File No. 33-75138
As filed with the Securities and Exchange Commission on October 30, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 7 / X /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 9 / X /
LORD ASSET MANAGEMENT TRUST
(Exact Name of Registrant as Specified in Charter)
440 South LaSalle Street, Chicago, Illinois 60605-1028
Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (312) 663-8300
Allan S. Mostoff, Esq. Thomas S. White
Dechert Price & Rhoads Thomas White International, Ltd.
1775 Eye Street, N.W. 440 South LaSalle Street
Washington, D.C. 20006 Chicago, Illinois 60605-1028
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
immediately upon filing pursuant to paragraph (b)
X on November 1, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
Prospectus
The Thomas White Funds Family
Capturing Value WorldwideSM
Thomas White American Growth Fund
Thomas White World Fund
November 1, 1998
Thomas White American Growth Fund (the "American Fund") seeks long-term capital
growth by primarily investing in equity securities of United States companies.
Thomas White World Fund (the "World Fund") seeks long-term capital growth
through a flexible policy of investing worldwide.
The Funds are series of the Lord Asset Management Trust (the "Trust"), which can
be contacted at the following address and telephone number:
Lord Asset Management Trust
440 S. LaSalle Street
Suite 3900
Chicago, IL 60605
1-800-811-0535
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares and has expressed no opinion as to the accuracy or adequacy of
this prospectus. It is a criminal offense to make a representation to the
contrary.
<PAGE>
Contents
Goals of the Funds and
Investment Strategies 3
What You Should Know About Risk 5
How the World Fund Has Performed 7
Expenses 8
The Advisor 9
Financial Information 12
Dividends, Distributions and 13
Taxes
Your Account
How to Buy Shares 15
How to Sell Shares 19
Shareholder Services and 21
Account Policies
Contacting the Thomas White
Funds Family 24
An Important Phone Number
All Shareholder Services: 1-800-811-0535
<PAGE>
Goals of the Funds
The investment objective of the American and World Funds is long-term capital
growth.
Investment Strategy
Thomas White International, Ltd. (the "Advisor" or "TWI") buys equity securities
of companies at less than its research indicates to be their true worth. This is
intended to produce portfolios with lower price-to-earnings and price-to-book
ratios and higher yields than many comparable mutual funds. Companies considered
attractive will typically have the following characteristics:
o The market price of the equity is undervalued relative to earnings power,
break-up value and inherent profitability.
o Companies will most often be paying a dividend and the resulting yield will be
relatively high.
o The companies are, or may soon be, exhibiting improved financial
characteristics represented by rising cash flow, return on equity, operating
margins and book value.
o The price of its equities may have recently underperformed the general market
due to a low level of investor expectations regarding the earnings outlook.
o The companies should have the strength to operate successfully through adverse
business conditions.
This approach seeks out equities where current investor enthusiasm is low.
Positions are normally sold when the investment community's perceptions improve
and the securities approach fair valuation.
The Advisor adheres to a long-term investment approach, and it does not attempt
to project short-term changes in the general market. Each Fund intends to invest
in companies for holding periods greater than one year under normal market
conditions, so the frequency of its purchases and sales should be below many
comparable mutual funds. Lower portfolio turnover helps to reduce trading costs
and shareholders' taxes.
A high exposure to the equity market is normally maintained unless the Advisor
is unable to find undervalued securities that meet its criteria. Using this
investment management style, the Advisor seeks superior long-term performance,
below average return volatility and portfolio resilience in difficult market
environments.
<PAGE>
The American Fund
The American Fund primarily invests in equity securities of U.S. companies. The
American Fund is designed to benefit from the future economic growth of the U.S.
The American Fund may take advantage of opportunities that exist anywhere in the
U.S. equity market. It may also invest up to 35% of its assets in non-U.S.
equity securities. The Advisor may use American Depositary Receipts ("ADRs"),
which are depositary receipts, typically issued by a U.S. bank or trust company,
that allow indirect ownership of securities issued by foreign corporations.
The Advisor's research unit, the Global Capital Institute, looks for undervalued
securities in every U.S. industry.
The American Fund has the flexibility to engage in other investment techniques,
different from the principal strategies mentioned here.
The World Fund
The World Fund primarily invests in equity securities of companies located in
the world's developed countries, including the U.S. Generally, equity
investments will represent a diversified portfolio of predominantly larger
companies. There may also be a small portion of the World Fund's assets in
companies from emerging market countries.
The World Fund is designed to benefit from future growth in developed and
emerging market countries, including the U.S. The Advisor produces monthly
valuation research that covers forty-seven countries. It believes that the world
now offers excellent opportunities for growth and diversification. The Fund is
designed to complement domestic equity funds, like the American Fund.
Portfolio Diversification
In general, the more diversified a fund's portfolio of stocks, the less likely
that a specific stock's poor performance will hurt that fund. According to the
Morningstar Principia Database, as of September 30, 1998, the average world
mutual fund had 25.7% of its assets invested in its ten largest holdings, while
the World Fund had only 10.8% of its assets invested in its ten largest equity
holdings. The American Fund's top ten equity holdings are expected to equal
approximately 15% to 20% of the Fund's net assets on average.
<PAGE>
What You Should Know About Risk
Those Who Should Invest in the Funds
The Funds are designed to be appropriate for prudent investors who are seeking
the long-term performance advantage of equities and who want growth of capital
rather than current income. They should appeal to investors who are interested
in low-cost mutual funds. Under normal conditions the Funds will try to limit
shareholders' taxes through relatively low portfolio turnover.
Individuals should consider improving the risk-return profile of their U.S.
mutual funds by having exposure to foreign investing. The World Fund is designed
for this purpose.
The Funds discourage potential shareholders who are aggressive, short-term
investors from investing in the Funds.
Equities
The Funds will generally be fully-invested in equity securities, including
common and preferred stocks. Common stocks represent an equity (ownership)
interest in a corporation, while preferred stocks generally pay a higher
dividend but do not represent ownership.
Each Fund is subject to market risk, which is the risk that the value of a
security may move up and down, sometimes rapidly and unpredictably, in response
to economic or other conditions. In addition, changes in interest rates affect
the value of portfolio securities held by the Funds and the operations of the
issuers of the Funds' portfolio securities.
History shows that over long periods, equities have outperformed bonds, cash
equivalents and inflation. Nevertheless, in the short term, equity performance
may be volatile and unpredictable, and may produce greater negative returns than
other asset classes. The equity securities of smaller companies may be
particularly volatile, especially during periods of economic uncertainty. The
World Fund is more likely than the American Fund to be affected by the risks of
investing in small capitalization companies.
Foreign Securities
Holding equity securities of foreign companies can entail taking more risk than
owning the securities of domestic companies. Equity securities of foreign
companies may be subject to additional risks such as changes in currency
exchange rates, political instability and inadequate or unreliable information
about the companies. These risks may be particularly acute with respect to
investments in emerging markets.
While both Funds may invest in foreign securities, the World Fund can be
expected to be particularly subject to the risks posed by foreign investing.
These risks and others are more fully discussed in the SAI.
<PAGE>
General Risks
Shareholders should understand that all investments involve risk. There can be
no guarantee against loss resulting from an investment in the Funds, nor can
there be any assurance that a Fund's investment objective will be attained.
The value of a Fund's investments and, therefore, investment performance will
vary from day to day. When you sell your shares, they may be worth more or less
than the price you paid for them, and you could lose money.
TWI recognizes the above risks and attempts in its management of the Funds to
moderate them. It believes that a professionally structured and carefully
monitored portfolio can reduce the risks associated with less diversified equity
portfolios.
The Advisor attempts to configure the Funds' portfolios to moderate the natural
volatility of equities by focusing each Fund's investments in equities that in
theory are underpriced. However, its success in doing so cannot be assured. Such
securities may never reach what the Advisor believes to be their full value, or
may even go down in price. In addition, this approach may produce returns below
aggressive equity funds, given the Advisor's efforts to limit risk.
Under adverse market conditions, the Funds could invest some or all of their
assets in money market securities and similar investments. Although the Funds
would do this only in seeking to avoid losses, it could have the effect of
reducing the benefit from any upswing in the market.
Euro
On January 1, 1999, eleven European countries begin conversion to a common
currency. Investments traded in the markets in these countries will be
denominated in the new currency starting on this date. As of September 30, 1998,
the World Fund had 19.1% of its assets invested in equities of issuers that are
domiciled in the countries where the currencies will be converted. The Advisor
does not believe that the conversion to a common currency will have a material
impact on the net asset value of the World Fund or affect the long-term outlook
of those equities.
<PAGE>
How the World Fund Has Performed
The tables to the right display the World Fund's annual returns and long-term
performance. The American Fund was launched November 1, 1998 and, therefore, had
no performance data to report when this prospectus was printed.
The first table shows that returns fluctuate from year to year. The second table
compares the World Fund's performance to that of the MSCI World Index and the
MSCI All Country World Index, recognized unmanaged indices of global stock
performance. Both tables assume the reinvestment of income dividends and capital
gains distributions.
The World Fund has a return pattern intended to appeal to the prudent investor
who has moderate risk tolerance and a long-term (over five years) investment
outlook.
Year-by-year Total Return as of 12/31 each year [Bar Chart]
1995 - 19.03%
1996 - 16.50%
1997 - 11.70%
Best Quarter: Quarter 2, 1997 10.19%
Worst Quarter: Quarter 4, 1997 -2.98%
The World Fund's year-to date total return as of 9/30/98 was -2.04%.
Average Annual Return
as of 12/31/97
Inception
1 Year 3 Year (6/28/94)
World Fund 11.70% 15.71% 13.50%
MSCI World 15.76% 16.61% 14.59%
MSCI All Country World 15.00% 15.86% 13.98%
As with all mutual funds, past performance is not a prediction of future
results.
Expenses
Annual Fund operating expenses are charges paid when shareholders buy and hold
shares of a Fund. A Fund's expenses are subtracted daily and are therefore
factored into the share price as reported; expenses are not charged directly to
shareholder accounts.
Annual Fund Operating Expenses
(deducted from Fund assets)
AMERICAN FUND
Management fee 1.00%
Distribution/12b-1 fee None
Other expenses 0.35%
Total fund operating expenses 1.35%*
WORLD FUND
Management fee 1.00%
Distribution/12b-1 fee None
Other expenses 0.47%
Total fund operating expenses 1.47%**
* The Advisor has agreed to reimburse the American Fund to the extent that the
Fund's total operating expenses exceed 1.35% of the Fund's average daily net
assets. Absent this contractual undertaking, the Fund's total operating
expenses, based on estimates for the current fiscal year, would be 1.63%.
* * The Advisor has agreed to reimburse the World Fund for its current fiscal
year to the extent that the Fund's total operating expenses exceed 1.50% of the
Fund's average daily net assets.
Examples: These examples illustrate the effect of expenses and are intended to
help you compare the costs of investing in the Funds with the costs of investing
in other mutual funds. The examples are not meant to suggest actual or expected
cost or returns, all of which may vary.
<PAGE>
Use of this assumed 5% return is required by the Securities and Exchange
Commission ("SEC"); it is not an illustration of past or future investment
results.
Assume that a Fund's annual return is 5%, and that its operating expenses are
exactly as shown. For every $10,000 invested, here's how much a shareholder
would have paid in total expenses if the account was closed after the number of
years indicated:
AMERICAN FUND
After 1 year $137
After 3 years $428
WORLD FUND
After 1 year $150
After 3 years $465
After 5 years $803
After 10 years $1757
The No-Load Advantage
The American and World Funds are 100% no-load, which means that all your money
is invested at a Fund's net asset value. There are no sales charges, no 12b-1
fees and no back-end load fees that reduce your investment in a Fund.
Quick Fact:
The World Fund's total expense ratio is 1.47% for the latest fiscal year,
compared to 1.91% for the average of the 219 world equity funds in the
Morningstar Principia Database on September 30, 1998.
<PAGE>
The Advisor
The Funds are managed by Thomas White International, Ltd., 440 S. LaSalle
Street, Suite 3900, Chicago, Illinois 60605. TWI chooses each Fund's investments
and handles its affairs, under the direction of the Board of Trustees. TWI
provides the Funds with investment research, advice, supervision and certain
overhead items and facilities. TWI provides investment management and advisory
services to both a domestic and international client base, including trusts,
endowments, corporations, employee benefit plans, Taft-Hartley plans and
individuals.
Thomas S. White, Jr., has been the portfolio manager of the Funds since their
inceptions and has been managing investments for more than thirty years. He is
Chairman of TWI, which he founded in 1992. Before that he was a Managing
Director of Morgan Stanley Asset Management and Chief Investment Officer of its
Chicago Group, which he began in 1982. Further information concerning TWI is
included under the heading "Investment Management and Other Services" in the
SAI.
The Global Capital Institute is TWI's fully-owned research division. Its
analysts provide the company valuations that Mr. White uses to select stocks in
the Fund's portfolio. The Institute produces monthly equity valuation
publications for research clients who are asset management organizations located
around the world.
Each Fund pays a management fee, equal to 1.00% of the Fund's average daily net
assets on an annual basis, to TWI for managing its investments and business
affairs. See "Expenses."
TWI feels that it is important for shareholders to thoroughly understand and
grow comfortable with its investment approach. The Funds' shareholder
communications are written with this goal in mind.
Year 2000
The Funds' operations depend heavily on computer technology and the computer
systems of their service providers. The Advisor has implemented and successfully
completed a testing program to address technological challenges posed by the
transition to the Year 2000. Management of the Trust is working with, and
monitoring the efforts of, other service providers to the Funds to make sure
that they take steps that are reasonably designed to address Year 2000 issues.
Of course, there is no guarantee that these efforts will completely address all
technology issues raised by the transition to Year 2000. An incomplete or
untimely resolution of Year 2000 issues could have negative effects on the
operations of the Funds and their service providers. In addition, if the value
of a Fund investment is adversely affected by a Year 2000 problem, the net asset
value of the Fund will be affected as well.
<PAGE>
The American Fund is designed to benefit from the Advisor's ability to discover
attractive investment opportunities in each of the major industries within the
United States.
The United States has the largest and most diversified economy in the world. Its
stock market ranks number one by dollar value and number of common stocks.
The Advisor's research unit, the Global Capital Institute, has produced
investment valuations of U.S. companies within the following industries.
Advertising Engineering Newspaper
Aerospace Entertainment Office Equipment
Air Transport Food Processing Oilfield Services
Aluminum Foreign Packaging & Container
Apparel/Textile Forest Products Paper
Auto & Truck Home Furnishing Petroleum (Integrated)
Auto Parts Grocery Petroleum (Producing)
Banks: National Healthcare Precision Instrument
Banks: Regional Home Appliance Publishing
Beverages Home Building Railroads
Broadcasting Hotel Real Estate
Building Materials Household Products Recreation
Cable TV Industrial Services Restaurant
Cement & Aggregates Insurance Retail: Specialty
Chemicals Internet Retail Store
Cosmetics Investment Advisors Securities Brokerage
Computers & Peripherals Machinery Semiconductors
Computer Software Maritime Steels
Drug Medical Services Telecom Equipment
Drugstore Medical Supplies Telecom Services
Electrical Equipment Metal Fabricating Tire & Rubber
Electric Utilities Metals & Mining Toiletries
Electronics Natural Gas Trucking
The American Fund seeks to obtain superior long-term returns while attempting to
limit investment risks. It employs a valuation-oriented stock selection strategy
and broad portfolio diversification. History shows that careful industry, asset
class and company diversification can lower portfolio volatility and reduce risk
during difficult market environments.
<PAGE>
The World Fund is designed to take advantage of the positive changes occurring
in the world today.
These forty-seven countries contain over 3,600 companies that are valued by the
advisor's analysts. World Fund shareholders are currently partial owners of over
200 of these companies. World Fund shareholders are at the very epicenter of
what is driving change in today's world: An unprecedented explosion of highly
beneficial global capitalism.
DEVELOPED MARKETS EMERGING MARKETS
EUROPE GREATER EUROPE
Austria Czech Republic
Belgium Greece Hungary
Denmark Russia Poland
Finland Turkey
France
Germany
Ireland MIDDLE EAST
Italy Israel
Netherlands
Norway AFRICA
Portugal South Africa
Spain
Sweden LATIN AMERICA
Switzerland Argentina Mexico
United Kingdom Brazil Peru
Chile Venezuela
NORTH AMERICA Columbia
Canada
United States INDIAN
SUBCONTINENT
PACIFIC India
Australia Pakistan
Hong Kong Sri Lanka
Japan
New Zealand FAR EAST
Singapore China Philippines
Indonesia Taiwan
Korea Thailand
Malaysia
The goal of the World Fund is to have a diversified portfolio of U.S. and
foreign equity securities representing a broad mix of industries and countries.
By combining broad diversification with its proprietary research, TWI seeks to
produce superior long-term returns and volatility that is lower than most
comparable mutual funds.
<PAGE>
Financial Information
Thomas White World Fund
This table summarizes the World Fund's financial history and performance. "Total
Return" shows how much your investment in the Fund would have increased (or
decreased) during each period, assuming you held your shares for the entire
period and had reinvested all dividends and distributions. The information,
through October 31, 1997, has been audited by McGladrey & Pullen, LLP, the
Fund's independent auditors. The information as of April 30, 1998 has not been
audited. This information, along with the World Fund's Financial Statements, are
included in the World Fund's most recent shareholder report, which is available
upon request.
<TABLE>
<S> <C> <C> <C>
Period from
For a share outstanding Period from Nov. 1, June 28,1994
throughout the period 1997 to Apr. 30, Year ended October 31 (Inception) to
1998 1997 1996 1995 Oct. 31,1994
- ------------------------------ ------ ------- ------ ------- ---------
Net Asset Value, beginning $13.23 $12.33 $11.31 $10.50 $10.00
Of period
Income From Investment Operations
Net investment income .07 0.20 0.19 0.19 0.06
Net realized and unrealized gain 1.95 1.65 1.51 0.71 0.44
- ------------------------------ ------ ------- ------ ------- --------
Total from investment operations 2.02 1.85 1.70 0.90 0.50
Less Distributions
From net investment income (0.19) (0.19) (0.20) (0.09) -
From net realized gains (0.54) (0.76) (0.48) - -
- ---------------------------------- ------ ------ -------- ------- ----------
Total distributions (0.73) (0.95) (0.68) (0.09) -
- ---------------------------------- ------ ------ -------- ------- ----------
Change in net asset value for the
period 1.29 0.90 1.02 .81 .50
- ---------------------------------- ------ ------ -------- ------- ----------
Net Asset Value, end of period $14.52 $13.23 $12.33 $11.31 $10.50
- ---------------------------------- ------ ------ -------- -------- ----------
Total Return 16.16% 15.80% 15.63% 8.65% 5.00%**
Ratios/Supplemental Data
Net assets at end of period (in $53,394 $47,996 $39,157 $32,979 $13,928
thousands)
Ratio to average net assets:
Expenses (net of reimbursement) 1.42% 1.47% 1.50% 1.49% 1.50%*+
Net investment income 1.07% 1.60% 1.63% 2.08% 1.79%*
Portfolio turnover rate 24.11% 48.19% 51.22% 64.54% 1.01%
*Annualized
**Not Annualized
+In the absence of the expense reimbursement, expenses would have been 2.36% of
average net assets.
</TABLE>
<PAGE>
Dividends, Distributions and Taxes
The Funds distribute all or substantially all of their net income and realized
gains to shareholders each year. Normally, dividends and capital gains are
distributed in December.
Your distributions are taxable when they are paid, whether you take them in cash
or reinvest them in additional shares.
Every January, the Funds will send you and the IRS a statement, called a Form
1099, to assist you with your tax preparation.
Distribution Options
When you open an account, specify on your application how you want to receive
your distributions. If you later want to change your distribution options, call
us at 1-800-811-0535.
The Funds offer four options:
Your income dividends and capital gain distributions will be automatically
reinvested in additional shares of the relevant Fund. If you do not indicate a
choice on your application, you will be assigned this option.
You will be sent a check for each income dividend and capital gain distribution.
Your capital gain distributions will be automatically reinvested, but you will
be sent a check for each income dividend.
Your income dividends will be automatically reinvested, but you will be sent a
check for each capital gain distribution.
Understanding Distributions:
As a Fund shareholder, you are entitled to your share of your Fund's net income
and any net gains realized on investments.
Your share of each Fund's income from dividends and interest, and any net
realized short-term capital gains, are paid to you as dividends, which are taxed
at the same rate as ordinary income.
Generally each Fund realizes capital gains whenever it sells securities for a
higher price than it paid for them. Net realized long-term gains are paid to you
as capital gain distributions. Currently, long-term capital gains result from
sales of securities held for greater than one year and are taxed at a rate of
20%.
Distributions are subject to these capital gains rates regardless of how long
you have held your shares.
<PAGE>
Taxes
As with any investment, you should consider how your investment in the
Funds will be taxed.
For IRA accounts, all distributions will be automatically
reinvested because payment of distributions in cash would be a taxable
distribution from your IRA, and might be subject to tax penalties.
Taxes on Transactions
Your redemptions - including exchanges between accounts - are subject to the
federal income tax on capital gains. A capital gain or loss is the difference
between the cost of your shares and the price you receive when you sell them.
Whenever you sell shares of the Fund, we will send you a confirmation statement
showing how many shares you sold and at what price. You will also receive a
year-end statement every January. It is up to you or your tax preparer to
determine whether any given sale resulted in a capital gain or loss, and if so,
the amount of tax to be paid.
Be sure to keep regular account statements; the information they contain will be
essential in calculating the amount of your dividends and capital gains.
Understanding Portfolio Turnover
Before investing in a mutual fund, investors should consider its portfolio
turnover rate. The portfolio turnover rate is an indication of how long the
manager holds securities in the portfolio. For example, if the portfolio
turnover rate is 100%, then the average holding period is one year. If the
portfolio turnover rate is 50%, then the average holding period would be two
years. Funds with low portfolio turnover rates have lower brokerage and other
transaction costs, and the tax rates attached to the capital gains they generate
may be lower. According to the Morningstar Principia Database, as of December
31, 1997, the average portfolio turnover rate for a global equity mutual fund
was 89% and 87% for a domestic equity fund. The World Fund had a 53% portfolio
turnover rate for the year ended December 31, 1997. The Advisor estimates that
the American Fund's portfolio turnover will average between 40% and 60%.
Your Account
How to Buy Shares
The Funds are 100% no-load and therefore have no sales charges of any kind. The
purchase price is a Fund's net asset value per share (NAV), which is generally
calculated as of the close of trading on the New York Stock Exchange ("NYSE")
(usually 4:00 p.m. Eastern time) every day the NYSE is open. Shares may not be
purchased on days the exchange is closed. Because some foreign exchanges are
open days when the NYSE is closed, the NAV of a Fund, and particularly the World
Fund, may change on a day when you cannot buy or sell shares of the Fund.
Options for purchasing shares of the Funds are listed on the table on page 16.
Shares of the Funds may be purchased or sold through fund supermarkets, certain
broker-dealers or financial institutions ("Processing Intermediaries").
Processing Intermediaries may use procedures and impose fees or restrictions in
addition to or different from those applicable to shareholders who invest
directly in the Funds. The Advisor may, out of its own resources and at no
additional costs to the Funds or shareholders, pay Processing Intermediaries for
providing services to the Funds or to shareholders.
The NAV of a Fund generally is determined on the basis of the market price of
its assets, minus its liabilities. A Fund's investment in a security listed or
traded on a recognized stock exchange or NASDAQ is valued at its last sale price
on the principal exchange on which the security is traded. The value of a
foreign security is determined as of the close of trading on the foreign
exchange on which it is traded or as of 4:00 p.m. Eastern time, if that is
earlier. That value is then converted into the U.S. dollar equivalent using
foreign exchange rates in effect at noon that day. The exception to this policy
is Canadian and Latin American securities, which are converted into their U.S.
dollar equivalent at 4:00 p.m. Eastern time.
Securities for which market quotations are not readily available and other
assets are valued at fair value as determined in good faith under guidelines
established by the Board of Trustees.
An order will be priced at the next NAV calculated after it is accepted by the
Funds. All purchases must be made in U.S. dollars and checks must be drawn on
U.S. banks. Accounts may not be opened with a third party check. The Funds do
not accept cash or credit cards. If payment for a check or telephone order does
not clear, the purchase will be canceled and the shareholder will be liable for
any losses or fees the Funds or their Transfer Agent incur.
Minimum Investments
Initial Additional
Regular Account $2,500 $100
Automatic Invest $1,000 $100
Traditional IRA $1,000 $100
Roth IRA $1,000 $100
Spousal IRA $200 $100
<PAGE>
THE FOLLOWING ACCOUNT TYPES CAN BE OPENED USING THE ENCLOSED APPLICATION.
Individual or Joint Ownership- For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or more
owners.
Gift or Transfer to a Minor (UGMA, UTMA) - To invest for a minor's education or
other future needs
These custodial accounts provide ways to give money to a minor. The account
application must include the minor's social security number.
Trust or Established Employee Benefit or Profit-Sharing Plan - For money being
invested by a trust, employee benefit plan, or profit-sharing plan The trust or
plan must be established before an account can be opened.
Corporation or Other Entity - For investment needs of corporations,
associations, partnerships, institutions, or other groups You will need to send
a certified corporate resolution with your application.
TO ESTABLISH ONE OF THE FOLLOWING RETIREMENT
ACCOUNTS PLEASE CALL 1-800-811-0535 FOR COMPLETE IRA INFORMATION.
Traditional IRA: An individual retirement account. Contributions may or may not
be tax deductible depending on a shareholder's circumstances. Assets can grow
tax-free. When distributions are received they are taxable as income.
Spousal IRA: An IRA funded by a working spouse in the name of a non-working
spouse.
Roth IRA: An IRA with non-deductible contributions, tax-free growth of assets,
and tax-free distributions for qualified expenses.
Simplified Employee Pension Plans (SEP-IRAs): An IRA that allow small business
owners or those with self-employment income to make tax-deductible contributions
of up to $30,000 per year for themselves and any eligible employees.
Savings Incentive Match Plan for Employees (SIMPLE): Firms with 100 or fewer
employees who do not have a retirement plan can establish a SIMPLE Plan.
Employees can establish a SIMPLE plan in the form of either an IRA or a 401(k)
plan. Employers using IRAs must either match the first 3% of pay each employee
defers under the plan, or alternatively, make a non-elective contribution of 2%
of pay for each eligible employee.
<PAGE>
How to Buy Shares of the Funds
Mail
To open an account:
Complete and sign the application.
Make your check payable to "Thomas White American Growth Fund" or
to "Thomas White World Fund." Mail to the address on the application,
or for overnight delivery:
Thomas White Funds Family
Shareholder Services Center
615 East Michigan Street
3rd Floor
Milwaukee, WI 5320
To add to an account:
Make your check payable to "Thomas White American Growth Fund" or "Thomas White
World Fund" and include the stub from one of your statements with a
letter containing your name and account number. Remember to always put your
account number on your check. Mail to the address on your statement.
Phone 1-800-811-0535
To open an account:
You may only open a new account by phone if you wire your investment to our
Transfer Agent. See the section "Wire" below.
To add to an account:
Use the telephone purchase plan to transfer funds from your bank account. Call
first to verify that this service is in place on your account. (This service is
not available for IRAs)
You must make your telephone purchases by 4:00 p.m. Eastern time.
Wire
To open an account:
If you make your initial investment by wire you must fill out an
application marked "follow-up" and send it to our Transfer Agent. The
application must be received before any of the purchased shares can be
redeemed. Prior to wiring your investment to the Transfer Agent, call and
establish an account to ensure the Transfer Agent correctly credits your
account. There is a $10 wire fee.
To add to an account:
Wire to:
Firstar Bank Milwaukee, N.A.
ABA Number 07500-00022
Trust Funds, Acct Number 112-952-137
For further credit to:
Thomas White American Fund
or
Thomas White World Fund
(Investment account number)
(name or account registration)
<PAGE>
Automatic Investment Plan
To open an account:
You may open a new account with a $1,000 minimum initial investment if you sign
up for the Automatic Investment Plan. Fill out the Automatic Investment Plan
section on the application for monthly or quarterly transfers from your bank
account.
To add to an account:
If you would like to add this service to your account, or if you already have
this service, you can easily change the frequency or amount of your automatic
investments over the phone by calling 1-800-811-0535.
Guidelines
Your bank must be a member of Automatic Clearing House (ACH).
If the transfer is from a checking account, this application must be accompanied
by a voided check.
If the transfer is from a savings account, this application must be accompanied
by a withdrawal slip.
Application must be received, with initial investment, at least 15 business days
prior to initial ACH transaction.
If the automatic purchase cannot be made due to insufficient funds, a $15 fee
will be assessed. Your Automatic Investment Plan will be terminated after two
such occurrences.
This plan will terminate upon redemption of all shares in your account.
Termination of this Plan must be in writing and received by Firstar Mutual Fund
Services, LLC. Please allow five business days for the termination to become
effective.
<PAGE>
How to Sell Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next NAV
calculated after your order is received and accepted.
A Fund may hold payment on redemptions until it is reasonably satisfied that it
has received payment for a recent purchase made by check, by the Automatic
Purchase Plan, or by the Telephone Purchase Plan, which can take up to fifteen
days.
To sell shares in a regular (non-IRA) account, you may use any of the methods
described here. To sell shares in an IRA, your request must be made in writing.
If you need an IRA Withdrawal Request form, call us at 1-800-811-0535.
Selling Shares in Writing
Please send a letter with:
* your name;
* your Fund account number;
* the dollar amount or number of shares to be redeemed; and
* any other applicable requirements listed in the table on the next page.
Mail your letter to:
Thomas White Funds Family
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Certain requests must include a signature guarantee, designed to protect
shareholders and the Funds from fraud. You should be able to obtain a signature
guarantee from a bank, broker-dealer, credit union (if authorized under state
law), securities exchange or savings association. A notary public cannot provide
a signature guarantee.
Your request must be made in writing and include a signature guarantee if any of
the following situations applies:
* you wish to redeem more than $50,000 worth of shares;
* your name has changed by marriage or divorce (send a letter indicating your
account number(s) and old and new names, signing the letter in both the old and
new names and having both signatures guaranteed);
* your address has changed within the last 30 days and you would like to redeem
shares;
* the check is being mailed to an address different from the one on your account
(record address);
* the check is being made payable to someone other than the account owner; or
* you are instructing us to wire the proceeds to a bank or brokerage account and
have not signed up for the Telephone Redemption by Wire plan.
<PAGE>
HOW TO SELL SHARES OF THE FUNDS
Phone 1-800-811-0535
All accounts except IRA
To verify that the telephone redemption plan is in place, call 1-800-811-0535.
This may be selected on the application.
You must make your telephone redemptions by 4:00 p.m. Eastern time.
Mail
Individuals, Joint Owners, Sole Proprietorships, UGMA, UTMA
o The letter of instruction must be signed by all persons required to sign for
transactions (usually, all owners of the account), exactly as their names appear
on the account.
IRAs
o The account owner should complete an IRA Withdrawal Request form. Call 1-
800-811-0535 to request one.
Trust
o The trustee must sign the letter indicating capacity as trustee. If the
account registration does not include the trustee's name, provide a copy of the
trust document certified within the last 30 days.
Business or Organization
o The person or persons authorized by corporate resolution to act on the account
must sign, in that person's official capacity, the redemption request on the
corporation's stationery.
o Include a corporate resolution certified within 30 days if the amount to be
redeemed exceeds $50,000.
Executor, Administrator, Conservator, Guardian
o Call 1-800-811-0535 for instructions.
<PAGE>
Shareholder Services and Account Policies
Doing Business with the Funds
For customer service call 1-800-811-0535. The Funds provide customers with
service Monday through Friday, except holidays, from 9:00 a.m. to 8:00 p.m.
Eastern time.
The Funds' automated phone system can also provide shareholder information 24
hours a day by dialing the above toll-free number.
At the discretion of the Funds, investors may be permitted to purchase Fund
shares by transferring securities to a Fund that meet that Fund's investment
objective and policies. See the SAI for further information.
Subject to limitations described in the SAI each Fund reserves the right to
redeem its shares in kind through payment of portfolio securities instead of
cash.
Investors who make excessive moves in and out of the Funds generate additional
costs that fall upon all of a Fund's shareholders. To minimize such costs, the
Funds reserve the right to reject any specific purchase order. Purchase orders
may also be refused if, in the Advisor's opinion, they are of a size that would
disrupt the management of a Fund.
Redemptions may be suspended or payment dates postponed on days when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
If the value of an account falls below $1,000 due to redemptions or exchanges, a
notice of liquidation will be sent to the investor's address of record. The
Funds reserve the right to close that account and send the proceeds to the
shareholder unless sufficient additional shares are purchased.
If checks representing redemption proceeds or dividend and capital gains
distributions are returned "undeliverable" or remain uncashed for six months,
the checks shall be canceled and the proceeds will be reinvested in the
appropriate Fund at the per share NAV on the date of cancellation. In addition,
after such six-month period, the cash election will automatically be changed and
future dividends and distributions will be reinvested at the per share NAV
determined on the date of payment of such distributions.
Address Changes
An address may be changed by calling 1-800-811-0535. The Funds will send a
written confirmation of the change to both the old and new addresses. No
telephone redemptions may be made for 30 days after a change of address by
phone. During those 30 days, a signature guarantee will be required for any
written redemption request unless the change of address was made in writing with
a signature guarantee.
<PAGE>
Telephone Transactions
(For your protection, all transactions are completed over a recorded line.) Many
transactions may be initiated by telephone:
* Change of address;
* Request duplicate statements to be sent to someone designated by the
shareholder;
* Request a current account statement;
* Purchase shares through the Telephone Purchase Plan (plan must be
pre-established);
* Redeem shares and have proceeds wired to a bank checking account (bank wire
redemption plan must be pre-established, not available for IRA accounts);
* Change the frequency or amount, or discontinue the Automatic Investment Plan
on your account(s);
* Add or discontinue the Telephone Redemption privilege to an account;
* Change distribution option (does not apply to IRA accounts);
* Redeem shares, with a check sent to the address of record (does not apply to *
IRA accounts, and address of record must not have changed in the last 30 days);
* Exchange money from an individual account to an existing IRA account with an
identical registration;
* Change the contribution year on an IRA account to the previous year up until
April 15 of the current year.
The Funds will not be responsible for any losses resulting from unauthorized
telephone transactions if they follow reasonable procedures designed to verify
the identity of the caller. Those procedures may include recording the call,
requesting additional information, and sending written confirmation of telephone
transactions.
You should verify the accuracy of telephone transactions immediately upon
receipt of your confirmation statement. If you do not want to be able to
initiate purchase or redemption transactions by telephone, you should decline
these privileges on your account application or call the Funds for instructions
at 1-800-811-0535.
If you are unable to reach the Funds by phone (for example during periods of
unusual market activity), you should consider placing their order by mail.
<PAGE>
Telephone Exchange Plan
The Funds' telephone exchange plan permits you to
exchange your investment between one Fund and another, or between a Fund and one
of the Firstar Money Market Funds. The Firstar Money Market Funds are:
* Money Market Fund
* U.S. Treasury Money Market Fund
* U.S. Government Money Market Fund
* Tax-Exempt Money Market Fund
Before exchanging with one of the available money market funds please call and
request a prospectus. You will be asked if you have read the prospectus, and an
exchange cannot be accepted unless you indicate that you have done so. Each of
the money market funds is a no-load fund managed by FIRMCO, a Wisconsin limited
liability company and subsidiary of Firstar Corporation, a bank holding company.
The price at which shares are exchanged is determined by the time of day that we
receive the request. To get today's price call before 3:00 p.m. Central time.
Exchange Plan Restrictions
Exchanges will be limited to four round-trip exchanges per year (a round-trip is
the exchange out of one fund into another fund, and then back into the original
fund).
Shares of the fund being exchanged into must be available for sale in the your
state. The World Fund and the Firstar Money Market Funds are available in all 50
states. The American Fund will have a limited availability during the first two
years of operation. You can call 800-811-0535 to verify the availability in
their state.
You may only exchange between accounts that are registered in the same name,
address, and taxpayer identification number.
To establish a new account through an exchange, the exchange must be equal to
the minimum initial deposit of $2,500. For exchanges between established
accounts the minimum exchange value must be at least $1,000.
The exchange plan is not available for shares of a fund for which certificates
have been issued.
Because excessive trading can hurt the Funds performance and shareholders, the
Funds reserve the right to temporarily or permanently terminate the exchange
privilege of any investor who makes excessive use of the exchange plan.
The Funds also reserve the right to refuse exchange purchases by any person or
group, if TWI believes that the purchase will be harmful to existing
shareholders.
Please remember that exchanges between taxable/non-retirement accounts will have
tax consequences.
The Funds reserve the right to terminate or modify the exchange plan at any
time, but will try to give prior notice whenever they are able to reasonably do
so.
<PAGE>
Contacting the Thomas White Funds Family
Phone 1-800-811-0535
The following documents are available for free and provide further information
on the Funds:
Annual/Semi-Annual Reports to Shareholders
In the annual report, you will find a letter to shareholders from the Fund
manager and a discussion of the events that impacted the World Fund's
performance during the period covered, as well as a list of the World Fund's
investments. As a new fund, the American Fund does not yet have any performance
to report to shareholders.
Statement of Additional Information (SAI)
The SAI contains additional information about the Funds. A current SAI has been
filed with the SEC and is incorporated into this Prospectus by reference.
E-mail
Send your request to [email protected]
On the Internet
Fund Documents can be viewed online or downloaded from two Internet websites:
The Securities and Exchange Commission: http://www.sec.gov
Thomas White Funds Family: http://www.thomaswhite.com
By Mail
Thomas White Funds Family
440 South LaSalle Street,
Suite 3900
Chicago, IL 60605
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330 for more information) or by sending your
request and a duplicating fee to the SEC's Public Reference Section, Washington,
DC 20549-6009.
SEC file number: 811-8348
<PAGE>
LORD ASSET MANAGEMENT TRUST
THIS STATEMENT OF ADDITIONAL INFORMATION DATED
NOVEMBER 1, 1998 IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS OF THE
THOMAS WHITE WORLD FUND AND THE THOMAS WHITE AMERICAN GROWTH FUND
DATED NOVEMBER 1, 1998
WHICH MAY BE OBTAINED
WITHOUT CHARGE UPON REQUEST TO
THE THOMAS WHITE FUNDS FAMILY
440 SOUTH LASALLE STREET, SUITE 3900
CHICAGO, ILLINOIS 60605-1028
TELEPHONE: 1-800-811-0535
TELECOPY: (312) 663-8323
This Statement of Additional Information incorporates by reference financial
statements of the Thomas White World Fund from the Fund's most recent annual and
semi-annual reports to shareholders. You can obtain copies of these reports by
calling 1-800-811-0535.
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY ..................................3
INVESTMENT OBJECTIVES AND POLICIES ...............................3
Investment Policies ..............................................3
Repurchase Agreements ............................................3
Loans of Portfolio Securities ....................................3
Temporary Investments and Cash Management.........................4
Debt Securities ..................................................4
Futures Contracts ................................................5
Options on Securities, Indices and Futures .......................6
Foreign Currency Hedging Transactions.............................8
Depository Receipts...............................................9
Foreign Market Risks..............................................9
Brady Bonds......................................................11
Illiquid and Restricted Securities...............................11
Other Investment Companies.......................................12
Borrowing........................................................12
Investment Restrictions .........................................12
Additional Restrictions .........................................13
Risk Factors ....................................................14
Trading Policies ................................................15
MANAGEMENT OF THE TRUST .........................................16
PRINCIPAL SHAREHOLDERS ..........................................18
INVESTMENT MANAGEMENT AND OTHER SERVICES ........................18
Investment Management Agreement .................................18
Management Fees .................................................19
The Advisor .....................................................19
Transfer Agent ..................................................20
The Advisor .....................................................20
Custodians.......................................................20
Legal Counsel ...................................................20
Independent Accountants .........................................20
Reports to Shareholders..........................................20
BROKERAGE ALLOCATION ............................................20
PURCHASE, REDEMPTION AND PRICING OF SHARES ......................22
TAX STATUS ......................................................24
DESCRIPTION OF SHARES ...........................................29
PERFORMANCE INFORMATION .........................................29
FINANCIAL STATEMENTS ............................................31
<PAGE>
GENERAL INFORMATION AND HISTORY
The Thomas White American Growth Fund and the Thomas White World Fund are
both diversified series of Lord Asset Management Trust (the "Trust"), an
open-end, management investment company registered under the Investment Company
Act of 1940 (the "1940 Act"). The two Funds are the Trust's only series of
shares. The Trust is a Delaware business trust organized on February 9, 1994.
INVESTMENT OBJECTIVES AND POLICIES
Investment Policies. The investment objective and policies of the Funds are
described in the Funds' Prospectus.
Repurchase Agreements. Repurchase agreements are contracts under which the
buyer of a security simultaneously commits to resell the security to the seller
at an agreed-upon price and date. The repurchase price will reflect an agreed
upon rate of interest not tied to the coupon rate of the underlying security.
Under the 1940 Act, repurchase agreements are considered to be loans
collateralized by the underlying security. Under a repurchase agreement, the
seller is required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. Thomas White
International, Ltd. (the "Advisor" or "TWI") will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price. However, if the seller should default on its obligation to repurchase the
underlying security, the Funds may experience delay or difficulty in exercising
their rights to realize upon the security and might incur a loss if the value of
the security declines, as well as costs in liquidating the security. The Funds
will enter into repurchase agreements only with parties who meet
creditworthiness standards approved by the Board of Trustees, i.e., banks or
broker-dealers which have been determined by the Advisor to present no serious
risk of becoming involved in bankruptcy proceedings within the time frame
contemplated by the repurchase transaction. Although the Funds may enter into
repurchase agreements, they have no present intention of doing so.
Loans of Portfolio Securities. Each Fund may lend to banks and broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets. Such loans must be secured by collateral (consisting of any
combination of cash, U.S. Government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to the
current market value of the securities loaned. The Funds retain all or a portion
of the interest received on investment of the cash collateral or receive a fee
from the borrower. The Funds may terminate the loans at any time and obtain the
return of the securities loaned within five business days. The Funds will
continue to receive any interest or dividends paid on the loaned securities and
will continue to have voting rights with respect to the securities. In the event
that the borrower defaults on its obligations to return borrowed securities,
because of insolvency or otherwise, a Fund could experience delays and costs in
gaining access to the collateral and could suffer a loss to the extent that the
value of the collateral falls below the market value of the borrowed securities.
Temporary Investments and Cash Management. The Funds may, because of adverse
market conditions, decide to take a temporary defensive position. Each Fund may
invest up to 100% of its total assets in the following instruments:
1. Short-term (less than 12 months to maturity) and medium-term (not greater
than 5 years to maturity) obligations issued or guaranteed by either the
U.S. government or the governments of foreign countries or their agencies;
2. Finance company and corporate commercial paper;
3. Demand notes;
4. Other short-term corporate obligations;
5. Obligations (including certificates of deposit, time deposits and bankers'
acceptances) of banks;
6. Repurchase agreements with banks and broker-dealers with respect to the
above listed securities; or
7. Cash.
The Funds may also invest in such instruments for purposes of cash management.
Debt Securities. Bonds and other debt instruments are methods for an issuer
to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Debt
securities have varying degrees of quality and varying levels of sensitivity to
changes in interest rates.
<PAGE>
The Funds may invest in debt securities which are rated in any rating
category by Moody's Investors Service, Inc. ("Moody's") or by Standard & Poor's
Ratings Services ("S&P"), or which are not rated by Moody's or S&P. As an
operating policy, which may be changed without shareholder approval, each Fund
will not invest or hold more than 5% of its net assets in debt securities rated
Baa or lower by Moody's or BBB or lower by S&P or, if unrated, are of equivalent
investment quality as determined by the Advisor. Such securities are not
considered to be "investment grade" and are sometimes referred to as "junk
bonds." The Board may consider a change in this operating policy if, in its
judgment, economic conditions change such that a higher level of investment in
high risk, lower-quality debt securities would be consistent with the interests
of a Fund and its shareholders. High risk, lower-quality debt securities are
considered to be speculative with respect to the issuer's ability to pay
interest and repay principal.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Funds' net asset values.
Although they may offer higher yields than do higher rated securities, low
rated and unrated debt securities generally involve greater volatility of price
and risk of principal and income, including the possibility of default by, or
bankruptcy of, the issuers of the securities. In addition, the markets in which
low rated and unrated debt securities are traded are more limited than those in
which higher rated securities are traded. The existence of limited markets for
particular securities may diminish the Funds' ability to sell the securities at
fair value either to meet redemption requests or to respond to changes in the
economy or in the financial markets and could adversely affect and cause
fluctuations in the daily net asset value of the Funds' shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Funds to
achieve their investment objectives may, to the extent of investment in low
rated debt securities, be more dependent upon such creditworthiness analysis
than would be the case if the Funds were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Funds may incur additional expenses to
seek recovery. The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.
The Funds may accrue and report interest on bonds structured as zero coupon
bonds or pay-in-kind securities as income even though it receives no cash
interest until the security's maturity or payment date. In order to qualify for
beneficial tax treatment afforded regulated investment companies, the Funds must
distribute substantially all of their net income to shareholders (see "Tax
Status"). Thus, the Funds may have to dispose of their portfolio securities
under disadvantageous circumstances to generate cash in order to satisfy the
distribution requirement.
<PAGE>
Futures Contracts. The Funds may buy and sell financial futures contracts,
stock and bond index futures contracts, foreign currency futures contracts and
options on any of these for hedging purposes only. A financial futures contract
is an agreement between two parties to buy or sell a specified debt security at
a set price on a future date. An index futures contract is an agreement to take
or make delivery of an amount of cash based on the difference between the value
of the index at the beginning and at the end of the contract period. A futures
contract on a foreign currency is an agreement to buy or sell a specified amount
of a currency for a set price on a future date.
Although some financial futures contracts call for making or taking delivery
of the underlying securities, in most cases these obligations are closed out
before the settlement date. The closing of a contractual obligation is
accomplished by purchasing or selling an identical offsetting futures contract.
Other financial futures contracts by their terms call for cash settlements.
The Funds may buy and sell index futures contracts with respect to any stock
or bond index traded on a recognized stock exchange or board of trade. An index
futures contract is a contract to buy or sell units of an index at a specified
future date at a price agreed upon when the contract is made. The index futures
contract specifies that no delivery of the actual securities making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the index at the expiration of the contract.
When a Fund enters into a futures contract, it must make an initial deposit,
known as "initial margin", as a partial guarantee of its performance under the
contract. As the value of the security, index or currency fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. In addition, at the time a Fund purchases a futures contract, an
amount of cash, U.S. Government securities, or other highly liquid securities
equal to the market value of the contract will be deposited in a segregated
account with the Funds' Custodian. When selling a futures contract, the Funds
will maintain with their Custodian liquid assets that, when added to the amounts
deposited with a futures commission merchant or broker as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, a
Fund may "cover" its position by owning the instruments underlying the contract
or, in the case of an index futures contract, owning a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based, or holding a call option permitting the Fund to purchase the
same futures contract at a price no higher than the price of the contract
written by the Fund (or at a higher price if the difference is maintained in
liquid assets with the Fund's Custodian).
Each Fund will limit its use of futures contracts so that no more than 5% of
the Fund's total assets would be committed to initial margin deposits or
premiums on such contracts. The value of the underlying securities on which
futures contracts will be written at any one time will not exceed 25% of the
total assets of a Fund.
Options on Securities, Indices and Futures. The Funds may write (i.e., sell)
covered put and call options and purchase put and call options on securities,
securities indices and futures contracts that are traded on United States and
foreign exchanges and in the over-the-counter markets.
An option on a security or a futures contract is a contract that gives the
purchaser of the option, in return for the premium paid, the right to buy a
specified security or futures contract (in the case of a call option) or to sell
a specified security or futures contract (in the case of a put option) from or
to the writer of the option at a designated price during the term of the option.
An option on a securities index gives the purchaser of the option, in return for
the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option.
The Funds may write a call or put option only if the option is "covered." A
call option on a security or futures contract written by a Fund is "covered" if
the Fund owns the underlying security or futures contract covered by the call or
has an absolute and immediate right to acquire that security without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities held
in its portfolios. A call option on a security or futures contract is also
covered if a Funds hold a call on the same security or futures contract and in
the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference is
maintained by a Fund in cash or liquid securities in a segregated account with
its custodian. A put option on a security or futures contract written by a Fund
is "covered" if a Fund maintains cash or fixed income securities with a value
equal to the exercise price in a segregated account with its custodian, or else
holds a put on the same security or futures contract and in the same principal
amount as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written.
<PAGE>
Each Fund will cover call options on securities indices that it writes by
owning securities whose price changes, in the opinion of the Advisor, are
expected to be similar to those of the index, or in such other manner as may be
in accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where a Fund covers a call option
on a securities index through ownership of securities, such securities may not
match the composition of the index. In that event, the Fund will not be fully
covered and could be subject to risk of loss in the event of adverse changes in
the value of the index. Each Fund will cover put options on securities indices
that it writes by segregating assets equal to the option's exercise price, or in
such other manner as may be in accordance with the rules of the exchange on
which the option is traded and applicable laws and regulations.
A Fund will receive a premium from writing a put or call option, which
increases its gross income in the event the option expires unexercised or is
closed out at a profit. If the value of a security, index or futures contract on
which a Fund has written a call option falls or remains the same, that Fund will
realize a profit in the form of the premium received (less transaction costs)
that could offset all or a portion of any decline in the value of the portfolio
securities being hedged. If the value of the underlying security, index or
futures contract rises, however, that Fund will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation in
its investments. By writing a put option, a Fund assumes the risk of a decline
in the underlying security, index or futures contract. To the extent that the
price changes of the portfolio securities being hedged correlate with changes in
the value of the underlying security, index or futures contract, writing covered
put options will increase a Fund's losses in the event of a market decline,
although such losses will be offset in part by the premium received for writing
the option.
The Funds may also purchase put options to hedge their investments against a
decline in value. By purchasing a put option, the Funds will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Funds' investments does not
decline as anticipated, or if the value of the option does not increase, their
loss will be limited to the premium paid for the option plus related transaction
costs. The success of this strategy will depend, in part, on the accuracy of the
correlation between the changes in value of the underlying security, index or
futures contract and the changes in value of the Funds' security holdings being
hedged.
The Funds may purchase call options on individual securities or futures
contracts to hedge against an increase in the price of securities or futures
contracts that they anticipates purchasing in the future. Similarly, the Funds
may purchase call options on a securities index to attempt to reduce the risk of
missing a broad market advance, or an advance in an industry or market segment,
at a time when the Funds hold uninvested cash or short-term debt securities
awaiting investment. When purchasing call options, the Funds will bear the risk
of losing all or a portion of the premium paid if the value of the underlying
security, index or futures contract does not rise.
There can be no assurance that a liquid market will exist when the Funds seek
to close out an option position. Trading could be interrupted, for example,
because of supply and demand imbalances arising from a lack of either buyers or
sellers, or the options exchange could suspend trading after the price has risen
or fallen more than the maximum specified by the exchange. Although the Funds
may be able to offset to some extent any adverse effects of being unable to
liquidate an option position, they may experience losses in some cases as a
result of such inability. The value of over-the-counter options purchased by
each Fund, as well as the cover for options written by each Fund are considered
not readily marketable and are subject to each Fund's limitation on investments
in securities that are not readily marketable. See "Investment Objectives and
Policies - Investment Restrictions."
The value of the underlying securities and securities indices on which
options may be written at any one time will not exceed 15% of the total assets
of a Fund. A Fund will not purchase put or call options if the aggregate premium
paid for such options would exceed 5% of its total assets.
Foreign Currency Hedging Transactions. In order to hedge against foreign
currency exchange rate risks, the Funds may enter into forward foreign currency
exchange contracts and foreign currency futures contracts, as well as purchase
put or call options on foreign currencies, as described below. The Funds may
also conduct their foreign currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market. Some
price spread on currency exchange (to cover service charges) will be incurred
when a Fund converts assets from one currency to another.
<PAGE>
The Funds may enter into forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Funds from adverse
changes in the relationship between the U.S. dollar and foreign currencies. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date, which is individually negotiated and privately
traded by currency traders and their customers. A Fund generally will not enter
into a forward contract with a term of greater than one year. A Fund may enter
into a forward contract, for example, when it enters into a contract for the
purchase or sale of a security denominated in a foreign currency in order to
"lock in" the U.S. dollar price of the security. In addition, for example, when
a Fund believes that a foreign currency may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to sell
an amount of the former foreign currency approximating the value of some or all
of its portfolio securities denominated in such foreign currency. This second
investment practice is generally referred to as "cross-hedging." A Fund may
cross-hedge with respect to the currency of a particular country in amounts
approximating actual or anticipated positions in securities denominated in that
currency. When a Fund owns or anticipates owning securities in countries whose
currencies are linked, the Advisor may aggregate those positions as to the
currency being hedged. Because in connection with each Fund's forward foreign
currency transactions, an amount of its assets equal to the amount of the
purchase will be held aside or segregated to be used to pay for the commitment,
each Fund will always have cash, cash equivalents or high quality debt
securities available in an amount sufficient to cover any commitments under
these contracts or to limit any potential risk. The segregated account will be
marked-to-market on a daily basis. While these contracts are not presently
regulated by the Commodity Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate forward contracts. In such event, the
Funds' ability to utilize forward contracts in the manner set forth above may be
restricted. Forward contracts may limit potential gain from a positive change in
the relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the
Funds than if they had not engaged in such contracts.
A Fund has no limitation on the percentage of assets it may commit to forward
contracts, subject to its stated investment objective and policies, as long as
the amount of assets set aside to cover forward contracts would not impede
portfolio management or the Fund's ability to meet redemption requests. Although
forward contracts will be used primarily to protect the Funds from adverse
currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted.
The Funds may purchase and write put and call options on foreign currencies
for the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge up to the amount of the premium received, and a Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against fluctuation in exchange rates, although, in the event
of rate movements adverse to its position, a Fund may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies to
be written or purchased by the Funds will be traded on U.S. and foreign
exchanges or over-the-counter.
The Funds may enter into exchange-traded contracts for the purchase or sale
for future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Funds' portfolio securities or adversely affect the prices of securities
that the Funds intend to purchase at a later date. The successful use of foreign
currency futures will usually depend on the ability of the Advisor to forecast
currency exchange rate movements correctly. Should exchange rates move in an
unexpected manner, the Funds may not achieve the anticipated benefits of foreign
currency futures or may realize losses.
<PAGE>
Depositary Receipts. American Depositary Receipts ("ADRs") are Depositary
Receipts typically issued by a U.S. bank or trust company which allow indirect
ownership of securities issued by foreign corporations. Receipts are generally
composed of one or more shares of an underlying security. European Depositary
Receipts and Global Depositary Receipts are typically issued by foreign banks or
trust companies, although they also may be issued by U.S. banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a United States corporation.
Depositary Receipts may involve many of the risks of other investments in
foreign securities. For purposes of the Funds' investment policies, the Funds'
investments in Depositary Receipts (other than ADRs) will be deemed to be
investments in the underlying securities.
Foreign Market Risks. Each Fund has the right to purchase securities in any
foreign country, developed or underdeveloped. Investors should consider
carefully the substantial risks involved in investing in securities issued by
companies and governments of foreign nations, which are in addition to the usual
risks inherent in domestic investments. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations or other taxes imposed with respect to investments in
foreign nations, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default in foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in foreign
nations. Some countries may withhold portions of interest and dividends at the
source. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. Further, the Funds may encounter difficulties or be unable to pursue
legal remedies and obtain judgments in foreign courts. Commission rates in
foreign countries, which are sometimes fixed rather than subject to negotiation
as in the United States, are likely to be higher. Further, the settlement period
of securities transactions in foreign markets may be longer than in domestic
markets, which may affect the timing of the Funds' receipt of proceeds from its
portfolio securities transactions. In many foreign countries, there is less
government supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the United States. The foreign
securities markets of many of the countries in which the Funds may invest may
also be smaller, less liquid, and subject to greater price volatility than those
in the United States.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Funds' investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Funds could lose a substantial
portion of any investments they have made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into United States
dollars, the conversion rates may be artificial to the actual market values and
may be adverse to the Funds' Shareholders.
<PAGE>
Brady Bonds. The Funds may invest a portion of their assets in certain debt
obligations customarily referred to as "Brady Bonds," which are created through
the exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated), and they are actively traded in the
over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal by U.S. Treasury zero coupon bonds which have the same maturity
as the Brady Bonds. Interest payments on these Brady Bonds generally are
collateralized on a one-year or longer rolling-forward basis by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest
payments, but generally are not collateralized. Brady Bonds are often viewed as
having three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity (these uncollateralized amounts constitute the
"residual risk"). In light of the residual risk of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds, investments in Brady
Bonds are considered speculative.
Illiquid and Restricted Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities, for which there is a limited trading market and
for which a low trading volume of a particular security may result in abrupt and
erratic price movements. A Fund may be unable to dispose of its holdings in
illiquid securities at then current market prices and may have to dispose of
such securities over extended periods of time.
Each Fund may also invest up to 10% of its total assets in securities that
are subject to contractual or legal restrictions on subsequent transfer because
they were sold (i) in private placement transactions between their issuers and
their purchasers, or (ii) in transactions between qualified institutional buyers
pursuant to Rule 144A under the U.S. Securities Act of 1933, as amended. As a
result of the absence of a public trading market, such restricted securities may
be less liquid and more difficult to value than publicly traded securities.
Although restricted securities may be resold in privately negotiated
transactions, the prices realized from the sales could, due to illiquidity, be
less than those originally paid by the Funds or less than their fair value. In
addition, issuers whose securities are not publicly traded may not be subject to
the disclosure and other investor protection requirements that may be applicable
if their securities were publicly traded. If any privately placed or Rule 144A
securities held by the Funds are required to be registered under the securities
laws of one or more jurisdictions before being resold, the Funds may be required
to bear the expenses of registration. Investment in Rule 144A securities could
have the effect of increasing the level of the Funds' illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing such securities. Rule 144A securities determined by the Board of
Trustees to be liquid are not subject to the 15% limitation on investments in
illiquid securities.
Other Investment Companies. Certain markets are closed in whole or in part to
equity investments by foreigners. A Fund may be able to invest in such markets
solely or primarily through governmentally-authorized investment companies.
Investment in another investment company may involve the payment of a premium
above the value of the issuer's portfolio securities, and is subject to market
availability. In the case of a purchase of shares of such a company in a public
offering, the purchase price may include an underwriting spread. The Funds do
not intend to invest in such circumstances unless, in the judgment of TWI, the
potential benefits of such investment justify the payment of any applicable
premium or sales charge. As a shareholder in an investment company, a Fund would
bear its ratable share of that investment company's expenses, including its
advisory and administration fees. At the same time a Fund would continue to pay
its own management fees and other expenses.
<PAGE>
Each Fund may invest in shares of closed-end investment companies. Generally,
this would not exceed 10% of the Fund's net assets.
Borrowing. Each Fund may borrow up to one-third of the value of its total
assets from banks to increase its holdings of portfolio securities. Borrowing is
a form of leverage, which generally will exaggerate the effect of any increase
or decrease in the value of portfolio securities on a Fund's net asset value. As
a nonfundamental operating policy, a Fund will not purchase additional
securities if its aggregate borrowings exceed 5% of the Fund's assets at the
proposed time of purchase. Borrowings will be subject to interest and other
costs.
Investment Restrictions. Each Fund has imposed upon itself certain investment
restrictions which, together with their investment objective, are fundamental
policies except as otherwise indicated. No changes in a Fund's investment
objective or these investment restrictions can be made without the approval of
the Fund's shareholders. For this purpose, the provisions of the 1940 Act
require the affirmative vote of the lesser of either (1) 67% or more of the
shares of the Fund present at a shareholders' meeting at which more than 50% of
the outstanding shares of the Fund are present or represented by proxy or (2)
more than 50% of the outstanding shares of the Fund.
In accordance with these restrictions, a Fund will not:
1. Invest in real estate or mortgages on real estate (although the Fund may
invest in marketable securities secured by real estate or interests therein
or issued by companies or investment trusts which invest in real estate or
interests therein); invest in other open-end investment companies (except
in connection with a merger, consolidation, acquisition or reorganization);
invest in interests (other than debentures or equity stock interests) in
oil, gas or other mineral exploration or development programs; or purchase
or sell commodity contracts (except futures contracts as described in the
Fund's prospectus).
2. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if, as a result, as to 75% of the Fund's
total assets (i) more than 5% of the Fund's total assets would then be
invested in securities of any single issuer, or (ii) the Fund would then
own more than 10% of the voting securities of any single issuer.
3. Act as an underwriter; issue senior securities except as set forth in
investment restrictions 5 and 6 below; or purchase on margin or sell short,
except that the Fund may make margin payments in connection with futures,
options and currency transactions.
4. Loan money, except that the Fund may (i) purchase a portion of an issue of
publicly distributed bonds, debentures, notes and other evidences of
indebtedness, (ii) enter into repurchase agreements and (iii) lend its
portfolio securities.
5. Borrow money, except that the Fund may borrow money from banks in an amount
not exceeding one-third of the value of its total assets (including the
amount borrowed).
6. Mortgage, pledge or hypothecate its assets (except as may be necessary in
connection with permitted borrowings); provided, however, this does not
prohibit escrow, collateral or margin arrangements in connection with its
use of options, futures contracts and options on future contracts.
7. Invest 25% or more of its total assets in a single industry. For purposes
of this restriction, a foreign government is deemed to be an "industry"
with respect to securities issued by it.
8. Participate on a joint or a joint and several basis in any trading account
in securities. (See "Investment Objectives and Policies - Trading Policies"
as to transactions in the same securities for the Funds and/or other
clients with the same adviser.)
9. Invest in physical commodities.
If a Fund receives from an issuer of securities held by that Fund
subscription rights to purchase securities of that issuer, and if that Fund
exercises such subscription rights at a time when that Fund's portfolio holdings
of securities of that issuer would otherwise exceed the limits set forth in
Investment Restrictions 2 or 7 above, it will not constitute a violation if,
prior to receipt of securities upon exercise of such rights, and after
announcement of such rights, that Fund has sold at least as many securities of
the same class and value as it would receive on exercise of such rights.
<PAGE>
Additional Restrictions. The Funds have adopted the following additional
restrictions which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, each Fund may not:
1. Purchase more than 10% of a company's outstanding voting securities.
2. Invest more than 15% of the Fund's net assets in securities that are not
readily marketable (including repurchase agreements maturing in more than
seven days and over-the-counter options purchased by the Funds), including
no more than 10% of their total assets in restricted securities. Rule 144A
securities determined by the Board of Trustees to be liquid are not subject
to the limitation on investment in illiquid securities.
Whenever any investment policy or investment restriction states a maximum
percentage of a Fund's assets which may be invested in any security or other
property, it is intended that such maximum percentage limitation be determined
immediately after and as a result of that Funds' acquisition of such security or
property. Any change in the percentage of a Fund's assets committed to certain
securities or investment techniques resulting from market fluctuations or other
changes in the Fund's total assets may warrant corrective action by the Advisor,
such as selling or closing out the investment in a manner intended to minimize
market or tax consequences to the Fund. The value of the Funds' assets are
calculated as described in its Prospectus.
Risk Factors. The Funds have the right to purchase securities in any foreign
country, developed or underdeveloped. Investors should consider carefully the
substantial risks involved in securities of companies and governments of foreign
nations, which are in addition to the usual risks inherent in domestic
investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the United
States. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less liquid and more
volatile than securities of comparable United States companies. Commission rates
in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the United States.
The Funds endeavor to buy and sell foreign currencies on as favorable a basis
as practicable. Some price spread in currency exchange (to cover service
charges) will be incurred, particularly when the Funds change investments from
one country to another or when proceeds of the sale of shares in U.S. dollars
are used for the purchase of securities in foreign countries. Also, some
countries may adopt policies which would prevent the Funds from transferring
cash out of the country or withhold portions of interest and dividends at the
source. There is the possibility of expropriation, nationalization or
confiscatory taxation, withholding and other foreign taxes on income or other
amounts, foreign exchange controls (which may include suspension of the ability
to transfer currency from a given country), default in foreign government
securities, political or social instability, or diplomatic developments which
could affect investments in securities of issuers in foreign nations.
The Funds may be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Through the flexible policies of the Funds, the Advisor endeavors
to avoid unfavorable consequences and to take advantage of favorable
developments in particular nations where from time to time it places the
investments of the Funds.
<PAGE>
The exercise of these flexible policies may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
In the absence of willful misfeasance, bad faith or gross negligence on the
part of the Advisor, any losses resulting from the holding of the Funds'
portfolio securities in foreign countries and/or with securities depositories
will be at the risk of the shareholders. The Trustees will take such measures,
which may from time to time include expropriation insurance or depository
account insurance, to the extent that, in their good faith judgment, they deem
advisable under prevailing conditions. No assurance can be given that the
Trustees' appraisal of the risks will always be correct.
There are additional risks involved in futures transactions. These risks
relate to a Fund's ability to reduce or eliminate its futures positions, which
will depend upon the liquidity of the secondary markets for such futures. The
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appears to be an active secondary market, but there is no assurance
that a liquid secondary market will exist for any particular contract at any
particular time. Use of futures for hedging may involve risks because of
imperfect correlations between movements in the prices of the futures on the one
hand and movements in the prices of the securities being hedged or of the
underlying security, currency or index on the other. Successful use of futures
by the Funds for hedging purposes also depends upon the Advisor's ability to
predict correctly movements in the direction of the market, as to which no
assurance can be given.
There are several risks associated with transactions in options. For example,
there are significant differences between the securities and options markets
that could result in an imperfect correlation between these markets, causing a
given transaction not to achieve its objectives. A decision as to whether, when
and how to use options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events. There can be no assurance that a liquid market
will exist when a Fund seeks to close out an option position. If a Fund was
unable to close out an option that it had purchased on a security or a
securities index, it would have to exercise the option in order to realize any
profit or the option may expire worthless. If trading were suspended in an
option purchased by a Fund, it would not be able to close out the option. If
restrictions on exercise were imposed, that Fund might be unable to exercise an
option it has purchased. Except to the extent that a call option on a security
or securities index written by a Fund is covered by an option on the same
security or index purchased by that Fund, movements in the security or index may
result in a loss to that Fund. However, such losses may be mitigated by changes
in the value of that Fund's securities during the period the option was
outstanding.
Trading Policies. The Advisor serves as investment adviser to other clients.
Accordingly, the respective portfolios of the Funds and such clients may contain
many or some of the same securities. When the Funds and other clients of the
Advisor are engaged simultaneously in the purchase or sale of the same security,
the transactions will be placed for execution in a manner designed to be
equitable to all parties. The larger size of the transaction may affect the
price of the security and/or the quantity which may be bought or sold for the
Funds. If the transaction is large enough, brokerage commissions in certain
countries may be negotiated below those otherwise chargeable.
<PAGE>
MANAGEMENT OF THE TRUST
The Trust is governed by a Board of Trustees, who are responsible for protecting
the interests of the shareholders of each Fund. The Trustees are experienced
executives and professionals who normally meet each quarter to oversee the
activities of the Trust and the Funds. A majority of Trustees are not otherwise
affiliated with the Funds or TWI.
The name, address, principal occupation during the past five years and other
information with respect to each of the Trustees and Executive Officers of the
Trust are as follows:
<TABLE>
<S>
<C> <C>
Name, Address and Principal Occupation
Offices with Trust Age During Past Five Years
Thomas S. White, Jr.* 54 Chairman of Thomas White International,
440 S. LaSalle St. Ltd.; former Managing Director, Morgan
Suite 3900 Stanley Asset Management
Chicago, IL 60605
Trustee, President
Brandon S. Joel 29 Mutual Fund Administrative
440 S. LaSalle St. Manager of Thomas White International,
Suite 3900 Ltd.; former Senior Mutual Fund
Chicago, IL 60605 Accountant, John Nuveen & Co.
Treasurer
Douglas M. Jackman 30 Analyst and Vice President of Thomas
440 S. LaSalle St. White International.; formerly with
Suite 3900 Morgan Stanley, involved with equity
Chicago, IL 60605 analysis and foreign exchange
Vice President and
Secretary
Jill F. Almeida 48 Retired; former Vice President,
1448 N. Lake Shore Dr. Security Pacific Bank
Chicago, IL 60610
Trustee
Philip R. Haag 35 President, The Monroe Group, Inc.
535 Balsam (Principal Business - Manufacturing
Palatine, IL 60045 Management-Automotive)
Trustee
Nicholas G. Manos* 74 Attorney (of counsel), Gesas, Pilati &
53 W. Jackson Blvd. Gesas
Suite 528
Chicago, IL 60604
Trustee
Edward E. Mack III 54 President, Mack & Parker
55 East Jackson Street (Principal Business - Insurance)
Chicago, IL 60604
Trustee
Michael R. Miller 57 Self Employed - Business Management
22160 N. Pepper Road Consultant
Barrington, IL 60010
Trustee
John N. Venson 50 Medical Doctor (podiatry)
310 Meadowlake Lane
Lake Forest, IL 60045
Trustee
</TABLE>
<PAGE>
* Messrs. White and Manos are "interested persons" of the Trust as that term is
defined in the 1940 Act. Mr. Manos is the father-in-law of Mr. White.
The Trust pays each Trustee who is not an "interested person" of the Trust, as
that term is defined in the 1940 Act, an annual fee of $3,000. For the fiscal
year ended October 31, 1997, the Trust paid the following compensation to all
Trustees of the Trust:
<TABLE>
<S> <C> <C> <C> <C>
Pension or Retirement Estimated Annual
Aggregate Benefits Accrued Benefits upon Total
Compensation as Fund Expenses Retirement Compensation
Thomas S. White, Jr. $0 $0 $0 $0
Jill F. Almeida $3,000 $0 $0 $3,000
Philip R. Haag $3,000 $0 $0 $3,000
Nicholas G. Manos $0 $0 $0 $0
Edward E. Mack, III $3,000 $0 $0 $3,000
Michael R. Miller $3,000 $0 $0 $3,000
John N. Venson $3,000 $0 $0 $3,000
</TABLE>
PRINCIPAL SHAREHOLDERS
As of September 30, 1998, there were 4,307,939 shares of the Fund
outstanding, of which 113,744 Shares (3.11%) were owned beneficially, directly
or indirectly, by all the Trustees and officers of the Trust as a group. As of
September 30, 1998, John Wm. Galbraith, P.O. Box 33030, St. Petersburg, FL
33733, owned beneficially, directly or indirectly, 2,786,533 Shares (64.68%) of
the Fund and on that basis may be able to control the resolution of any matter
submitted for a Shareholder vote.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Management Agreement. The Advisor of the Funds is Thomas White
International, Ltd., (the "Advisor" or "TWI"), an Illinois corporation with
offices in Chicago, Illinois. The Investment Management Agreement between the
Advisor and the Trust on behalf of a Fund, after an initial two-year term, will
continue from year to year, subject to approval annually by the Board of
Trustees or by vote of a majority of the outstanding shares of the Fund (as
defined in the 1940 Act) and also, in either event, with the approval of a
majority of those Trustees who are not parties to the Agreement or interested
persons of any such party in person at a meeting called for the purpose of
voting on such approval.
The Investment Management Agreement requires the Advisor to furnish the Funds
with investment research and advice. In so doing, without cost to the Funds, the
Advisor may receive certain research services described below. The Advisor is
not required to furnish any personnel, overhead items or facilities for the
Funds, including daily pricing or trading desk facilities, although such
expenses are paid by investment advisers of some other investment companies. It
is currently expected that these expenses will be borne by the Funds, although
certain of these expenses may be borne by the Advisor. In addition, the Advisor
may pay, out of its own assets and at no cost to the Funds, amounts to certain
broker-dealers in connection with the provision of administrative services
and/or with the distribution of the Funds' shares.
The Investment Management Agreement provides that the Advisor will select
brokers and dealers for execution of the Funds' portfolio transactions
consistent with the Trust's brokerage policies (see "Brokerage Allocation").
Although the services provided by broker-dealers in accordance with the
brokerage policies incidentally may help reduce the expenses of or otherwise
benefit the Advisor and other investment advisory clients of the Advisor, as
well as the Funds, the value of such services is indeterminable and the
Advisor's fee is not reduced by any offset arrangement by reason thereof.
<PAGE>
When the Advisor determines to buy or sell the same securities for the Funds
that the Advisor has selected for one or more of its other clients, the orders
for all such securities transactions are placed for execution by methods
determined by the Advisor, with approval by the Trust's Board of Trustees, to be
impartial and fair, in order to seek good results for all parties (see
"Investment Objective and Policies--Trading Policies"). Records of securities
transactions of persons who know when orders are placed by the Funds are
available for inspection at least four times annually by the Compliance Officer
of the Trust so that the Independent Trustees can be satisfied that the
procedures are generally fair and equitable for all parties.
The Investment Management Agreement further provides that the Advisor shall
have no liability to the Trust, the Funds or any shareholder of the Funds for
any error of judgment, mistake of law, or any loss arising out of any investment
or other act or omission in the performance by the Advisor of its duties under
the Agreement or for any loss or damage resulting from the imposition by any
government of exchange control restrictions which might affect the liquidity of
the Funds' assets, or from acts or omissions of custodians or securities
depositories, or from any wars or political acts of any foreign governments to
which such assets might be exposed, except for any liability, loss or damage
resulting from willful misfeasance, bad faith or gross negligence on the
Advisor's part or reckless disregard of its duties under the Investment
Management Agreement. The Investment Management Agreement will terminate
automatically in the event of its assignment, and may be terminated by the Trust
on behalf of the Funds at any time without payment of any penalty on 60 days'
written notice, with the approval of a majority of the Trustees of the Trust in
office at the time or by vote of a majority of the outstanding Shares of the
Funds (as defined by the 1940 Act).
The Trust uses the names "Lord Asset Management" and "Thomas White" in the
names of the Trust and the Funds, respectively, by license from the Advisor and
would be required to stop using those names if Thomas White International, Ltd.,
ceased to be the Advisor of the Fund. The Advisor has the right to use those
names in connection with other enterprises, including other investment
companies.
Management Fees. For its services, each Fund pays the Advisor a monthly fee
at the rate of 1.00% annually of the Fund's average daily net assets. For the
fiscal years ended October 31, 1997, 1996, and 1995, the World Fund paid the
Advisor aggregate investment advisory fees equal to $451,010, $371,850 and
$245,788, respectively. The Advisor has agreed to reimburse the Funds for the
current fiscal year to the extent that the American Fund's total operating
expenses exceed 1.35% of its average daily net assets or the World Fund's total
operating expenses exceed 1.50% of its average daily net assets.
<PAGE>
Each Fund also pays other expenses such as the fees of its custodian,
transfer agent, auditors and lawyers, the cost of compliance with federal and
state laws, proxy solicitations, shareholder reports, taxes, insurance premiums,
and the fees of Trustees who are not otherwise affiliated with the Funds or the
Advisor.
The Advisor. The Advisor is wholly owned by Thomas S. White, Jr., who may be
deemed to control the Advisor. Mr. White and other officers of the Advisor also
serve as Trustees or officers of the Trust, as indicated above, and are
therefore affiliated persons of the Advisor and the Funds.
Transfer Agent. Firstar Mutual Fund Services, LLC ("Firstar") serves as the
transfer and dividend disbursing agent for each Fund pursuant to the transfer
agency agreement (the "Transfer Agent Agreement"), under which Firstar (I)
issues and redeems shares, (ii) prepares and transmits payments for dividends
and distributions declared by each Fund, (iii) prepares shareholder meeting
lists and, if applicable, mail, receive and tabulate proxies, and (iv) provides
a Blue Sky System which will enable each Fund to monitor the total number of
shares sold in each state. Firstar is located at 615 East Michigan Street,
Milwaukee, WI 53202. Compensation for the services of the Transfer Agent is
based on a schedule of charges agrees on from time to time.
Custodians. State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts 02171, serves as Custodian of the World Fund's assets, and
Firstar Bank Milwaukee, 615 East Michigan Street, Milwaukee, WI 53202, serves as
Custodian of the American Fund's assets. The Custodians, and the branches and
sub-custodians of each, generally do not hold certificates for the securities in
their custody, but instead have book records with domestic and foreign
securities depositories, which in turn have book records with the transfer
agents of the issuers of the securities. Compensation for the services of the
Custodians is based on a schedule of charges agreed on from time to time.
Legal Counsel. Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C.
20006, is legal counsel for the Trust.
Independent Accountants. The firm of McGladrey & Pullen, LLP, 555 Fifth
Avenue, New York, New York 10017, serves as independent accountants for the
Trust. Its audit services comprise examination of each Fund's financial
statements and review of each Fund's filings with the Securities and Exchange
Commission and the Internal Revenue Service.
Reports to Shareholders. The Trust's fiscal year ends on October 31.
Shareholders will be provided at least semiannually with reports showing the
portfolio of the each Fund and other information, including an annual report
with financial statements audited by the independent accountants.
BROKERAGE ALLOCATION
The Investment Management Agreement provides that the Advisor is responsible
for selecting members of securities exchanges, brokers and dealers (such
members, brokers and dealers being hereinafter referred to as "brokers") for the
execution of the Trust's portfolio transactions and, when applicable, the
negotiation of commissions in connection therewith. All decisions and placements
are made in accordance with the following principles:
1. Purchase and sale orders will usually be placed with brokers who are selected
by the Advisor as able to achieve "best execution" of such orders. "Best
execution" means prompt and reliable execution at the most favorable securities
price, taking into account the other provisions hereinafter set forth. The
determination of what may constitute best execution and price in the execution
of a securities transaction by a broker involves a number of considerations,
including without limitation, the overall direct net economic result to the
Funds (involving both price paid or received and any commissions and other costs
paid), the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, availability of
the broker to stand ready to execute possibly difficult transactions in the
future, and the financial strength and stability of the broker. Such
considerations are judgmental and are weighed by the Advisor in determining the
overall reasonableness of brokerage commissions.
<PAGE>
2. In selecting brokers for portfolio transactions, the Advisor takes into
account its past experience as to brokers qualified to achieve "best execution,"
including brokers who specialize in any foreign securities held by the Funds.
3. The Advisor is authorized to allocate brokerage business to brokers who have
provided brokerage and research services, as such services are defined in
Section 28 (e) of the Securities Exchange Act of 1934 (the "1934 Act"), for the
company and/or other accounts, if any, for which the Advisor exercises
investment discretion (as defined in Section 3(a)(35) of the 1934 Act) and, as
to transactions as to which fixed minimum commission rates are not applicable,
to cause the Funds to pay a commission for effecting a securities transaction in
excess of the amount another broker would have charged for effecting that
transaction, if the Advisor determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker, viewed in terms of either that particular
transaction or the Advisor's overall responsibilities with respect to the
company and the other accounts, if any, as to which it exercises investment
discretion. In reaching such determination, the Advisor is not required to place
or attempt to place a specific dollar value on the research or execution
services of a broker or on the portion of any commission reflecting either of
said services. In demonstrating that such determinations were made in good
faith, the Advisor shall be prepared to show that all commissions were allocated
and paid for purposes contemplated by the Trust's brokerage policy; that
commissions were paid only for products or services which provide lawful and
appropriate assistance to the Advisor in the performance of its investment
decision-making responsibilities; and that the commissions paid were within a
reasonable range. The determination that commissions were within a reasonable
range shall be based on any available information as to the level of commissions
known to be charged by other brokers on comparable transactions, but there shall
be taken into account the Trust's policies that (I) obtaining a low commission
is deemed secondary to obtaining a favorable securities price, since it is
recognized that usually it is more beneficial to the Funds to obtain a favorable
price than to pay the lowest commission; and (ii) the quality, comprehensiveness
and frequency of research studies which are provided for the Trust and the
Advisor are useful to the Advisor in performing its advisory services under its
Investment Management Agreement with the Trust. Research services provided by
brokers to the Advisor are considered to be in addition to, and not in lieu of,
services required to be performed by the Advisor under its Investment Management
Agreement. Research furnished by brokers through whom the Trust effects
securities transactions may be used by the Advisor for any of its accounts, and
not all such research may be used by the Advisor for the Trust. When execution
of portfolio transactions is allocated to brokers trading on exchanges with
fixed brokerage commission rates, account may be taken of various services
provided by the broker, including quotations outside the United States for daily
pricing of foreign securities held in a Fund's portfolio.
4. Purchases and sales of portfolio securities within the United States other
than on a securities exchange shall be executed with primary market makers
acting as principal except where, in the judgment of the Advisor, better prices
and execution may be obtained on a commission basis or from other sources.
5. Sales of each Fund's Shares (which shall be deemed to include also shares of
other investment companies registered under the 1940 Act which have the same
investment adviser) made by a broker are one factor among others to be taken
into account in deciding to allocate portfolio transactions (including agency
transactions, principal transactions, purchases in under writings or tenders in
response to tender offers) for the account of each Fund to that broker; provided
that the broker shall furnish "best execution" as defined in paragraph 1 above,
and that such allocation shall be within the scope of each Fund's policies as
stated above; and provided further, that in every allocation made to a broker in
which the sale of Shares is taken into account there shall be no increase in the
amount of the commissions or other compensation paid to such broker beyond a
reasonable commission or other compensation determined, as set forth in
paragraph 3 above, on the basis of best execution alone or best execution plus
research services, without taking account of or placing any value upon such sale
of Shares.
<PAGE>
Insofar as known to management, no Trustee or officer of the Trust, nor the
Advisor or any person affiliated with any of them, has any material direct or
indirect interest in any broker employed by or on behalf of the Trust for the
Funds. All portfolio transactions will be allocated to broker-dealers only when
their prices and execution, in the good faith judgment of the Advisor, are equal
to the best available within the scope of the Trust's policies. There is no
fixed method used in determining which broker-dealers receive which order or how
many orders.
For the fiscal year ended October 31, 1995, the World Fund paid brokerage
commissions in the amount of $88,815, of which $28,289, representing $7,473,276
of securities purchases, was paid to broker-dealers that provided research
services to the Advisor. For the fiscal year ended October 31, 1996, the World
Fund paid brokerage commissions in the amount of $89,686, of which $65,964,
representing $24,647,997 of securities transactions, was paid to broker-dealers
that provided research services to the Advisor. For the fiscal year ended
October 31, 1997, the World Fund paid brokerage commissions in the amount of
$93,412, of which $79,609, representing $29,926,932 of securities transactions,
was paid to broker-dealers that provided research services to the Advisor.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectus describes the manner in which the Funds' shares may be
purchased and redeemed. See "How to Buy Shares" and "How to Sell Shares." Shares
of each Fund are offered directly to the public by the Funds. The Funds employ
no Distributor.
Each Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% if its net assets during any 90 day period for any one
shareholder. Subject to the above, each Fund reserves the right to pay
redemption proceeds in whole or in part by a distribution in kind of securities
from the portfolio of the Fund. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
At the discretion of each Fund, investors may be permitted to purchase shares
by transferring securities to a Fund that meet the respective Fund's investment
objective and policies. Securities transferred to the Funds will be valued in
accordance with the same procedures used to determine the Funds' net asset value
at the time of the next determination of net asset value after such acceptance.
Shares issued by the Funds in exchange for securities will be issued at net
asset value determined as of the same time. All dividends, interest,
subscription, or other rights pertaining to such securities shall become the
property of the respective Fund and must be delivered to that Fund by the
investor upon receipt from the issuer. Investors who are permitted to transfer
such securities will be required to recognize a gain or loss on such transfer,
and pay tax thereon, if applicable, measured by the difference between the fair
market value of the securities and investor's basis therein. Securities will not
be accepted in exchange for shares of the Funds unless: (1) such securities are,
at the time of the exchange, eligible to be included in the respective Fund and
current market quotations are readily available for such securities; (2) the
investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the respective Fund under the
Securities Act of 1933 or under the laws of the country in which the principal
market for such securities exists, or otherwise; and (3) the value of any such
security (except U.S. government securities) being exchanged together with other
securities of the same issuer owned by the respective Fund, will not exceed 5%
of the respective Fund's net assets immediately after the transaction.
<PAGE>
Net asset value per Share is determined as of the close of business on the
New York Stock Exchange, which currently is 4:00 p.m. (Eastern time) every
Monday through Friday (exclusive of national business holidays), under normal
market conditions. The Trust's offices will be closed, and net asset value will
not be calculated, on those days on which the New York Stock Exchange is closed,
which currently are: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
in New York on each day on which the New York Stock Exchange is open. Trading of
European or Far Eastern securities generally, or in a particular country or
countries, may not take place on every New York business day. Furthermore,
trading takes place in various foreign markets on days which are not business
days in New York and on which a Fund's net asset value is not calculated. Each
Fund calculates net asset value per Share, and therefore effects sales,
redemptions and repurchases of its Shares, as of the close of the New York Stock
Exchange once on each day on which that Exchange is open. Such calculation does
not take place contemporaneously with the determination of the prices of many of
the portfolio securities used in such calculation and if events occur which
materially affect the value of those foreign securities, they will be valued at
fair market value as determined by the management using methods approved by the
Board of Trustees and subsequently ratified in good faith by the Board of
Trustees.
The Board of Trustees may establish procedures under which each Fund may
suspend the determination of net asset value for the whole or any part of any
period during which (1) the New York Stock Exchange is closed other than for
customary weekend and holiday closings, (2) trading on the New York Stock
Exchange is restricted, (3) an emergency exists as a result of which disposal of
securities owned by each Fund is not reasonably practicable or it is not
reasonably practicable for each Fund fairly to determine the value of its net
assets, or (4) for such other period as the Securities and Exchange Commission
may by order permit for the protection of the holders of the Funds' Shares.
TAX STATUS
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Funds and the purchases, ownership, and disposition of Shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that might be relevant to Shareholders in light of their
particular circumstances. This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retrospective. Prospective
investors should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership, or disposition of Shares, as well as
the tax consequences arising under the laws of any state, foreign country, or
other taxing jurisdiction.
<PAGE>
Each Fund intends normally to pay a dividend at least once annually
representing all or substantially all of its net investment income (which
includes, among other items, dividends and interest) and to distribute at least
annually any realized capital gains. By so doing and meeting certain
diversification of assets and other requirements of the Code, each Fund intends
to elect and qualify annually for treatment as a regulated investment company
under the Code. The status of each Fund as a regulated investment company does
not involve government supervision of management or of its investment practices
or policies. As a regulated investment company, a Fund generally will be
relieved of liability for U.S. federal income tax on that portion of its net
investment income and net realized capital gains, which it distributes to its
shareholders. Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement also are subject to a non deductible 4%
excise tax. To prevent application of the excise tax, each Fund intends to make
distributions in accordance with the calendar year distribution requirement.
Dividends of net investment income and net short-term capital gains generally
are taxable to shareholders as ordinary income. Distributions of net investment
income may be eligible for the corporate dividends-received deduction to the
extent attributable to each Fund's qualifying dividend income. However, the
alternative minimum tax applicable to corporations may reduce the benefit of the
dividends-received deduction. Distribution of net capital gains (the excess of
net long-term capital gains over net short-term capital losses) will generally
be taxable to shareholders at the rate of 20%. Short-term capital gains
distributions, gains representing the sale of securities held for not more than
one year in the portfolio, will continue to be taxed at the same rate as
ordinary income. Distributions will be subject to these capital gains rates
regardless of how long a shareholder has held Fund shares, and are not eligible
for the dividends-received deduction. All dividends and distributions are
taxable to shareholders, whether or not reinvested in shares of a Fund.
Shareholders will be notified annually as to the Federal tax status of dividends
and distributions they receive and any tax withheld thereon.
Distributions by a Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, the distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Funds. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
Certain of the debt securities acquired by the Funds may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Funds, original issue discount on a taxable debt
security earned in a given year generally is treated for Federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements of the Code.
<PAGE>
Some of the debt securities may be purchased by the Funds at a discount,
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount will be treated as ordinary income to the extent it does not exceed the
accrued market discount on such debt security. Generally, market discount
accrues on a daily basis for each day the debt security is held by the
respective Fund at a constant rate over the time remaining to the debt
security's maturity or, at the election of the respective Fund, at a constant
yield to maturity which takes into account the semi-annual compounding of
interest.
The Funds may invest in stocks of foreign companies that are classified under
the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. Under the PFIC rules, an "excess distribution" received
with respect to PFIC stock is treated as having been realized ratably over the
period during which the Funds held the PFIC stock. A Fund itself will be subject
to tax on the portion, if any, of the excess distribution that is allocated to
that Fund's holding period in prior taxable years (and an interest factor will
be added to the tax, as if the tax had actually been payable in such prior
taxable years) even though that Fund distributes the corresponding income to
shareholders. Excess distributions include any gain from the sale of PFIC stock
as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
The Funds may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, each Fund generally
would be required to include in its gross income its share of the earnings of a
PFIC on a current basis, regardless of whether any distributions are received
from the PFIC. If this election is made, the special rules, discussed above,
relating to the taxation of excess distributions, would not apply.
Alternatively, each Fund may be able to elect to mark to market its PFIC stock,
resulting in the stock being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income, and mark-to-market losses and any loss from an actual
disposition of a Fund's shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
Because the application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss and the timing of the recognition
of income with respect to PFIC stock, as well as subject each Fund itself to tax
on certain income from PFIC stock, the amount that must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not invest in PFIC stock.
Income received by the Funds from sources within foreign countries may be
subject to withholding and other income or similar taxes imposed by such
countries. If more than 50% of the value of a Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, that Fund
will be eligible and intends to elect to "pass through" to that Fund's
shareholders the amount of foreign taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his pro rata share of the foreign taxes
paid by a Fund, and will be entitled either to deduct (as an itemized deduction)
his pro rata share of foreign income and similar taxes in computing his taxable
income or to use it as a foreign tax credit against his U.S. Federal income tax
liability, subject to limitations. No deduction for foreign taxes may be claimed
by a shareholder who does not itemize deductions, but such a shareholder may be
eligible to claim the foreign tax credit (see below). Each shareholder will be
notified within 60 days after the close of a Fund's taxable year whether the
foreign taxes paid by the Fund will "pass through" for that year.
<PAGE>
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of a Fund's income flows through to its shareholders. With respect to
each Fund, gains from the sale of securities will be treated as derived from
U.S. sources and certain currency fluctuation gains including fluctuation gains
from foreign currency denominated debt securities, receivables and payables,
will be treated as ordinary income derived from U.S. sources. The limitation on
foreign tax credit is applied separately to foreign source passive income (as
defined for purposes of the foreign tax credit), including the foreign source
passive income passed through by a Fund. Shareholders may be unable to claim a
credit for the full amount of their proportionate share of the foreign taxes
paid by a Fund. Foreign taxes may not be deducted in computing alternative
minimum taxable income and the foreign tax credit can be used to offset only 90%
of the alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If a Fund is not eligible
to make the election to "pass through" to its shareholders its foreign taxes,
the foreign income taxes it pays generally will reduce investment company
taxable income and the distributions by a Fund will be treated as United States
source income.
Certain options and futures and foreign currency forward contracts in which
the Funds may invest may be "section 1256 contracts." Gains or losses on section
1256 contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40") however, foreign currency gains or losses (as
discussed below) arising from certain section 1256 contracts may be treated as
ordinary income or loss. Also, section 1256 contracts held by a Fund at the end
of each taxable year (and on certain other dates as prescribed under the Code)
are "marked-to-market" with the result that unrealized gains or losses are
treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. Federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by each Fund. In addition, losses
realized by each Fund on positions that are part of the straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by each Fund, which is taxed as ordinary income when
distributed to shareholders.
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Requirements relating to each Fund's tax status as a regulated investment
company may limit the extent to which a Fund will be able to engage in
transactions in options and futures and foreign currency forward contracts.
Recently enacted rules may affect the timing and character of gain if a Fund
engages in transactions that reduce or eliminate its risk of loss with respect
to appreciated financial positions. If a Fund enters into certain transactions
in property while holding substantially identical property, that Fund would be
treated as if it had sold and immediately repurchased the property and would be
taxed on any gain (but not loss) from the constructive sale. The character of
gain from a constructive sale would depend upon that Fund's holding period in
the property. Loss from a constructive sale would be recognized when the
property was subsequently disposed of, and its character would depend on that
Fund's holding period and the application of various loss deferral provisions of
the Code.
<PAGE>
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Fund accrues income or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain futures contracts and options,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "section 988" gains and losses, may increase or
decrease the amount of a Fund's net investment income to be distributed to its
shareholders as ordinary income. For example, fluctuations in exchange rates may
increase the amount of income that each Fund must distribute in order to qualify
for treatment as a regulated investment company and to prevent application of an
excise tax on undistributed income. Alternatively, fluctuations in exchange
rates may decrease or eliminate income available for distribution. If section
988 losses exceed other net investment income during a taxable year, a Fund
would not be able to make ordinary dividend distributions, or distributions made
before the losses were realized would be recharacterized as return of capital to
shareholders for Federal income tax purposes, rather than as an ordinary
dividend, reducing each shareholder's basis in his or her Fund shares.
Upon the sale or exchange of his or her shares, a shareholder will realize a
taxable gain or loss depending upon his basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands; gain will generally be subject to a maximum tax rate of 20%
if the shareholder's period for the shares is more than 12 months. Gain from the
disposition of shares held not more than one year will be taxed as short-term
capital gains. Any loss realized on a sale or exchange will be disallowed to the
extent that the shares disposed of are replaced (including replacement through
the reinvesting of dividends and capital gain distributions in a Fund) within a
period of 61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of a Fund's shares held by the shareholder for six months or less
will be treated for Federal income tax purposes as a long-term capital loss to
the extent of any distributions of long-term capital gains received by the
shareholder with respect to such shares.
Each Fund generally will be required to withhold Federal income tax at a rate
of 31% ("backup withholding") from dividends paid, capital gain distributions,
and redemption proceeds to shareholders if (1) the shareholder fails to furnish
the respective Fund with the shareholder's correct taxpayer identification
number or social security number and to make such certifications as the Fund may
require, (2) the Internal Revenue Service notifies the shareholder or the
respective Fund that the shareholder has failed to report properly certain
interest and dividend income to the Internal Revenue Service and to respond to
notices to that effect, or (3) when required to do so, the shareholder fails to
certify that he is not subject to backup withholding. Any amounts withheld may
be credited against the shareholder's Federal income tax liability.
Ordinary dividends and taxable capital gain distributions declared in
October, November, or December with a record date in such month and paid during
the following January will be treated as having been paid by a Fund and received
by shareholders on December 31 of the calendar year in which declared, rather
than the calendar year in which the dividends are actually received.
Distributions and redemptions also may be subject to state, local and foreign
taxes. U.S. tax rules applicable to foreign investors may differ significantly
from those outlined above. This discussion does not purport to deal with all of
the tax consequences relating to an investment in the Funds. Shareholders are
advised to consult their own tax advisers for details with respect to the
particular tax consequences to them of an investment in the Funds.
<PAGE>
DESCRIPTION OF SHARES
The shares of each Fund have the same preferences, conversion and other
rights, voting powers, restrictions and limitations as to dividends,
qualifications and terms and conditions of redemption, except as follows: all
consideration received from the sale of shares of a Fund, together with all
income, earnings, profits and proceeds thereof, belongs to that Fund and is
charged with liabilities in respect of the general liabilities of that Fund. The
net asset value of a share of a Fund is based on the assets belonging to the
Fund less the liabilities charged to the Fund, and dividends are paid on shares
of a Fund only out of lawfully available assets belonging to that Fund. Shares
of a Fund are entitled to participate pro rata in any dividends and other
distributions declared by the Board of Trustees for the Fund and all shares of a
Fund have equal rights in the event of liquidation of that Fund. In the event of
liquidation or dissolution of the Trust, the shareholder of a Fund will be
entitled to the assets belonging to that Fund out of assets of the Trust
available for distribution.
The Funds may hold special meetings of shareholders to elect or remove
Trustees, change fundamental policies, approve a management contract, or for
other purposes. The Funds will mail proxy materials in advance of a shareholder
meeting, including a proxy and information about the proposals to be voted on.
You are entitled to one vote for each share of the Fund that you own.
Shareholders not attending these meetings are encouraged to vote by proxy.
Shares have non-cumulative voting rights so that the holders of a plurality of
the shares voting for the election of Trustees at a meeting at which 50% of the
outstanding shares are present can elect all the Trustees and in such event, the
holders of the remaining shares voting for the election of Trustees will not be
able to elect any person or persons to the Board of Trustees.
PERFORMANCE INFORMATION
Each Fund may, from time to time, include its total return in advertisements
or reports to Shareholders or prospective investors. Quotations of average
annual total return for the Funds will be expressed in terms of the average
annual compounded rate of return of a hypothetical investment in the respective
Fund over periods of one, five, or ten years (up to the life of the respective
Fund) calculated pursuant to the following formula: P(1+T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return, n =
the number of years, and ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period). Total return for a period
is the percentage change in value during the period of an investment in Fund
shares. All total return figures reflect the deduction of a proportional share
of the respective Fund's expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid. Total return of the World
Fund for the year ended April 30, 1998 was 26.28%. The average annual total
return of the World Fund from June 28, 1994 (commencement of operations) through
April 30, 1998, was 16.10%. Cumulative total return of the World Fund for the
same period was 77.45%.
<PAGE>
Performance information for the each Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so that investors may compare
each Fund's results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities market in general;
(ii) other groups of mutual funds tracked by Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds by overall
performance, investment objectives and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in a Fund. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for each Fund reflects only the performance of a
hypothetical investment in the respective Fund during the particular time period
on which the calculations are based. Performance information should be
considered in light of the respective Fund's investment objective and policies,
characteristics and quality of the portfolio and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future. From time to time, the Funds and the Advisor may
also refer to the following information:
(1) The Advisor's and its affiliates' market share of international equities
managed in mutual funds prepared or published by Strategic Insight or a similar
statistical organization.
(2) The performance of U.S. equity and debt markets relative to foreign markets
prepared or published by Morgan Stanley Capital International or a similar
financial organization.
(3) The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corp., Morgan Stanley Capital
International or a similar financial organization.
(4) The geographic distribution of each Fund's portfolio.
(5) The gross national product and populations, including age characteristics,
of various countries as published by various statistical organizations.
(6) To assist investors in understanding the different returns and risk
characteristics of various investments, a Fund may show historical returns of
various investments and published indices (e.g., Ibbotson Associates, Inc.
Charts and Morgan Stanley EAFE -Index).
(7) The major industries located in various jurisdictions as published by the
Morgan Stanley Index.
In addition, the Funds and the Advisor may also refer to the number of
shareholders in each Fund or the dollar amount of fund and private account
assets under management in advertising materials.
FINANCIAL STATEMENTS
The Trust's audited financial statements for the World Fund, including the
related notes thereto, dated October 31, 1997, are incorporated by reference in
the SAI from the Annual Report of the Trust dated as of October 31, 1997. The
Trust's unaudited financial statements for the World Fund, including the related
notes thereto, dated April 30, 1998, are incorporated by reference in the SAI
from the Semi-Annual Report of the Trust dated April 30, 1998. A copy of the
reports delivered with this SAI should be retained for future reference.
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
<TABLE>
<S> <C>
(a) Trust Instrument(2)
(b) By-Laws(2)
(c) Not Applicable
(d) (1) Form of investment management agreement for the
Thomas White World Fund (1)
(2) Form of investment management agreement for the
Thomas White American Growth Fund (3)
(e) Not Applicable
(f) Not Applicable
(g) (1) Form of custody agreement for Thomas White World Fund
(2) Form of custody agreement for Thomas White American Growth Fund
(h) (1) Form of transfer agent agreement (1)
(2) Form of blue sky compliance servicing
agreement (1)
(3) Form of servicing agreement with respect to Firstar Money Market Funds
(i) Opinion and consent of counsel(2)
<PAGE>
(j) Consent of independent public accountants
(k) Not Applicable
(l) Initial capital agreement (2)
(m) Not Applicable
(n) Financial data schedules (Filed as Exhibit 27)
(o) Not Applicable
(p) (1) Powers of attorney for Messrs. White, Miller,
Haag, Manos, and Mack, and for Ms. Almeida (2)
(2) Powers of attorney for Messrs. Joel and Venson (1)
(q) Secretary's certificate pursuant to Rule
483(b)(2)
-------------------
</TABLE>
(1) Filed with Post-Effective Amendment No. 2 to Registrant's
Registration Statement on February 28, 1996.
(2) Filed with Post-Effective Amendment No. 4 to Registrant's
Registration Statement on December 31, 1997.
(3) Filed with Post-Effective Amendment No. 6 to Registrant's
Registration Statement on August 13, 1998.
Item 24. Persons Controlled by or Under Common Control with
Registrant
Not Applicable.
<PAGE>
Item 25. Indemnification
Reference is made to Article X, Section 10.02 of the
Registrant's Trust Instrument, which is filed herewith.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the Registrant by the
Registrant pursuant to the Trust Instrument or otherwise,
the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and,
therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by
trustees, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit
or proceeding) is asserted by such trustees, officers or
controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be governed
by the final adjudication of such issues.
Item 26. Business and Other Connections of the Investment Adviser
The business and other connections of Thomas White
International, Ltd. are described in Parts A and B.
For information relating to the investment adviser's
officers and directors, reference is made to Form ADV filed
under the Investment Advisers Act of 1940 by Thomas White
International, Ltd.
Item 27. Principal Underwriters
Not Applicable.
<PAGE>
Item 28. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and rules promulgated
thereunder are in the possession of Thomas White
International, Ltd., 440 South LaSalle Street, Chicago,
Illinois 60605-1028.
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement under Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 7
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Washington, D.C. on this 30th day of
October, 1998.
Lord Asset Management Trust
<PAGE>
By: *
Thomas S. White, Jr.
President
Pursuant to the requirements of the Securities Act, this
Post-Effective Amendment No. 7 to the Registration Statement has been
signed below by the following persons on behalf of Lord Asset
Management Trust in the capacities and on the date indicated:
<TABLE>
<S> <C> <C>
Signature Title Date
* Trustee and President October 30, 1998
Thomas S. White, Jr. (Principal Executive
Officer)
* Treasurer (Principal October 30, 1998
Brandon S. Joel Financial and
Accounting Officer)
* Trustee October 30, 1998
Michael R. Miller
* Trustee October 30, 1998
Jill F. Almeida
* Trustee October 30, 1998
Philip R. Haag
* Trustee October 30, 1998
Nicholas G. Manos
* Trustee October 30, 1998
Edward E. Mack, III
* Trustee October 30, 1998
John N. Venson
</TABLE>
*By: /s/ William J. Kotapish
William J. Kotapish
as attorney-in-fact
* Powers of Attorney are included as exhibits in Post-Effective
Amendment No. 2 filed February 28, 1996 and Post-Effective
Amendment No. 4 filed December 31, 1997.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
FILED
WITH
REGISTRATION STATEMENT
ON
FORM N-1A
LORD ASSET MANAGEMENT TRUST
Exhibit Description
g(2)(Filed as Exhibit 8(g)(2)) Form of custody agreement for Thomas White
American Growth Fund
h(3)(Filed as Exhibit 9(h)(3)) Form of servicing agreement with respect to
Firstar Money Market Funds
j (Filed as Exhibit 11 (j)) Consent of independent public accountants
n (Filed as Exhibit 27) Financial data schedules
CUSTODIAN SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this 1st day of November,
1998, by and between Lord Asset Management Trust, a Delaware business trust
(hereinafter referred to as the "Trust"), and Firstar Trust Company, a
corporation organized under the laws of the State of Wisconsin (hereinafter
referred to as the "Custodian").
WHEREAS, the Trust is an open-end management investment company which
is registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust is authorized to create separate series, each with
its own separate investment portfolio; and
WHEREAS, the Trust desires that the securities and cash of the Thomas
White American Growth Fund (the "Fund") and each additional series of the Trust
listed on Exhibit A attached hereto, as may be amended from time to time, shall
be hereafter held and administered by Custodian pursuant to the terms of this
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and Custodian agree as follows:
1. Definitions
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Trust by any two of the
President, a Vice President, the Secretary and the Treasurer of the Trust, or
any other persons duly authorized to sign by the Board of Trustees.
The word "Board" shall mean Board of Trustees of Lord Asset Management
Trust.
The words "proper instructions" means a writing signed or initialed by
one or more person or persons as the Board of the Trustees shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be considered "proper
instructions" if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved.
<PAGE>
2. Names, Titles, and Signatures of the Company's Officers
An officer of the Trust will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Trustees, together with any changes which may occur from time to time.
3. Receipt and Disbursement of Money
A. Custodian shall open and maintain a separate account or accounts in
the name of the Trust, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Trust. Custodian shall make payments of cash to, or for the
account of, the Trust from such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to Custodian, registered in the
name of the Trust or of the nominee of Custodian referred to in
Section 7 or in proper form for transfer;
(b) for the purchase or redemption of shares of beneficial interest of
the Fund upon delivery thereof to Custodian, or upon proper
instructions from the Trust;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing and
custodian services and expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held by
or to be delivered to Custodian; or
(e) for other proper corporate purposes evidenced by a certified
resolution of the Board of Trustees of the Trust.
Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Trust issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Trust.
C. Custodian shall, upon receipt of proper instructions, make federal
funds available to the Trust as of specified times agreed upon from time to time
by the Trust and the Custodian in the amount of checks received in payment for
shares of the Fund which are deposited into the Fund's account.
<PAGE>
D. If so directed by the Trust, Custodian will invest any and all
available cash in overnight cash-equivalent investments as specified by the
investment manager.
4. Segregated Accounts
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of the Fund, into which
account(s) may be transferred cash and/or securities.
5. Transfer, Exchange, Redelivery, etc. of Securities
Custodian shall have sole power to release or deliver any securities of
the Trust held by it pursuant to this Agreement. Custodian agrees to transfer,
exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by Custodian of payment therefor;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone
or other securities and cash whether pursuant to any plan of
merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of the Fund upon
delivery thereof to Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a), (b), (d),
(e), (f), and (g), securities or cash receivable in exchange therefor shall be
deliverable to Custodian.
<PAGE>
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Trust issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
6. Custodian's Acts Without Instructions
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of the Fund, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Trust, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Trust, all necessary ownership certificates required by the Internal Revenue
Code of 1986, as amended (the "Code") or the Income Tax Regulations (the
"Regulations") of the United States Treasury Department (the "Treasury
Department") or under the laws of any state now or hereafter in effect,
inserting the Company's name on such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do so.
7. Registration of Securities
Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any Regulations of the Treasury Department issued thereunder or in any provision
of any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. All securities held by Custodian hereunder shall be at all
times identifiable in its records as being held in an account or accounts of
Custodian containing only the assets of the Trust.
The Trust shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Trust and which may from time to time be
registered in the name of the Trust.
8. Voting and Other Action
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the Trust all
notices, proxies and proxy soliciting materials with respect to such securities,
such proxies to be executed by the registered holder of such securities (if
registered otherwise than in the name of the Trust), but without indicating the
manner in which such proxies are to be voted.
<PAGE>
9. Transfer Tax and Other Disbursements
The Trust shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exempt transfers and/or deliveries of any such securities.
10. Concerning Custodian
Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith upon
any certificate herein described or certified copy of any resolution of the
Board, and may rely on the genuineness of any such document which it may in good
faith believe to have been validly executed.
The Trust agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or assessed against it or its
nominee in connection with the performance of this Agreement, except such as may
arise from its or its nominee's own bad faith, negligent action, negligent
failure to act or willful misconduct. Custodian is authorized to charge any
account of the Fund for such items. In the event of any advance of cash for any
purpose made by Custodian resulting from orders or instructions of the Trust, or
in the event that Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with the
performance of this Agreement, except such as may arise from its or its
nominee's own bad faith, negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Trust shall be
security therefor to the extent therefor, and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of the Fund's assets to the extent necessary to obtain
reimbursement.
Custodian agrees to indemnify and hold harmless the Trust from all charges,
expenses, assessments, and claims/liabilities (including reasonable counsel
fees) incurred or assessed against it in connection with its performance of this
Agreement, except such as may arise from the Trust's own bad faith, negligent
action, negligent failure to act, or willful misconduct.
<PAGE>
11. Subcustodians
Custodian is hereby authorized to engage another bank or trust company
as a subcustodian for all or any part of the Trust's assets, so long as any such
bank or trust company is itself qualified under the 1940 Act and the rules and
regulations thereunder and provided further that, if the Custodian utilizes the
services of a subcustodian, the Custodian shall remain fully liable and
responsible for any losses caused to the Trust by the subcustodian as fully as
if the Custodian was directly responsible for any such losses under the terms of
this Agreement.
Notwithstanding anything contained herein, if the Trust requires the
Custodian to engage specific subcustodians for the safekeeping and/or clearing
of assets, the Trust agrees to indemnify and hold harmless Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such subcustodian in regard to the Trust's assets, except as may
arise from Custodian's own bad faith, negligent action, negligent failure to act
or willful misconduct.
12. Reports by Custodian
Custodian shall furnish the Trust periodically as agreed upon with a
statement summarizing all transactions and entries for the account of Trust.
Custodian shall furnish to the Trust, at the end of every month, a list of the
portfolio securities for the Fund showing the aggregate cost of each issue. The
books and records of Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at reasonable times by officers of, and by
auditors employed by, the Trust.
13. Termination or Assignment
This Agreement may be terminated by the Trust, or by Custodian, on
ninety (90) days notice, given in writing and sent by registered mail to:
Firstar Trust Company
Attn.: Mutual Fund Services
615 East Michigan Street
Milwaukee, WI 53202
or to the Trust at:
Thomas White International, Ltd.
One Financial Place, Suite 3900
440 South LaSalle Street
Chicago, IL 60605
as the case may be. Upon any termination of this Agreement, pending appointment
of a successor to Custodian or a vote of the shareholders of the Fund to
dissolve or to function without a custodian of its cash, securities and other
property, Custodian shall not deliver cash, securities or other property of the
Fund to the Trust, but may deliver them to a bank or trust company of its own
selection that meets the requirements of the 1940 Act as a Custodian for the
Trust to be held under terms of this Agreement, provided, however, that
Custodian shall not be required to make any such delivery or payment until full
payment shall have been made by the Trust of all liabilities constituting a
charge on or against the properties then held by Custodian or on or against
Custodian, and until full payment shall have been made to Custodian of all its
fees, compensation, costs and expenses, subject to the provisions of Section 10
of this Agreement.
<PAGE>
This Agreement may not be assigned by Custodian without the consent of
the Trust, authorized or approved by a resolution of its Board of Trustees.
14. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Trustees of the Trust approves by resolution the
use of such central securities clearing agency or securities depository.
15. Records
Custodian shall keep records relating to its services to be performed
hereunder, in the form and manner, and for such period, as it may deem advisable
and is agreeable to the Trust but not inconsistent with the rules and
regulations of appropriate government authorities, in particular Section 31 of
the 1940 Act and the rules thereunder. Custodian agrees that all such records
prepared or maintained by the Custodian relating to the services performed by
Custodian hereunder are the property of the Trust and will be preserved,
maintained, and made available in accordance with such section and rules of the
1940 Act and will be promptly surrendered to the Trust on and in accordance with
its request.
16. Governing Law
This Agreement shall be governed by Wisconsin law. However, nothing
herein shall be construed in a manner inconsistent with the 1940 Act or any rule
or regulation promulgated by the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or one or more counterparts as of the day
and year first written above.
LORD ASSET MANAGEMENT TRUST FIRSTAR TRUST COMPANY
By: By:
Attest: Attest:
<PAGE>
Custody Services
Annual Fee Schedule - Domestic Funds
Exhibit A
Separate Series of Lord Asset Management Trust
Name of Series Date Added
Thomas White American Growth Fund November 1, 1998
Annual fee based upon market value
2 basis points per year
Minimum annual fee per fund - $3,000
Investment transactions (purchase, sale, exchange, tender, redemption, maturity,
receipt, delivery):
$12.00 per book entry security (depository or Federal Reserve system)
$25.00 per definitive security (physical)
$25.00 per mutual fund trade
$75.00 per Euroclear
$8.00 per principal reduction on pass-through
certificates
$35.00 per option/futures contract
$15.00 per variation margin
$15.00 per Fed wire deposit or withdrawal
Variable Amount Demand Notes: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge, which is 1/4
of 1%, is deducted from the variable amount note income at the time it is
credited to your account.
Plus out-of-pocket expenses, and extraordinary expenses based upon complexity
Fees and out-of-pocket expenses are billed to the fund monthly, based upon
market value at the beginning of the month
SERVICING AGREEMENT
Gentleman:
We wish to enter into this Servicing Agreement with you concerning
provision of support services to your shareholders ("Shareholders") who may from
time to time beneficially own shares of the Series A Common Stock of any Fund
except the Institutional Money Market Fund offered by Firstar Funds, Inc.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide, either directly or through your agents,
including your transfer agent, the following support services to Shareholders
who may from time to time beneficially own Series A shares:1 (i) processing
dividend and distribution payments from us on behalf of Shareholders; (ii)
providing information periodically to Shareholders showing their positions in
Series A Shares; (iii) arranging for bank wires; (iv) responding to Shareholder
inquiries relating to the services performed by you ; (v) providing
subaccounting with respect to Series A shares beneficially owned by Shareholders
or the information to us necessary for subaccounting; (iv) if required by law,
forwarding shareholder communication from us (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to Shareholders; (vii) processing exchange and redemption
requests from Shareholders and placing net exchange and redemption orders with
our service contractors; (viii) assisting Shareholders in changing dividend
options, account designations and addressees; (ix) developing, monitoring and
providing ongoing consulting services regarding expedited purchase, redemption
and exchange programs (the " Program") relating to the purchase of Series A
Shares by Shareholders who also won shares of other unaffiliated investment
companies; (x) reviewing the description of the Program in the materials
prepared by us and such other investment companies for distribution to
Shareholders; (xi) responding to telephone inquiries from Shareholders regarding
the Programs and their investments in Series A Shares; (xii) acting as a liaison
between shareholders and us, including assistance in correcting errors and
resolving problems; (xiii) providing such statistical and other information as
we may reasonably request or may be necessary for us to comply with applicable
federal and state laws; and (xiv) providing such other similar services as we
may reasonably request to the extent you are permitted to do sp under applicable
statutes, rules and regulations.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be an part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services and assistance to Shareholders.
- --------------------------------------------------------------------------------
1 Services may be modified or omitted in the particular case and items
renumbered.
<PAGE>
Section 3. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning us of the Series A Shares
except those contained in our then current prospectuses and statements of
additional information for Series A Shares, copies of which will be supplied by
us to you, or in such supplemental literature or advertising as may be
authorized by us in writing.
Section 4. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for us in
any matter or in any respect. By your written acceptance of this Agreement,
except as provided below you agree to and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you or your
officers, employees or agents regarding your responsibilities hereunder or the
purchase, redemption, transfer or registration of Series A Shares (or orders
relating to the same) by or on behalf of Shareholders. We hereby agree to and do
release, indemnify and hold you harmless from and against any and all direct or
indirect losses resulting from any materially mistatements or omissions
contained in any prospectus, statement of additional information, supplemental
sales literature or advertising provided to you pursuant to Section 3 of this
agreement. You and your employees will, upon request, be reasonably available
during normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by
you hereunder, we will pay to you, and you will accept as full payment therefor,
a fee at the annual rate of 0 of 1% of the average daily net asset value of the
Series A Shares beneficially owned by your Shareholders (the "Shareholders'
Series A Shares"), which fee will be computed daily and payable monthly. For
purposes of determining the fees payable under this Section 5, the average daily
net asset value of the Shareholders' Series A Shares will by computed in the
manner specified in our Registration Statement (as the same is in effect from
time to time) in connection with the computation of the net asset value of
Series A Shares for purposes of purchases and redemptions. The fee rate stated
above may be prospectively increased or decreased by us, in our sole discretion,
at any time upon notice to you. Further, we may, in our discretion and without
notice, suspend or withdraw the sale of Series A Share, including the sale of
Series A Shares to you for the account of any Shareholder or Shareholders. All
fees payable by Firstar Funds under this Agreement with respect to the Series A
Shares of a particular Fund shall be borne by, and be payable entirely out of
the assets allocable to, said Series A Shares; and no other Fund or series of
Shares offered by Firstar Funds shall be responsible for such fees.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by us pursuant to this Agreement will provide to our Board of
Directors, and our Directors will review, at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made. In addition, you will furnish us or our designees with such information as
we or they may reasonably request (including, without limitation, periodic
certifications confirming the provision to Shareholders of the services
described herein), and will otherwise reasonably cooperate with us and our
designees (including, without limitation, any auditors designated by us), in
connection with the preparation of reports to our Board of Directors concerning
this Agreement and the monies paid or payable by us pursuant hereto, as well as
any other reports or filings that may be required by law.
<PAGE>
Section 7. We may enter into other similar Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that the services provided by you under this Agreement will in
no event be primarily intended to result in the sale of Series A Shares.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until February 28, 1999, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by us in the manner
described in Section 12. This Agreement is terminable with respect to the Series
A Shares of any Fund, without penalty, at any time by us (which termination may
be by a vote of a majority of the Disinterested Directors as defined in Section
12) or by you upon notice to the other party hereto. This Agreement will also
terminate automatically in the event of its assignment (as defined in the
Investment Company Act of 1940).
Section 10. All notices and other communications to either you or us
will be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the following addresses.
<TABLE>
<S> <C>
Correspondences to Firstar: Correspondences to Lord Asset Management Trust
- ---------------------------- ----------------------------------------------
Firstar Mutual Fund Services, LLC Thomas White International, Ltd.
615 East Michigan Avenue 440 South LaSalle Street, Suite 3900
Milwaukee, WI 53202 Chicago, IL 60605
</TABLE>
Section 11. This Agreement will be construed in accordance with the
laws of the State of Wisconsin.
Section 12. This Agreement has been approved by vote of a majority of
(i) our Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940) of us and have no
direct or indirect financial interest in the operation of the Service Plan
adopted by us or in any agreement related thereto cast in person at a meeting
called for the purpose of voting on such approval ("Disinterested Directors").
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us.
Very truly yours,
FIRSTAR FUNDS, INC.
By:________________________
Date:____________________ (Authorized Officer)
Accepted and Agreed to:
Lord Asset Management Trust
By:________________________
Date:_____________________ (Authorized Officer)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated November 21, 1997, on the
financial statements of the Thomas White World Fund series of Lord Asset
Management Trust referred to therein, in Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A, File No. 33-75138 as filed with the
Securities and Exchange Commission.
We also consent to the reference to our Firm in the Prospectus under the caption
"Financial Information" and in the Statement of Additional Information under the
caption "Independent Accountants."
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
New York, New York
October 30, 1998
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</TABLE>
