 1.29%
1995 (2) 5.86% 2.84%
- --------------------------------------------------------
Short-Term Municipal Bond Fund
- --------------------------------------------------------
1997 5.14% 1.02%
1996 5.34% 1.58%
1995 (3) 4.60% 2.16%
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of Net
Investment
Income(Loss)
to Average
Net Assets
(Excluding Portfolio Average
Expense Turnover Commission
Year Limitations) Rate Rate*
- ---- ------------ ---- -----
<S> <C> <C> <C>
- --------------------------------------------------
Fixed Income Fund
- --------------------------------------------------
1997 6.45% 178% N/A
1996 6.46% 176% N/A
1995 6.72% 182% N/A
1994 6.10% 251% N/A
1993 5.84% 196% N/A
1992 (1) 4.13% 148% N/A
- -----------------------------------------------------------------------------
Short-Term Fixed Income Fund
- -----------------------------------------------------------------------------
1997 5.21% 186% N/A
1996 5.24% 124% N/A
1995 (2) 3.54% 90% N/A
- -----------------------------------------------------------------------------
Short-Term Municipal Bond Fund
- -----------------------------------------------------------------------------
1997 4.65% 95% N/A
1996 4.29% 129% N/A
1995 (3) 2.96% 62% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(#) Returns are for the period indicated and have not been annualized.
* Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal
years beginning after September 1, 1995.
(1) Fixed Income Fund commenced operations on 9/18/92. All ratios for the
period have been annualized.
(2) Short-Term Fixed Income Fund commenced operations on 3/13/95. All ratios
for the period have been annualized.
(3) Short-Term Municipal Bond Fund commenced operations on 3/6/95. All ratios
for the period have been annualized.
- --------------------------------------------------------------------------------
Page - 8 -
<PAGE>
INTRODUCTION TO THE FUNDS
Morgan Grenfell Investment Trust (the "Trust") offers a number of mutual
funds, each of which is a separate series of the Trust. This Prospectus relates
solely to the Funds. Information regarding investment portfolios of the Trust
that focus on international investments (the "International Funds") is contained
in separate prospectuses that may be obtained by calling 1-800-550-6426.
The Adviser, with offices in Philadelphia and New York City, serves as
investment adviser to each of the Funds. The Adviser is a U.S. investment
management subsidiary of London-based Morgan Grenfell Asset Management. Together
with the Adviser and its other investment management subsidiaries, Morgan
Grenfell Asset Management now has over US$146.46 billion under management.
This prospectus relates solely to service shares of the Funds. Service
shares may be purchased through financial planners, investment advisers,
broker-dealers and other institutions ("Service Organizations"). Some Service
Organizations provide omnibus accounting services for groups of individuals who
beneficially own the service shares ("Omnibus Accounts"). Omnibus Accounts
include pension and retirement plans (such as 401(k) plans, 457 plans and 403(b)
plans) and programs through which Service Organizations provide personal and/or
account maintenance services to groups of individuals, whether or not such
individuals invest on a tax-deferred basis. Investors may only purchase service
shares through Service Organizations. See "Purchase of Service Shares" for
further information.
The Funds offer another class of shares (institutional shares), which is
subject to different expenses and therefore has different performance than
service shares. Information regarding this other class of shares may be obtained
by calling 1-800-550-6426. As described below under "Management of the
Funds--Service Plans", all or a portion of a Fund's outstanding service shares
will be converted to institutional shares of the same Fund under certain
circumstances.
Morgan Grenfell Total Return Bond Fund , Morgan Grenfell High Yield Bond
Fund and Morgan Grenfell Large Cap Growth Fund have no operating history. There
can be no assurance that any Fund will be able to achieve its investment
objectives.
General Portfolio Management Strategies
Fixed Income Investments. In selecting fixed income investments (including
municipal securities) for Fixed Income Fund, Short-Term Fixed Income Fund,
Municipal Bond Fund, Short-Term Municipal Bond Fund, Total Return Bond Fund and
High Yield Bond Fund, the Adviser seeks to achieve these Funds' investment
objectives by identifying fixed income securities and sectors which it believes
to be undervalued relative to the market and alternative sectors rather than
forecasting changes in the interest rate environment. Fixed income securities
may be undervalued for a variety of reasons, such as market inefficiencies
relating to lack of market information about particular securities and sectors,
supply and demand shifts and lack of market penetration by some issuers.
Equity Investments. In selecting equity investments for Smaller Companies
Fund, Microcap Fund and Large Cap Growth Fund (the "Equity Funds"), the Adviser
looks for companies whose earnings it believes will grow both faster than
inflation and faster than the economy in general. An Equity Fund may invest in
such a company if the Adviser believes that such growth is not yet fully
reflected in the market price of the company's securities. In managing the
Smaller Companies Fund and Microcap Fund, the Adviser may also consider the
fundamental value of a company, and may invest in a company where it believes
that value is not fully recognized in the marketplace. Fundamental
- --------------------------------------------------------------------------------
Page - 9 -
<PAGE>
value is determined by taking into account various factors including earnings
per share, the ratio of book value to market price, and the company's cash flow
and dividend yield.
In selecting equity investments, the Adviser considers a number of
company-specific factors, including quality of management, a leading or dominant
position in a major product line, a sound financial position, and a relatively
high rate of return on invested capital so that future growth can be financed
from internal sources. The Adviser also considers a company's record of dividend
payments and/or the likelihood that the company will pay dividends in the
future. However, consistent with its investment objectives, each Equity Fund may
purchase securities of companies that are not expected to pay dividends in the
foreseeable future.
RISK FACTORS
General. An investment in any of the Funds is neither insured nor
guaranteed by the U.S. Government, or any agency thereof or any other entity.
The value of each Fund's portfolio securities, and thus the net asset value of
its shares will fluctuate as a result of market factors, including interest rate
and stock market changes, such that the value of the shares, when redeemed, may
be more or less than their original cost.
Derivative Instruments. Certain of the Funds may employ investment
techniques, including options and futures contracts and other investments that
may be considered derivative instruments. These may entail special risks. For
example, there is no limit on the percentage of assets of an Equity Fund that
may be at risk with respect to futures and related options. See "Investment
Objectives and Policies" and "Description of Securities and Investment
Techniques and Related Risks."
Below Investment Grade Bonds. 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. See "Description of Securities and
Investment Techniques and Related Risks--Below Investment Grade Bonds."
Diversification. The Total Return Bond Fund is non-diversified under the
Investment Company Act of 1940 (the "1940 Act") and, therefore, may be more
susceptible than the other Funds to developments affecting any single issuer of
portfolio securities. See "Description of Securities and Investment Techniques
and Related Risks--Diversification." Each of the other Funds is diversified
under the 1940 Act.
Year 2000 Compliance. Certain management and shareholder account services
provided to the Funds and their shareholders depend on the proper functioning of
computer systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way dates are encoded and calculated. If
left uncorrected, this software flaw could have an adverse effect on the
handling of security trades and pricing and shareholder account services. The
Adviser and the Trust's administrator, principal underwriter, transfer agent and
custodian have been actively working on necessary changes to their computer
systems to deal with the year 2000. Although there can be no assurance that
these systems will be properly adapted in time for that event, the management of
the Trust expects that they will be.
- --------------------------------------------------------------------------------
Page - 10 -
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Fixed Income Fund and Short-Term Fixed Income Fund
The investment objective of the Fixed Income Fund and the Short-Term Fixed
Income Fund is to seek a high level of income consistent with the preservation
of capital. Under normal circumstances, the Fixed Income Fund expects to
maintain a dollar weighted effective average portfolio maturity of 5 to 10
years, and the Short-Term Fixed Income Fund expects to maintain a dollar
weighted effective average portfolio maturity of no more than 3 years. Because
of its shorter portfolio maturity, it is expected that the Short-Term Fixed
Income Fund's per share net asset value will be less volatile in response to
changes in interest rates. However, under normal conditions, it is expected that
the Fixed Income Fund will have a higher yield than the Short-Term Fixed Income
Fund.
Each Fund normally invests at least 80% of its assets in fixed income
securities of all types, including (i) U.S. Treasury obligations; (ii)
obligations issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. Government; (iii) custodial receipts evidencing
separately traded principal and interest components of U.S. Government
obligations; (iv) corporate bonds and debentures; (v) equipment lease and trust
certificates; (vi) mortgage-backed securities and asset-backed securities; (vii)
U.S. dollar denominated securities of the Government of Canada and its
provincial and local governments, U.S. dollar denominated securities issued or
guaranteed by other foreign governments, their political subdivisions, agencies
or instrumentalities and U.S. dollar denominated obligations of supranational
entities; (viii) taxable municipal securities, and state, municipal or private
activity bonds; and (ix) repurchase agreements involving any of the foregoing.
Certain of these securities may have floating or variable rates of interest or
include put features providing the Fund the right to sell the security at face
value prior to maturity. The existence in a Fund's portfolio of floating and
variable rate securities and securities with put features will have the effect
of shortening its dollar weighted average maturity. Each Fund may purchase
securities on a when-issued basis. Neither Fund's investments in U.S. dollar
denominated securities of non-U.S. issuers will exceed 25% of its total assets.
Subject to its portfolio maturity policy, a Fund may purchase securities
with any stated remaining maturity. In determining the maturity of
mortgage-backed securities, the Adviser will use the expected life of such
securities, which is based upon the anticipated prepayment patterns of the
underlying mortgages. In determining the effective maturity of callable
scurities, the call date may be used as the effective maturity if interest rates
have fallen since the bonds original issue date.
Each Fund invests primarily in fixed income securities that, at the time
of purchase, are either rated in one of the three highest rating categories
assigned by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("Standard & Poor's"), Duff & Phelps, Inc. ("Duff") or Fitch
Investors Service, Inc. ("Fitch") or unrated securities determined by the
Adviser to be of comparable quality. However, each Fund may also invest up to
15% of its assets in fixed income securities that are, at the time of purchase,
either rated within the fourth highest rating category assigned by Moody's, S&P,
Duff or Fitch, or unrated but determined by the Adviser to be of comparable
quality. See "Description of Securities and Investment Techniques and Related
Risks--Fixed Income Securities." In the event any security held by a Fund is
downgraded below the rating categories set forth above, the Adviser will review
the security and determine whether to retain or dispose of that security,
provided that neither Fund may hold, at any time, more than 5% of its net assets
in fixed income securities that are not investment grade. Fixed income
securities rated in one of the four highest ratings categories and unrated
securities determined by the Adviser to be of comparable quality are referred to
herein as "investment grade fixed income securities." Fixed income
- --------------------------------------------------------------------------------
Page - 11 -
<PAGE>
securities in the lowest investment grade category are considered medium grade
securities. Such securities have speculative characteristics, involve greater
risk of loss than higher quality securities, and are more sensitive to changes
in the issuer's capacity to pay.
Under normal conditions, each Fund may hold up to 20% of its total assets
in cash or money market instruments in order to maintain liquidity, or in the
event that the Adviser determines that securities meeting the Fund's investment
objective and policies are not otherwise readily available for purchase. For a
definition of money market instruments and the Funds' policies on temporary
defensive investments, see "Description of Securities and Investment Techniques
and Related Risks--Additional Investment Techniques."
Municipal Bond Fund and Short-Term Municipal Bond Fund
The investment objective of the Municipal Bond Fund and the Short-Term
Municipal Bond Fund (the "Municipal Funds") is to seek a high level of income
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes), consistent with the preservation of capital.
However, there is no restriction on the percentage of either Municipal Fund's
assets that may be invested in obligations the interest on which is a preference
item for purposes of the federal alternative minimum tax. Under normal
circumstances the Municipal Bond Fund expects to maintain a dollar weighted
effective average portfolio maturity of 5 to 10 years, and the Short-Term
Municipal Bond Fund expects to maintain a dollar weighted effective average
portfolio maturity of no more than 3 years. Because of its shorter portfolio
maturity, it is expected that the Short-Term Municipal Bond Fund's per share net
asset value will be less volatile in response to changes in interest rates.
However, under normal conditions, it is expected that the Municipal Bond Fund
will have a higher yield than the Short-Term Municipal Bond Fund.
Subject to its portfolio maturity policy, a Fund may purchase securities
with any stated remaining maturity. In determining the maturity of
mortgage-backed securities, the Adviser will use the expected life of such
securities, which is based upon the anticipated prepayment patterns of the
underlying mortgages. In determining the effective maturity of callable
scurities, the call date may be used as the effective maturity if interest rates
have fallen since the bonds original issue date.
Under normal market conditions, each Municipal Fund invests at least 80%
of its net assets in municipal securities the interest on which is exempt from
regular federal income tax, and invests at least 65% of its total assets in
municipal bonds. Municipal bonds consist of (i) debt obligations, including
municipal leases, issued by or on behalf of public authorities to obtain funds
to be used for various public facilities, for refunding outstanding obligations,
for general operating expenses and for lending such funds to other public
institutions and facilities, and (ii) certain private activity and industrial
development bonds issued by or on behalf of public authorities to obtain funds
to provide for the construction, equipment, repair or improvement of privately
operated facilities. The issuers of these municipal securities may be located in
all 50 U.S. states, the District of Columbia, Puerto Rico and other U.S.
territories and possessions. Certain of these securities may have variable and
floating rates of interest or include "put" features providing the Fund the
right to sell the securities at face value prior to maturity. The existence in a
Fund's portfolio of variable and floating rate securities and securities having
put features will have the effect of shortening its average dollar weighted
portfolio maturity. The Municipal Funds may purchase securities on a when-issued
basis.
The Municipal Funds' investments in municipal notes may include, but are
not limited to, general obligation notes, tax anticipation notes (notes sold to
finance working capital needs of the issuers in anticipation of receiving taxes
on a future date), revenue anticipation notes (notes sold to provide needed cash
prior to receipt of expected non-tax revenues from a specific source), bond
anticipation notes, certificates of indebtedness, demand notes and construction
loan notes and participation rights therein. Investments in
- --------------------------------------------------------------------------------
Page - 12 -
<PAGE>
any of the notes described above will be limited to those obligations that, at
the time of purchase, are rated MIG-1 or V-MIG-1 by Moody's, rated SP-1 by
Standard & Poor's, or are unrated but are determined by the Adviser to be of
comparable quality.
The Municipal Funds' investments in municipal bonds may include, but are
not limited to, general obligation bonds, revenue or special obligation bonds,
and private activity and industrial development bonds. Each Municipal Fund may
invest 25% or more of its total assets in private activity and industrial
development bonds if the interest paid on them is exempt from regular federal
income tax. See "Description of Securities and Investment Techniques--Fixed
Income Securities."
Except as noted below, municipal bonds in which a Municipal Fund invests
must be rated A or better by Moody's or by Standard & Poor's at the time of
investment or, if unrated, must be determined by the Adviser to be of comparable
quality. Each Municipal Fund may, however, invest up to 15% of its assets in
bonds that, at the time of purchase, are rated Baa by Moody's, or BBB by
Standard & Poor's, or, if unrated, determined by the Adviser to be of comparable
quality. Municipal securities in the lowest investment grade category are
considered medium grade securities. Such securities have speculative
characteristics, involve greater risk of loss than higher quality securities,
and are more sensitive to changes in the issuer's capacity to pay.
The Municipal Funds' investments in tax-exempt commercial paper will be
limited to obligations that, at the time of purchase, are rated at least A-1 by
Standard & Poor's or Prime-1 by Moody's, or that are unrated but are determined
by the Adviser to be of comparable quality. The Municipal Funds may purchase
other types of tax-exempt instruments as long as they are of a quality
equivalent to the long-term bond or commercial paper ratings stated above. In
the event any security held by either Municipal Fund is downgraded below the
rating categories set forth above, the Adviser will review the security and
determine whether to retain or dispose of that security, provided that neither
Municipal Fund will hold, at any time, more than 5% of its net assets in
securities that are rated below investment grade.
Under normal circumstances, each Municipal Fund may invest up to 20% of
its total assets in certain taxable securities in order to maintain liquidity.
In addition, for temporary defensive purposes during periods when the Adviser
determines that market conditions warrant, each Municipal Fund may invest
without limit in such taxable securities. Such taxable securities include: U.S.
Treasury obligations (including separately traded interest and principal
component parts of U.S. Treasury obligations, transferable through the federal
book-entry system and known as Separately Traded Registered Interest and
Principal Securities or "STRIPS"); other marketable obligations issued or
guaranteed as to principal and interest by agencies or instrumentalities of the
U.S. Government whether or not backed by the full faith and credit of the U.S.
Treasury; short-term instruments of U.S. commercial banks or savings and loan
institutions (not including foreign branches of U.S. banks or U.S. branches of
foreign banks) that are members of the Federal Reserve System or the Federal
Deposit Insurance Corporation and that have total assets of $1 billion or more
as shown on their last published financial statements at the time of investment;
repurchase agreements involving any of the foregoing obligations; and, to the
extent permitted by applicable law, shares of other investment companies
investing solely in the foregoing obligations.
Distributions by a Fund that are derived from income from taxable
investments or transactions (including repurchase agreements) held by the Fund
will generally be taxable to shareholders as ordinary income.
Total Return Bond Fund
The investment objective of the Total Return Bond Fund is to maximize
total return consistent with the preservation of capital. Under normal
circumstances, the Fund expects to maintain a dollar weighted effective average
portfolio maturity of 5 to 10 years and to invest at least 65% of its total
assets in U.S. dollar-denominated investment grade bonds. For purposes
- --------------------------------------------------------------------------------
Page - 13 -
<PAGE>
of this policy, "bonds" include the U.S. dollar-denominated fixed income
securities in which the Fixed Income Fund and the Short- Term Fixed Income Fund
may invest foreign currency-denominated fixed income securities, convertible
securities and securities (including equity securities) of other investment
companies that invest primarily in any one or more of the foregoing types of
securities.
Under normal circumstances, the Fund may invest up to 35% of its total
assets in cash, money market instruments and, subject to the limits described
below, foreign currency-denominated bonds and below investment grade bonds,
including below investment grade bonds of issuers located in countries with
emerging securities markets. The Fund may not invest more than 20% of its total
assets in foreign currency-denomintated bonds and, at the discretion of the
Adviser, the Fund may use certain techniques to hedge its foreign currency
exposure back into the U.S. dollar. See "Description of Securities and
Investment Techniques and Related Risks--Currency Management Techniques."
Also, the Fund may not invest more than 15% of its total assets in below
investment grade bonds, and may not invest more than 10% of its total assets in
below investment grade bonds of issuers located in countries with emerging
securities markets. The Fund's investments in below investment grade bonds will
be limited to securities that are rated B or higher by Moody's, Standard &
Poor's, Duff or Fitch and unrated securities determined by the Adviser to be of
comparable quality, provided that this quality limitation will not apply to the
Fund's investments in other investment companies. Below investment grade bonds
involve greater price volatility and risk of loss of principal and income than
investment grade securities. See "Description of Securities and Investment
Techniques and Related Risks--Below Investment Grade Bonds." In the event a
security held by the Fund is downgraded below the rating categories set forth
above, the Adviser will review the security and determine whether to retain or
dispose of that security.
For a description of the Fund's policy on temporary defensive investments,
see "Description of Securities and Investment Techniques and Related
Risks--Additional Investment Techniques."
High Yield Bond Fund
The investment objective of the High Yield Bond Fund is to seek high
current income and, as a secondary objective, capital growth. Under normal
circumstances, the Fund expects to maintain a dollar weighted effective average
portfolio maturity of 5 to 10 years and to invest at least 65% of its assets in
below investment grade bonds. For purposes of this policy, "bonds" include the
types of investment grade fixed income securities in which the Fixed Income Fund
and the Short-Term Fixed Income Fund may invest (without regard to credit
quality), as well as U.S. dollar-denominated convertible and nonconvertible
fixed income securities of domestic and foreign issuers.
Below investment grade bonds generally offer higher yields than investment
grade bonds, but involve greater price volatility and risk of loss of principal
and income. The Fund's investments in these securities may be of any credit
quality and may include securities not paying interest currently, zero coupon
bonds, securities that pay interest in the form of other securities (i.e., "pay
in kind" or PIK securities) and securities in default. For a description of
these and other risks of investing in below investment grade bonds, see
"Description of Securities and Investment Techniques and Related Risks--Below
Investment Grade Bonds."
Under normal circumstances, the Fund may invest up to 35% of its assets in
cash or money market instruments in order to maintain liquidity, or in the event
that the Adviser determines that securities meeting the Fund's investment
objective and policies are not otherwise readily available for purchase. For a
definition of money market instruments and the Fund's policy on temporary
defensive investments, see "Description of Securities and Investment Techniques
and Related Risks--Additional Investment Techniques."
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Smaller Companies Fund
The primary investment objective of the Smaller Companies Fund is to
maximize capital appreciation. The Fund seeks current income as its secondary
investment objective. Under normal market conditions, the Fund pursues these
objectives by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization U.S. companies. Equity securities in which the Fund may invest
include common stocks and preferred stocks, while equity-related securities
include warrants, purchased call options and other rights to acquire stocks. See
"Description of Securities and Investment Techniques and Related Risks."
For purposes of the Fund's investment policies, small capitalization
companies are those ranked (at time of investment) according to market
capitalization in the bottom 20% of the Wilshire 5000 Index. The Adviser
believes that investments in equity and equity-related securities of many small
capitalization companies, although involving greater risk, provide the
opportunity for greater capital growth than investments in larger, better-known
companies. For a description of the risks associated with investing in small
capitalization companies, see "Description of Securities and Investment
Techniques and Related Risks--Small Capitalization Companies."
Up to 35% of the Fund's total assets may be invested in investment grade
fixed income securities (see definition on page 16), cash equivalents and equity
and equity-related securities of medium and large capitalization companies. In
the event any fixed income security held by the Fund is downgraded below
investment grade, the Adviser will review the security and determine whether to
retain or dispose of it. In no event, however, will the Fund hold more than 5%
of its net assets in fixed income securities that are not investment grade. Up
to 5% of the Fund's net assets (measured at time of investment) may be invested
in the securities of non-U.S. issuers of all sizes.
Microcap Fund
The investment objective of the Microcap Fund is to maximize capital
appreciation. Under normal market conditions, the Fund pursues this objective by
investing at least 65% of its total assets in common stocks of micro
capitalization U.S. companies and securities convertible into such stocks. For
purposes of the Fund's investment policies, micro capitalization companies are
those ranked (at the time of investment) according to market capitalization in
the bottom 5% of the U.S. equity market, including both listed and unlisted
companies.
The Adviser believes that investments in many micro capitalization
companies, although involving greater risk, provide the opportunity for greater
capital growth, than investments in larger, better-known companies. In
particular, the Adviser believes that the inefficiencies in this sector of the
marketplace often provide opportunities for investment gains. The Fund's
investments in securities of U.S. micro capitalization companies will be limited
to securities traded on a U.S. exchange or in the over-the-counter market. For a
description of the risks associated with investment in micro capitalization
companies, see "Description of Securities and Investment Techniques and Related
Risks - Small and Micro Capitalization Companies."
Up to 25% of the Fund's total assets may be invested in securities of
non-U.S. companies with individual market capitalization that would place them
in the bottom 5% of the U.S. equity market. For liquidity purposes, the Fund
will normally invest a portion of its assets (no more than 35%) in high quality
debt securities 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 rated, at the time of purchase, Aaa or Aa by Moody's or AAA or AA by
Standard & Poor's or determined by the Adviser to be of comparable quality.
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<PAGE>
Large Cap Growth Fund
The primary investment objective of the Large Cap Growth Fund is to
maximize capital appreciation. The Fund seeks current income as its secondary
investment objective. Under normal market conditions, the Fund pursues these
objectives by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of large
capitalization U.S. companies. The Fund may invest in the same types of equity
and equity-related securities as the Smaller Companies Fund (see above).
For purposes of the Fund's investment policies, large capitalization
companies are those ranked (at time of investment) according to market
capitalization in the top 25% of the Wilshire 5000 Index, a broad-based index
that includes nearly all U.S. public companies. The Adviser believes that the
equity and equity-related securities of many large capitalization companies
offer significant potential for capital growth, but with less risk than
investments in smaller capitalization companies.
Up to 35% of the Fund's total assets may be invested in investment grade
fixed income securities (see definition on page 16), cash equivalents and equity
and equity-related securities of small and medium capitalization companies. In
the event any fixed income security held by the Fund is downgraded below
investment grade, the Adviser will review the security and determine whether to
retain or dispose of it. In no event, however, will the Fund hold more than 5%
of its net assets in fixed income securities that are not investment grade. Up
to 5% of the Fund's net assets (measured at time of investment) may be invested
in the securities of non-U.S. issuers of all sizes.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES AND RELATED RISKS
Fixed Income Securities
General. Each Fund may invest in fixed income securities. In periods of
declining interest rates, the yield (income from portfolio investments over a
stated period of time) of a Fund that invests in fixed income securities may
tend to be higher than prevailing market rates, and in periods of rising
interest rates, the yield of the Fund may tend to be lower. Also, when interest
rates are falling, the inflow of net new money to such a Fund will likely be
invested in portfolio instruments producing lower yields than the balance of the
Fund's portfolio, thereby reducing the yield of the Fund. In periods of rising
interest rates, the opposite can be true. The net asset value of a Fund
investing in fixed income securities can generally be expected to change as
general levels of interest rates fluctuate. The value of fixed income securities
in a Fund's portfolio generally varies inversely with changes in interest rates.
Prices of fixed income securities with longer effective maturities are more
sensitive to interest rate changes than those with shorter effective maturities.
Private Activity and Industrial Development Bonds. 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
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<PAGE>
at face value at the option of the holder prior to their stated maturity. The
Adviser intends to purchase only those "put" bonds for which the put option is
an integral part of the security as originally issued. The option to "put" the
bond back to the issuer prior to the stated final maturity can cushion the price
decline of the bond in a rising interest rate environment. However, the premium
paid, if any, for an option to put will have the effect of reducing the yield
otherwise payable on the underlying security. For the purpose of determining the
"maturity" of securities purchased subject to an option to put, and for the
purpose of determining the dollar weighted average maturity of a Fund holding
such securities, the Fund will consider "maturity" to be the first date on which
it has the right to demand payment from the issuer of the put although the final
maturity of the security is later than such date.
Variable or Floating Rate Instruments and Variable Rate Demand
Instruments. 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 master demand notes. These instruments will normally
involve industrial development or revenue bonds that provide that the rate of
interest is set as a specific percentage of a designated base rate (such as the
prime rate) at a major commercial bank. In addition, the interest rate on these
securities may be reset daily, weekly or on some other reset period and may have
a floor or ceiling on interest rate changes. A Fund holding such an instrument
can demand payment of the obligation at all times or at stipulated dates on
short notice (not to exceed 30 days) at par plus accrued interest.
U.S. Government Securities. The Funds may invest in obligations issued or
guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (iii) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association, or (iv) only the credit
of the issuer. No assurance can be given that the U.S. Government will provide
financial support to U.S. Government agencies or instrumentalities in the
future.
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."
Zero Coupon Securities. STRIPS and custodial receipts (TRs, TIGRs and
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<PAGE>
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.
Below Investment Grade Bonds. 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 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.
Securities of Foreign Issuers
General. Each of the Funds other than the Municipal Funds may invest to
varying extents in securities of foreign issuers and supranational entities.
Investments in the securities of foreign issuers and supranational entities may
subject the Funds to investment risks that differ in some respects from those
related to investments in securities of U.S. issuers. Such risks include future
adverse political and economic developments, possible imposition of withholding
taxes on income or sales proceeds, possible seizure, nationalization or
expropriation of foreign deposits, possible establishment of exchange controls
or taxation at the source or fluctuation in value due to changes in currency
exchange rates. Foreign issuers of securities often engage in business practices
different from those of domestic issuers of similar securities and there may be
less information publicly available about foreign issuers. In addition, foreign
issuers are, generally speaking, subject to less government supervision and
regulation and different accounting treatment than are those in the United
States.
Foreign Government Securities. The foreign government securities in which
each Fund (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. Foreign government securities
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<PAGE>
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 agencies.
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. Transactions in these instruments, together with transactions in
forward contracts and currency options, are referred to below collectively as
"Currency-Related Transactions." The instruments involved in Currency-Related
Transactions may be considered derivative instruments. A Fund may enter into
Currency-Related Transactions to attempt to 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.
Mortgage-Backed and Asset-Backed Securities
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 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
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<PAGE>
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities. Many mortgage and
asset-backed securities may be considered derivative instruments. No Fund will
invest 25% or more of its total assets in collateralized mortgage obligations or
in asset-backed securities (in each case, excluding U.S. Government Securities).
Options
Written Options. 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 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
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<PAGE>
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.
Futures Contracts and Options on Futures Contracts
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.
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 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
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<PAGE>
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" in the Statement of
Additional Information. Options, futures contracts and options on futures
contracts are derivative instruments.
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.
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 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.
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<PAGE>
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" in the Funds' Statement of Additional Information. 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.
Additional Investment Techniques
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
(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.
When-Issued Securities and Forward Commitments. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase for equity securities, and up to 45
days after such date for fixed income securities. When-issued securities or
forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. When a Fund purchases
securities on a forward commitment or when-issued basis, the Fund's custodian
will maintain in a segregated account cash or liquid securities having a value
(determined daily) at least equal to the amount of the Fund's purchase
commitment.
Repurchase Agreements. Each Fund may enter into repurchase agreements. In
a repurchase agreement, a Fund buys a security subject to the right and
obligation to sell it back to the other party at the same price plus accrued
interest. The Fund's custodian will hold the security as collateral for the
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<PAGE>
repurchase agreement. Collateral must be maintained at a value at least equal to
102% of the repurchase price, but repurchase agreements involve some credit risk
to a Fund if the other party defaults on its obligation and the Fund is delayed
in or prevented from liquidating the collateral. A Fund will enter into
repurchase agreements only with financial institutions deemed to present minimal
risk of bankruptcy during the term of the agreement based on guidelines
established and periodically reviewed by the Trust's Board of Trustees.
Illiquid Securities. Each Fund other than the Municipal Bond Fund and
Short-Term Municipal Bond Fund will not invest more than 15% of its net assets
in illiquid securities. Municipal Bond Fund and Short-Term Municipal Bond Fund
will not invest more than 10% of its total assets in illiquid securities.
Illiquid securities include repurchase agreements and fixed time deposits
maturing in more than seven days and securities that are not readily marketable.
Restricted Securities. Each 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.
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.
Lending Securities. For the purpose of realizing income, each Fund other
than the Fixed Income Fund and the Municipal Bond Fund may lend to
broker-dealers portfolio securities amounting to not more than 33 1/3% of its
total assets taken at current value. These transactions must be fully
collateralized by cash, cash equivalents or U.S. Government securities at all
times. They nevertheless involve some credit risk to a Fund if the other party
should default on its obligation and the Fund is delayed in or prevented from
recovering the collateral. Voting rights with respect to a portfolio security
pass to the borrower when the security is loaned by a Fund, but the Adviser is
required to call the loan if necessary to vote on a material event affecting the
Fund's investment in the loaned security.
Other Investment Companies. Each Fund may invest in the aggregate no more
than 10% of its total assets, calculated at the time of purchase, in the
securities of other 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
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<PAGE>
U.S. Government, its agencies or instrumentalities; certificates of deposit,
time deposits, and bankers' acceptances issued by banks or savings and loans
associations having net assets of at least $500 million as of the end of their
most recent fiscal year; commercial paper rated at the time of purchase at least
A-1 by Standard & Poor's or P-1 by Moody's, or unrated commercial paper
determined by the Adviser to be of comparable quality; repurchase agreements
involving any of the foregoing; and, to the extent permitted by applicable law,
shares of other investment companies investing solely in money market
instruments. For a description of the Municipal Funds' policy with respect to
temporary defensive investments, see "Investment Objectives and
Policies--Municipal Bond Fund and Short-Term Municipal Bond Fund."
ADDITIONAL INVESTMENT INFORMATION
Investment Restrictions
Each Fund has adopted certain fundamental investment restrictions which are
described in detail in the Statement of Additional Information. 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 (the "80% Policy") has been designated as fundamental.
These Funds' 80% Policy and the investment restrictions designated as
fundamental in the Statement of Additional Information can be changed only with
shareholder approval. Each Fund's investment objective and all other investment
restrictions and policies are nonfundamental and can be changed by the Board of
Trustees of the Trust at any time without shareholder approval. Each Fund's
shareholders will, however, be given 30 days' advance written notice of any
change in a Fund's investment objective.
Each Fund has fundamental investment restrictions with respect to
borrowing, lending, diversification of investments, senior securities, pledging
of assets, underwriting, real estate investments and commodities. See
"Investment Restrictions" in the Statement of Additional Information.
Portfolio Transactions
The Adviser is responsible for making specific decisions to buy and sell
portfolio securities for the Funds. The Adviser is also responsible for
selecting brokers and dealers to effect these transactions and negotiating, if
possible, brokerage commissions and dealers' charges. Securities traded in the
over-the-counter markets and fixed income securities generally are traded on a
net basis with the dealers acting as principal for their own accounts without a
stated commission.
The primary consideration in selecting broker-dealers to execute portfolio
security transactions is the execution of such portfolio transactions at the
most favorable prices. Consideration may also be given to the broker-dealer's
sale of shares of the Funds. Subject to the most favorable price requirement and
the provisions of Section 28(e) of the Securities Exchange Act of 1934, as
amended, securities may be bought from or sold to broker-dealers who have
furnished statistical, research and other information or services to the
Adviser. Higher commissions may be paid to broker-dealers that provide research
services. See "Portfolio Transactions and Brokerage Commissions" in the
Statement of Additional Information for a more detailed discussion of portfolio
transactions. The Trustees will periodically review each Fund's portfolio
transactions.
Pursuant to procedures established by the Trustees, subject to applicable
regulations and consistent with the above policy of obtaining the most favorable
overall price, the Adviser may place securities transactions with SEI Financial
Services Company, the Funds' distributor (the "Distributor"), and brokers with
whom the Adviser or the Distributor is affiliated. No Fund will effect principal
transactions with an affiliated broker.
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<PAGE>
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
"Portfolio Transactions"). See "Financial Highlights" for each Fund's portfolio
turnover rate for the fiscal year ended October 31, 1997.
MANAGEMENT OF THE FUNDS
The Board of Trustees of the Trust is responsible for the overall
supervision and management of the Funds. The day-to-day operations of the Funds,
including investment decisions, have been delegated to the Adviser. The
Statement of Additional Information contains general background information
regarding each Trustee and executive officer of the Trust.
The Adviser
MGCM, 885 Third Avenue, New York, New York, acts as investment adviser to
each Fund pursuant to the terms of investment advisory contracts between the
Trust, on behalf of the Funds, and MGCM (the "Advisory Contracts"). MGCM is
registered as an investment adviser with the Commission and provides a full
range of investment advisory services to institutional clients. All of the
outstanding voting stock of MGCM is owned by Morgan Grenfell Asset Management
("MGAM"), which is an indirect wholly-owned subsidiary of Deutsche Bank AG, an
international commercial and investment banking group. As of September 30, 1997,
MGCM managed approximately $9.69 billion in assets.
Under its Advisory Contracts with the Trust, the Adviser manages each
Fund's business and investment affairs. For these services, the Adviser is
entitled to a monthly fee at an annual rate of each Fund's average daily net
assets as follows:
Annual Rate
-----------
Morgan Grenfell Fixed Income Fund 0.40%
Morgan Grenfell Municipal Bond Fund 0.40%
Morgan Grenfell Short-Term Fixed Income Fund 0.40%
Morgan Grenfell Short-Term Municipal Bond Fund 0.40%
Morgan Grenfell Total Return Bond Fund 0.45%
Morgan Grenfell High Yield Bond Fund 0.50%
Morgan Grenfell Smaller Companies Fund 1.00%
Morgan Grenfell Microcap Fund 1.50%
Morgan Grenfell Large Cap Growth Fund 0.75%
The advisory fees to which the Adviser is entitled for Smaller Companies
Fund, Microcap Fund and Large Cap Growth Fund are higher than the fees paid by
most funds but the Adviser believes they are comparable to the fees paid by
funds having similar investment objectives. As described in "Expense
Information," the Adviser has voluntarily agreed to reduce its advisory fee and
to make arrangements to limit certain other expenses to the extent necessary to
limit each Fund's operating expenses to a specified level. For the fiscal year
ended October 31, 1997, this voluntary agreement was in effect for each Fund
(other than Morgan Grenfell Total Return Bond Fund, Morgan Grenfell High Yield
Bond Fund and Morgan Grenfell Large Cap Growth
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<PAGE>
Fund, which were not in operation during such year). During this year, 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 paid
advisory fees equal to 0.35%, 0.33%, 0.0%, 0.0%, 0% and 0% of their respective
average daily net assets.
The Trust, on behalf of each Fund, is responsible for all of the Fund's
expenses other than those expressly assumed by the Adviser under the terms of
the Advisory Contracts. The expenses borne by each Fund include service fees,
the Fund's advisory fee, transfer agent fee and taxes and its proportionate
share of custodian fees, expenses of issuing reports to shareholders, legal
fees, auditing and tax fees, blue sky fees, fees of the Commission, insurance
expenses and disinterested Trustees' fees.
Each Fund other than the Equity Funds and the High Yield Bond Fund is
managed utilizing a team approach led by David W. Baldt, Executive Vice
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 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 employed with Paine Webber.
The High Yield Bond Fund is managed by a committee consisting of
investment professionals employed by the Adviser. This committee makes
investment decisions for the Fund.
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's 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.
Service Plans
The Trust, on behalf of each Fund, has adopted a service plan pursuant to
which each Fund pays service fees at an aggregate annual rate of up to 0.25% of
the Fund's average daily net assets attributable to service shares. Service fees
are payable to Service Organizations that have agreements with the Trust, and
are intended to compensate Service Organizations for providing personal services
and/or account maintenance services to their customers who invest in service
shares. Service Organizations that are fiduciaries or parties in interest to
Omnibus Accounts subject to the Employee Retirement Income Security Act of 1974
(ERISA) should consult with their legal advisers regarding the receipt of
service fees. See the Statement of Additional Information for further
information.
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<PAGE>
In the event that an agreement between a Service Organization and the
Trust expires or is terminated, service shares beneficially owned by customers
of such Service Organization will convert automatically to institutional shares
of the same Fund. 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.
Information regarding institutional shares of the Trust may be obtained by
calling 1-800-550-6426.
Administrator and Distributor
The Trust has entered into an Administration Agreement with SEI Financial
Management Corporation ("SEI Financial Management" or the "Administrator"), 1
Freedom Valley Drive, Oaks, Pennsylvania 19456-0100, pursuant to which SEI
Financial Management receives from all series of the Trust and other funds
advised by Morgan Grenfell Capital Management, Inc. an aggregate monthly fee at
the following annual rates of the aggregate average daily net assets ("aggregate
assets") of such funds:
0.10% of aggregate assets under $1 billion
0.07% of next $500 million of aggregate assets
0.05% of next $1 billion of aggregate assets
0.04% of aggregate assets exceeding $2.5 billion
Each Fund pays the Administrator a minimum annual fee that currently
equals $60,000.
The Administrator generally assists in all matters relating to the
administration of the Funds, including the coordination and monitoring of any
third parties furnishing services to the Funds, the preparation and maintenance
of financial and accounting records, and the provision of the necessary office
space, equipment and personnel to perform administrative and clerical functions.
SEI Financial Services Company (the "Distributor"), 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456-0100, serves as the distributor of service
shares of the Funds pursuant to a Distribution Agreement with the Trust and
assists in the sale of service shares of the Funds.
Custodian and Transfer Agent
The Trust has entered into a Custodian Agreement with The Northern Trust
Company ("Northern"), pursuant to which Northern serves as custodian of the
assets of each Fund.
DST Systems, Inc. (the "Transfer Agent"), 1004 Baltimore, Kansas City,
Missouri 64105, serves as the transfer agent of the Funds. The Transfer Agent
maintains the records of each record shareholder's account, processes purchases
and redemptions of the Funds' service shares, acts as dividend and distribution
disbursing agent and performs other shareholder servicing functions.
Additional information regarding the services performed by Service
Organizations, the Administrator, the Distributor, the Custodians and the
Transfer Agent is provided in the Statement of Additional Information.
PURCHASE OF SERVICE SHARES
In order to make an initial investment in service shares of a Fund, an
investor must establish an account with a Service Organization. Investors may
invest in service shares through an Omnibus Account maintained by their Service
Organization. Alternatively, investors may invest in service shares by
establishing a shareholder account with the Trust (in addition to the account
with their Service Organization). Investors who invest through Omnibus Accounts
may be subject to minimums established by their Service Organizations
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<PAGE>
for initial and subsequent investments. Unless waived by the Trust, the minimum
initial investment for Omnibus Accounts and investors who establish shareholder
accounts with the Trust in each Fund is $250,000.
Investors who invest through Omnibus Accounts should submit purchase
orders to their Service Organization. Investors who establish shareholder
accounts with the Trust should submit purchase orders to the Transfer Agent as
described below. Service Shares of any Fund may be purchased by an investor on
any Business Day at the net asset value next determined after receipt of the
investor's order in good order by the investor's Service Organization or by the
Transfer Agent, as the case may be. A "Business Day" means any day on which the
New York Stock Exchange (the "NYSE") is open. For an investor who invests
through an Omnibus Account, the investor's Service Organization must receive the
investor's order before the close of regular trading on the NYSE (currently 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 are
responsible for promptly forwarding such investors' purchase orders to the
Transfer Agent. For an investor who has a shareholder account with the Trust,
the Transfer Agent must receive the investor's purchase order before the close
of regular trading on the NYSE for the investor to receive that day's net asset
value.
There is no sales charge in connection with purchases of service shares.
Investors may be subject to transaction and/or account maintenance fees imposed
by their Service Organizations (no part of which will be received by the Trust
or the Adviser). Any such fees will be payable directly by the investor, and not
by the Fund. The Trust reserves the right, in its sole discretion, to reject any
purchase offer and to suspend the offering of service shares. The Trust does not
issue share certificates.
For investors who invest through Omnibus Accounts, payment for initial and
subsequent purchases of service shares should be made to the investors' Service
Organizations. These investors should contact their Service Organizations for
further details on how to purchase service shares. For investors who have
shareholder accounts with the Trust, payment for initial and subsequent
purchases of service shares should be made by mail or wire as described below.
Purchases by Mail
Service shares may be purchased initially by completing the Account
Application accompanying this Prospectus and mailing it, together with a check
in the amount of $250,000 or more drawn on a U.S. bank payable to the
appropriate Fund to:
By Regular Mail: By Overnight Mail:
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7)
1004 Baltimore
Kansas City, MO 64105
Third party checks, credit card checks and cash will not be accepted.
Subsequent investments in an existing account in any Fund may be made at
any time by sending to the Transfer Agent, at the above address, a check payable
to the appropriate Fund, along with either (i) a subsequent order form which may
be obtained from the Transfer Agent or (ii) a letter stating the amount of the
investment, the name of the Fund and the account number in which the investment
is to be made. Investors should indicate the name of the appropriate Fund and
account number on all correspondence.
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<PAGE>
Purchases by Wire
Investors having an account with a commercial bank that is a member of the
Federal Reserve System may purchase service shares of any Fund by requesting
their bank to transmit funds by wire to:
United Missouri Bank, N.A.
ABA No. 10-10-00695
For: Account Number 98-7052-395-7
Further Credit: [appropriate Fund name]
The investor's name and account number must be specified in the wire. In
addition, investors should be aware that some banks may charge wire fees.
Initial Purchases: Before making an initial investment in service shares
by wire, an investor must first telephone 1-800-407-7301 to be assigned a wire
account number. The investor may then transmit funds by wire through the wire
procedures described above. The investor's name, account number, social security
or other taxpayer identification number, and address must be specified in the
wire. In addition, investors making initial investments by wire must promptly
complete the Account Application accompanying this Prospectus and forward it to
the Transfer Agent at:
By Regular Mail: By Overnight Mail:
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7)
1004 Baltimore
Kansas City, MO 64105
Subsequent Purchases: Additional investments may be made at any time
through the wire procedures described above, which must include the investor's
name and account number.
Reports to Shareholders
Shareholders of each Fund receive an annual report containing audited
financial statements and a semiannual report. Shareholders should contact their
Service Organizations for information regarding the Funds. Also, shareholders
who have shareholder accounts with the Trust may contact Morgan Grenfell
Investment Trust for account information by calling 1-800-550-6426 or by writing
to Morgan Grenfell Investment Trust at P.O. Box 419165, Kansas City, MO
64141-6165.
Exchange Privilege
A shareholder may exchange service shares of a Fund for service shares of
an International Fund, subject, in the case of shareholders who invest through
Omnibus Accounts, to any restrictions imposed by the Service Organizations that
maintain such accounts. A shareholder should obtain and read the prospectus
relating to service shares of an International Fund and consider its investment
objective, policies and fees before making an exchange into that fund. Exchanges
will be permitted only in those states in which service shares of the relevant
fund is available for sale. The Funds reserve the right to refuse any exchange
request.
If a shareholder who has a shareholder account with the Trust elects the
telephone exchange privilege on the Account Application, the shareholder may
exchange service shares in its account in one Fund for service shares in any
other Fund described in this Prospectus by telephone (by calling
1-800-407-7301), as long as all accounts are identically registered. Service
Organizations, acting on behalf of their customers who invest in service shares
through Omnibus Accounts, may exchange service shares in one Fund for service
shares of any other Fund or International Fund by telephone, unless they
indicate otherwise in writing to the Trust. For shareholders who have
shareholder accounts with the Trust, the Transfer Agent must receive the
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<PAGE>
shareholder's exchange request in proper order before the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern time) for the investor to
receive that day's net asset values. Service Organizations are responsible for
promptly forwarding such investors' exchange requests to the Transfer Agent. For
an investor who establishes a shareholder account with the Trust, the Transfer
Agent must receive the investor's exchange request before the close of regular
trading on the NYSE for the investor to receive that day's net asset values.
Neither the Funds nor their agents will be liable for any loss incurred by
a shareholder as a result of following instructions communicated by telephone
that they reasonably believe to be genuine. To confirm that telephone exchange
requests are genuine, the Funds will employ reasonable procedures such as
providing written confirmation of telephone exchange transactions and tape
recording of telephone exchange requests. If a Fund does not employ such
reasonable procedures, it may be liable for any loss incurred by a shareholder
due to a fraudulent or other unauthorized telephone exchange request.
An exchange is treated as a sale of the shares exchanged and, therefore,
may produce a gain or loss to the shareholder that is recognizable for tax
purposes.
REDEMPTION OF SERVICE SHARES
How To Redeem
A shareholder may redeem service shares of a Fund without charge upon
request on any Business Day at the net asset value next determined after receipt
of the shareholder's redemption request by the shareholder's Service
Organization (as long as the Service Organization promptly forwards the
shareholder's redemption request to the Transfer Agent) or, in the case of
shareholders who have shareholder accounts with the Trust, by the Transfer
Agent. For a shareholder who invests through an Omnibus Account, the
shareholder's Service Organization must receive the shareholder's redemption
request before the close of regular trading on the NYSE (currently 4:00 p.m.,
Eastern Time) and promptly forward such request to the Transfer Agent for the
investor to receive that day's net asset value. Service Organizations are
responsible for promptly forwarding such investors' redemption requests to the
Transfer Agent. For a shareholder who has a shareholder account with the Trust,
the Transfer Agent must receive the shareholder's redemption request before the
close of regular trading on the NYSE for the shareholder to receive that day's
net asset value.
A shareholder who has a shareholder account with the Trust may request
redemptions by telephone (by calling 1-800-407-7301) if the optional telephone
redemption privilege is elected on the Account Application. Service
Organizations, acting on behalf of their customers who invest in service shares
through Omnibus Accounts, may redeem service shares by telephone, unless they
indicate otherwise in writing to the Trust. Alternatively, Service Organizations
and shareholders who have accounts with the Trust may submit redemption requests
in writing. A written redemption request must specify the number of shares to be
redeemed, the Fund from which service shares are being redeemed, the
shareholder's or Omnibus Account's account number with the Trust, payment
instructions and the exact registration of the Account. Written requests for
redemptions should be forwarded to the Transfer Agent at:
By Regular Mail: By Overnight Mail:
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7)
1004 Baltimore
Kansas City, MO 64105
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<PAGE>
Signatures must be guaranteed in accordance with the procedures set forth below
under "Payment of Redemption Proceeds".
In order to verify the authenticity of telephone redemption requests, the
Transfer Agent's telephone representatives will request that the caller provide
certain information unique to the account. If the caller is unable to provide
this information, telephone redemption requests will not be processed and the
redemption will have to be completed by mail. As long as the Transfer Agent's
telephone representatives comply with the procedures described above, neither
the Funds nor their agents will be liable for any losses due to fraudulent or
unauthorized transactions. Finally, it may be difficult to implement telephone
redemptions in times of drastic economic or market changes.
Payment of Redemption Proceeds
For shareholders having accounts with the Trust, redemption proceeds
ordinarily will be wired to the bank account designated on the Account
Application, unless payment by check has been requested. For shareholders who
invest through Omnibus Accounts, redemption proceeds ordinarily will be wired to
the Service Organization that maintains the Account, unless payment by check has
been requested. Normally, redemption proceeds will be wired within no more than
seven days after the Transfer Agent receives the appropriate redemption request
documents from the redeeming investor's Service Organization, including any
additional documentation that may be required in order to establish that a
redemption request has been properly authorized. Frequently, redemption proceeds
will be wired on the next Business Day after the Transfer Agent's receipt of
such documents. In addition, the payment of redemption proceeds for service
shares of a Fund recently purchased by check will be delayed for up to 15
calendar days from the purchase date. After a wire has been initiated by the
Transfer Agent, neither the Transfer Agent nor the Trust assumes any further
responsibility for the performance of intermediaries or Service Organization's
or shareholder's bank in the transfer process. If a problem with such
performance arises, the Service Organization or shareholder should deal directly
with such intermediaries or bank.
Service Organizations whose customers invest through Omnibus Accounts and
shareholders who have accounts with the Trust may request that the Trust make
redemption payments by Federal Reserve Wire or Automated Clearing House (ACH)
wire. Redemption payments by Federal Reserve wire cannot be made on Federal
holidays restricting wire transfers. There is no charge for ACH wire
transactions; however, such transactions will not be posted to a Service
Organization's or shareholder's bank account until the second Business Day
following the transaction.
A Service Organization or a shareholder who has an account with the Trust
may change the bank designated to receive redemption proceeds by providing
written notice to the Transfer Agent which has been signed by the Service
Organization or such shareholder or its authorized representative. This
signature must be guaranteed by a bank, a securities broker or dealer, a credit
union having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies standards established by the Transfer Agent. The Transfer Agent may
also require additional documentation in connection with a request to change a
designated bank.
If the Board of Trustees determines that it is appropriate in order to
protect the best interests of a Fund and its shareholders, the Fund, under the
limited circumstances described below, may satisfy all or part of a redemption
request by delivering portfolio securities to a redeeming investor. However, the
Trust, on behalf of each Fund, has elected, pursuant to Rule 18f-1 under the
1940 Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Only redemptions in excess of this limit may be paid in kind.
In-kind payments would not have to constitute a cross-section of a Fund's
- --------------------------------------------------------------------------------
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<PAGE>
portfolio. Investors receiving redemption payment in portfolio securities will
not have eliminated their investment exposure by their redemption as would
investors receiving their redemption payment in cash. Instead these investors
will be subject to risks inherent in owning such securities, including market
value and currency fluctuations, difficulties in selling securities in
particular markets and repatriating the sales proceeds, and the political and
other risks described under "Description of Securities and Investment Techniques
and Related Risks - Foreign Securities." In addition, a shareholder generally
will incur additional expenses, such as brokerage commissions and currency
conversion fees or expenses, on the sale or other disposition of securities
received from a Fund. Any portfolio securities paid or distributed to a
redeeming shareholder would be valued as described under "Net Asset Value."
NET ASSET VALUE
The net asset value per share of each Fund is normally calculated as of
the close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on
each Business Day. The net asset value of each class of a Fund's shares is
determined by adding the value of all securities, cash and other assets of the
Fund attributable to such class, subtracting liabilities (including accrued
expenses and dividends payable) attributable to such class and dividing the
result by the total number of outstanding shares of such class.
For purposes of calculating net asset value , equity securities traded on
a recognized securities exchange are valued at their last sale price on the
principal exchange on which they are traded on the valuation day or, if no sale
occurs, at the bid price. Unlisted equity securities for which current market
quotations are readily available are valued at their most recent bid price. Debt
securities and other fixed-income investments owned by the Funds are valued at
prices supplied by independent pricing agents, which prices reflect
broker-dealer supplied valuations and electronic data processing techniques.
Short-term obligations maturing in sixty days or less may be valued at amortized
cost, which does not take into account unrealized gains or losses on portfolio
securities. Amortized cost valuation involves initially valuing a security at
its cost, and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the security's market value. While this method provides certainty in valuation,
it may result in periods in which the value of the security, as determined by
the amortized cost method, may be higher or lower than the price a Fund would
receive if the Fund sold the security. Other assets and assets whose market
value does not, in the opinion of the Adviser, reflect fair value are valued at
fair value using methods determined in good faith by the Board of Trustees.
Certain portfolio securities held by the Funds (not including the
Municipal Funds) may be listed on foreign exchanges which trade on days when the
NYSE is closed. As a result, the net asset value of each class of any such Fund
may be significantly affected by such trading on days when shareholders have no
ability to redeem shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Equity Fund declares and pays dividends from net investment income,
if any, and distributes net short-term capital gain, if any, at least annually.
Each of the other Funds distributes substantially all of its net investment
income in the form of dividends declared daily and paid monthly. Each Fund,
including the Equity Funds, also distributes at least annually substantially all
of the net long-term capital gain, if any, which it realizes for each taxable
year and may make distributions at any other times when necessary to satisfy
applicable tax requirements. Capital losses, including any capital loss
carryovers from prior years, are taken into account in
- --------------------------------------------------------------------------------
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<PAGE>
determining the amounts of short-term and long-term capital gains to be
distributed.
From time to time, a portion of a Fund's distributions may constitute a
return of capital for tax purposes. Dividends and distributions are made in
additional service shares of the same Fund or, at the shareholder's election, in
cash. The election to reinvest dividends and distributions or receive them in
cash may be changed at any time upon written notice to the Transfer Agent. If no
election is made, all dividends and capital gain distributions will be
reinvested.
Taxes
Each Fund is treated as a separate entity for federal income tax purposes
and has elected or, in the case of the Large Cap Growth Fund, intends to elect
to be treated as a regulated investment company under Subchapter M of the Code.
Each Fund intends to qualify for such treatment for each taxable year. To
qualify as a regulated investment company, each Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated investment
company, a Fund will not be subject to federal income or excise tax on any net
investment income or net realized capital gain that is distributed to its
shareholders in accordance with certain timing and other requirements of the
Code.
Dividends paid by a Fund from its net investment income, including
original issue discount and market discount income (except for tax-exempt
interest, including tax-exempt original issue discount, earned by the Municipal
Funds), certain net realized foreign exchange gains, and the excess of net
short-term capital gain over net long-term capital loss will be taxable to
shareholders as ordinary income. Dividends paid by a Fund from any excess of net
long-term capital gain over net short-term capital loss will be taxable to a
shareholder as capital gain regardless of how long the shareholder has held its
shares. It is anticipated that future tax regulations implementing federal tax
legislation enacted on August 5, 1997 will provide that distributions of
long-term capital gains to individuals or other noncorporate taxpayers will be
subject to different maximum tax rates, depending on the dates on which the
gains are recognized and the applicable Fund's holding periods for the assets
that produce the gains. These tax consequences will apply regardless of whether
distributions are received in cash or reinvested in shares. A portion of the
dividends paid to corporate shareholders by either Equity Fund from dividends
they receive from U.S. domestic corporations may qualify for the
dividends-received deduction for corporate shareholders, subject to holding
period requirements and debt-financing limitations under the Code. Certain
distributions declared in October, November or December and paid in January of
the following year are taxable to shareholders as if received on December 31 of
the year in which they are declared. Shareholders will be informed annually
about the amount and character of distributions received from a Fund for federal
income tax purposes.
Each Municipal Fund intends to satisfy certain requirements of the Code so
that it may distribute the tax-exempt interest it receives as "exempt-interest
dividends," as defined in the Code. Distributions paid by a Municipal Fund that
are attributable to interest on tax-exempt obligations and that the Municipal
Fund designates as exempt-interest dividends will be excluded from gross income
for federal income tax purposes, although all or a portion of such a
distribution may increase a shareholder's liability (if any) for the federal
alternative minimum tax and the entire distribution may be includable in the tax
base for determining taxability of social security or railroad retirement
benefits. Distributions by a Municipal Fund from sources other than tax-exempt
interest will generally be taxable as described in the preceding paragraph.
Persons who are "substantial users" (or related persons to such substantial
users) of facilities financed by industrial development or certain private
activity bonds should consult their own tax advisers before purchasing shares of
a Municipal Fund. Interest on indebtedness incurred or continued to purchase or
carry shares of a Municipal Fund is not deductible to the extent attributable to
such Fund's distributions that are exempt-interest dividends.
- --------------------------------------------------------------------------------
Page - 34 -
<PAGE>
Individuals and certain other classes of shareholders may be subject to
31% backup withholding of federal income tax on dividends (other than
exempt-interest dividends), redemptions and exchanges if they fail to furnish
their correct taxpayer identification number and certain certifications or if
they are otherwise subject to back-up withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to non-resident alien withholding tax at
the rate of 30% (or a lower rate provided by an applicable tax treaty) on
amounts treated as ordinary dividends from a Fund and, unless a current IRS Form
W-8 or acceptable substitute for Form W-8 is on file, to backup withholding on
certain other payments from a Fund.
A Fund that invests in foreign securities may be subject to foreign
withholding or other foreign taxes on income earned on such securities (possibly
including, in some cases, capital gains). The Funds anticipate that they
generally will not be eligible to elect to pass such taxes or any associated
foreign tax credits or deductions through to their shareholders, but will
provide appropriate information to shareholders in the event such an election is
made for any Fund.
Investors should consider the tax implications of buying service shares
immediately prior to a distribution (other than a daily dividend). Investors who
purchase shares shortly before the record date for such a distribution will pay
a per share price that includes the value of the anticipated distribution and
will be taxed on any taxable distribution even though the distribution
represents a return of a portion of the purchase price.
Redemptions and exchanges of service shares are taxable events for
shareholders that are subject to tax.
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on dividends, capital gain distributions, or the proceeds of
redemptions or exchanges. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent a Fund's
distributions are derived from interest on (or, in the case of intangible
property taxes, the value of its assets is attributable to) certain U.S.
Government obligations and/or municipal obligations of certain issuers located
in the state or locality imposing the applicable taxes. In some states, such an
exemption may be available only if certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. The Funds may not
satisfy such requirements in some states or localities. Shareholders should
consult their tax advisors regarding the application to them of the federal tax
legislation referred to above and any other specific questions about federal,
state, local or foreign taxes and special rules that may be applicable to
certain classes of investors, such as retirement plans, financial institutions,
tax-exempt entities, insurance companies and non-U.S. persons.
ORGANIZATION AND SHARES OF THE TRUST
The Trust was formed as a business trust under the laws of the State of
Delaware on September 13, 1993, and commenced investment operations on January
3, 1994. The Board of Trustees of the Trust is responsible for the overall
management and supervision of the affairs of the Trust. The Declaration of Trust
authorizes the Board of Trustees to create separate investment series or
portfolios of shares. As of the date hereof, the Trustees have established the
Funds described in this Prospectus and 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.
- --------------------------------------------------------------------------------
Page - 35 -
<PAGE>
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 hold in the aggregate either shares having a net asset value of
$25,000 or 1% of the outstanding shares, whichever is less, seek to call a
meeting for the purpose of removing a Trustee, the Trust has agreed to provide
certain information to such shareholders and generally to assist their efforts.
As of January 30, 1998, Charles Schwab & Co. Inc. owned 95.36% of the
outstanding shares of the Smaller Companies Fund, Donaldson Lufkin & Jenrette,
Secs Corp. owned 90.71% of the outstanding shares of the Municipal Bond Fund and
National Financial Services Corp. owned 88.32% of the outstanding shares of the
Microcap Fund and 99.67% of the outstanding shares of the Short-Term Municipal
Bond Fund.
Certain of the Trustees and officers of the Trust reside outside the
United States, and substantially all the assets of these persons are located
outside the United States. It may not be possible, therefore, for investors to
effect service of process within the United States upon these persons or to
enforce against them, in United States courts or foreign courts, judgments
obtained in United States courts predicated upon the civil liability provisions
of the federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws. See "Trustees and Officers" in the Statement of
Additional Information.
PERFORMANCE INFORMATION
From time to time, performance information, such as total return and yield
for service shares of a Fund, may be quoted in advertisements or in
communications to shareholders. Total return for service shares of a Fund 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 service 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 service shares. A Fund's yield reflects a Fund's overall rate of
income on portfolio investments as a percentage of the service
- --------------------------------------------------------------------------------
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<PAGE>
share price. Yield is computed by annualizing the result of dividing the net
investment income per service share over a 30-day period by the net asset value
per service 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 and 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 service 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
service shares of a Fund are not at the direction or within the control of the
Funds and will not be included in the Funds' calculations of total return.
- --------------------------------------------------------------------------------
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<PAGE>
APPENDIX A
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 Capital Management, Inc. (the "Adviser" or "MGCM") in accordance with
the microcap investment strategy (the "MGCM 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 Funds'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 MGCM 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. See "Investment
Objectives and Policies". Because of the similarities in investment strategies
and techniques, the Adviser believes that the accounts included in the MGCM
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 MGCM 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 MGCM 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 MGCM Microcap Composite
might have been lower.
The investment results of the MGCM 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 MGCM 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 MGCM 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 MGCM.
- --------------------------------------------------------------------------------
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<PAGE>
PERFORMANCE OF MORGAN GRENFELL MICROCAP FUND
Total Return for Year Ended
December 31, 1997 19.80%
Annualized Total Return for Period
From December 18, 1996 to
December 31, 1997 21.80%
PERFORMANCE OF MGCM MICROCAP COMPOSITE AND RUSSELL 2000
Average Annual Total Return
---------------------------
MGCM Microcap
Composite
Year (Net of Fees) Russell 2000
- ---- ------------ -------------
1997 18.77% 22.40%
1996 50.49% 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)%
- --------------------------------------------------------------------------------
MGCM Microcap
Composite
(Net of Fees) Russell 2000
------------- ------------
Annualized Total Return For
Period From December 31, 1986
to December 31, 1997 18.53% 25.70%
- --------------------------------------------------------------------------------
Page - 39 -
<PAGE>
Morgan Grenfell Investment Trust
885 Third svenue
New York, New York 10022
Investment Adviser
Morgan Grenfell Capital Management, Inc.
885 Third Avenue
New York, New York 10022
Administrator and Shareholder
Servicing Agent
SEI Financial Management Corporation
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Distributor
SEI Financial Services Company
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Custodian
The Northern Trust Company
Fifty South LaSalle Street
Chicago, Illinois 60675
Transfer Agent
DST Systems, Inc.
SEI Division CT-7 Tower
1004 Baltimore
Kansas City, Missouri 64105
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Service Information
Existing accounts, new accounts, prospectuses,
statements of additional information,
applications, and service forms - 1-800-550-6426
Telephone Exchanges - 1-800-407-7301
Share Price and Performance
Information - 1-800-550-6426
(or contact your Service Organization)
- -------------------------------------------------------------------------------
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<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
Service Shares
885 Third Avenue
New York, New York 10022
February 25, 1998
(Revised March 6, 1998)
Morgan Grenfell Investment Trust (the "Trust") is an open-end management
investment company that includes eight diversified investment portfolios that
focus on international equity investing (the "Funds"). Morgan Grenfell
Investment Services Limited (the "Adviser" or "MGIS"), based in London England,
serves as investment adviser to the Funds. The Funds are designed for long-term
investors seeking to participate in foreign equity markets.
The investment objective of each Fund is to maximize capital appreciation.
Information concerning investment portfolios of the Trust that focus on
U.S. investments (the "Domestic Funds") and non-U.S. fixed income investments
(the "Non-U.S. Fixed Income Funds") is contained in separate prospectuses that
may be obtained by calling 1-800-550-6426.
- ------------------------------------------------------------------------------
This Prospectus provides information about the Trust and each of the Funds
that investors should know before investing in service shares of the Funds.
Investors should carefully read this Prospectus and retain it for future
reference. For investors seeking more detailed information, the Statement of
Additional Information dated February 25, 1998, as amended or supplemented from
time to time, is available upon request without charge by calling the applicable
telephone number listed on the back cover or by writing SEI Financial Services
Company, 1 Freedom Valley Drive, Oaks, Pennsylvania 19456-0100. The Statement of
Additional Information, which is incorporated by reference into this Prospectus,
has been filed with the Securities and Exchange Commission and is available
along with other related materials on the Securities and Exchange Commission's
Internet web site (http://www.sec.gov). Not all of the Funds are available in
certain states. Please call 1-800-550-6426 to determine availability in a
particular state.
- ------------------------------------------------------------------------------
INVESTMENTS IN EMERGING MARKETS CAN INVOLVE SIGNIFICANT RISKS, AND MORGAN
GRENFELL EMERGING MARKETS EQUITY FUND IS DESIGNED FOR AGGRESSIVE INVESTORS.
SERVICE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Page -1-
<PAGE>
Each Fund's primary investments are summarized below:
Morgan Grenfell International Equity Fund invests primarily in equity and
equity-related securities of companies in countries other than the United
States.
Morgan Grenfell Global Equity Fund invests primarily in equity and
equity-related securities of companies throughout the world.
Morgan Grenfell European Equity Fund invests primarily in equity and
equity-related securities of companies in Europe.
Morgan Grenfell Pacific Basin Equity Fund invests primarily in equity and
equity-related securities of companies in Pacific Basin countries.
Morgan Grenfell International Small Cap Equity Fund invests primarily in
equity and equity-related securities of small capitalization companies in
countries other than the United States.
Morgan Grenfell Japanese Small Cap Equity Fund invests primarily in equity
and equity-related securities of small capitalization companies in Japan.
Morgan Grenfell European Small Cap Equity Fund invests primarily in equity
and equity-related securities of small capitalization companies in Europe.
Morgan Grenfell Emerging Markets Equity Fund invests primarily in equity
and equity-related securities of companies in countries with emerging securities
markets.
- --------------------------------------------------------------------------------
Page -2-
<PAGE>
TABLE OF CONTENTS
Page
Expense Information........................................ 4
Financial Highlights....................................... 6
Introduction to the Funds.................................. 8
Investment Objectives and Policies......................... 10
Description of Securities and Investment Techniques
and Related Risks........................................ 14
Additional Investment Information.......................... 23
Management of the Funds.................................... 24
Purchase of Service Shares................................. 26
Redemption of Service Shares............................... 28
Net Asset Value............................................ 30
Dividends, Distributions and Taxes......................... 31
Organization and Shares of the Trust....................... 32
Performance Information.................................... 34
Appendix A................................................. 35
Appendix B................................................. 39
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Page -3-
<PAGE>
EXPENSE INFORMATION
(Service Shares)*
<TABLE>
<CAPTION>
FUND NAME International Global European Pacific Basin
Equity Fund Equity Fund Equity Fund Equity Fund
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Shareholder Transaction
Expenses:
- --------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases.............................. None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends......................................... None None None None
Deferred Sales Charge
Imposed on Redemptions............................ None None None None
Exchange Fee...................................... None None None None
- --------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)
- --------------------------------------------------------------------------------------------------------------------------------
Advisory fees ..................................... 0.70% 0.70% 0.70% 0.70%
Other Expenses**................................... 2.34% 0.95% 0.72% 0.95%
Reduction of Advisory Fee
and Expense Limitation by Adviser ***.............. (1.89)% (0.50)% (0.27)% (0.50)%
- --------------------------------------------------------------------------------------------------------------------------------
Net Fund Operating
Expenses.......................................... 1.15% 1.15% 1.15% 1.15%
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
International Japanese European Emerging
FUND NAME Small Cap Small Cap Small Cap Markets
Equity Fund Equity Fund Equity Fund Equity Fund
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholder Transaction
Expenses:
- ----------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases............................... None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends.......................................... None None None None
Deferred Sales Charge
Imposed on Redemptions............................. None None None None
Exchange Fee....................................... None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)
- ----------------------------------------------------------------------------------------------------------------------------------
Advisory fees ..................................... 1.00% 1.00% 1.00% 1.00%
Other Expenses**................................... 0.62% 0.95% 1.37% 0.69%
Reduction of Advisory Fee
and Expense Limitation by Adviser ***.............. (0.12)% (0.45)% (0.87)% (0.19)%
- ----------------------------------------------------------------------------------------------------------------------------------
Net Fund Operating
Expenses........................................ 1.50% 1.50% 1.50% 1.50%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* None of the service share classes of the above Funds were operational during
the fiscal year ended October 31, 1997.
** The figure shown as Other Expenses for service shares of each Fund includes
service fees of 0.25% of the Fund's average net assets attributable to service
shares. For more information on service fees and a description of the
circumstances in which service shares will be converted to institutional shares
(another class of Fund shares), see "Management of the Funds -- Service Plans."
*** 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 service shares of each Fund, on an annual basis, to the specified
percentage of each Fund's assets shown in the above table as Net Fund Operating
Expenses. The above table and the following Example reflect this voluntary
agreement. In its sole discretion, the Adviser may terminate or modify this
voluntary agreement at any time after October 31, 1998. The purpose of this
voluntary agreement is to enhance a Fund's total return during the period when,
because of its smaller size, fixed expenses have a more significant impact on
total return. After giving effect to the Adviser's voluntary agreement, each
Fund's advisory fee is as follows: International Equity Fund, 0.00%; Global
Equity Fund, 0.20%; European Equity Fund, 0.43%; Pacific Basin Equity Fund,
0.20%; International Small Cap Equity Fund, 0.88%; Japanese Small Cap Equity
Fund, 0.55%; European Small Cap Equity Fund, 0.13%; Emerging Markets Equity
Fund, 0.81%. If the Adviser's voluntary agreement were not in effect, the Fund
Operating Expenses for service shares of each Fund would be as follows:
International Equity Fund 3.04%, Global Equity Fund 1.65%, European Equity Fund
1.42%, Pacific Basin Equity Fund 1.65%, Japanese Small Cap Equity Fund 1.95%,
International Small Cap Equity Fund 1.62%, European Small Cap Equity Fund 2.37%
and Emerging Markets Equity Fund 1.69%.
- --------------------------------------------------------------------------------
Page -4-
<PAGE>
EXAMPLE:
Investors in service shares would pay the following expenses on a $1,000
investment assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Morgan Grenfell International $12 $37 $63 $140
Equity Fund
Morgan Grenfell Global $12 $37 $63 $140
Equity Fund
Morgan Grenfell European $12 $37 $63 $140
Equity Fund
Morgan Grenfell Pacific Basin $12 $37 $63 $140
Equity Fund
Morgan Grenfell International $15 $47 $82 $179
Small Cap Equity Fund
Morgan Grenfell Japanese Small $15 $47 $82 $179
Cap Equity Fund
Morgan Grenfell European Small $15 $47 $82 $179
Cap Equity Fund
Morgan Grenfell Emerging $15 $47 $82 $179
Markets Equity Fund
</TABLE>
- -------------
The purpose of the Expense Information Table and Example is to assist
investors in understanding the various direct and indirect costs and expenses
that an investment in service shares of a Fund will bear. "Other Expenses"
included in the Expense Information Table and Example for each Fund other than
Morgan Grenfell Global Equity Fund, Morgan Grenfell Pacific Basin Equity Fund
and Morgan Grenfell Japanese Small Cap Equity Fund are estimates for the fiscal
year ending October 31, 1998 that are based on actual expenses incurred during
the fiscal year ended October 31, 1997, except that the figures shown assume
that the service fees were in effect throughout the year ended October 31, 1997.
"Other Expenses" for Morgan Grenfell Global Equity Fund, Morgan Grenfell Pacific
Basin Equity Fund and Morgan Grenfell Japanese Small Cap Equity Fund are based
on estimated average net assets for the current fiscal year ending October 31,
1998. If the average net assets of any of these Funds exceeds the applicable
estimate for such year, then its "Other Expenses" (as a percentage of average
net assets) will be lower than the rate shown in the table. Conversely, if any
such Fund's average net assets are lower than the estimate for such year, then
its "Other Expenses" (as a percentage of average net assets) will be higher than
the rate shown in the table. The Example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed in the Expense
Information Table remain the same each year. If the Adviser were to discontinue
its voluntary fee reductions, the expenses contained in the Example could
increase.
THE EXAMPLE IS DESIGNED FOR INFORMATION PURPOSES ONLY, AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR RETURN FOR ANY FUND. ACTUAL
EXPENSES AND RETURN VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE
SHOWN. For further information regarding advisory and service fees and other
expenses of the Funds, see "Management of the Funds."
- --------------------------------------------------------------------------------
Page -5-
<PAGE>
FINANCIAL HIGHLIGHTS
Set forth below are selected data for an outstanding institutional share
of each Fund for fiscal periods prior to and ended October 31, 1997. The data
set forth below has been audited by Price Waterhouse LLP, independent
accountants, whose report thereon was unqualified. No data is shown below for
service shares of any Fund because no service shares of any Fund were
outstanding on or prior to October 31, 1997.
The information set forth below should be read in conjunction with the
financial statements and notes thereto which appear in the Statement of
Additional Information. The Statement of Additional Information and the Trust's
annual report for the year ended October 31, 1997, which contains further
information about the Funds' performance, are available free of charge by
calling 1-800-550-6426. No information is presented below for Morgan Grenfell
Global Equity Fund, Morgan Grenfell Pacific Basin Fund or Morgan Grenfell
Japanese Small Cap Equity Fund because these Funds had not commenced operations
by October 31, 1997.
- --------------------------------------------------------------------------------
Page -6-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For an Institutional Share Outstanding Throughout Each Period Ended October 31
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Net
Net Asset Net Realized Distributions Distributions
Value Investment and from Net from Realized Net Asset
Beginning Income / Unrealized Investment Capital Value End
Year of Period (Loss) Gains/(Losses) Income Gains of Period
---- --------- ------ -------------- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------
International Equity Fund
- --------------------------------------------------
1997 $ 11.88 $ 0.16 $ 0.28 $ (0.15) $ (0.55) $ 11.62
1996 $ 10.95 $ 0.11 $ 1.25 $ (0.43) - $ 11.88
1995 (1)* $ 10.00 $ 0.08 $ 0.87 - - $ 10.95
- --------------------------------------------------
European Equity Fund
- --------------------------------------------------
1997 $ 10.60 $ 0.25 $ 2.11 $ (0.03) $ (0.12) $ 12.81
1996 (2)* $ 10.00 $ - $ 0.60 - - $ 10.60
- ---------------------------------------------------------------------
International Small Cap Equity Fund
- ---------------------------------------------------------------------
1997 $ 9.96 $ 0.10 $ (1.12) $ (0.13) - $ 8.81
1996 $ 9.40 $ 0.03 $ 0.57 $ (0.04) - $ 9.96
1995 $ 10.35 $ 0.03 $ (0.72) $ (0.04) $ (0.22) $ 9.40
1994 (3)* $ 10.00 $ 0.02 $ 0.33 - - $ 10.35
- --------------------------------------------------
European Small Cap Equity Fund
- --------------------------------------------------
1997 $ 12.54 $ 0.04 $ (0.22) $ (0.18) $ (0.38) $ 11.80
1996 $ 11.55 $ 0.12 $ 1.03 $ (0.12) $ (0.04) $ 12.54
1995 (4)* $ 10.00 $ 0.12 $ 1.44 $ (0.01) - $ 11.55
- --------------------------------------------------
Emerging Markets Equity Fund
- --------------------------------------------------
1997 $ 8.80 $ (0.03) $ (0.85) $ (0.01) $ (0.22) $ 7.69
1996 $ 8.11 $ 0.06 $ 0.75 $ (0.03) $ (0.09) $ 8.80
1995 $ 11.00 $ 0.04 $ (2.29) $ (0.02) $ (0.62) $ 8.11
1994 (5)* $ 10.00 $ (0.01) $ 1.01 - - $ 11.00
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of Net
Ratio of Investment
Expenses Income (Loss)
Ratio of Net to Average to Average
Ratio of Investment Net Assets Net Assets
Net Assets Expenses to Income(Loss) (Excluding (Excluding
Total End of Average to Average Expense Expense
Year Return Period (000) Net Assets Net Assets Limitations) Limitations)
---- ------ ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------
International Equity Fund
- --------------------------------------------------
1997 3.78% $ 4,954 0.90% 0.97% 2.79% (0.92)%
1996 12.70% $ 3,423 0.90% 0.72% 3.59% (1.97)%
1995 (1)* 9.50% $ 2,738 0.90% 1.55% 2.73% (0.28)%
- --------------------------------------------------
European Equity Fund
- --------------------------------------------------
1997 22.48% $ 39,330 0.90% 1.71% 1.17% 1.44%
1996 (2)* 6.00% $ 17,902 0.90% (0.41)% 1.40% (0.91)%
- ---------------------------------------------------------------------
International Small Cap Equity Fund
- ---------------------------------------------------------------------
1997 (10.40)% $ 53,395 1.25% 0.16% 1.37% 0.04%
1996 6.43% $106,709 1.25% 0.35% 1.38% 0.22%
1995 (6.67)% $ 90,917 1.25% 0.41% 1.48% 0.18%
1994 (3)* 3.50% $ 68,798 1.25% 0.34% 1.67% (0.08)%
- --------------------------------------------------
European Small Cap Equity Fund
- --------------------------------------------------
1997 (1.47)% $ 9,641 1.25% 0.58% 2.12% (0.29)%
1996 10.06% $ 9,856 1.25% 0.96% 2.50% (0.29)%
1995 (4)* 15.66% $ 9,336 1.25% 1.25% 2.24% 0.26%
- --------------------------------------------------
Emerging Markets Equity Fund
- --------------------------------------------------
1997 (10.31)% $ 94,101 1.25% 0.68% 1.44% 0.49%
1996 10.02% $ 88,279 1.25% 0.63% 1.52% 0.36%
1995 (21.00)% $ 93,288 1.25% 0.44% 1.55% 0.14%
1994 (5)* 10.00% $ 56,892 1.36% (0.12)% 1.79% (0.55)%
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Portfolio Average
Turnover Commission
Year Rate Rate**
<S> <C> <C>
- --------------------------------------------------
International Equity Fund
- --------------------------------------------------
1997 55% $ 0.0325
1996 39% $ 0.0221
1995 (1)* 19% N/A
- --------------------------------------------------
European Equity Fund
- --------------------------------------------------
1997 45% $ 0.0381
1996 (2)* 5% $ 0.0324
- --------------------------------------------------
International Small Cap Equity Fund
- --------------------------------------------------
1997 59% $ 0.0074
1996 47% $ 0.0170
1995 62% N/A
1994 (3)* 41% N/A
- --------------------------------------------------
European Small Cap Equity Fund
- --------------------------------------------------
1997 44% $ 0.0656
1996 49% $ 0.0327
1995 (4)* 34% N/A
- --------------------------------------------------
Emerging Markets Equity Fund
- --------------------------------------------------
1997 94% $ 0.0006
1996 69% $ 0.0003
1995 49% N/A
1994 (5)* 45% N/A
- --------------------------------------------------
</TABLE>
(1) International Equity Fund commenced operations on 5/15/95.
(2) European Equity Fund commenced operations on 9/3/96.
(3) International Small Cap Equity Fund commenced operations on 1/3/94.
(4) European Small Cap Equity Fund commenced operations on 11/1/94.
(5) Emerging Markets Equity Fund commenced operations on 2/2/94.
* All ratios, excluding total return and portfolio turnover rate for the
period, are annualized.
** Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal
years beginning after September 1, 1995.
- --------------------------------------------------------------------------------
Page -7-
<PAGE>
INTRODUCTION TO THE FUNDS
Morgan Grenfell Investment Trust (the "Trust") offers a number of mutual
funds, each of which is a separate series of the Trust. This Prospectus relates
solely to the Funds. Information regarding investment portfolios of the Trust
that focus on U.S. investments (the "Domestic Funds") and non-U.S. fixed income
investments (the "Non-U.S. Fixed Income Funds") is contained in separate
prospectuses that may be obtained by calling 1-800-550-6426.
Under normal market conditions, the Funds will invest primarily in foreign
equity securities. Investing primarily in foreign equity securities and across
international borders presents growth opportunities and potentially higher
returns than could be achieved by investing solely in the United States.
International investing permits participation in the economies of countries with
business cycles and stock and bond market performance often different from that
in the United States and, with more than one-half of the world's stock and bond
market value outside the United States, it can help broaden the investments of a
portfolio otherwise solely invested in domestic securities. International
investments also involve certain risks not normally associated with domestic
investments. The Funds are designed for long-term investors comfortable with the
special risk and return characteristics of investing internationally. See
"Description of Securities and Investment Techniques and Related Risks."
MGIS, which is a fully owned subsidiary of London-based Morgan Grenfell
Asset Management, serves as the investment adviser to each of the Funds. Morgan
Grenfell Asset Management has been managing international investments for over
thirty years and, together with MGIS and its other subsidiaries now has over US$
107 billion of assets under management. Within the Morgan Grenfell Asset
Management Group, MGIS has specialized in delivering international investment
management services to U.S. investors in both equity and fixed income markets.
This Prospectus relates solely to service shares of the Funds. Service
shares may be purchased through financial planners, investment advisers,
broker-dealers and other institutions ("Service Organizations"). Some Service
Organizations may provide omnibus accounting services for groups of individuals
who beneficially own the service shares ("Omnibus Accounts"). Omnibus Accounts
include pension and retirement plans (such as 401(k) plans, 457 plans and 403(b)
plans) and programs through which Service Organizations provide personal and/or
account maintenance services to groups of individuals, whether or not such
individuals invest on a tax-deferred basis. Investors may only purchase service
shares through Service Organizations. See "Purchase of Service Shares" for
further information.
The Funds offer another class of shares (institutional shares), which is
subject to different expenses and therefore has different performance than
service shares. Information regarding institutional shares may be obtained by
calling 1-800-550-6426. As described below under "Management of the Funds --
Service Plans", all or a portion of a Fund's outstanding service shares will be
converted to institutional shares of the same Fund under certain circumstances.
GEOGRAPHIC AND ISSUER FOCUS
For purposes of each Fund's investment objective and policies, a company
is considered to be located in a particular country if it (1) is organized under
the laws of that country and has a principal place of business in that country
or (2) derives 50% or more of its total revenues from business in that country.
European Equity Fund, Pacific Basin Equity Fund, Japanese Small Cap Equity
Fund and European Small Cap Equity Fund focus their respective investments in
the particular region or country reflected in their names. In contrast,
International Equity Fund, Global Equity Fund and International Small Cap Equity
Fund may spread their investments across world markets.
International Small Cap Equity Fund, Japanese Small Cap Equity Fund and
- --------------------------------------------------------------------------------
Page -8-
<PAGE>
European Small Cap Equity Fund focus their investments on equity securities of
companies with market capitalizations that are small relative to the market
capitalizations of other issuers in the same market. Each of these Funds has its
own policy regarding what constitutes a small capitalization company. See
"Investment Objective and Policies." Small capitalization companies may offer
greater opportunities for capital growth than larger, more mature companies, but
investments in small capitalization companies also involve special risks. See
"Description of Securities and Investment Techniques and Related Risks --Small
Capitalization Companies."
Emerging Markets Equity Fund seeks to attain its objective by focusing on
what are, in the Adviser's view, the most promising markets and companies in the
world's rapidly developing countries. While emerging markets are highly volatile
and subject to change with political or economic developments, they offer the
opportunity for substantial stock market growth.
Certain of the Funds have no operating history and there can be no
assurance that any Fund will achieve its investment objective.
SELECTION OF PORTFOLIO SECURITIES
EQUITY AND EQUITY-RELATED SECURITIES. Equity and equity-related securities
in which the Funds may invest include common stock, preferred stock, and
warrants, purchased call options and other rights to acquire stocks. See
"Description of Securities and Investment Techniques and Related Risks." In
selecting equity and equity-related securities for the Funds' portfolios, the
Adviser will focus on those companies which have earnings growth that, in the
Adviser's view, has not been sufficiently reflected in the market price of the
security. The Funds may also invest in equity and equity-related securities
where the fundamental value of the issuer is believed to be greater than its
current market price. Fundamental value will be determined by taking into
account various factors including earnings per share, the ratio of book value to
market price, and the company's cash flow and dividend yield. While individual
security selection is an important part of the investment process,
macro-economic factors such as prospects for relative economic growth among
countries, regions or geographic areas, expected levels of inflation and
political policies influencing business conditions will also be considered.
FIXED INCOME SECURITIES. Fixed income securities in which the Funds may
invest include U.S. and foreign government securities and corporate fixed income
securities. See "Description of Securities and Investment Techniques and Related
Risks--Fixed Income Securities." In selecting fixed income investments, the
Adviser uses a top-down approach which gives primary emphasis to the relative
attractiveness of bond markets and currencies. Markets are selected after
consideration is given to their risk and return outlook under various economic
scenarios. Currencies are evaluated separately, and the underlying currency mix
of each Fund's position in fixed income securities generally is designed to
enhance returns during periods of relative U.S. dollar weakness and to protect
return during periods of relative U.S. dollar strength. These investment
decisions require consideration of macro-economic factors such as inflation,
interest rates, monetary and fiscal policies, taxation and political climate.
The Adviser also considers the characteristics of individual securities and
issuers.
The fixed income securities in which each Fund may invest may have stated
maturities ranging from overnight to 1,000 years.
INVESTMENT TECHNIQUES AND RISK FACTORS
FOREIGN SECURITIES. Investing in the securities of foreign issuers and of
companies whose securities are principally traded outside the United States
involves considerations and potential risks not typically associated with
investing in the securities of U.S. issuers whose securities are principally
traded in the United States. For example, in many foreign countries, securities
markets are less liquid, more volatile and less subject to governmental
regulation than U.S. securities markets. Also, in many foreign countries, there
is less publicly available information about foreign issuers. Moreover, the
- --------------------------------------------------------------------------------
Page -9-
<PAGE>
value of the securities of foreign issuers held in a Fund's portfolio will be
affected by changes in currency exchange rates, which may be incurred due to
either changes in securities prices expressed in local currencies or due to
movements in exchange rates, or both. See "Description of Securities and
Investment Techniques and Related Risks--Foreign Securities."
FOREIGN CURRENCY TRANSACTIONS. To attempt to manage exposure to
fluctuations in currency exchange rates and, in some circumstances, to seek to
profit from exchange rate fluctuations, each Fund may employ certain currency
management techniques, including forward foreign currency exchange contracts,
options and futures on currencies and currency swaps. In addition, each Fund may
also employ a variety of active investment management techniques, including
entering into options, futures, options on futures, interest rate swaps and
when-issued and forward commitment transactions in order to attempt to hedge its
positions against potential adverse changes in future foreign currency exchange
rates and for non-hedging purposes. Whether for hedging or non-hedging purposes,
these transactions entails special risks. See "Description of Securities and
Investment Techniques and Related Risks--Currency Management Techniques."
FIXED INCOME SECURITIES. To the extent that the Funds invest in fixed
income securities, their net asset values will change in response to
fluctuations in interest rates and in currency exchange rates. When interest
rates decline, the value of fixed income securities generally can be expected to
rise. Conversely, when interest rates rise, the value of fixed income securities
generally can be expected to decline. The performance of investments in fixed
income securities denominated in a foreign currency generally can be expected to
increase when the value of the foreign currency appreciates. A rise in foreign
interest rates or a decline in the value of foreign currencies relative to the
U.S. dollar generally can be expected to depress the value of a Fund's
investments in securities denominated in a foreign currency. See "Description of
Securities and Investment Techniques and Related Risks--Fixed Income
Securities."
TEMPORARY DEFENSIVE INVESTMENTS. When market conditions warrant, in the
judgment of the Adviser, each Fund may, for temporary defensive purposes, invest
up to 100% of its total assets in U.S. or, subject to tax requirements, Canadian
dollars, U.S. Government securities maturing within one year (including
repurchase agreements collateralized by such securities) and commercial paper of
U.S. or foreign issuers, cash equivalents and certain high grade fixed income
securities. See "Description of Securities and Investment Techniques and Related
Risks--Temporary Defensive Investments."
YEAR 2000 COMPLICANCE. Certain management and shareholder account services
provided to the Funds and their shareholders depend on the proper functioning of
computer systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way dates are encoded and calculated. If
left uncorrected, this software flaw could have an adverse effect on the
handling of security trades and pricing and shareholder account services. The
Adviser and the Trust's administrator, principal underwriter, transfer agent and
custodian have been actively working on necessary changes to their computer
systems to deal with the year 2000. Although there can be no assurance that
these systems will be properly adapted in time for that event, the management of
the Trust expects that they will be.
INVESTMENT OBJECTIVES AND POLICIES
INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies located in countries other than the United States. The Fund will focus
on securities traded in equity markets of the countries represented in the
Morgan Stanley Capital International-Europe Australia Far East Index (the
"EAFE(R) Index") but may decide, on a stock-specific basis, to make investments
- --------------------------------------------------------------------------------
Page -10-
<PAGE>
in other foreign markets. The EAFE(R) Index includes the equity markets of
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
equity and equity-related securities of companies in at least three foreign
countries.
The Fund may invest more than 25% of its total assets in each of Japan and
the United Kingdom. Investing in these countries to this extent will cause the
Fund to be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of issuers located in the United States.
GLOBAL EQUITY FUND
The investment objective of the Global Equity Fund is to maximize capital
appreciation. Under normal circumstances, the Fund pursues this objective by
investing at least 65% of its total assets in equity and equity-related
securities (but not less than 60% directly in stocks) of companies in at least
three countries. These countries may include Austria, Belgium, Denmark, Finland,
France, Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain,
Sweden, Switzerland, the United Kingdom, the United States, Canada, Mexico,
Japan, Hong Kong, Singapore, Australia, Malaysia, Indonesia, the Philippines,
Thailand, and New Zealand. At the discretion of the Adviser, the Fund may invest
in equity and equity-related securities of companies located in other countries.
The Fund may invest more than 25% of its total assets in each of Japan,
the United States and the United Kingdom. Investing in these countries to this
extent will cause the Fund to be particularly susceptible to the effects of
political and economic developments in these countries. See "Description of
Securities and Investment Techniques and Related Risks--Region and Country
Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents
and investment grade fixed income securities (i.e., securities rated BBB, Baa,
or higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser) of issuers
located anywhere in the world.
EUROPEAN EQUITY FUND
The investment objective of the European Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies located in European countries, including Austria, Belgium, Denmark,
Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal,
Spain, Sweden, Switzerland and the United Kingdom. At the discretion of the
Adviser, the Fund may invest in equity and equity-related securities of
companies located in other European countries.
The Fund may invest more than 25% of its total assets in each of France,
Germany and the United Kingdom, reflecting the dominance of these countries'
stock markets in Europe. Investing in these countries to this extent will cause
the Fund to be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
- --------------------------------------------------------------------------------
Page -11-
<PAGE>
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of issuers located in non-European countries,
including the United States.
PACIFIC BASIN EQUITY FUND
The investment objective of the Pacific Basin Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies located in Pacific Basin countries, including Japan, Australia,
Malaysia, Singapore, Hong Kong, Thailand, the Philippines, Indonesia, Taiwan,
South Korea and New Zealand. At the discretion of the Adviser, the Fund may
invest in other Pacific Basin countries.
The Fund may invest more than 25% of its total assets in each of Japan and
Hong Kong, reflecting the dominance of these stock markets in the Pacific Basin.
Investing in Japan and Hong Kong to this extent will cause the Fund to be
particularly susceptible to the effects of political and economic developments
in Japan, Hong Kong and China. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Investing."
Up to 35% of Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of issuers located in countries outside the Pacific
Basin, including the United States.
INTERNATIONAL SMALL CAP EQUITY FUND
The investment objective of the International Small Cap Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization companies located in countries other than the United States.
Small capitalization companies are: (i) companies ranked according to market
capitalization in the bottom 25% of issuers listed on a stock exchange, (ii)
companies listed on a secondary market (e.g., the Tokyo Stock Exchange Second
Section, the Singapore SESDAQ Market) and (iii) companies whose securities are
not listed on a stock exchange or secondary market.
The Fund will focus on companies located in countries represented in the
NatWest Euro Pacific Index, but may decide, on a stock-specific basis, to make
investments in companies located outside of these countries. The Nat West Euro
Pacific Index includes the equity markets of Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland,
Thailand and the United Kingdom. Under normal market conditions, the Fund will
invest at least 65% of its total assets in equity and equity-related securities
issued by small capitalization companies in at least three different foreign
countries.
The Fund may invest more than 25% of its total assets in each of Japan and
the United Kingdom. Investing in these countries to this extent will cause the
Fund to be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of large and medium capitalization companies located
outside the United States and companies of any size located in the United
States.
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JAPANESE SMALL CAP EQUITY FUND
The investment objective of the Japanese Small Cap Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization companies located in Japan. Small capitalization companies are:
(i) companies ranked according to market capitalization in the bottom 20% of
issuers listed on the Tokyo Stock Exchange, (ii) companies listed on a Japanese
secondary market (e.g., the Tokyo Stock Exchange Second Section) and (iii)
companies whose securities are not listed on a stock exchange or secondary
market. Investing in Japanese companies to this extent will cause the Fund to be
particularly susceptible to the effects of social, political and economic events
that occur in Japan. See "Description of Securities and Investment Techniques
and Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of large and medium capitalization companies located
in Japan and companies of any size located in countries other than Japan,
including the United States.
EUROPEAN SMALL CAP EQUITY FUND
The investment objective of the European Small Cap Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization companies located in European countries, including Austria,
Belgium, Denmark, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg,
Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. At the
discretion of the Adviser, the Fund may invest in other European countries.
Small capitalization companies are: (i) companies ranked according to market
capitalization in the bottom 25% of issuers listed on a European stock exchange,
(ii) companies listed on a European secondary market and (iii) companies whose
securities are not lsited on a stock exchange or secondary market.
The Fund may invest more than 25% of its total assets in each of Germany,
France and the United Kingdom, reflecting the dominance of these countries'
stock markets in Europe. Investing in these countries to this extent will cause
the Fund to be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of large and medium capitalization companies located
in European countries and companies of any size located in non-European
countries, including the United States.
EMERGING MARKETS EQUITY FUND
The investment objective of the Emerging Markets Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies that are located in countries with emerging securities markets; that
is, countries with securities markets that are, in the opinion of the Adviser,
emerging as investment markets but that have yet to reach a level of maturity
associated with developed foreign stock markets, especially in terms of foreign
investor participation. Countries with emerging securities markets include:
Algeria, Argentina, Bangladesh, Brazil, Bulgaria, Chile, China, Colombia, Costa
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Rica, Cyprus, Czech Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia,
Jordan, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay,
Venezuela and Vietnam. At the discretion of the Adviser, the Fund may invest in
other countries with emerging securities markets.
Investments in securities of companies located in countries with emerging
securities markets may offer greater opportunities for capital growth than
investments in securities traded in developed markets. However, investing in
emerging securities markets also involves risks that are not present in
developed markets. See "Description of Securities and Investment Techniques and
Related Risks--Foreign Securities."
The Fund may invest more than 25% of its total assets in each of Brazil,
Malaysia and Mexico. Investing in these countries to this extent will cause the
Fund to be particularly susceptible to the effects of political and economic
developments in these countries. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Investing."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity and
equity-related securities of issuers traded in developed markets, including the
U.S. securities markets.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES AND RELATED RISKS
FOREIGN SECURITIES
GENERAL. Subject to their respective investment objectives and policies,
the Funds may invest in securities of foreign issuers, including U.S.
dollar-denominated and non-dollar denominated foreign equity and fixed income
securities and in certificates of deposit issued by foreign banks and foreign
branches of U.S. banks. While investments in securities of foreign issuers and
non-U.S. dollar denominated securities may offer investment opportunities not
available in the United States, such investments also involve significant risks
not typically associated with investing in domestic securities. In many foreign
countries, there is less publicly available information about foreign issuers,
and there is less government regulation and supervision of foreign stock
exchanges, brokers and listed companies. Also in many foreign countries,
companies are not subject to uniform accounting, auditing, and financial
reporting standards comparable to those applicable to domestic issuers. Security
trading practices and custody arrangements abroad may offer less protection to
the Funds' investments and there may be difficulty in enforcing legal rights
outside the United States. Settlement of transactions in some foreign markets
may be delayed or may be less frequent than in the United States which could
affect the liquidity of the Funds' portfolios. Additionally, in some foreign
countries, there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of securities, property, or other Fund assets,
political or social instability or diplomatic developments which could affect
investments in foreign securities.
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.
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INVESTMENTS IN AMERICAN, EUROPEAN, GLOBAL AND INTERNATIONAL DEPOSITORY
RECEIPTS. The Funds may invest in foreign securities in the form of American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs") or International Depository Receipts ("IDRs"). ADRs
are receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs and
IDRs are receipts issued in Europe typically by non-U.S. banking and trust
companies that evidence ownership of either foreign or U.S. securities. GDRs are
receipts issued by either a U.S. or non-U.S. banking institution evidencing
ownership of the underlying foreign securities. Generally, ADRs, in registered
form, are designed for use in U.S. securities markets and EDRs, GDRs and IDRs,
in bearer form, are designed for use in European securities markets. An ADR,
EDR, GDR or IDR may be denominated in a currency different from the currency in
which the underlying foreign security is denominated.
INVESTMENTS IN EMERGING MARKETS. Each of the Funds may invest to varying
degrees in one or more countries with emerging securities markets. These
countries are generally located in Latin America, Europe, the Middle East,
Africa and Asia. Political and economic structures in many of these countries
may be undergoing significant evolution and rapid development, and these
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of these countries may have in the past
failed to recognize private property rights and, at times, may have nationalized
or expropriated the assets of private companies. As a result, these risks,
including the risk of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the value of a Fund's investments in these countries, as well as the
availability of additional investments in these countries. The small size and
inexperience of the securities markets in certain of these countries and the
limited volume of trading in securities in these countries may make the Funds'
investments in these countries illiquid and more volatile than investments in
most Western European countries, and the Funds may be required to establish
special custodial or other arrangements before making certain investments in
some of these countries. There may be little financial or accounting information
available with respect to issuers located in certain of these countries, and it
may be difficult as a result to assess the value or prospects of an investment
in these countries. The laws of some foreign countries may limit the Funds'
ability to invest in securities of certain issuers located in those countries.
REGION AND COUNTRY 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.
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In an attempt to manage exposure to currency exchange rate fluctuations,
the Funds may enter into forward foreign currency exchange contracts or currency
swap agreements, purchase securities indexed to foreign currencies, and buy and
sell options and futures contracts relating to foreign currencies and options on
such futures contracts. See "Forward Foreign Currency Transactions," "Interest
Rate and Currency Swaps," "Options" and "Futures and Options on Futures" below.
The Funds may use currency hedging techniques in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies. Other currency management strategies allow
the Adviser to hedge portfolio securities, to shift investment exposure from one
currency to another, or to attempt to profit from anticipated declines in the
value of a foreign currency relative to the U.S. dollar. There is no overall
limitation on the amount of assets that any of the Funds may commit to currency
management strategies. Although the Adviser may attempt to manage currency
exchange rate risks, there is no assurance that the Adviser will do so, or do so
at an appropriate time or that the Adviser will be able to predict exchange
rates accurately.
Securities held by a Fund are generally denominated in the currency of the
foreign market in which the investment is made. However, securities held by a
Fund may be denominated in the currency of a country other than the country in
which the security's issuer is located. The Funds may also invest in securities
denominated in the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts of the currencies of certain member countries of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community from time
to time to reflect changes in their relative values. In addition, the Funds may
invest in securities denominated in other currency "baskets."
FORWARD FOREIGN CURRENCY TRANSACTIONS. Each of the Funds may conduct
foreign currency exchange transactions on a spot (i.e., cash) basis at the rate
prevailing in the foreign currency exchange market or by entering into forward
currency exchange contracts ("forward currency contracts") to purchase or sell
foreign currencies. A Fund may purchase or sell forward currency contracts for
hedging purposes and also for non-hedging purposes when the Adviser anticipates
that the foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in a Fund's portfolio. When purchased or sold for
non-hedging purposes, forward currency contracts are speculative.
Each Fund may enter into forward currency contracts to purchase foreign
currency to protect against an anticipated rise in the U.S. dollar price of
securities that it intends to purchase. Each Fund may enter into contracts to
sell foreign currency to attempt 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. 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.
If a Fund enters into a forward currency contract to sell foreign currency
for non-hedging purposes or to buy foreign currency for any purpose, the forward
currency contract generally will not have a term greater than one year. The
forecasting of short-term currency market movements is extremely difficult and
there can be no assurance that short-term hedging strategies will be successful.
When a Fund enters into a forward currency contract to sell foreign
currency for non-hedging purposes or to buy foreign currency for any purpose,
the Fund will be required to place cash, U.S. Government securities or liquid
securities in a segregated account, which will be marked to market daily, in an
amount equal to the value of the total assets committed to the consummation of
the forward currency contract. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account so that the value of the account will equal the amount of the Fund's
commitment with respect to the contract.
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Forward currency contracts are subject to the risk that the counterparty
to such contract will default on its obligations. Since a forward currency
contract is not guaranteed by an exchange or clearinghouse, a default on the
contract would deprive a Fund of unrealized profits, transaction costs or the
benefits of a currency hedge or force a Fund to cover its purchase or sale
commitments, if any, at the current market price. The Funds will not enter into
forward currency contracts unless the credit quality of the unsecured senior
debt or the claims-paying ability of the counterparty is determined to be
investment grade by the Adviser. The Adviser will monitor the claims-paying
ability of the counterparty on an ongoing basis.
A Fund may also utilize forward foreign currency contracts to establish a
synthetic investment position designed to change the currency characteristics of
a particular security without the need to sell such security. For example, a
Fund wishing to acquire a particular security that is denominated in French
Francs, but wishing to seek exposure to a second currency and not the Franc, may
simultaneously enter into a forward contract to sell an equivalent value of
Francs in exchange for such foreign currency. Synthetic investment positions
will typically involve the purchase of U.S. dollar-denominated securities
together with a forward contract to purchase the currency to which the Fund
seeks exposure and to sell U.S. dollars. This may be done because the range of
highly liquid short-term instruments available in the U.S. may provide greater
liquidity to a Fund than actual purchases of foreign currency-denominated
securities in addition to providing superior returns in some cases. Depending on
(a) each Fund's liquidity needs, (b) the relative yields of securities
denominated in different currencies and (c) spot and forward currency rates, a
significant portion of a Fund's assets may be invested in synthetic investment
positions, subject to compliance with the tax requirements for qualification as
a regulated investment company. See "Taxes."
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.
For a description of the Funds' transactions in currency options, futures
and swaps, see "Options--Currency Options," "Futures Contracts and Options on
Futures Contracts" and "Interest Rate and Currency Swaps."
SMALL CAPITALIZATION COMPANIES
The Japanese Small Cap Equity Fund, the European Small Cap Equity Fund and
the International Small Cap Equity Fund each invests a significant portion of
its assets in smaller, lesser-known, foreign companies which the Adviser
believes offer greater growth potential than larger, more mature, better-known
companies. Investing in the securities of these companies, however, also
involves greater risk and the possibility of greater portfolio price volatility.
Among the reasons for the greater price volatility of these small companies and
unseasoned stocks are the less certain growth prospects of smaller firms, the
lower degree of liquidity in the markets for such stocks and the greater
sensitivity of small companies to changing economic conditions in their
geographic region. For example, securities of these companies involve higher
investment risk than that normally associated with larger firms due to the
greater business risks of small size and limited product lines, markets,
distribution channels and financial and managerial resources.
OPTIONS
WRITTEN OPTIONS. Each Fund may write (sell) covered put and call options
on equity and fixed income securities and enter into related closing
transactions. A Fund may receive fees (referred to as "premiums") for granting
the rights evidenced by the options. However, in return for the premium, the
Fund assumes certain risks. For example, in the case of a written call option,
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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 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.
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When a Fund writes an option on a stock index, it will cover the option by
depositing cash or liquid securities or a combination of both in an amount equal
to the market value of the option, in a segregated account, which will be marked
to market daily, with the custodian, and will maintain the account while the
option is open. Alternatively, and only in the case of a written call option on
a stock index, the Fund may cover the written option by owning an offsetting
call option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
When deemed advisable by the Adviser, each of the Funds may enter into
futures contracts and purchase and write options on futures contracts to hedge
against changes in interest rates, securities prices or currency exchange rates
or for certain non-hedging purposes. The Funds may purchase and sell financial
futures contracts, including stock index futures, and purchase and write related
options. A Fund may engage in futures and related options transactions for
hedging and non-hedging purposes as defined in regulations of the Commodity
Futures Trading Commission. A Fund will not enter into futures contracts or
options thereon for non-hedging purposes, if immediately thereafter, the
aggregate initial margin and premiums required to establish non-hedging
positions in futures contracts and options on futures will exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. Transactions in futures
contracts and options on futures involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating the Funds to
purchase securities or currencies, require the Funds to segregate assets with a
value equal to the amount of the Fund's obligations.
LIMITATIONS AND RISKS ASSOCIATED WITH TRANSACTIONS IN FORWARD FOREIGN CURRENCY
EXCHANGE CONTRACTS, OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each of the Funds' active management techniques involves (1) liquidity
risk that contractual positions cannot be easily closed out in the event of
market changes or generally in the absence of a liquid secondary market, (2)
correlation risk that changes in the value of hedging positions may not match
the securities market and foreign currency fluctuations intended to be hedged,
and (3) market risk that an incorrect prediction of securities prices or
exchange rates by the Adviser may cause a Fund to perform worse than if such
positions had not been taken. The ability to terminate over-the-counter options
is more limited than with exchange traded options and may involve the risk that
the counterparty to the option will not fulfill its obligations.
The use of options, futures and forward currency contracts is a highly
specialized activity which involves investment techniques and risks that are
different from those associated with ordinary portfolio transactions. Gains and
losses on investments in options and futures depend on the Adviser's ability to
predict the direction of stock prices, interest rates, currency movements and
other economic factors. The loss that may be incurred by a Fund in entering into
futures contracts and written options thereon and forward currency contracts is
potentially unlimited. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times, render certain
facilities of an options clearing entity or other entity performing the
regulatory and liquidity functions of an options clearing entity inadequate, and
thereby result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders. Options and futures
traded on foreign exchanges generally are not regulated by U.S. authorities, and
may offer less liquidity and less protection to a Fund in the event of default
by the other party to the contract.
Except as set forth above under "Futures Contracts and Options on Futures
Contracts" there is no limit on the percentage of a Fund's assets that may be
invested in futures contracts and related options or forward currency contracts.
A Fund may not invest more than 25% of its total assets in purchased protective
put options. A Fund's transactions in options, forward currency contracts,
futures contracts and options on futures contracts may be limited by the
requirements for
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qualification of the Fund as a regulated investment company for tax purposes.
See "Taxes" in the Statement of Additional Information.
FIXED INCOME SECURITIES
The Funds may invest in a broad range of U.S. and non-U.S. fixed income
securities. 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.
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 will continue to hold fixed income securities
that have been downgraded below investment grade if more than 5% of that Fund's
net assets would consist of such securities.
FOREIGN GOVERNMENT SECURITIES. The foreign government securities in which
the Funds may invest generally consist of debt obligations issued or guaranteed
by national, state or provincial governments or similar political subdivisions.
Foreign government securities also include debt obligations of supranational or
quasi-governmental entities. Quasi-governmental and supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
Japanese Development Bank, the Asian Development Bank and the InterAmerican
Development Bank. Foreign government securities also include mortgage-related
securities issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies. For a description of
the risks associated with all investments in foreign securities, see "Foreign
Securities" above.
U.S. GOVERNMENT SECURITIES. The Funds may invest in obligations issued or
guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (iii) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association ("FNMA")), or (iv) only
the credit of the issuer. No assurance can be given that the U.S. Government
will provide financial support to U.S. Government agencies or instrumentalities
in the future.
The Funds may also invest in separately traded principal and interest
components of U. S. Government securities if such components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS") or any similar program sponsored by the U.S.
Government.
CUSTODIAL RECEIPTS. Each Fund may acquire custodial receipts which are
typically issued by a custodian bank or investment brokerage firm. These
receipts represent unmatured interest coupons that have been separated
("stripped") by a custodian bank or investment brokerage firm, and evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government or its agencies or
instrumentalities. For certain securities law purposes, custodial receipts are
not considered U.S. Government securities.
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<PAGE>
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
The Funds may invest in mortgage-backed securities, which represent direct
or indirect participations in, or are collateralized by and payable from,
mortgage loans secured by real property. These include collateralized mortgage
obligations ("CMOs") and various "stripped" mortgage-backed securities ("SMBS").
CMOs are issued in multiple classes, each with a specified fixed or adjustable
interest rate and final maturity date. Principal payments may be made to the
various classes in either a sequential order or simultaneously. SMBS typically
are issued in two classes, with one receiving only interest payments from a pool
of mortgage loans ("IOs") and the other receiving only principal payments
("POs"). The Funds may also invest in asset-backed securities, which represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sales, installment loan contracts, leases of various types
of real and personal property and receivables from revolving credit (credit
card) agreements and other categories of receivables. Such securities are
generally issued by trusts and special purpose corporations.
Mortgage-backed and asset-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result of
the pass-through of prepayments of principal on the underlying loans. During
periods of declining interest rates, prepayment of loans underlying
mortgage-backed and asset-backed securities can be expected to accelerate, and
thus impair a Fund's ability to reinvest the returns of principal at comparable
yields. Accordingly, the market values of such securities will vary with changes
in market interest rates generally and in yield differentials among various
kinds of U.S. Government securities and other mortgage-backed and asset-backed
securities. Asset-backed securities present certain risks that are not presented
by mortgage-backed securities because asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. In addition, there is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support payments on
these securities.
CONVERTIBLE SECURITIES AND PREFERRED STOCKS
Subject to their investment policies, the Funds may invest in convertible
securities, which may include corporate notes or preferred stock but are
ordinarily long-term debt obligations of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all fixed income
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities generally rank senior to common stocks in an issuer's
capital structure and are consequently of higher quality and entail less risk
than the issuer's common stock. However, the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. In evaluating a
convertible security, the Adviser will give primary emphasis to the
attractiveness of the underlying common stock. The convertible debt securities
in which each Fund may invest are subject to the same rating criteria as the
Fund's investments in non-convertible securities.
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.
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<PAGE>
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by U.S. or foreign corporations and finance companies. The
commercial paper purchased by the Funds consists of U.S. dollar-denominated
obligations of domestic or foreign issuers. Each Fund may also invest in
commercial paper which at the date of investment is rated at least A-2 by
Standard & Poor's or P-2 by Moody's, or their equivalent ratings, or, if not
rated, is issued or guaranteed as to payment of principal and interest by
companies which are rated, at the time of purchase, A or better by Standard &
Poor's or Moody's, or their equivalents, and other debt instruments, including
unrated instruments, not specifically described if such instruments are deemed
by the Adviser to be of comparable quality.
Cash equivalents include obligations of banks which at the date of
investment have capital, surplus and undivided profits (as of the date of their
most recently published financial statements) in excess of US$ 100 million. Bank
obligations in which the Funds may invest include certificates of deposit,
bankers' acceptances and fixed time deposits. Bank obligations also include U.S.
dollar-denominated obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks, all of the same type as domestic bank obligations. A
Fund will invest in the obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks only when the Adviser determines that the credit risk
with respect to the instrument is minimal.
ADDITIONAL INVESTMENT TECHNIQUES
MORTGAGE DOLLAR ROLLS. The Funds may enter into mortgage "dollar rolls" in
which a Fund sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, a
Fund forgoes principal and interest paid on the securities. A Fund is
compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income as well as by the interest earned on the cash proceeds of the initial
sale. A "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. The Funds
may enter into both covered and uncovered rolls.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase. When-issued securities or forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. When a Fund purchases securities on a
forward commitment or when-issued basis, the Fund's custodian will maintain in a
segregated account cash or liquid securities having a value (determined daily)
at least equal to the amount of the Fund's purchase commitment.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements. In
a repurchase agreement, a Fund buys a security subject to the right and
obligation to sell it back to the other party at the same price plus accrued
interest. These transactions must be fully collateralized at all times, but they
involve some credit risk to a Fund if the other party defaults on its
obligations and the Fund is delayed in or prevented from liquidating the
collateral. A Fund will enter into repurchase agreements only with U.S. or
foreign banks having total assets of at least US$ 100 million (or its foreign
currency equivalent).
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements with banks and domestic broker-dealers. Reverse repurchase agreements
involve sales by a Fund of portfolio securities concurrently with an agreement
by the Fund to repurchase the same securities at a later date at a fixed price.
During the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Each Fund will deposit cash
or liquid securities or a combination of both in a segregated account, which
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<PAGE>
will be marked to market daily, with its custodian equal in value to its
obligations with respect to reverse repurchase agreements. Reverse repurchase
agreements are considered borrowings, and as such are subject to the limitations
on borrowings by the Funds.
ILLIQUID SECURITIES. Each Fund will not invest more than 15% of its net
assets in illiquid securities, which include repurchase agreements and fixed
time deposits maturing in more than seven days and securities that are not
readily marketable.
LENDING SECURITIES. For the purpose of realizing income, each Fund may
lend to broker-dealers portfolio securities amounting to not more than 33 1/3%
of its total assets taken at current value. These transactions must be fully
collateralized at all times but involve some credit risk to a Fund if the other
party should default on its obligation and the Fund is delayed in or prevented
from recovering the collateral. Voting rights with respect to a portfolio
security pass to the borrower when the security is loaned by a Fund, but the
Trustees (or the Adviser) are required to call the loan if necessary to vote on
a material event affecting the Fund's investment in the loaned security.
OTHER INVESTMENT COMPANIES. Each Fund may invest up to 10% of its total
assets, calculated at the time of purchase, in the securities of other
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 investment company. A Fund
will indirectly bear its proportionate share of any management or other fees
paid by investment companies in which it invests, in addition to its own fees.
ADDITIONAL INVESTMENT INFORMATION
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which
are described in detail in the Statement of Additional Information. Those
investment restrictions designated as fundamental in the Statement of Additional
Information can be changed only with shareholder approval. Each Fund's
investment objective and all other investment restrictions and policies are
nonfundamental and can be changed by the Board of Trustees of the Trust at any
time without shareholder approval.
Each Fund has fundamental investment restrictions with respect to
borrowing, lending, diversification of investments, senior securities, pledging
of assets, underwriting, real estate investments and commodities. See
"Investment Restrictions" in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for making specific decisions to buy and sell
portfolio securities for the Funds. The Adviser is also responsible for
selecting brokers and dealers to effect these transactions and negotiating, if
possible, brokerage commissions and dealers' charges. The Funds generally
purchase and sell foreign securities in foreign countries, since the best
available market for foreign securities is often on foreign markets. In
transactions on foreign markets, brokerage commissions generally are fixed and
are often higher than in the United States where commissions are negotiated. In
the over-the-counter markets, securities generally are traded on a net basis
with the dealers acting as principal for their own accounts without a stated
commission.
The primary consideration in selecting broker-dealers to execute portfolio
security transactions is the execution of such portfolio transactions at the
most favorable prices. Consideration may also be given to the broker-dealer's
sale of shares of the Funds. Subject to this requirement and the provisions of
Section 28(e) of the Securities Exchange Act of 1934, as amended, securities may
be bought from or sold to broker-dealers who have furnished statistical,
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<PAGE>
research and other information or services to the Adviser. Higher commissions
may be paid to broker-dealers that provide research services. See "Portfolio
Transactions and Brokerage Commissions" in the Statement of Additional
Information for a more detailed discussion of portfolio transactions. The
Trustees will periodically review each Fund's portfolio transactions.
Pursuant to procedures established by the Trustees, subject to applicable
regulations, and consistent with the above policy of obtaining the most
favorable overall price, the Adviser may place securities transactions with
brokers with whom it or the Distributor is affiliated. No Fund will effect
principal transactions with an affiliated broker or dealer.
PORTFOLIO TURNOVER
It is estimated that, under normal circumstances, the portfolio turnover
rate of each of the Funds will not exceed 150%. A high rate of portfolio
turnover (i.e., 100% or higher) will result in correspondingly higher
transaction costs to a Fund. 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 period ended October 31,
1997.
MANAGEMENT OF THE FUNDS
The Board of Trustees of the Trust is responsible for the overall
supervision and management of the Funds. The day-to-day operations of the Funds,
including investment decisions, have been delegated to the Adviser. The
Statement of Additional Information contains general background information
regarding each Trustee and executive officer of the Trust.
THE ADVISER
MGIS, located at 20 Finsbury Circus, London, England, acts as investment
adviser to each Fund pursuant to the terms of an investment advisory contract
between the Trust, on behalf of each Fund, and MGIS (the "Advisory Contract").
MGIS is registered as an investment adviser with the Commission and provides a
full range of international investment advisory services to institutional
clients. All of the outstanding voting stock of MGIS is owned by Morgan Grenfell
Asset Management, Ltd. ("MGAM"), which is an indirect wholly-owned subsidiary of
Deutsche Bank AG, an international commercial and investment banking group. As
of December 31, 1997, MGIS managed approximately $15.5 billion in assets.
Under its Advisory Contract with the Trust, the Adviser manages each
Fund's business and investment affairs. For these services, the Adviser is
entitled to a monthly fee at an annual rate of each Fund's average daily net
assets as follows:
Annual Rate
Morgan Grenfell International Equity Fund 0.70%
Morgan Grenfell Global Equity Fund 0.70%
Morgan Grenfell European Equity Fund 0.70%
Morgan Grenfell Pacific Basin Equity Fund 0.70%
Morgan Grenfell International Small Cap Equity Fund 1.00%
Morgan Grenfell Japanese Small Cap Equity Fund 1.00%
Morgan Grenfell European Small Cap Equity Fund 1.00%
Morgan Grenfell Emerging Markets Equity Fund 1.00%
As further described in "Expense Information," the Adviser has voluntarily
agreed to reduce its advisory fee and to make arrangements to limit certain
other expenses of each Fund to the extent necessary to limit the Fund's
operating expenses to a specified percentage of its average net assets. For the
fiscal period ended October 31, 1997, this voluntary agreement was in effect,
and institutional shares of Morgan Grenfell International Equity Fund, Morgan
Grenfell European Equity Fund, Morgan Grenfell European Small Cap Equity Fund,
Morgan Grenfell International Small Cap Equity Fund and Morgan Grenfell Emerging
Markets Equity Fund paid advisory fees equal to 0%, 0.43%, 0.88%, 0.13% and
0.81% of their respective average daily net assets during such period. The
advisory fees to which the Adviser is entitled for Morgan Grenfell International
Small Cap Equity Fund, Morgan Grenfell Japanese Small Cap Equity Fund,
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<PAGE>
Morgan Grenfell European Small Cap Equity Fund and Morgan Grenfell Emerging
Markets Equity Fund are higher than those for most mutual funds, but the
Trustees believe that these fees are warranted by the resources needed to
evaluate and invest in the particular markets on which these Funds focus.
Each Fund that has commenced operations is managed by a team of MGIS
investment professionals with expertise in the region(s) and types of
investments in which the Fund invests. For a description of the business
experience and other credentials of each investment professional involved in
managing the Funds' portfolios, see Appendix A to this Prospectus.
The Trust, on behalf of each Fund, is responsible for all of the Fund's
expenses other than those expressly assumed by the Adviser under the terms of
the Advisory Contract. The expenses borne by each Fund include service fees, the
Fund's advisory fee, transfer agent fee and taxes and its proportionate share of
custodian fees, expenses of issuing reports to shareholders, legal fees,
auditing and tax fees, blue sky fees, fees of the Commission, insurance expenses
and disinterested Trustees' fees.
SERVICE PLANS
The Trust, on behalf of each Fund, has adopted a service plan pursuant to
which each Fund pays service fees at an aggregate annual rate of up to 0.25% of
the Fund's average daily net assets attributable to service shares. Service fees
are payable to Service Organizations that have agreements with the Trust, and
are intended to compensate Service Organizations for providing personal services
and/or account maintenance services to their customers who invest in service
shares. Service Organizations that are fiduciaries or parties in interest to
Omnibus Accounts subject to the Employee Retirement Income Security Act of 1974
(ERISA) should consult with their legal advisers regarding the receipt of
service fees. See the Statement of Additional Information.
In the event that an agreement between a Service Organization and the
Trust expires or is terminated, service shares beneficially owned by customers
of such Service Organization will convert automatically to institutional shares
of the same Fund. 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.
Information regarding institutional shares of the Trust may be obtained by
calling 1-800-550-6426.
ADMINISTRATOR AND DISTRIBUTOR
The Trust has entered into an Administration Agreement with SEI Financial
Management Corporation ("SEI Financial Management" or the "Administrator"), 1
Freedom Valley Drive, Oaks, Pennsylvania 19456-0100. The Administrator generally
assists in all matters relating to the administration of the Funds, including
the coordination and monitoring of any third parties furnishing services to the
Funds, the preparation and maintenance of financial and accounting records, and
the provision of the necessary office space, equipment and personnel to perform
administrative and clerical functions.
Pursuant to the Administration Agreement, SEI Financial Management
receives from all series of the Trust (i.e., the Funds and all other active
series of the Trust) and other funds managed by Morgan Grenfell Captital
Management, Inc. an aggregate monthly fee at the following annual rates of the
aggregate average daily net assets ("aggregate assets") of such funds:
0.10% of aggregate net assets up to $1 billion
0.07% of the next $500 million of aggregate net assets
0.05% of the next $1 billion of aggregate net assets
0.04% of aggregate net assets exceeding $2.5 billion
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Each Fund that offers one or two classes of its shares pays the Administrator a
minimum annual fee that equals $60,000, plus an additional $25,000 for each
additional class of shares that it offers.
SEI Financial Services Company (the "Distributor"), 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456-0100, serves as the distributor of service
shares of the Funds pursuant to a Distribution Agreement with the Trust and
assists in the sale of service shares of the Funds.
CUSTODIAN AND TRANSFER AGENT
The Trust has entered into a Custodian Agreement with The Northern Trust
Company ("Northern Trust" or the "Custodian"), pursuant to which Northern Trust
serves as custodian of the Funds' assets. The Custodian is located at Fifty
South LaSalle Street, Chicago, Illinois 60675.
DST Systems, Inc. (the "Transfer Agent"), 1004 Baltimore, Kansas City,
Missouri 64105, serves as the transfer agent of the Funds. The Transfer Agent
maintains the records of each record shareholder's account, processes purchases
and redemptions of the Funds' service shares, acts as dividend and distribution
disbursing agent and performs other shareholder servicing functions.
Additional information regarding the services performed by Service
Organizations, the Administrator, the Distributor, the Custodian and the
Transfer Agent is provided in the Statement of Additional Information.
PURCHASE OF SERVICE SHARES
In order to make an initial investment in service shares of a Fund, an
investor must establish an account with a Service Organization. Investors may
invest in service shares through an Omnibus Account maintained by their Service
Organization. Alternatively, investors may invest in service shares by
establishing a shareholder account with the Trust (in addition to the account
with their Service Organization). Investors who invest through Omnibus Accounts
may be subject to minimums established by their Service Organizations for
initial and subsequent investments. Unless waived by the Trust, the minimum
initial investment for Omnibus Accounts and investors who establish shareholder
accounts with the Trust is $250,000.
Investors who invest through Omnibus Accounts should submit purchase
orders to their Service Organization. Investors who establish shareholder
accounts with the Trust should submit purchase orders to the Transfer Agent as
described below. Service shares of any Fund may be purchased on any Business Day
at the net asset value next determined after receipt of the order in good order
by the investor's Service Organization or by the Transfer Agent, as the case may
be. A "Business Day" means any day on which the New York Stock Exchange (the
"NYSE") is open. For an investor who invests through an Omnibus Account, the
investor's Service Organization must receive the investor's purchase order
before the close of regular trading on the NYSE (currently 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 are responsible for
promptly forwarding such investors' purchase orders to the Transfer Agent. For
an investor who has a shareholder account with the Trust, the Transfer Agent
must receive the investor's purchase order before the close of regular trading
on the NYSE for the investor to receive that day's net asset value.
There is no sales charge in connection with purchases of service shares.
Investors may be subject to transaction and/or account maintenance fees imposed
by their Service Organizations (no part of which will be received by the Trust
or the Adviser).
Any such fees will be payable directly by the investor, and not by the
Funds. The Trust reserves the right, in its sole discretion, to reject any
purchase offer and to suspend the offering of service shares. The Trust does not
issue share certificates.
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For investors who invest through Omnibus Accounts, payment for initial and
subsequent purchases of service shares should be made to the investors' Service
Organizations. These investors should contact their Service Organizations for
further details on how to purchase service shares. For investors who have
shareholder accounts with the Trust, payment for initial and subsequent
purchases of service shares should be made by mail or wire as described below.
PURCHASES BY MAIL
Service shares may be purchased initially by completing the Account
Application accompanying this Prospectus and mailing it, together with a check
in the amount of $250,000 or more drawn on a U.S. bank payable to the
appropriate Fund, to:
By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7 Tower)
1004 Baltimore
Kansas City, MO 64105
Third party checks, credit card checks and cash will not be accepted.
Subsequent investments in an existing account in any Fund may be made at
any time by sending to the Transfer Agent, at the above address, a check payable
to the appropriate Fund, along with either (i) a subsequent order form which may
be obtained from the Transfer Agent or (ii) a letter stating the amount of the
investment, the name of the Fund and the account number in which the investment
is to be made. Investors should indicate the name of the appropriate Fund and
account number on all correspondence.
PURCHASES BY WIRE
Investors having an account with a commercial bank that is a member of the
Federal Reserve System may purchase service shares of any Fund by requesting
their bank to transmit funds by wire to:
United Missouri Bank, N.A.
ABA No. 10-10-00695
For: Account Number 98-7052-395-7
Further Credit: [appropriate Fund name]
The investor's name and account number must be specified in the wire. In
addition, investors should be aware that some banks may charge wire fees.
Initial Purchases: Before making an initial investment in service shares
by wire, an investor must first telephone 1-800-407-7301 to be assigned an
account number. The investor may then transmit funds by wire through the wire
procedures described above. The investor's name, account number, taxpayer
identification or social security number, and address must be specified in the
wire. In addition, investors making initial investments by wire must promptly
complete the Account Application accompanying this Prospectus and forward it to
the Transfer Agent at:
By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7 Tower)
1004 Baltimore
Kansas City, MO 64105
Subsequent Purchases: Additional investments may be made at any time
through the wire procedures described above, which must include the investor's
name and account number.
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REPORTS TO SHAREHOLDERS
Shareholders of each Fund receive an annual report containing audited
financial statements and a semiannual report. Shareholders should contact their
Service Organizations for information regarding the Funds. Also, shareholders
who have shareholder accounts with the Trust may contact Morgan Grenfell
Investment Trust for account information by calling 1-800-550-6426 or by writing
to Morgan Grenfell Investment Trust at P.O. Box 419165, Kansas City, MO
64141-6165.
EXCHANGE PRIVILEGE
A shareholder may exchange service shares of a Fund for service shares of
another Fund or service shares of a Domestic Fund or Non-U.S. Fixed Income Fund,
subject, in the case of shareholders who invest through Omnibus Accounts, to any
restrictions imposed by the Service Organizations that maintain such Accounts. A
shareholder should obtain and read the prospectus relating to service shares of
a Domestic Fund or Non-U.S. Fixed Income Fund and consider its investment
objective, policies and fees before making an exchange into that Fund. Exchanges
will be permitted only in those states in which service shares of the relevant
fund are available for sale. The Funds reserve the right to refuse any exchange
request.
If a shareholder who has a shareholder account with the Trust elects the
telephone exchange privilege on the Account Application, the shareholder may
exchange service shares in its accoun in one Fund for service shares in any
other Fund described in this Prospectus by telephone (by calling
1-800-550-6246), as long as all accounts are identically registered. Service
Organizations, acting on behalf of their customers who invest in service shares
through Omnibus Accounts, may exchange service shares in one Fund for service
shares of any other Fund or Domestic Fund or Non-U.S. Fixed Income Fund by
telephone, unless they indicate otherwise in writing to the Trust. For
shareholders who have shareholder accounts with the Trust, the Transfer Agent
must receive the shareholder's exchange request in proper order before the close
of regular trading on the NYSE (currently 4:00 p.m., Eastern Time) for the
investor to receive that day's net asset values. Service Organizations are
responsible for promptly forwarding such investors' exchange requests to the
Transfer Agent. For an investor who establishes a shareholder account with the
Trust, the Transfer Agent must receive the investor's exchange request before
the close of regular trading on the NYSE for the investor to receive that day's
net asset values.
Neither the Funds nor their agents will be liable for any loss incurred by
a shareholder as a result of following instructions communicated by telephone
that they reasonably believe to be genuine. To confirm that telephone exchange
requests are genuine, the Funds will employ reasonable procedures such as
providing written confirmation of telephone exchange transactions and tape
recording of telephone exchange requests. If a Fund does not employ such
reasonable procedures, it may be liable for any loss incurred by a shareholder
due to a fraudulent or other unauthorized telephone exchange request.
An exchange is treated as the sale of service shares exchanged and,
therefore, may produce a gain or loss to the shareholder that is recognizable
for tax purposes.
REDEMPTION OF SERVICE SHARES
HOW TO REDEEM
A shareholder may redeem service shares of a Fund without charge upon
request on any Business Day at the net asset value next determined after receipt
of the shareholder's redemption request by the shareholder's Service
Organization (as long as the Service Organization promptly forwards the
shareholder's redemption request to the Transfer Agent) or, in the case of
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<PAGE>
shareholders who have shareholder accounts with the Trust, by the Transfer
Agent. For a shareholder who invests through an Omnibus Account, the
shareholder's Service Organization must receive the shareholder's redemption
request before the close of regular trading on the NYSE (currently 4:00 p.m.,
Eastern Time) and promptly forward such request to the Transfer Agent for the
shareholder to receive that day's net asset value. Service Organizations are
responsible for promptly forwarding such shareholders' redemption requests to
the Transfer Agent. For a shareholder who has a shareholder account with the
Trust, the Transfer Agent must receive the shareholder's redemption request
before the close of regular trading on the NYSE for the shareholder to receive
that day's net asset value.
A shareholder who has a shareholder account with the Trust may request
redemptions by telephone (by calling 1-800-407-7301) if the optional telephone
redemption privilege is elected on the Account Application. Service
Organizations, acting on behalf of their customers who invest in service shares
through Omnibus Accounts, may redeem service shares by telephone, unless they
indicate otherwise in writing to the Trust. Alternatively, Service Organizations
and shareholders who have shareholder accounts with the Trust may submit
redemption requests in writing. A written redemption request must specify the
number of shares to be redeemed, the shareholder's or Omnibus Account's account
number with the Trust, payment instructions and the exact registration of the
account and should be forwarded to the Transfer Agent at:
By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7 Tower)
1004 Baltimore
Kansas City, MO 64105
Signatures must be guaranteed in accordance with the procedures set forth below
under "Payment of Redemption Proceeds."
In order to verify the authenticity of telephone redemption requests, the
Transfer Agent's telephone representatives will request that the caller provide
certain information unique to the account. If the caller is unable to provide
this information, telephone redemption requests will not be processed and the
redemption will have to be completed by mail. As long as the Transfer Agent's
telephone representatives comply with the procedures described above, neither
the Trust nor the Transfer Agent will be liable for any losses due to fraudulent
or unauthorized transactions. Finally, it may be difficult to implement
telephone redemptions in times of drastic economic or market changes.
PAYMENT OF REDEMPTION PROCEEDS
For shareholders having accounts with the Trust, redemption proceeds
ordinarily will be wired to the bank account designated on the Account
Application, unless payment by check has been requested. For shareholders who
invest through Omnibus Accounts, redemption proceeds will be wired to the
Service Organization that maintains the Account, unless the Service Organization
has requested payment by check. For a redemption request received by the
redeeming shareholder's Service Organization before the close of regular trading
on the NYSE (currently 4:00 p.m., Eastern Time) and promptly forwarded to the
Transfer Agent (or, in the case of shareholders who have shareholder accounts
with the Trust, received by the Transfer Agent before such close of trading),
redemption proceeds often will be wired the next Business Day. Normally,
redemption proceeds will be wired within no more than seven days after the
Transfer Agent receives the appropriate redemption request documents, including
any additional documentation that may be required by the Transfer Agent in order
to establish that a redemption request has been properly authorized. Frequently,
redemption proceeds will be wired on the next Business Day after the Transfer
Agent's receipt of such documents. In addition, the payment of redemption
proceeds for service shares of a Fund recently purchased by check may be delayed
for up to 15 calendar days from the purchase date. After a wire has been
initiated by the Transfer Agent, neither the Transfer Agent nor the Trust
assumes any further
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<PAGE>
responsibility for the performance of intermediaries or the Service
Organization's or shareholder's bank in the transfer process. If a problem with
such performance arises, the Service Organization or shareholder should deal
directly with such intermediaries or bank.
Service Organizations whose customers invest through Omnibus Accounts and
shareholders who have accounts with the Trust may request that redemption
payments be made by Federal Reserve wire or Automated Clearing House (ACH) wire.
Shareholders cannot redeem shares of any Fund by Federal Reserve wire on Federal
holidays restricting wire transfers. There is no charge for ACH wire
transactions; however, such transactions will not be posted to a Service
Organization's or a shareholder's bank account until the second Business Day
following the transaction.
A Service Organization or a shareholder who has an account with the Trust
may change the bank designated to receive redemption proceeds by providing
written notice to the Transfer Agent which has been signed by the Service
Organization or such shareholder, or its authorized representative. This
signature must be guaranteed by a bank, a securities broker or dealer, a credit
union having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies standards established by the Transfer Agent. The Transfer Agent may
also require additional documentation in connection with a request to change a
designated bank.
If the Board of Trustees determines that it is appropriate in order to
protect the best interests of a Fund and its shareholders, the Fund, under the
limited circumstances described below, may satisfy all or part of a redemption
request by delivering portfolio securities to a redeeming investor. However, the
Trust, on behalf of each Fund, has elected, pursuant to Rule 18f-1 under the
1940 Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Only redemptions in excess of this limit may be paid in kind. In-
kind payments would not have to constitute a cross-section of a Fund's
portfolio. Investors receiving redemption payment in portfolio securities will
not have eliminated their investment exposure by their redemption as would
investors receiving their redemption payment in cash. Instead these investors
will be subject to risks inherent in owning such securities, including market
value and currency fluctuations, difficulties in selling securities in
particular markets and repatriating the sales proceeds, and the political and
other risks described under "Description of Securities and Investment Techniques
and Related Risks - Foreign Securities." In addition, a shareholder generally
will incur additional expenses, such as brokerage commissions and currency
conversion fees or expenses, on the sale or other disposition of securities
received from a Fund. Any portfolio securities paid or distributed to a
redeeming shareholder would be valued as described under "Net Asset Value."
NET ASSET VALUE
The net asset value per share of each Fund is normally calculated as of
the close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on
each Business Day. The net asset value of each class of a Fund's shares is
determined by adding the value of all securities, cash and other assets of the
Fund attributable to such class, subtracting liabilities (including accrued
expenses and dividends payable) attributable to such class and dividing the
result by the total number of outstanding Fund shares of such class.
For purposes of calculating net asset value, equity securities traded on a
recognized foreign or U.S. securities exchange are valued at their last sale
price on the principal exchange on which they are traded on the valuation day
prior to the time of valuation or, if no sale prior to the time of valuation
occurs, at the bid price. Unlisted equity securities for which current market
quotations are readily available are valued at their most recent bid price prior
to the time of valuation. Debt securities and other fixed-income investments
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<PAGE>
owned by the Funds are valued at prices supplied by independent pricing agents,
which prices reflect broker-dealer supplied valuations and electronic data
processing techniques. Short-term obligations maturing in sixty days or less may
be valued at amortized cost, which does not take into account unrealized gains
or losses on portfolio securities. Amortized cost valuation involves initially
valuing a security at its cost, and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the security's market value. While this method provides
certainty in valuation, it may result in periods in which the value of the
security, as determined by the amortized cost method, may be higher or lower
than the price a Fund would receive if the Fund sold the security. Other assets
and assets whose market value does not, in the opinion of the Adviser, reflect
fair value are valued at fair value using methods determined in good faith by
the Board of Trustees.
Certain portfolio securities held by each Fund are listed on foreign
exchanges which trade at times and on days when the NYSE is closed. As a result,
the net asset value of each class of a Fund may be significantly affected by
such trading at times and on days when shareholders have no ability to redeem
shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares and pays dividends from net investment income, if any,
and distributes net short-term capital gain, if any, at least annually. Each
Fund also distributes at least annually substantially all of the net long-term
capital gain, if any, which it realizes for each taxable year and may make
distributions at any other times when necessary to satisfy applicable tax
requirements. Capital losses, including any capital loss carryovers from prior
years, are taken into account in determining the amounts of short-term and
long-term capital gains to be distributed. From time to time, a portion of a
Fund's distributions may constitute a return of capital for tax purposes.
Dividends and distributions are made in additional service shares of the same
Fund or, at the shareholder's election, in cash. The election to reinvest
dividends and distributions or receive them in cash may be changed at any time
upon written notice to the Transfer Agent. If no election is made, all dividends
and capital gain distributions will be reinvested.
TAXES
Each Fund is treated as a separate entity for federal income tax purposes
and has elected or intends to elect to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund intends to qualify for such treatment for each taxable year.
To qualify as a regulated investment company, each Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated investment
company, a Fund will not be subject to federal income or excise tax on any net
investment income or net realized capital gain that is distributed to its
shareholders in accordance with certain timing and other requirements of the
Code.
Dividends paid by a Fund from its net investment income, certain net
realized foreign exchange gains, and the excess of net short-term capital gain
over net long-term capital loss will be taxable to shareholders as ordinary
income. Dividends paid by a Fund from any excess of net long-term capital gain
over net short-term capital loss will be taxable to a shareholder as long-term
capital gain regardless of how long the shareholder has held its shares. It is
anticipated that future tax regulations implementing federal tax legislation
enacted on August 5, 1997 will provide that distributions of long-term capital
gains to individuals or other noncorporate taxpayers will be subject to
different maximum tax rates, depending on the dates on which the gains are
recognized and the applicable Fund's holding periods for the assets that produce
the gains. These tax consequences will apply regardless of whether distributions
are received in cash or reinvested in shares. Certain distributions declared in
October, November or December and paid in
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<PAGE>
January of the following year are taxable to shareholders as if received on
December 31 of the year in which they are declared.
Shareholders will be informed annually about the amount and character of
distributions received from a Fund for federal income tax purposes and foreign
taxes, if any, passed through to shareholders, as described below.
Individuals and certain other classes of shareholders may be subject to
31% backup withholding of federal income tax on dividends, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject to
non-resident alien withholding at the rate of 30% (or a lower rate provided by
an applicable tax treaty) on amounts treated as ordinary dividends from a Fund
and, unless a current IRS Form W-8 or acceptable substitute for Form W-8 is on
file, to backup withholding on certain other payments from a Fund.
Because each Fund invests in foreign securities, it may be subject to
foreign withholding or other foreign taxes on income earned on such securities
(possibly including, in some cases, capital gains). In any year in which any of
the Funds qualifies, it may make an election that would generally permit its
shareholders to take a credit or a deduction for their proportionate shares of
qualified foreign taxes paid by such Fund, subject to applicable restrictions or
limitations under the Code. Each such shareholder would then treat as additional
income (in addition to actual dividends and distributions) his or her
proportionate share of the amount of qualified foreign taxes paid by such Fund.
For some years, a Fund may be unable or may not elect to pass such taxes and
foreign tax credits and deductions with respect to such taxes through to its
shareholders.
Investors should consider the tax implications of buying service shares
immediately prior to a distribution. Investors who purchase service shares
shortly before the record date for a distribution will pay a per share price
that includes the value of the anticipated distribution and will be taxed on any
taxable distribution even though the distribution represents a return of a
portion of the purchase price.
Redemptions and exchanges of service shares are taxable events for
shareholders that are subject to tax.
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on dividends, capital gain distributions, or the proceeds of
redemptions or exchanges. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent
distributions of a Fund are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. Government Securities, provided in some states that certain thresholds for
holdings of U.S. Government Securities and/or reporting requirements are
satisfied.
The Funds may not satisfy such requirements in some states or localities.
Shareholders should consult their tax advisors regarding specific questions
about federal, state, local or foreign taxes and special rules that may be
applicable to certain classes of investors, such as retirement plans, financial
institutions, tax-exempt entities, insurance companies and non-U.S. persons.
ORGANIZATION AND SHARES OF THE TRUST
The Trust was formed as a business trust under the laws of the State of
Delaware on September 13, 1993, and commenced investment operations on January
3, 1994. The Board of Trustees of the Trust is responsible for the overall
management and supervision of the affairs of the Trust. The 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
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<PAGE>
eight Funds described in this Prospectus and fourteen additional series. The
Declaration of Trust further authorizes the Trust to classify or reclassify any
series or portfolio of shares into one or more classes. As of 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 liquidation, except that only service shares bear service fees and
each class may bear other expenses properly attributable to the particular
class. Also, holders of service shares of each Fund have exclusive voting rights
with respect to the service plan adopted by their Fund.
When issued, shares of the Funds are fully paid and nonassessable. In the
event of liquidation, shareholders are entitled to share pro rata in the net
assets of the applicable Fund available for distribution to shareholders. Shares
of the Funds entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights.
Shares of a Fund will be voted separately with respect to matters
pertaining to that Fund except for the election of Trustees and the ratification
of independent accountants. For example, shareholders of each Fund are required
to approve the adoption of any investment advisory agreement relating to such
Fund and any change in the fundamental investment restrictions of such Fund.
Approval by the shareholders of one Fund is effective only as to that Fund. The
Trust does not intend to hold shareholder meetings, except as may be required by
the 1940 Act. The Trust's Declaration of Trust provides that special meetings of
shareholders shall be called for any purpose, including the removal of a
Trustee, upon written request of shareholders entitled to vote at least 10% of
the outstanding shares of the Trust, or Fund, as the case may be. In addition,
if ten or more shareholders of record who have held shares for at least six
months and who hold in the aggregate either shares having a net asset value of
$25,000 or 1% of the outstanding shares, whichever is less, seek to call a
meeting for the purpose of removing a Trustee, the Trust has agreed to provide
certain information to such shareholders and generally to assist their efforts.
As of January 30, 1998, the TRW Master Trust owned beneficially 63.17% and
the Pitney Bowes Retirement Plan owned beneficially 36.81% of the outstanding
shares of the European Small Cap Equity Fund, the Motorola Pension Fund owned
beneficially 31.86% and the Motorola Employees Savings & Profit Sharing Trust
owned beneficially 29.42% and the Public Employees' Retirement Association owned
beneficially 28.94% of the outstanding shares of the Emerging Markets Equity
Fund, the Louisiana Municipal Police Employees Retirement System owned
beneficially 98.09% of the outstanding shares of the European Equity Fund, and
Morgan Grenfell Capital Management, Inc. owned beneficially 64.62% and Deutsche
Morgan Grenfell C. J. Lawrence Inc. owned beneficially 27.96% of the outstanding
shares of the International Equity Fund, and Delta Airlines, Inc. Master
Retirement Trust owned beneficially 45.31% of the outstanding shares of the
International Small Cap Equity Fund.
Certain of the Trustees and officers of the Trust reside outside the
United States, and substantially all the assets of these persons are located
outside the United States. It may not be possible, therefore, for investors to
effect service of process within the United States upon these persons or to
enforce against them, in United States courts or foreign courts, judgments
obtained in United States courts predicated upon the civil liability provisions
of the federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws. See "Trustees and Officers" in the Statement of
Additional Information.
As of the date of this Prospectus, the Administrator owned 100% of the
outstanding shares of Global Equity Fund, Pacific Basin Equity Fund and Japanese
Small Cap Equity Fund.
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<PAGE>
PERFORMANCE INFORMATION
From time to time, performance information, such as total return and yield
for service shares of a Fund, may be quoted in advertisements or in
communications to shareholders. Total return for service shares of a Fund 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 service 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 service shares. A Fund's yield reflects a Fund's overall rate of
income on portfolio investments as a percentage of the service share price.
Yield is computed by annualizing the result of dividing the net investment
income per service share over a 30-day period by the net asset value per service
share on the last day of that period.
To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss performance as reported by various financial publications. The
performance of a Fund may be compared in publications to the performance of
various indices and investments for which reliable performance data is
available. In addition, the performance of a Fund may be compared in
publications to averages, performance rankings or other information prepared by
recognized mutual fund statistical services.
Performance quotations of a Fund represent the Fund's past performance
and, consequently, should not be considered representative of the future
performance of the Fund. The value of service 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
service shares of a Fund are not at the direction or within the control of the
Funds and will not be included in the Funds' calculations of total return.
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<PAGE>
APPENDIX A
PORTFOLIO MANAGER INFORMATION
Funds Portfolio Managers
- ----- ------------------
Morgan Grenfell International Equity Fund Patrick Disney
Patrick Deane
Alex Tedder
Graham Bamping
William Thomas
Morgan Grenfell Global Equity Fund Patrick Disney
Patrick Deane
Alex Tedder
Graham Bamping
William Thomas
David Heape
Morgan Grenfell European Equity Fund Richard Wilson
Marco Ricci
Morgan Grenfell Pacific Basin Equity Fund Graham Bamping
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
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<PAGE>
<TABLE>
<CAPTION>
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
<S> <C> <C>
Graham Bamping Pacific Basin Equity Markets Director, Morgan Grenfell Investment
Services ("MGIS") (since 1987);
Portfolio Manager, Pacific Basin (since
1989); Portfolio Manager, Singapore
(1981-1983); Research, Far East (1980-1981);
Research, UK (1978-1980).
Richard Curling European Equities Director, MGAM (since 1996); Director, MGIM (since 1989);
Fund 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 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, MGCM (1991-1996); Morgan Grenfell,
Moscow Office (1988-1990); Morgan Grenfell & Company
Ltd. (since 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).
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
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).
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).
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Christopher Turner European Emerging Markets Portfolio Manager, European Emerging
Equities Markets, MGIS (since
1993); Portfolio Manager, European
Emerging Markets, MGIFM (since 1990);
Analyst/Portfolio Manager, Equity and Law Life Assurance
Society (1986 - 1990).
Jonathan Wild International Equity Markets, Portfolio Manager, MGIS (since 1996);
Small Capitalization Portfolio Manager, Finsbury Asset
Companies Management (1993-1995); Manager,
Barclays De Zoette Wedd (1991-1992);
Manager, KPMG Peat Marwick (1986-
1991).
Andrew Williamson Emerging Markets - South Fund Manager, MGIS (since 1996);
Africa Morgan Grenfell & Co. (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>
APPENDIX B
TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of redemptions
and exchanges be reported to the IRS and that 31% be withheld if you fail to
provide your correct Taxpayer Identification Number (TIN) and the certifications
in Section H or you are otherwise subject to backup withholding. Amounts
withheld and forwarded to the IRS can be credited as a payment of tax when
completing your Federal income tax return.
For most individual taxpayers, the TIN is the social security number.
Special rules apply for certain accounts. For example, for an account
established under the Uniform Gift to Minor's Act, the TIN of the minor should
be furnished. If you do not have a TIN, you may apply for one using forms
available at local offices of the Social Security Administration or the IRS.
Recipients exempt from backup withholding, including corporations and
certain other entities, should provide their TIN and write "exempt" after their
signature in section H of the application to avoid possible erroneous
withholding. Non-resident aliens and foreign entities may be subject to
withholding of up to 30% on certain distributions received from the Funds and
must provide certain certifications on IRS Form W-8 to avoid backup withholding
with respect to other payments. For further information, see Internal Revenue
Code Sections 1441, 1442 and 3406 and/or consult your tax adviser.
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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 and Shareholder
Servicing Agent
SEI Financial Management Corporation
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Distributor
SEI Financial Services Company
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Custodian
The Northern Trust Company
Fifty South LaSalle Street
Chicago, Illinois 60675
Transfer Agent
DST Systems, Inc.
1004 Baltimore
Kansas City, Missouri 64105
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Service Information
Existing accounts, new accounts, prospectuses, Statements of
Additional Information
applications, and service forms - 1-800-550-6426
Telephone Exchanges - 1-800-407-7301
Share Price and Performance
Information - 1-800-550-6426
(or contact your Service Organization)
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