BRANDES INTERNATIONAL FUND
BRANDES SMALL CAP INTERNATIONAL FUND
12750 High Bluff Drive
San Diego, CA 92130
(619) 755-0239
BRANDES INVESTMENT TRUST (the "Trust") is a mutual fund consisting of two
separate series: the Brandes International Fund and the Brandes Small Cap
International Fund. Each Fund seeks to achieve long-term capital appreciation by
investing principally in equity securities of foreign issuers. The International
Fund invests primarily in equity securities of companies with market
capitalizations greater than $1 billion. The Small Cap International Fund
invests primarily in equity securities of companies with market capitalizations
of $1 billion or less. Brandes Investment Partners, L.P. (the "Advisor") serves
as investment advisor to the Trust.
This Prospectus describes two separate classes of shares of each of the
Funds: Class A Shares, offered at their net asset value plus a sales charge of
4.75%, or less, depending on the amount invested; and Class C Shares, offered at
their net asset value without a sales charge, but subject to a 1.00% contingent
deferred sales charge upon certain early redemptions. Both classes of shares
also pay distribution and service fees. See "Purchases" and "Redeeming Shares"
at pages 12 and 18, respectively.
Neither of the Funds is insured or guaranteed by the U.S. Government or any
U.S. Government agency and are subject to investment risk, including possible
loss of principal.
This Prospectus sets forth basic information about the Trust that
prospective investors should know before investing. It should be read and
retained for future reference. A Statement of Additional Information dated April
1, 1996, as may be amended from time to time, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. This Statement
of Additional Information is available without charge by calling the number
listed above or upon written request to the Trust at the address given above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April 1, 1996
(Supplemented May 1, 1996)
<PAGE>
TABLE OF CONTENTS
Expense Table ............................................................. 2
Financial Highlights ...................................................... 4
Investment Objective, Policies and Risks .................................. 5
Other Securities and Investment Techniques and Risks ...................... 8
Investment Restrictions ................................................... 11
Organization and Management ............................................... 11
Purchases ................................................................. 12
Shareholder Services ...................................................... 17
Redeeming Shares .......................................................... 18
Distribution Plan ......................................................... 19
Shareholder Service Plan .................................................. 20
Dividends, Distributions and Tax Status ................................... 20
Performance Information ................................................... 21
General Information ....................................................... 22
BRANDES INVESTMENT TRUST (the "Trust") is a diversified registered open-end
management investment company or mutual fund. The Trust consists of two separate
Funds, each with its own assets, liabilities and shares: the Brandes
International Fund (the "International Fund") and the Brandes Small Cap
International Fund (the "Small Cap Fund") (collectively, the "Funds"). The
investment objective of each of the Funds is long-term capital appreciation. The
Funds each offer three separate classes of shares; the Class A and Class C
shares of each Fund are described in this Prospectus. Class A Shares of each
Fund are offered to investors at their net asset value plus a sales charge of
4.75% or less, depending upon the amount invested. Class C Shares of each Fund
are offered to investors at their net asset value without an initial sales
charge, but are subject to a 1.00% contingent deferred sales charge upon certain
early redemptions. Both classes of shares also pay distribution and service
fees. See "Purchases" and "Redeeming Shares" at pages 12 and 18, respectively.
The minimum initial investment in a Fund is $2,500 ($1,000 and $100,
respectively, for retirement plans and automatic purchase arrangements). The
minimum subsequent investment is $100.
Like all equity investments, an investment in either Fund involves certain
risks. The value of the Funds' shares will fluctuate with market conditions, and
an investor's shares when redeemed may be worth more or less than their original
cost. International investing, especially in small capitalization companies,
also is subject to certain additional risks, which are described on page 5. The
Funds may invest in certain options and stock index futures transactions, which
may be regarded as transactions in derivative securities that involve special
risks. These transactions and the related risks are described under "Options"
and "Stock Index Futures" at pages 9 and 10 of the prospectus.
EXPENSE TABLE
Expenses are among several factors to consider when investing in a Fund.
The purpose of the following fee table is to provide an understanding of the
various costs and expenses which may be borne directly or indirectly by an
investment in a Fund. The expenses for the International Fund are based on its
actual expenses for the fiscal year ended October 31, 1995; the expenses for the
Small Cap Fund are estimated for its first year of operations. Actual expenses
in the future may be more or less than those shown.
2
<PAGE>
<TABLE>
<CAPTION>
International Fund Small Cap Fund
------------------ --------------
Class Class Class Class
A C A C
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge on purchases
(as % of offering price) 4.75% None 4.75% None
Sales charge on reinvested dividends None None None None
Maximum contingent deferred sales charge
(as % of redemption proceeds) None(1) 1.00% None(1) 1.00%
Redemption fee2 None None None None
Total Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 1.00% 1.00% 1.00% 1.00%
12b-1 expenses 0.25% 0.75% 0.25% 0.75%
Other expenses:
Shareholder service fees 0.10% 0.25% 0.10% 0.25%
Other expenses (after reimbursement)3 0.50% 0.50% 0.50% 0.50%
---- ---- ---- ----
Total operating expenses (after reimbursement)3 1.85% 2.50% 1.85% 2.50%
==== ==== ==== ====
</TABLE>
1 Although purchases of $1 million or more are not subject to an initial sales
charge, a contingent deferred sales charge of 1.00% applies on certain
redemptions made within 12 months of purchase. See "Purchases-Contingent
Deferred Sales Charge on Redemptions of Class A Shares."
2A $7 charge is deducted on redemptions paid by wire transfer. See "Redeeming
Shares-Redemption Payments."
3The Advisor has voluntarily agreed to reimburse the Funds through at least
October 31, 1996 to ensure that the Funds' total operating expenses will not
exceed the percentages set forth above. Shareholders will receive 30 days notice
prior to any change in this policy. In the absence of this reimbursement, "Other
expenses" of each class of shares of the International Fund during the fiscal
year ended October 31, 1995 would have been 6.58% and "Total operating expenses"
of the Class A Shares and Class C Shares of the International Fund would have
been 7.93% and 8.58%, respectively. In the absence of this reimbursement, it is
estimated that "Other expenses" of each class of shares of the Small Cap Fund
for the fiscal year ending October 31, 1996 would be 6.12% (annualized), and
"Total operating expenses" of the Class A Shares and Class C Shares would be
7.47% and 8.12% (annualized), respectively. To the extent that the Advisor
reimburses the Funds, the Funds will repay the Advisor when operating expenses
(before reimbursement) are less than the expense limitation. Thus, overall
operating expenses in the future may not fall below the expense limitation until
the Advisor has been fully repaid for any of its reimbursements to the Funds;
see "Operating Expenses; Expense Limitation," page 11.
The purpose of the preceding table is to assist the investor in
understanding the various costs and expenses that an investor in the Funds will
bear directly or indirectly. For more information regarding costs and expenses,
see "Organization and Management," page 11. Long-term shareholders may pay more
than the economic equivalent of the maximum front-end sales charges permitted by
the rules of the National Association of Securities Dealers. See "Distribution
Plan," page 19.
Example of Effect of Fund Expenses
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in either Fund, assuming a 5% annual return:
One Year Three Years
-------- -----------
Class A Shares $65 $103
Class C Shares
Assuming complete redemption at the end of the period,
with contingent deferred sales charge (first year only) $35 $78
Assuming no redemption $25 $78
3
<PAGE>
The Example shown on the previous page should not be considered a
representation of past or future expenses, and actual expenses may be greater or
less than those shown. In addition, although federal regulations require the use
of an assumed 5% annual return in preparing the Example, a Fund's actual return
may be higher or lower. See "Organization and Management."
FINANCIAL HIGHLIGHTS
(For a share outstanding of the International Fund throughout the period)
The following information regarding the International Fund has been audited
by Ernst & Young LLP, independent accountants, whose unqualified report covering
the fiscal period ended October 31, 1995 is included in the Statement of
Additional Information. This information should be read in conjunction with the
financial statements and accompanying notes thereto which also appear in the
Statement of Additional Information. Further information about the International
Fund's performance is included in the annual report to shareholders for the
fiscal period ended October 31, 1995, which may be obtained without charge by
writing or calling the address or telephone number on the cover page. Financial
highlights for the Small Cap Fund were not available at this Prospectus date,
because that Fund had not yet commenced operations.
<TABLE>
<CAPTION>
For the period March 6, 1995* through October 31, 1995: International Fund
------------------
Class A Class C
------- -------
<S> <C> <C>
Net asset value, beginning of period $ 12.50 $ 12.50
Income (loss) from investment operations:
Net investment income .15** .10**
Net unrealized depreciation on investments (.45)** (.39)**
Net realized gain on investments 1.06*** 1.01***
----- -----
Total from investment operations .76 .72
----- -----
Net Asset Value, End of Period $ 13.26 $ 13.22
===== =====
Total return 9.39%+ 8.89%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $ 5,188,105 $ 5,749,496
Ratio of expenses to average net assets:
Before expense reimbursement 7.93%+ 8.58%+
After expense reimbursement 1.85%+ 2.50%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement (4.41)%+ (4.95)%+
After expense reimbursement 1.67%+ 1.13%+
Portfolio turnover rate 0% 0%
Average commission rate paid $ .0426 $ .0426
</TABLE>
*Commencement of operations
**Calculated based on average shares outstanding.
***The amount shown in this caption for a share outstanding throughout the
period may not correspond with the change in realized gains and losses in the
portfolio securities for the period because of the timing of sales and
repurchases of portfolio shares in relation to fluctuating market values for the
portfolio.
+Annualized.
4
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The International Fund and the Small Cap Fund each have the investment
objective of long-term capital appreciation, and each Fund seeks to achieve its
objective by investing principally in equity securities of foreign issuers. No
assurance can be given that either Fund will achieve its investment objective.
Brandes Investment Partners, L.P. serves as investment advisor to the Funds.
International Investing
During the past decade, there has been significant growth in foreign
capital markets. Because of this growth, nearly two-thirds of the world's equity
value is located outside of the United States. Accordingly, the Advisor believes
that significant investment opportunities exist throughout the world.
oThe International Fund normally invests at least 65% of its total assets
in equity securities of foreign issuers with market capitalizations greater than
$1 billion. However, the International Fund may invest up to 25% of its total
assets in small capitalization companies, i.e., those with market
capitalizations of $1 billion or less. (Small capitalization companies are
generally subject to greater risks than companies with larger capitalizations,
as discussed below.)
oThe Small Cap Fund normally invests at least 65% of its total assets in
equity securities of foreign issuers with market capitalizations of $1 billion
or less at the time of purchase. If the market capitalization of a company whose
securities are held by the Small Cap Fund increases to an amount greater than $1
billion, the Fund may, but is not required to, sell its holdings in those
securities. Small capitalization companies have historically offered greater
growth potential than larger ones, but they are often overlooked by investors.
However, small capitalization companies often have limited product lines,
markets or financial resources and may be dependent on one person or a few key
persons for management. The securities of such companies may be subject to more
volatile market movements than securities of larger, more established companies,
both because the securities typically are traded in lower volume and because the
issuers typically are more subject to changes in earnings and prospects. Because
the Small Cap Fund applies a U.S. size standard on a global basis, it may invest
in issuers which might, in some countries, rank among the largest companies in
terms of capitalization.
Under normal circumstances, each Fund will invest at least 65% of its total
assets in equity securities of issuers located in at least three countries other
than the United States. Countries in which the Funds may invest include, but are
not limited to, the nations of Western Europe, North and South America,
Australia and Asia. Equity securities include common stocks, preferred stocks
and securities convertible into common stocks. It is anticipated that securities
generally will be purchased in the form of common stock, American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") or Global Depositary
Receipts ("GDRs"). ADRs, EDRs and GDRs, which may be sponsored or unsponsored,
are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying foreign securities. The issuers of securities
underlying unsponsored ADRs, EDRs and GDRs are not obligated to disclose
material information in the United States and, accordingly, there may not be a
correlation between such information and the market value of the Depositary
Receipts.
In seeking out foreign securities for purchase, the Advisor does not
attempt to match the security allocations of foreign stock market indices.
Therefore, a Fund's country weightings may differ significantly
5
<PAGE>
from country weightings found in published foreign stock indices. For example,
the Advisor may choose not to invest a Fund's assets in a country whose stock
market, at any given time, may comprise a large portion of a published foreign
stock market index. At the same time, the Advisor may invest a Fund's assets in
countries whose representation in such an index may be small or non-existent.
The Advisor selects stocks for each Fund based on their individual merits and
not necessarily on their geographic locations.
THE ADVISOR WILL APPLY THE PRINCIPLES OF VALUE INVESTING IN THE ANALYSIS
AND SELECTION OF SECURITIES OF FOREIGN COMPANIES FOR THE FUNDS' INVESTMENT
PORTFOLIOS.
Value Investing
The Advisor is committed to the use of the Graham and Dodd Value Investing
approach as introduced in the classic book Security Analysis. Utilizing this
philosophy, the Advisor views stocks as parts of businesses which are for sale.
It seeks to purchase a diversified group of these businesses at prices its
research indicates are well below their true long-term, or intrinsic, value. By
purchasing stocks whose current prices are believed to be considerably below
their intrinsic value, the Advisor believes it can buy not only a possible
margin of safety against price declines, but also an attractive opportunity for
profit over the business cycle.
In estimating a company's true long-term value, the Advisor uses sources of
information such as company reports, filings with the Securities and Exchange
Commission (the "SEC"), computer databases, industry publications, general and
business publications, brokerage firm research reports, and interviews with
company management. The Advisor's analysis is focused on fundamental
characteristics of a company, including, but not limited to, book value, cash
flow and capital structure, as well as management's record and broad industry
issues. Once the intrinsic value of a company is estimated, this value is
compared to the price of the stock. If the price is substantially lower than the
estimated intrinsic value, the stock may be purchased. The Advisor believes that
the margin between current price and estimated intrinsic value should provide a
margin of safety against price declines. In addition, over a business cycle of
three to five years, the Advisor believes the market should begin to recognize
the company's value and drive its price up toward its intrinsic value. As a
result, the investor could realize profits. Of course, there can be no assurance
that companies selected using the value investing approach will generate profits
or that the Advisor's assessment of intrinsic value will be correct.
Risks of International Investing
Investments in foreign securities involve special risks. These include
currency fluctuations, a risk which was not addressed by Graham and Dodd, whose
work focused on U.S. stocks. The Advisor has applied the value method of stock
selection to foreign securities. By looking outside the U.S. for investment
opportunities, the Advisor believes that the likelihood of finding undervalued
companies is increased. The Advisor does not believe that currency fluctuation,
over the long term, on a group of broadly diversified companies, representing a
number of currencies and countries, significantly affects portfolio performance.
In having this ability to search world-wide for undervalued companies, rather
than being limited to searching only among U.S. stocks, the Advisor believes
that over the long term the benefits of strict value investing apply just as
well with an added currency risk as they would without such risk.
There are additional risks in international investing, including political
or economic instability in the country of issue and the possible imposition of
exchange controls or other laws or restrictions. In addition, securities prices
in foreign markets are generally subject to different economic, financial,
political and social factors than are the prices of securities in U.S. markets.
With respect to some foreign countries
6
<PAGE>
there may be the possibility of expropriation or confiscatory taxation,
limitations on liquidity of securities or political or economic developments
which could affect the foreign investments of the Funds. Moreover, securities of
foreign issuers generally will not be registered with the SEC, and such issuers
will generally not be subject to the SEC's reporting requirements. Accordingly,
there is likely to be less publicly available information concerning certain of
the foreign issuers of securities held by the Funds than is available concerning
U.S. companies. Foreign companies are also generally not subject to uniform
accounting, auditing and financial reporting standards or to practices and
requirements comparable to those applicable to U.S. companies. There may also be
less government supervision and regulation of foreign broker-dealers, financial
institutions and listed companies than exists in the U.S. These factors could
make foreign investments, especially those in developing countries, more
volatile. All of the above issues should be considered before investing in
either Fund.
Emerging Markets and Related Risks
Each Fund may invest up to 25% of its assets in securities of companies
located in countries with emerging securities markets. Emerging markets are the
capital markets of any country that in the opinion of the Advisor is generally
considered a developing country by the international financial community.
Currently, these markets include, but are not limited to, the markets of
Argentina, Brazil, Chile, China, Colombia, Czech Republic, Greece, Hungary,
India, Indonesia, Israel, Korea, Malaysia, Mexico, Pakistan, Peru, the
Philippines, Poland, Portugal, Slovak Republic, Sri Lanka, Taiwan, Thailand,
Turkey, Venezuela and countries that comprise the former Soviet Union. As
opportunities to invest in other emerging markets countries develop, the Funds
expect to expand and diversify further the countries in which they invest.
Investing in emerging market securities involves risks which are in
addition to the usual risks inherent in foreign investments. Some emerging
markets countries may have fixed or managed currencies that are not
free-floating against the U.S. dollar. Further, certain currencies may not be
traded internationally. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Funds' portfolio securities are denominated may have a detrimental
impact on the Funds.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
Emerging securities markets typically have substantially less volume than
U.S. markets, securities in many of such markets are less liquid, and their
prices often are more volatile than securities of comparable U.S. companies.
Such markets often have different clearance and settlement procedures for
securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets which the Funds desire to invest in emerging
markets may be uninvested. Settlement problems in emerging markets countries
also could cause the Funds to miss attractive investment opportunities.
Satisfactory custodial services may not be available in some emerging markets
7
<PAGE>
countries, which may result in the Funds' incurring additional costs and delays
in the transportation and custody of such securities.
OTHER SECURITIES AND INVESTMENT TECHNIQUES AND RISKS
Short-Term Investments
At times either Fund may invest in short-term cash equivalent securities
either for temporary, defensive purposes, or as part of its overall investment
strategy. These securities consist of high quality debt obligations maturing in
one year or less from the date of purchase, such as U.S. Government securities,
certificates of deposit, bankers' acceptances and commercial paper. High quality
means the obligations have been rated at least A-1 by Standard & Poor's
Corporation ("S&P") or Prime-1 by Moody's Investor's Service, Inc. ("Moody's"),
have an outstanding issue of debt securities rated at least AA by S&P or Aa by
Moody's, or are of comparable quality in the opinion of the Advisor.
Repurchase Agreements
Short-term investments also include repurchase agreements with respect to
the high quality debt obligations listed above. A repurchase agreement is a
transaction in which a Fund purchases a security and, at the same time, the
seller (normally a commercial bank or broker-dealer) agrees to repurchase the
same security (and/or a security substituted for it under the repurchase
agreement) at an agreed-upon price and date in the future. The resale price is
in excess of the purchase price in that it reflects an agreed-upon market
interest rate effective for the period of time during which the Fund holds the
securities. The majority of these transactions run from day to day and not more
than seven days from the original purchase. A Fund's risk is limited to the
ability of the seller to pay the agreed-upon sum on the delivery date; in the
event of bankruptcy or the default by the seller, there may be possible delays
and expenses in liquidating the instrument purchased, decline in its value and
loss of interest. The securities will be marked to market every business day so
that their value is at least equal to the amount due from the seller, including
accrued interest. The Advisor will also consider the credit-worthiness of any
bank or broker-dealer involved in repurchase agreements under procedures adopted
by the Trust's Board of Trustees.
U.S. Government Securities
Each Fund may invest in securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. U.S. Government securities
include direct obligations issued by the United States Treasury, such as
Treasury bills, certificates of indebtedness, notes and bonds. U.S. Government
agencies and instrumentalities that issue or guarantee securities include, but
are not limited to, the Federal Home Loan Banks, the Federal National Mortgage
Association, and the Student Loan Marketing Association. Except for U.S.
Treasury securities, obligations of U.S. Government agencies and
instrumentalities may or may not be supported by the full faith and credit of
the United States. Some, such as those of the Federal Home Loan Banks, are
backed by the right of the issuer to borrow from the Treasury, others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations, while still others, such as the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be
8
<PAGE>
able to assert a claim against the United States itself in the event the agency
or instrumentality does not meet its commitment.
When-Issued Securities
Each Fund may purchase securities on a when-issued or delayed-delivery
basis, generally in connection with an underwriting or other offering.
When-issued and delayed-delivery transactions occur when securities are bought
with payment for and delivery of the securities scheduled to take place at a
future time, beyond normal settlement dates, generally from 15 to 45 days after
the transaction. No interest accrues to the purchaser during the period before
delivery. There is a risk in these transactions that the value of the securities
at settlement may be more or less than the agreed upon price, or that the party
with which a Fund enters into such a transaction may not perform its commitment.
A Fund will segregate liquid assets, such as cash, U.S. Government securities
and other liquid, high quality debt securities in an amount sufficient to meet
its payment obligations with respect to these transactions.
Securities Lending
Each Fund may lend its securities in an amount not exceeding 30% of its
assets to financial institutions such as banks and brokers if the loan is
collateralized in accordance with applicable regulations. Under the present
regulatory requirements which govern loans of portfolio securities, the loan
collateral must, on each business day, at least equal the value of the loaned
securities and must consist of cash, letters of credit of domestic banks or
domestic branches of foreign banks, or securities of the U.S. Government. Loans
of securities involve risks of delay in receiving additional collateral or in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. However, such securities
lending will be made only when, in the opinion of the Advisor, the income to be
earned from the loans justifies the attendant risks. Loans are subject to
termination at the option of the Funds or the borrower.
Options
Each Fund may write (sell) covered call options on individual securities
and on stock indices and engage in related closing transactions. A covered call
option on a security is an agreement by a Fund, in exchange for a premium, to
sell a particular portfolio security if the option is exercised at a specified
price before a set date. An option on a stock index gives the option holder the
right to receive, upon exercising the option, a cash settlement amount based on
the difference between the exercise price and the value of the underlying stock
index. Risks associated with writing covered options include the possible
inability to effect closing transactions at favorable prices and an appreciation
limit on the securities set aside for settlement. Each Fund may also purchase
call options in closing transactions, to terminate option positions written by
the Fund. There is no assurance of liquidity in the secondary market for
purposes of closing out covered call option positions.
Each Fund may purchase put and call options with respect to securities
which are eligible for purchase by the Fund and with respect to various stock
indices for the purpose of hedging against the risk of unfavorable price
movements adversely affecting the value of the Fund's securities or securities
the Fund intends to buy. A put option on a security is an agreement by the
writer of the option, in exchange for a premium, to purchase the security from a
Fund, if the option is exercised, at a specified price before a set date. A Fund
may also sell put and call options in closing transactions.
9
<PAGE>
Special risks are associated with the use of options. There can be no
guarantee of a correlation between price movements in the option and in the
underlying securities or index. A lack of correlation could result in a loss on
both the Fund's portfolio holdings and the option so that the Fund's return
might have been better had the option not been purchased or sold. There can be
no assurance that a liquid market will exist at a time when the Fund seeks to
close out an option position. A Fund may purchase a put or call option only if
the value of its premium, when aggregated with the premiums on all other options
held by the Fund, does not exceed 5% of the Fund's total assets.
Stock Index Futures
Each Fund may buy and sell stock index futures contracts for bona fide
hedging purposes, e.g., in order to hedge against changes in prices of the
Fund's securities. No more than 25% of a Fund's assets will be hedged.
A stock index futures contract is an agreement pursuant to which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made. If the Advisor
expected general stock market prices to rise, it might purchase a stock index
futures contract as a hedge against an increase in prices of particular equity
securities it wanted ultimately to buy. If in fact the stock index did rise, the
price of the equity securities intended to be purchased might also increase, but
that increase would be offset in part by the increase in the value of the Fund's
futures contract resulting from the increase in the index. On the other hand, if
the Advisor expected general stock market prices to decline, it might sell a
futures contract on the index. If that index did in fact decline, the value of
some or all of the equity securities held by the Fund might also be expected to
decline, but that decrease would be offset in part by the increase in the value
of the futures contract.
There is no assurance that it will be possible at any particular time to
close a futures position. In the event that a Fund could not close a futures
position and the value of the position declined, the Fund would be required to
continue to make daily cash payments to the other party to the contract to
offset the decline in value of the position. There can be no assurance that
hedging transactions will be successful, as there may be an imperfect
correlation between movements in the prices of the futures contracts and of the
securities being hedged, or price distortions due to market conditions in the
futures markets. Successful use of futures contracts is subject to the Advisor's
ability to predict correctly movements in the direction of interest rates,
market prices and other factors affecting the value of securities.
Illiquid and Restricted Securities; Short Sales Against the Box
Each Fund may invest up to 5% of its net assets in illiquid securities,
including (i) securities for which there is no readily available market; (ii)
securities which may be subject to legal restrictions on resale (so-called
"restricted securities") other than Rule 144A securities noted below; (iii)
repurchase agreements having more than seven days to maturity; and (iv) fixed
time deposits subject to withdrawal penalties (other than those with a term of
less than seven days). Illiquid securities do not include those which meet the
requirements of Securities Act Rule 144A and which the Trustees have determined
to be liquid based on the applicable trading markets. Each Fund is also
permitted to engage in short sales "against the box." Such short sales are a
method of locking in unrealized capital gains without current recognition of
such gains.
10
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions, which are described
fully in the Statement of Additional Information. Like the Funds' investment
objectives, certain of these restrictions are fundamental and may be changed
only by a majority vote of a Fund's outstanding shares.
ORGANIZATION AND MANAGEMENT
The Trust is organized as a Delaware business trust, and is registered as
an open-end diversified management investment company. The Trust's Board of
Trustees decides on matters of general policy and reviews the activities of the
Advisor, Distributor and Administrator. The Trust's officers conduct and
supervise its daily business operations.
The Advisor
The Advisor is a limited partnership organized in May 1995 as the successor
to its general partner, Brandes Investment Partners, Inc., which was founded in
1974. The Advisor currently manages over $6 billion in assets for various
clients, including corporations, public and corporate pension plans, foundations
and charitable endowments, and individuals. Charles H. Brandes, who owns over
25% of the common stock of Brandes Investment Partners, Inc., serves as a
Trustee of the Trust. The Advisor's offices are located at 12750 High Bluff
Drive, San Diego, California 92130.
Management Fee. Subject to the direction and control of the Trustees, the
Advisor formulates and implements an investment program for the Funds, including
determining which securities should be bought and sold. The Advisor also
provides certain officers for the Funds. For its services, the Advisor receives
a fee, accrued daily and paid monthly at the annual rate of 1.00% of average net
assets. This fee is higher than that charged by most other investment companies.
Managers of the Funds. The Funds are team-managed by the Advisor's
Investment Committee, whose members are firm principals and/or portfolio
managers. Current members of the Investment Committee are Charles H. Brandes,
CFA; Jeffrey A. Busby, CFA; Glenn R. Carlson, CFA; Douglas C. Edman; Robert J.
Gallagher; Ann W. Humphreville; Marnelle A. Marchese, CFA; Jeffrey R. Meyer,
CFA; William A. Pickering, CFA; Ann M. Priebe; James A. Shore, CFA; and Brent V.
Woods, J.D.
Operating Expenses; Expense Limitation
The Funds are responsible for paying their operating expenses, including,
but not limited to, management and administrative fees, legal and auditing fees,
fees and expenses of its custodian, accounting services and shareholder
servicing agents, 12b-1 and shareholder servicing fees, Trustees' fees, the cost
of communicating with shareholders and registration fees. In order to comply
with a regulation of a state in which the Funds' shares are sold, the Advisor is
required to reduce its fees or reimburse each Fund for its annual operating
expenses which exceed the limit set by the regulation. However, the Advisor has
voluntarily agreed through at least October 31, 1996 to limit each Fund's
operating expenses to more stringent
11
<PAGE>
percentages: 1.85% in the case of Class A Shares and 2.50% in the case of Class
C Shares. Any such reductions made by the Advisor in its fees or reimbursement
of expenses with respect to a Fund are subject to reimbursement by that Fund
within the following three years, provided that the Fund is able to effect such
reimbursement while remaining within the expense limitation. Shareholders will
receive 30 days prior notice in the event the Advisor determines not to maintain
this voluntary limit in the future. The Board of Trustees has determined that it
is possible, but not probable, that the Funds will be large enough in the future
for the expense ratio to be sufficiently reduced to permit reimbursement of the
Advisor.
Portfolio Transactions and Brokerage
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Funds' portfolio transactions. These factors include, but
are not limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Funds receive prompt execution at competitive prices, the Advisor may also
consider the sale of shares of the Funds as a factor in selecting broker-dealers
for the Funds' portfolio transactions. The Advisor does not expect the portfolio
turnover rate of either Fund to exceed, under normal conditions, 50% per year.
The Administrator
Investment Company Administration Corporation (the "Administrator"),
pursuant to administration agreements with the Trust, supervises the overall
administration of the Funds including, among other responsibilities, the
preparation and filing of documents required for compliance by the Funds with
applicable laws and regulations, arranging for the maintenance of books and
records of the Funds, and supervision of other organizations that provide
services to the Funds. Certain officers of the Trust may be provided by the
Administrator. For its services, the Administrator receives a fee from the Trust
at the annual rate of 0.10% of average net assets, subject to a minimum of
$70,000 per year.
PURCHASES
General
Class A Shares of the Funds are offered to investors continuously, subject
to an initial sales charge. Class C Shares of the Funds are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
Shares and a contingent deferred sales charge payable upon certain redemptions.
The Funds' Distributor is Worldwide Value Distributors, Inc., an affiliate of
the Advisor.
In deciding whether to purchase Class A Shares or Class C Shares, an
investor should consider which class best suits the investor's individual
circumstances; i.e., whether it is more advantageous to incur an initial sales
charge and lower annual fees, or to have the entire purchase price invested in
shares of a Fund with the investment thereafter being subject to a contingent
deferred sales charge for a period of one year from the date of purchase, as
well as higher annual fees. For example, an investor who is making a large
investment may prefer to purchase Class A Shares, because the investment may
qualify for a reduced sales charge, and reduced sales charges are not applicable
in the case of purchases of Class C Shares. Moreover, all Class A Shares are
subject to lower distribution and shareholder service fees and, accordingly, may
pay
12
<PAGE>
Application Form
New Accounts
[Insert Brandes
Investment Trust Logo For
Regular Application]
Mail to: Brandes Investment Trust
c/o RSMC
P.O. Box 8987
Wilmington, Delaware 19899
Use this form only for individual, custodial, trust, profit-sharing, pension or
other plan accounts. Do NOT use this form for IRAs (unless the IRA is a
self-directed IRA with another trustee or custodian). A special form is
available for IRAs; please call (800) 543-7518 for information or assistance.
================================================================================
FUND SELECTION [ ] Brandes International Fund
[ ] Class A (front end sales charge)
[ ] Class C (contingent deferred sales
charge*)
[ ] Brandes Small Cap International Fund
[ ] Class A (front end sales charge)
[ ] Class C (contingent deferred sales
charge*)
*Contingent deferred sales charge applies to
first 12 months only.
================================================================================
INVESTMENT AMOUNT [ ] By wire (Please call (800) 543-7518 for
$ instructions)
-------------------
[ ] By check, payable to the applicable Fund,
"Brandes International Fund" or "Brandes
Small Cap International Fund"
<TABLE>
<CAPTION>
=================================================================================================================================
<S> <C> <C>
ACCOUNT
REGISTRATION
--------------------------------------------------------------------------------------------------
(For Individual First Name Middle Name or Initial Last Name Social Security Number
or
Joint Owners)
--------------------------------------------------------------------------------------------------
Joint Owner Social Security Number
Registration will be "Joint Tenants with Right of Survivorship" unless otherwise specified:
--------------------------------------------------------------------------------------------------
=================================================================================================================================
--------------------------------------------------------------------------------------------------
(For Uniform Custodian's Name (only one allowed)
[ ] Transfers
[ ] Gifts
to Minors Act --------------------------------------------------------------------------------------------------
Accounts Minor's Name (only one allowed) Minor's Social Security No.
--------------------------------------------------------------------------------------------------
State of Residence
- ---------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
(For Corporate Name of Corporation, Trust, etc.
Trust or other
Fiduciary
Accounts) --------------------------------------------------------------------------------------------------
Name and Date of Trust (continued)
--------------------------------------------------------------------------------------------------
Name(s) of Trustee(s), Beneficiary, etc. Tax ID Number
=================================================================================================================================
ADDRESS FOR
MAILINGS
--------------------------------------------------------------------------------------------------
Number and Street
--------------------------------------------------------------------------------------------------
Apartment, Floor or Room Number Telephone No. (include area code)
--------------------------------------------------------------------------------------------------
City State Zip Code
================================================================================
DISTRIBUTIONS All dividends and distributions will be
automatically reinvested in additional shares at
net asset value unless otherwise indicated by
checking the box(es) below.
[ ] Dividends In Cash [ ] Capital Gains In Cash
If you have chosen to receive your
distribution(s) in cash, you have the option of
receipt either by direct deposit into your bank
account, as identified below, or by check. Please
check one box below.
[ ] Direct Deposit [ ] Check
Please attach a voided bank check here if you
choose direct deposit.
--------------------------------------------------------------------------------------------------
Name of Bank Address of Bank
---------------------------------------------------------------------------------------------------
Bank's ABA Number Account Number
</TABLE>
================================================================================
AUTOMATIC [ ] would like checks sent to me monthly or
WITHDRAWAL quarterly, beginning in the month of ____________
PROGRAM on or about the 25th. The amount of each check
should be $____________ (minimum $100). I
understand that payments will be made by
redeeming shares from my account and that if the
rate of redemption exceeds the rate of growth of
the Fund, my account may ultimately be depleted.
This Application must be received by the 10th of
the month indicated to become effective for that
month. Account balances must be greater than
$10,000 to initiate this procedure.
================================================================================
EXCHANGES & [ ] I would like to be able to place instructions
REDEMPTIONS by telephone for the exchange of any Brandes Fund
BY TELEPHONE into other Brandes Funds, or to purchase shares
of the Money Market Portfolio of The Rodney
Square Fund (minimum $1,000).
[ ] I would like to be able to place a redemption
order by telephone and have the proceeds mailed
to my Fund account address of record or wired
directly to the bank account listed below.
I understand that these procedures are offered as
a convenience to me, and I agree that if the
identification procedures set forth in the
prospectus are followed, neither the Funds nor
the Transfer Agent will be liable for any loss,
expense or cost arising from one of these
transactions. If applicable, please attach a
voided check of the bank account below to ensure
proper credit to your account.
<TABLE>
<CAPTION>
<S> <C>
--------------------------------------------------------------------------------------------------
Name of Bank Address of Bank
--------------------------------------------------------------------------------------------------
Bank's ABA Number Account Number Name(s) on Account
</TABLE>
================================================================================
REDUCED SALES [ ] Letter of Intent: I intend over a thirteen
CHARGES month period beginning on __________ to invest an
(applies to Class A shares amount which, at the offering price, and when
only) combined with the current value of my account,
will equal in value at least $50,000. Future
purchases should be made at the price applicable
to an investment of:
[ ] $50,000 [ ] $100,000 [ ] $250,000
[ ] $500,000 [ ] $1,000,000
[ ] Other Affiliation: I am eligible to purchase
at net asset value because of the following
affiliation (call (800) 543-7518 with any
questions):
_________________________________________________
[ ] Right of Accumulation: I am eligible to
purchase shares at a reduced sales charge by
taking into account my existing holdings in Class
A Shares of either Fund. My other account
number(s)
are:___________________________________.
================================================================================
SIGNATURES:
I have received and read the Prospectus for the Fund for which I am investing
and agree to the terms; I am of legal age. I understand that the shares offered
by this Prospectus are not deposits of, or guaranteed by, Wilmington Trust
Company, nor are the shares insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. I further understand
that investment in these shares involves investment risks, including possible
loss of principal. If a corporate customer, I certify that appropriate corporate
resolutions authorizing investment in the Fund for which I am investing have
been duly adopted.
I certify under penalties of perjury that the Social Security number or taxpayer
identification number shown above is correct. Unless the box below is checked, I
certify under penalties of perjury that I am not subject to backup withholding
because the Internal Revenue Service (a) has not notified me that I am as a
result of failure to report all interest or dividends, or (b) has notified me
that I am no longer subject to backup withholding. The certification in this
paragraph is required from all nonexempt persons to prevent backup withholding
of 31% of all taxable distributions and gross redemption proceeds under the
federal income tax law.
[ ] Check here if you are subject to backup withholding.
- --------------------------------------------------------------------------------
Signature of Owner, Trustee or Custodian Signature of Joint Owner Date
================================================================================
DEALER INFORMATION
- --------------------------------------------------------------------------------
Name of Dealer Name of Representative Rep ID No.
- -------------------------------------------------------------------------------
Address of Representative's Branch Branch ID No.
<PAGE>
correspondingly higher dividends on a per share basis than Class C Shares. Even
if an investment will not qualify for reduced initial sales charges, a purchaser
may prefer Class A Shares if the Shares will be held for an extended period of
time, because, depending on the number of years the investment is held, the
accumulated continuing distribution and shareholder service charges on Class C
Shares would eventually exceed the initial sales charge plus the lower
continuing distribution and shareholder service charges on Class A Shares during
the life of the investment. However, because initial sales charges are deducted
from Class A Shares at the time of purchase, an investor would not have all of
the purchase payment for Class A Shares invested initially. See "Distribution
Plan" at page 19. Shares of the Funds may be purchased either through a
securities dealer which has executed an agreement with the Distributor (a
"selected dealer") or directly from the Funds' transfer agent, Rodney Square
Management Corporation (the "Transfer Agent"), acting as agent for a selected
dealer. The Trust and the Distributor reserve the right to refuse any order for
the purchase of shares.
Purchases through a Securities Dealer
An investor may place an order for shares of a Fund with a selected dealer.
If the dealer receives the order prior to the time the Fund calculates its net
asset value and forwards it to the Fund on the same day, the order will be
confirmed at the offering price (determined as described below) calculated on
that day. If the order is received by the selected dealer after the time the net
asset value is calculated, or if it is not forwarded on the same day, the order
will be confirmed at the offering price calculated on the following business
day. It is the responsibility of the dealer to transmit the order and payment
promptly to the Fund. The Trust and the Distributor may cancel an order for
which payment is not received from a selected dealer by the third business day
following the order. An order placed with a selected dealer may be subject to
postage and handling charges imposed by the dealer.
Purchases through the Transfer Agent
An investor who wishes to purchase shares of a Fund directly from the
Transfer Agent may do so by completing the Application Form (included with this
prospectus, or available from the Transfer Agent or a selected dealer) and
mailing it to the Transfer Agent at the address shown on the Application Form.
Payment may be made by a negotiable check in U.S. dollars that accompanies the
Application Form, or it may be made by a wire transfer of funds, as described
below. Payments made by check will be invested at the net asset value determined
on the day the check is received by the Transfer Agent. Subsequent investments
may be made by mailing a check, together with the investment form from a recent
account statement. Subsequent investments may also be made by wire, as described
below.
Payment by Wire
For payment by wire of an initial investment in a Fund, the investor should
first call the Transfer Agent at (800) 543-7518 between the hours of 9:00 a.m.
and 4:00 p.m., Eastern time, on a day when the New York Stock Exchange is open
for trading in order to receive an account number. The Transfer Agent will
request the investor's name, address, tax identification number, amount being
wired and wiring bank. The investor should then instruct the wiring bank to
transfer funds by wire to: RSMC, c/o Wilmington Trust Company, Wilmington,
Delaware, ABA # 0311-0009-2, DDA #2670-3514, for credit to either Brandes
International Fund or Brandes Small Cap International Fund, for further credit
to [Investor's name and account number]. The investor should also ensure that
the wiring bank includes the name of the Fund and the account number with the
wire. If the funds are received by the Transfer Agent prior to the time that the
Fund's net asset value is calculated, the funds will be invested on that day;
otherwise, they will be
13
<PAGE>
invested on the next business day at the next calculated net asset value.
Finally, the investor should write the account number provided by the Transfer
Agent on the Application Form and mail the Form promptly to the Transfer Agent.
To make a subsequent purchase by wire, the investor should call the
Transfer Agent at (800) 543-7518 before the wire is sent. Failure to do so may
cause the purchase to be delayed indefinitely. The investor should wire funds to
the Transfer Agent, care of Wilmington Trust Company, in the manner described
above, including the name of the Fund and the investor's account number with the
wire.
Share Certificates
Shares are credited to an investor's account, and certificates are not
issued unless specifically requested. This eliminates the costly problem of lost
or destroyed certificates.
Investment Minimums
The minimum initial investment in either Fund is $2,500. For retirement
plan investments and custodial accounts under the Uniform Gifts or Transfers to
Minors Act the minimum is $1,000. The minimum is reduced to $100 for purchases
through the Automatic Investment plan or to $100 for purchases by retirement
plans through payroll deductions. The minimum for additional investments is
$100.
Purchasing with Securities
In addition to cash purchases, shares may be purchased by tendering payment
in kind in the form of securities, provided that any such securities are
consistent with a Fund's investment objective and policies, are acquired for
investment and not for resale, are liquid, unrestricted and have a readily
determinable value by exchange or NASDAQ listing, and that such a purchase has
been approved by the Advisor.
Net Asset Value
To determine the net asset value per share of a class of shares of a Fund,
the current value of the Fund's total assets, less all liabilities, is divided
by the total number of shares of that class outstanding, and the result is
rounded to the nearer cent. The Funds value their investments on the basis of
their market value. Securities and other assets for which market prices are not
readily available are valued at fair value as determined in good faith by the
Board of Trustees. Debt securities with remaining maturities of 60 days or less
are normally valued at amortized cost, unless the Board of Trustees determines
that amortized cost does not represent fair value. Cash and receivables will be
valued at their face amounts. Interest will be recorded as accrued, and
dividends will be recorded on their ex-dividend date.
Each Fund will calculate its net asset value once daily at the close of
public trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time)
on days that the Exchange is open for trading, except on days on which no orders
to purchase, sell or redeem shares have been received by the Fund. The New York
Stock Exchange is closed on the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Class A Shares
Sales Charges. The public offering price per Class A Share is equal to the
net asset value per share, plus a sales charge, which is reduced on purchases
involving amounts of $50,000 or more, as set forth in the table below. The
reduced sales charges apply to quantity purchases made at one time by (i) an
individual, (ii) members of a family (i.e., an individual, spouse and children
under age 21), or (iii) a trustee or fiduciary of a single trust estate or a
single fiduciary account.
14
<PAGE>
<TABLE>
<CAPTION>
Sales Charge as % of
------------------------------ Dealer Commission
Amount of purchase Offering Net amount as % of
at offering price price invested Offering Price
- ----------------- -------- ---------- -----------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.25%
$50,000 up to $99,999 4.50% 4.71% 4.00%
$100,000 up to $249,999 3.50% 3.62% 3.00%
$250,000 up to $499,999 2.50% 2.56% 2.00%
$500,000 up to $999,999 2.00% 2.04% 1.50%
$1,000,000 or more None None (See below)
</TABLE>
Although no initial sales charge applies on purchases of $1 million or more
of the Class A Shares, a contingent deferred sales charge of 1.00% will be
imposed on certain redemptions within one year of the purchase of $1 million or
more. The Distributor may pay commissions to dealers who initiate and are
responsible for purchases of $1 million or more.
Net Asset Value Purchases. The Trust may sell Class A Shares of the Funds
at net asset value to (1) current or retired trustees, directors, officers and
employees of the Trust, the Distributor and the Advisor, certain family members
of these persons, and trusts or plans primarily for such persons; (2) current or
retired registered representatives or full-time employees and their spouses and
minor children of dealers having selling group agreements with the Distributor
and plans for such persons; (3) investment advisory clients of the Advisor,
including family members, employees or beneficial owners of such clients; (4)
companies or other entities exchanging securities with either Fund through a
merger, acquisition or exchange offer; (5) trustees or other fiduciaries
purchasing shares for certain retirement plans (or the trusts which fund them)
of organizations with retirement plan assets of $5 million or more, including,
but not limited to, those defined in sections 401(k), 401(a), 403(b) or 457 of
the Internal Revenue Code (the "Code"), and "rabbi trusts;" (6) participants in
certain pension, profit-sharing or employee benefit plans that are sponsored by
the Distributor and its affiliates; and (7) investment advisers or financial
planners or their clients, who may clear transactions through a broker-dealer,
bank or trust company which may maintain an omnibus account with the Transfer
Agent (each of which may impose fees with respect to such transactions or
accounts). In addition, Class A Shares may be sold at net asset value to
shareholders and former shareholders of another mutual fund which has a sales
charge, so long as shares of a Fund are purchased with the proceeds of a
redemption, made within 60 days of the purchase, of shares of such other mutual
fund; however, this benefit is not available if the shares redeemed were subject
to a contingent deferred sales charge or redemption fee. In order to obtain this
benefit, the redemption check, endorsed to a Fund, or a copy of the confirmation
showing the redemption must be forwarded to the Transfer Agent. Shares are
offered at net asset value to these persons and organizations due to anticipated
economies in sales effort and expense. No sales charges are imposed on shares of
a Fund purchased upon the reinvestment of dividends and distributions.
Right of Accumulation. The sales charge for an investment may be reduced by
taking into account a shareholder's existing holdings in Class A Shares of both
Funds. See the Application Form for further details.
Letter of Intent. An investor may reduce sales charges on all investments
by meeting the terms of a letter of intent, a non-binding commitment to invest a
certain amount within a 13-month period. Existing holdings in Class A Shares of
both Funds also may be combined with the investment commitment set
15
<PAGE>
forth in the letter of intent to reduce the sales charge further. Up to 5% of
the letter amount will be held in escrow to cover additional sales charges which
may be due if the total investments made over the letter period are not
sufficient to qualify for a sales charge reduction. See the Application Form for
further details.
Contingent Deferred Sales Charge on Redemptions of Class A Shares. A
contingent deferred sales charge of 1.00% applies to certain redemptions of
shares of Class A Shares of either Fund within the first year on investments of
$1 million or more. The charge is 1.00% of the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. The charge is waived for redemptions in
connection with mergers, acquisitions and exchange offers involving Class A
Shares of the Funds; for distributions from qualified retirement plans and other
employee benefit plans; for distributions from custodial accounts under Section
403(b)(7) of the Code or from IRAs due to death, disability or attainment of age
59 1/2; for tax-free returns of excess contributions to IRAs; for any partial or
complete redemption following the death or disability of a shareholder, provided
the redemption is made within one year of death or initial determination of
disability; and for redemptions through certain automatic withdrawals.
Class C Shares
Contingent Deferred Sales Charge. The public offering price of Class C
Shares is the net asset value, and no initial sales charge is imposed. A
contingent deferred sales charge of 1.00%, however, is imposed upon most
redemptions of Class C Shares made within one year from the date of their
purchase. Class C Shares that are redeemed within one year will not be subject
to a contingent deferred sales charge to the extent that the value of such
shares represents (1) capital appreciation of Fund assets or (2) reinvestment of
dividends or capital gain distributions. Otherwise, redemptions of Class C
Shares will be subject to the 1.00% contingent deferred sales charge.
In determining the applicability of any contingent deferred sales charge,
it will be assumed that a redemption is made from shares held by the shareholder
for the longest period of time. For federal income tax purposes, the amount of
the contingent deferred sales charge will reduce the gain or increase the loss,
as the case may be, on the amount realized on redemption. The amount of any
contingent deferred sales charge will be deducted from the redemption proceeds
and paid to the Distributor.
Waivers of Contingent Deferred Sales Charges. The contingent deferred sales
charge is waived for redemptions of Class C Shares by (1) current or retired
trustees, directors, officers and employees of the Trust, the Distributor, the
Advisor, certain family members of these persons, and trusts or plans primarily
for such persons; (2) redemptions made in connection with the Funds' Automatic
Withdrawal Plan; (3) for distributions from qualified retirement plans and other
employee benefit plans; (4) for distributions from custodial accounts under
Section 403(b)(7) of the Code or from IRAs due to death, disability or
attainment of age 59 1/2; (5) for tax-free returns of excess contributions to
IRAs; and (6) for any partial or complete redemption following the death or
disability of a shareholder, provided the redemption is made within one year of
death or initial determination of disability.
Other Classes
Currently, each series of the Trust is divided into three classes. Two
classes of each series are offered pursuant to this Prospectus; Institutional
Classes are offered pursuant to a separate prospectus which can be obtained by
calling (619) 755-0239. The Institutional Classes have different expenses which
may affect their performance.
16
<PAGE>
SHAREHOLDER SERVICES
Automatic Investment Plan
An investor may make regular monthly or quarterly investments in either
Fund through automatic withdrawals of specified amounts from a bank account once
an automatic investment plan is established. See the Check-A-Matic Application
for further details about this service or call the Transfer Agent at (800)
543-7518.
Automatic Reinvestment
Dividends and capital gain distributions are reinvested without any sales
charge in additional shares unless indicated otherwise on the Application Form.
A shareholder may elect to have dividends or capital gain distributions paid in
cash.
Automatic Withdrawals
A shareholder may make automatic withdrawals from a Fund of $100 or more on
a monthly or quarterly basis if the shareholder's account has a value of $10,000
or more. Withdrawal proceeds will normally be received prior to the end of the
month or quarter. See the Application Form for further information.
Retirement Plans and Individual Retirement Accounts (IRAs)
Shares of the Funds are available for purchase by any retirement plan,
including 401(k) plans, profit sharing plans, 403(b) plans and IRAs. More
information is available from investment dealers or the Transfer Agent at (800)
543-7518.
Shareholder Reports
Shareholders will receive an audited annual report and an unaudited
semiannual report, both of which present the financial statements of the Funds.
Exchange Privilege
A shareholder may exchange shares of either Fund for shares of the same
class of the other Fund, based on the respective net asset values as of the date
of the exchange. Shares of both classes of each Fund may also be exchanged for
shares of the Money Market Portfolio of The Rodney Square Fund, a money market
mutual fund advised by Rodney Square Management Corporation and not affiliated
with the Funds. Prior to making such an exchange, a shareholder should obtain
and read a prospectus for The Rodney Square Fund, by calling (800) 543-7518. A
contingent deferred sales charge will be imposed, if applicable, on shares of
the Fund being redeemed in connection with an exchange into The Rodney Square
Fund. Exchanges are limited to four per shareholder account per year; the
exchange privilege is available only in states where all funds are qualified for
sale. The exchange privilege may be modified or terminated on 60 days written
notice to shareholders. For tax purposes, an exchange is considered a redemption
and a new purchase.
17
<PAGE>
REDEEMING SHARES
How to Redeem Shares
A shareholder may redeem shares of a Fund by contacting the shareholder's
selected dealer. The selected dealer may arrange for the repurchase of the
shares through the Trust's distributor at the net asset value next determined
after receipt by the selected dealer of instructions from the shareholder. The
dealer may charge the shareholder for this service. Shares held in street name
must be redeemed through the dealer holding the shares.
An investor may also redeem shares by mailing instructions to the Transfer
Agent, Rodney Square Management Corporation, P.O. Box 8987, Wilmington, DE
19899, or by delivering instructions to the Transfer Agent at 1105 N. Market
Street, Wilmington, Delaware 19890. The instructions must specify the name of
the Fund, the number of shares or dollar amount to be redeemed and the
shareholder's name and account number. If a redemption is requested by a
corporation, partnership, trust or fiduciary, written evidence of authority
acceptable to the Transfer Agent must be submitted before such request will be
accepted. If the proceeds of the redemption exceed $50,000, are to be paid to a
person other than the record owner, are to be sent to an address other than the
address on the Transfer Agent's records, or are to be paid to a corporation,
partnership, trust or fiduciary, the signature(s) on the redemption request and
on the certificates, if any, or stock powers must be guaranteed by an "eligible
guarantor," which includes a bank or savings and loan association that is
federally insured or a member firm of a national securities exchange. Except as
noted above with respect to contingent deferred sales charges that may apply,
the price the shareholder will receive for the Fund shares redeemed is at the
next determined net asset value for the shares after a completed redemption
request is received by the Transfer Agent.
Telephone Redemptions. A shareholder may establish telephone redemption
privileges by checking the appropriate box and supplying the necessary
information on the Application Form. Shares may then be redeemed by telephoning
the Transfer Agent at (800) 543-7518, between the hours of 9:00 a.m. and 4:00
p.m. Eastern time on a day when the New York Stock Exchange is open for trading.
Redemptions by telephone must be at least $5,000. Redemption requests received
by the Transfer Agent before 4:00 p.m. Eastern time on a day when the New York
Stock Exchange is open for trading will be processed that day; otherwise
processing will occur on the next business day.
Special Factors Regarding Telephone Redemptions. The Trust will use
procedures, such as assigned personal identification numbers, designed to
provide reasonable verification of the identity of a person making a telephone
redemption request. The Trust reserves the right to refuse a telephone
redemption request if it believes that the person making the request is neither
the record owner of the shares being redeemed nor otherwise authorized by the
shareholder to request the redemption. Shareholders will be promptly notified of
any refused request for a telephone redemption. If these normal identification
procedures are not followed, the Trust or its agents could be liable for any
loss, liability or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
Redemption Payments
Payment for redemptions will be made within seven days after receipt by the
Transfer Agent of the written or telephone redemption request, any share
certificates, and, if required, a signature guarantee
18
<PAGE>
and any other necessary documents, except as indicated below. Payment may be
postponed or the right of redemption suspended at times when the New York Stock
Exchange is closed for other than customary weekends and holidays, when trading
on such exchange is restricted, when an emergency exists as a result of which
disposal by the Trust of securities owned by a Fund is not reasonably
practicable or it is not reasonably practicable for the Trust fairly to
determine the value of a Fund's net assets, or during any other period when the
SEC, by order, so permits. Payment for redemption of recently purchased shares
will be delayed until the Transfer Agent has been advised that the purchase
check has been honored, up to 15 calendar days from the time of receipt of the
purchase check by the Transfer Agent. This delay may be avoided by purchasing
shares by wire or by certified or official bank checks.
Redemption proceeds are generally paid by check. However, at the
shareholder's request, redemption proceeds of $300 or more may be wired by the
Transfer Agent to the shareholder's bank account. Requests for redemption by
wire should include the name, location and ABA or bank routing number (if known)
of the designated bank and the shareholder's bank account number. A $7 fee for
wire transmission of redemption proceeds will be charged by the Transfer Agent,
which will be deducted from the proceeds.
Reinstatement Privilege-Class A Shares
A shareholder may reinvest proceeds from a redemption of Class A Shares
without a sales charge, provided that a written request and check are sent to
the Transfer Agent within 90 days after the date of the redemption. Reinvestment
will be at the next calculated net asset value after receipt. The tax status of
a gain realized on a redemption will not be affected by exercise of the
reinstatement privilege, but a loss may be nullified if reinvestment is made
within 30 days.
Redemption of Small Accounts
In order to reduce expenses, the Funds may redeem shares in any account,
other than retirement plan or Uniform Gift or Transfer to Minors Act accounts,
if at any time, due to redemptions, the total value of a shareholder's account
falls below $500. Shareholders will be given 30 days prior written notice in
which to purchase sufficient additional shares to avoid such a redemption.
DISTRIBUTION PLAN
The Trust has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act") with respect to each Fund. Under
the Plan, each Fund pays the Distributor monthly distribution fees at the annual
rate of 0.25% of the average daily net assets of the Class A Shares of the Fund
and 0.75% of the average daily net assets of the Class C Shares of the Fund.
The Distributor uses the distribution fees under the Plan to offset the
commissions and other payments made to broker-dealers for selling the Funds'
shares, and to offset the Trust's marketing costs, such as preparation of sales
literature, advertising and printing and distributing prospectuses and other
shareholder materials to prospective investors. The Distributor also receives a
portion of the initial sales charge paid upon the purchase of Class A Shares and
the contingent deferred sales charge paid upon certain redemptions of Class C
Shares, and may use these proceeds for any of the distribution expenses
described above.
During the period they are in effect, the Plan and related distribution
contracts pertaining to each class of shares ("Distribution Contracts") obligate
the Funds to pay distribution fees as compensation for
19
<PAGE>
distribution activities, not as reimbursement for specific expenses incurred.
Thus, even if distribution expenses exceed distribution fees, the Funds will not
be obligated to pay more than those fees, and if distribution expenses are less
than those fees, the Distributor will retain its full fees and realize a profit.
The Funds will pay the distribution fees under the Plan until either the
applicable Plan or Distribution Contract is terminated or not renewed. In that
event, the distribution expenses in excess of distribution fees received or
accrued through the termination date will be the Distributor's sole
responsibility and not obligations of the Funds. In their annual consideration
of the continuation of the Plan, the Trustees will consider and review the Plan
and corresponding expenses for each class separately.
SHAREHOLDER SERVICE PLAN
The Trust has adopted a Shareholder Service Plan with respect to each Fund,
under which the Fund reimburses the Distributor for shareholder servicing
expenses. Under this Plan, the Funds pay the Distributor a fee at the annual
rate of 0.10% of the average daily net assets of the Class A Shares and 0.25% of
the average daily net assets of the Class C Shares as reimbursement for certain
expenses actually incurred in connection with shareholder services provided by
the Distributor and for payments to investment dealers, retirement plan
administrators and others for the provision of such services. These services
include establishing and maintaining accounts and records relating to clients
who invest in the Funds, responding to shareholder inquiries, assisting
shareholders in changing account options, transmitting communications to
shareholders and providing such other information and assistance to shareholders
as they may reasonably request.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
Dividends and Distributions
Both Funds expect to pay income dividends for each class of shares
annually. Distributions of net capital gains with respect to each class of
shares, if any, will be made at least annually. The Board of Trustees may
determine to declare dividends and make distributions more frequently.
Dividends and capital gain distributions are automatically reinvested in
additional shares at the net asset value per share on the reinvestment date
unless the shareholder has previously requested in writing to the Transfer Agent
that payment be made in cash.
Any dividend or distribution paid by a Fund has the effect of reducing the
net asset value per share on the reinvestment date by the amount of the dividend
or distribution. Investors should note that a dividend or distribution paid on
shares purchased shortly before such dividend or distribution was declared will
be subject to income taxes as discussed below even though the dividend or
distribution represents, in substance, a partial return of capital to the
shareholder.
Tax Status
Each Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Code. As long as a Fund continues
to qualify, and as long as a Fund distributes all
20
<PAGE>
of its income each year to shareholders, the Fund will not be subject to any
federal income or excise taxes. The distributions made by the Funds will be
taxable to shareholders whether received in shares (through dividend
reinvestment) or in cash. Distributions derived from net investment income,
including net short-term capital gains, are taxable to shareholders as ordinary
income. A portion of these distributions may qualify for the intercorporate
dividends-received deduction. Distributions designated as capital gains
dividends are taxable as long-term capital gains regardless of the length of
time shares of a Fund have been held. Although distributions are generally
taxable when received, certain distributions made in January are taxable as if
received in the prior December. Shareholders will be informed annually of the
amount and nature of the Funds' distributions.
The Trust may be required to impose backup withholding at a rate of 31%
from income dividends and capital gain distributions and upon payment of
redemption proceeds if provisions of the Code relating to the furnishing and
certification of taxpayer identification numbers and reporting of dividends are
not complied with by a shareholder. Any shareholder account without a tax
identification number may be liquidated and distributed to the shareholder, net
of withholding, after the sixtieth day of investment. In addition, dividends and
capital gains distributions to foreign shareholders may be subject to U.S.
withholding at a rate of up to 30%.
Dividends and interest earned by the Funds may be subject to withholding
and other taxes imposed by foreign countries, at rates from 10% to 40%, which
taxes would reduce the Funds' investment income. However, under certain
circumstances shareholders may be able to claim credits against their U.S. taxes
for such foreign taxes. The Trust will also notify shareholders each year as to
the amounts available as credits.
Additional information about taxes is set forth in the Statement of
Additional Information. Shareholders should consult their own advisers
concerning federal, state and local taxation of distributions from the Funds.
PERFORMANCE INFORMATION
From time to time, the Trust may publish the total return of the Funds in
advertisements and communications to investors. As discussed above under
"Purchases," because of the differences in sales charges and expenses, total
return of Class A Shares will be different from that of Class C Shares. Total
return information will include a Fund's average annual compounded rate of
return over the four most recent calendar quarters and over the period from the
Fund's inception of operations. The Trust may also advertise aggregate and
average total return information of the Funds over different periods of time. A
Fund's total return will be based upon the value of the shares acquired through
a hypothetical $1,000 investment (at the maximum public offering price) at the
beginning of the specified period and the net asset value of such shares at the
end of the period, assuming reinvestment of all distributions and after giving
effect to the maximum applicable sales charge. Total return figures will reflect
all recurring charges against Fund income for each respective class. Investors
should note that the investment results of each Fund will fluctuate over time,
and any presentation of a Fund's total return for any prior period should not be
considered as a representation of what an investor's total return may be in any
future period.
In addition to standardized return, performance advertisements and sales
literature may also include other total return performance data
("non-standardized return"). Non-standardized return may be quoted
21
<PAGE>
for the same or different periods as those for which standardized return is
quoted and may consist of aggregate or average annual percentage rate of return,
actual year-by-year rates or any combination thereof. All data included in
performance advertisements will reflect past performance and will not
necessarily be indicative of future results. The Trust may also advertise
relative rankings by mutual fund ranking services such as Lipper Analytical
Services or Morningstar, Inc. The investment return and principal value of an
investment in a Fund will fluctuate and an investor's proceeds upon redeeming
Fund shares may be more or less than the original cost of the shares.
GENERAL INFORMATION
The Trust was organized as a Delaware business trust on July 6, 1994. The
Trustees have authority to issue an unlimited number of shares of beneficial
interest of separate series, par value $.01 per share. Although it has no
present intention to do so, the Trust has reserved the right to convert to a
master-feeder structure in the future by investing all of the assets of the
Funds in the securities of another investment company, upon notice to and
approval of shareholders.
Shares of beneficial interest of each Fund are currently divided into three
classes, designated Class A Shares, Class C Shares and Institutional Shares.
Each class represents interests in the same assets of the respective Fund. The
classes differ as follows: (1) each class has exclusive voting rights on matters
pertaining to its plan of distribution; (2) Class A Shares are subject to an
initial sales charge; (3) all Class C Shares are subject to a contingent
deferred sales charge, whereas only some Class A Shares are subject to such a
charge; (4) Institutional Shares require a higher minimum initial investment and
are not subject to an initial sales charge, a contingent deferred sales charge,
or fees pursuant to the Distribution Plan or Shareholder Service Plan; and (5)
each class may bear differing amounts of certain class-specific expenses, such
as distribution fees. The Board of Trustees does not anticipate that there will
be any conflicts among the interests of the holders of the different classes of
shares of the Funds. On an ongoing basis, the Board will consider whether any
such conflict exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings of the Funds. There
normally will be no meetings of shareholders to elect Trustees unless fewer than
a majority of the trustees holding office have been elected by shareholders.
Shareholders of record holding at least two-thirds of the outstanding shares of
the Trust may remove a Trustee by votes cast in person or by proxy at a meeting
called for that purpose. The Trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
Trustee when so requested in writing by the shareholders of record owning at
least 10% of the Trust's outstanding shares. Each share of the Funds has equal
voting rights except as noted above. Each share of each Fund is entitled to
participate equally in dividends and distributions and the proceeds of any
liquidation from the respective Fund except that, due to the differing expenses
borne by the three classes, such dividends and proceeds are likely to be lower
for the Class C Shares than for the Class A Shares or Institutional Shares. The
shares of each Fund will be voted together except when a separate vote by Fund
or class is required by the 1940 Act.
Custodian and Transfer Agent. Investors Bank and Trust Company is the
custodian of the Funds' assets and employs foreign sub-custodians, approved by
the Board of Trustees in accordance with applicable requirements under the 1940
Act, to provide custody of the Funds' foreign assets. Rodney Square Management
Corporation is the Funds' transfer and dividend disbursing agent.
22
<PAGE>
Brandes
International
Fund
[Brandes Logo}
Brandes
Small Cap
International
Fund
April 1, 1996
(Supplemented May 1, 1996)
Prospectus
<PAGE>
BRANDES INTERNATIONAL FUND
BRANDES SMALL CAP INTERNATIONAL FUND
12750 High Bluff Drive
San Diego, CA 92130
(619) 755-0239
BRANDES INVESTMENT TRUST (the "Trust") is a mutual fund consisting of two
separate series: the Brandes International Fund and the Brandes Small Cap
International Fund. Each Fund seeks to achieve long-term capital appreciation by
investing principally in equity securities of foreign issuers. The International
Fund invests primarily in equity securities of companies with market
capitalizations greater than $1 billion. The Small Cap International Fund
invests primarily in equity securities of companies with market capitalizations
of $1 billion or less. Brandes Investment Partners, L.P. (the "Advisor") serves
as investment advisor to the Trust.
This Prospectus describes the Institutional Shares, a separate class of
shares of the Funds, offered at their net asset value. See "Purchases" and
"Redeeming Shares" at pages 11 and 14, respectively.
Neither of the Funds is insured or guaranteed by the U.S. Government or any
other person.
This Prospectus sets forth basic information about the Trust that
prospective investors should know before investing. It should be read and
retained for future reference. A Statement of Additional Information dated April
1, 1996, as may be amended from time to time, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. This Statement
of Additional Information is available without charge by calling the number
listed above or upon written request to the Trust at the address given above.
TABLE OF CONTENTS
Expense Table...................................................... 2
Financial Highlights............................................... 3
Investment Objective, Policies and Risks........................... 4
Other Securities and Investment Techniques and Risks............... 7
Investment Restrictions............................................10
Organization and Management........................................10
Purchases..........................................................11
Shareholder Services...............................................13
Redeeming Shares...................................................14
Dividends, Distributions and Tax Status............................15
Performance Information............................................16
General Information................................................17
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April 1, 1996
(Supplemented May 1, 1996)
1
<PAGE>
BRANDES INVESTMENT TRUST (the "Trust") is a diversified registered open-end
management investment company or mutual fund. The Trust consists of two separate
Funds, each with its own assets, liabilities and shares: the Brandes
International Fund (the "International Fund") and the Brandes Small Cap
International Fund (the "Small Cap Fund") (collectively, the "Funds"). The
investment objective of each of the Funds is long-term capital appreciation. The
Funds each offer three separate classes of shares; the Institutional Shares are
described in this Prospectus. Institutional Shares are offered to investors at
their net asset value. See "Purchases" and "Redeeming Shares" at pages 11 and
14, respectively. The minimum initial investment in a Fund is $1 million; there
is no minimum subsequent investment.
Like all equity investments, an investment in either Fund involves certain
risks. The value of the Funds' shares will fluctuate with market conditions, and
an investor's shares when redeemed may be worth more or less than their original
cost. International investing, especially in small capitalization companies,
also is subject to certain additional risks, which are described on page 4. The
Funds may invest in certain options and stock index futures transactions, which
may be regarded as transactions in derivative securities that involve special
risks. These transactions and the related risks are described under "Options"
and "Stock Index Futures" at pages 8 and 9 of the prospectus.
EXPENSE TABLE
Expenses are among several factors to consider when investing in a Fund.
The purpose of the following fee table is to provide an understanding of the
various costs and expenses which may be borne directly or indirectly by an
investment in a Fund. The expenses for the International Shares are based on its
actual expenses for the fiscal year ended October 31, 1995; the expenses for the
Small Cap Fund are estimated for its first year of operations. Actual expenses
in the future may be more or less than those shown.
International Small Cap
Shareholder Transaction Expenses Fund Fund
---- ----
Maximum sales charge on purchases
(as % of offering price) None None
Sales charge on reinvested dividends None None
Maximum contingent deferred sales charge
(as % of redemption proceeds) None None
Redemption fee None None
Total Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 1.00% 1.00%
Other expenses (after reimbursement) 0.20% 0.20%
---- ----
Total operating expenses (after reimbursement)1 1.20% 1.20%
==== ====
1The Advisor has voluntarily agreed to reimburse the Funds through at least
October 31, 1996 to ensure that the Funds' total operating expenses will not
exceed the percentages set forth above. Shareholders will receive 30 days notice
prior to any change in this policy. In the absence of this reimbursement, "Other
expenses" of the International Fund during the fiscal year ended October 31,
1995 would have been 6.58%, and "Total operating expenses" of the International
Fund would have been 7.58%. In the absence of this reimbursement, it is
estimated that "Other expenses" of the Small Cap Fund would be 6.12% during the
fiscal year ending October 31, 1996, and "Total operating expenses" would be
7.12%. To the extent that the Advisor reimburses the Funds, the Funds will,
within the following three years, repay the Advisor when operating expenses
(before reimbursement) are less than the expense limitation. Thus, overall
operating expenses in the future may not fall below the expense limitation until
the Advisor has been fully repaid for of its reimbursements to the Funds; see
"Operating Expenses; Expense Limitation," page 10.
2
<PAGE>
The purpose of the preceding table is to assist the investor in
understanding the various costs and expenses that an investor in the Funds will
bear directly or indirectly. For more information regarding costs and expenses,
see "Organization and Management," page 10.
Example of Effect of Fund Expenses One Year Three Years
-------- -----------
An investor would directly or indirectly pay
the following expenses on a $1,000 investment in
the Fund, assuming a 5% annual return: $12 $38
The Example shown above should not be considered a representation of past
or future expenses, and actual expenses may be greater or less than those shown.
In addition, although federal regulations require use of an assumed 5% annual
return in preparing the Example, a Fund's actual return may be higher or lower.
See "Organization and Management."
FINANCIAL HIGHLIGHTS
(For a share outstanding of the International Fund throughout the period)
The following information regarding the International Fund has been audited
by Ernst & Young LLP, independent accountants, whose unqualified report covering
the fiscal period ended October 31, 1995 is included in the Statement of
Additional Information. This information should be read in conjunction with the
financial statements and accompanying notes thereto which also appear in the
Statement of Additional Information. Further information about the International
Fund's performance may be included in the annual report to shareholders, which
may be obtained without charge by writing or calling the address or telephone
number on the cover page. Financial highlights for the Small Cap Fund were not
available at Prospectus date, because that Fund had not yet commenced
operations.
For the period March 6, 1995* through October 31, 1995: International Fund
------------- ----
Class A Class C
Net asset value, beginning of period $12.50 $12.50
Income (loss) from investment operations:
Net investment income .15** .10**
Net unrealized depreciation on investments (.45)** (.39)**
Net realized gain on investments 1.06*** 1.01***
------ ----
Total from investment operations .76 .72
------ ------
Net Asset Value, End of Period $13.26 $13.22
====== ======
Total return 9.39%+ 8.89%+
Ratios/Supplemental Data:
Net assets, end of period $5,188,105 $5,749,496
Ratio of expenses to average net assets:
Before expense reimbursement 7.93%+ 8.58%+
After expense reimbursement 1.85%+ 2.50%+
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement (4.41)%+ (4.95)%+
After expense reimbursement 1.67%+ 1.13%+
Portfolio turnover rate 0% 0%
Average commission rate paid $.0426 $.0426
*Commencement of operations.
**Calculated based on average shares outstanding.
***The amount shown in this caption for a share outstanding throughout the
period may not correspond with the change in realized gains and losses in the
portfolio securities for the period because of the timing of sales and
repurchases of portfolio shares in relation to fluctuating market values for the
portfolio.
+Annualized.
3
<PAGE>
The International Fund and the Small Cap Fund each have the investment
objective of long-term capital appreciation, and each Fund seeks to achieve its
objective by investing principally in equity securities of foreign issuers. No
assurance can be given that either Fund will achieve its investment objective.
Brandes Investment Partners, L.P. serves as investment advisor to the Funds.
International Investing
During the past decade, there has been significant growth in foreign
capital markets. Because of this growth, nearly two-thirds of the world's equity
value is located outside of the United States. Accordingly, the Advisor believes
that significant investment opportunities exist throughout the world.
The International Fund normally invests at least 65% of its total assets in
equity securities of foreign issuers with market capitalizations greater than $1
billion. However, the International Fund may invest up to 25% of its total
assets in small capitalization companies, i.e., those with market
capitalizations of $1 billion or less. (Small capitalization companies are
generally subject to greater risks than companies with larger capitalizations,
as discussed below.)
The Small Cap Fund normally invests at least 65% of its total assets in
equity securities of foreign issuers with market capitalizations of $1 billion
or less at the time of purchase. If the market capitalization of a company whose
securities are held by the Small Cap Fund increases to an amount greater than $1
billion, the Fund may, but is not required to, sell its holdings in those
securities. Small capitalization companies have historically offered greater
growth potential than larger ones, but they are often overlooked by investors.
However, small capitalization companies often have limited product lines,
markets or financial resources and may be dependent on one person or a few key
persons for management. The securities of such companies may be subject to more
volatile market movements than securities of larger, more established companies,
both because the securities typically are traded in lower volume and because the
issuers typically are more subject to changes in earnings and prospects. Because
the Small Cap Fund applies a U.S. size standard on a global basis, it may invest
in issuers which might, in some countries, rank among the largest companies in
terms of capitalization.
Under normal circumstances, each Fund will invest at least 65% of its total
assets in equity securities of issuers located in at least three countries other
than the United States. Countries in which the Funds may invest include, but are
not limited to, the nations of Western Europe, North and South America,
Australia and Asia. Equity securities include common stocks, preferred stocks
and securities convertible into common stocks. It is anticipated that securities
generally will be purchased in the form of common stock, American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") or Global Depositary
Receipts ("GDRs"). ADRs, EDRs and GDRs, which may be sponsored or unsponsored,
are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying foreign securities. The issuers of securities
underlying unsponsored ADRs, EDRs and GDRs are not obligated to disclose
material information in the United States and, accordingly, there may not be a
correlation between such information and the market value of the Depositary
Receipts.
In seeking out foreign securities for purchase, the Advisor does not
attempt to match the security allocations of foreign stock market indices.
Therefore, a Fund's country weightings may differ significantly
4
<PAGE>
from country weightings found in published foreign stock indices. For example,
the Advisor may choose not to invest a Fund's assets in a country whose stock
market, at any given time, may comprise a large portion of a published foreign
stock market index. At the same time, the Advisor may invest a Fund's assets in
countries whose representation in such an index may be small or non-existent.
The Advisor selects stocks for each Fund based on their individual merits and
not necessarily on their geographic locations.
The Advisor will apply the principles of value investing in the analysis
and selection of securities of foreign companies for the Funds' investment
portfolios.
Value Investing
The Advisor is committed to the use of the Graham and Dodd Value Investing
approach as introduced in the classic book Security Analysis. Utilizing this
philosophy, the Advisor views stocks as parts of businesses which are for sale.
It seeks to purchase a diversified group of these businesses at prices its
research indicates are well below their true long-term, or intrinsic, value. By
purchasing stocks whose current prices are believed to be considerably below
their intrinsic value, the Advisor believes it can buy not only a possible
margin of safety against price declines, but also an attractive opportunity for
profit over the business cycle.
In estimating a company's true long-term value, the Advisor uses sources of
information such as company reports, filings with the Securities and Exchange
Commission (the "SEC"), computer databases, industry publications, general and
business publications, brokerage firm research reports, and interviews with
company management. The Advisor's analysis is focused on fundamental
characteristics of a company, including, but not limited to, book value, cash
flow and capital structure, as well as management's record and broad industry
issues. Once the intrinsic value of a company is estimated, this value is
compared to the price of the stock. If the price is substantially lower than the
estimated intrinsic value, the stock may be purchased. The Advisor believes that
the margin between current price and estimated intrinsic value should provide a
margin of safety against price declines. In addition, over a business cycle of
three to five years, the Advisor believes the market should begin to recognize
the company's value and drive its price up toward its intrinsic value. As a
result, the investor could realize profits. Of course, there can be no assurance
that companies selected using the value investing approach will generate profits
or that the Advisor's assessment of intrinsic value will be correct.
Risks of International Investing
Investments in foreign securities involve special risks. These include
currency fluctuations, a risk which was not addressed by Graham and Dodd, whose
work focused on U.S. stocks. The Advisor has applied the value method of stock
selection to foreign securities. By looking outside the U.S. for investment
opportunities, the Advisor believes that the likelihood of finding undervalued
companies is increased. The Advisor does not believe that currency fluctuation,
over the long term, on a group of broadly diversified companies, representing a
number of currencies and countries, significantly affects portfolio performance.
In having this ability to search world-wide for undervalued companies, rather
than being limited to searching only among U.S. stocks, the Advisor believes
that over the long term the benefits of strict value investing apply just as
well with an added currency risk as they would without such risk.
There are additional risks in international investing, including political
or economic instability in the country of issue and the possible imposition of
exchange controls or other laws or restrictions. In addition, securities prices
in foreign markets are generally subject to different economic, financial,
political and social factors than are the prices of securities in U.S. markets.
With respect to some foreign countries
5
<PAGE>
there may be the possibility of expropriation or confiscatory taxation,
limitations on liquidity of securities or political or economic developments
which could affect the foreign investments of the Funds. Moreover, securities of
foreign issuers generally will not be registered with the SEC, and such issuers
will generally not be subject to the SEC's reporting requirements. Accordingly,
there is likely to be less publicly available information concerning certain of
the foreign issuers of securities held by the Funds than is available concerning
U.S. companies. Foreign companies are also generally not subject to uniform
accounting, auditing and financial reporting standards or to practices and
requirements comparable to those applicable to U.S. companies. There may also be
less government supervision and regulation of foreign broker-dealers, financial
institutions and listed companies than exists in the U.S. These factors could
make foreign investments, especially those in developing countries, more
volatile. All of the above issues should be considered before investing in
either Fund.
Emerging Markets and Related Risks
Each Fund may invest up to 25% of its assets in securities of companies
located in countries with emerging securities markets. Emerging markets are the
capital markets of any country that in the opinion of the Advisor is generally
considered a developing country by the international financial community.
Currently, these markets include, but are not limited to, the markets of
Argentina, Brazil, Chile, China, Colombia, Czech Republic, Greece, Hungary,
India, Indonesia, Israel, Korea, Malaysia, Mexico, Pakistan, Peru, the
Philippines, Poland, Portugal, Slovak Republic, Sri Lanka, Taiwan, Thailand,
Turkey, Venezuela and countries that comprise the former Soviet Union. As
opportunities to invest in other emerging markets countries develop, the Funds
expect to expand and diversify further the countries in which they invest.
Investing in emerging market securities involves risks which are in
addition to the usual risks inherent in foreign investments. Some emerging
markets countries may have fixed or managed currencies that are not
free-floating against the U.S. dollar. Further, certain currencies may not be
traded internationally. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Funds' portfolio securities are denominated may have a detrimental
impact on the Funds.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
Emerging securities markets typically have substantially less volume than
U.S. markets, securities in many of such markets are less liquid, and their
prices often are more volatile than securities of comparable U.S. companies.
Such markets often have different clearance and settlement procedures for
securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets which the Funds desire to invest in emerging
markets may be uninvested. Settlement problems in emerging markets countries
also could cause the Funds to miss attractive
6
<PAGE>
investment opportunities. Satisfactory custodial services may not be available
in some emerging markets countries, which may result in the Funds' incurring
additional costs and delays in the transportation and custody of such
securities.
OTHER SECURITIES AND INVESTMENT TECHNIQUES AND RISKS
Short-Term Investments
At times either Fund may invest in short-term cash equivalent securities
either for temporary, defensive purposes, or as part of its overall investment
strategy. These securities consist of high quality debt obligations maturing in
one year or less from the date of purchase, such as U.S. Government securities,
certificates of deposit, bankers' acceptances and commercial paper. High quality
means the obligations have been rated at least A-1 by Standard & Poor's
Corporation ("S&P") or Prime-1 by Moody's Investor's Service, Inc. ("Moody's"),
have an outstanding issue of debt securities rated at least AA by S&P or Aa by
Moody's, or are of comparable quality in the opinion of the Advisor.
Repurchase Agreements
Short-term investments also include repurchase agreements with respect to
the high quality debt obligations listed above. A repurchase agreement is a
transaction in which a Fund purchases a security and, at the same time, the
seller (normally a commercial bank or broker-dealer) agrees to repurchase the
same security (and/or a security substituted for it under the repurchase
agreement) at an agreed-upon price and date in the future. The resale price is
in excess of the purchase price in that it reflects an agreed-upon market
interest rate effective for the period of time during which the Fund holds the
securities. The majority of these transactions run from day to day and not more
than seven days from the original purchase. A Fund's risk is limited to the
ability of the seller to pay the agreed-upon sum on the delivery date; in the
event of bankruptcy or the default by the seller, there may be possible delays
and expenses in liquidating the instrument purchased, decline in its value and
loss of interest. The securities will be marked to market every business day so
that their value is at least equal to the amount due from the seller, including
accrued interest. The Advisor will also consider the credit-worthiness of any
bank or broker-dealer involved in repurchase agreements under procedures adopted
by the Trust's Board of Trustees.
U.S. Government Securities
Each Fund may invest in securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. U.S. Government securities
include direct obligations issued by the United States Treasury, such as
Treasury bills, certificates of indebtedness, notes and bonds. U.S. Government
agencies and instrumentalities that issue or guarantee securities include, but
are not limited to, the Federal Home Loan Banks, the Federal National Mortgage
Association, and the Student Loan Marketing Association. Except for U.S.
Treasury securities, obligations of U.S. Government agencies and
instrumentalities may or may not be supported by the full faith and credit of
the United States. Some, such as those of the Federal Home Loan Banks, are
backed by the right of the issuer to borrow from the Treasury, others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations, while still others, such as the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look
7
<PAGE>
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its commitment.
When-Issued Securities
Each Fund may purchase securities on a when-issued or delayed-delivery
basis, generally in connection with an underwriting or other offering.
When-issued and delayed-delivery transactions occur when securities are bought
with payment for and delivery of the securities scheduled to take place at a
future time, beyond normal settlement dates, generally from 15 to 45 days after
the transaction. No interest accrues to the purchaser during the period before
delivery. There is a risk in these transactions that the value of the securities
at settlement may be more or less than the agreed upon price, or that the value
of the securities or settlement may be more or less than the agreed upon price,
or that the party with which a Fund enters into such a transaction may not
perform its commitment. A Fund will segregate liquid assets, such as cash, U.S.
Government securities and other liquid, high quality debt securities in an
amount sufficient to meet its payment obligations with respect to these
transactions.
Securities Lending
Each Fund may lend its securities in an amount not exceeding 30% of its
assets to financial institutions such as banks and brokers if the loan is
collateralized in accordance with applicable regulations. Under the present
regulatory requirements which govern loans of portfolio securities, the loan
collateral must, on each business day, at least equal the value of the loaned
securities and must consist of cash, letters of credit of domestic banks or
domestic branches of foreign banks, or securities of the U.S. Government. Loans
of securities involve risks of delay in receiving additional collateral or in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. However, such securities
lending will be made only when, in the opinion of the Advisor, the income to be
earned from the loans justifies the attendant risks. Loans are subject to
termination at the option of the Funds or the borrower.
Options
Each Fund may write (sell) covered call options on individual securities
and on stock indices and engage in related closing transactions. A covered call
option on a security is an agreement by a Fund, in exchange for a premium, to
sell a particular portfolio security if the option is exercised at a specified
price before a set date. An option on a stock index gives the option holder the
right to receive, upon exercising the option, a cash settlement amount based on
the difference between the exercise price and the value of the underlying stock
index. Risks associated with writing covered options include the possible
inability to effect closing transactions at favorable prices and an appreciation
limit on the securities set aside for settlement. Each Fund may also purchase
call options in closing transactions, to terminate option positions written by
the Fund. There is no assurance of liquidity in the secondary market for
purposes of closing out covered call option positions.
Each Fund may purchase put and call options with respect to securities
which are eligible for purchase by the Fund and with respect to various stock
indices for the purpose of hedging against the risk of unfavorable price
movements adversely affecting the value of the Fund's securities or securities
the Fund intends to buy. A put option on a security is an agreement by the
writer of the option, in exchange for a premium, to purchase the security from a
Fund, if the option is exercised, at a specified price before a set date. A Fund
may also sell put and call options in closing transactions.
8
<PAGE>
Special risks are associated with the use of options. There can be no
guarantee of a correlation between price movements in the option and in the
underlying securities or index. A lack of correlation could result in a loss on
both the Fund's portfolio holdings and the option so that the Fund's return
might have been better had the option not been purchased or sold. There can be
no assurance that a liquid market will exist at a time when the Fund seeks to
close out an option position. A Fund may purchase a put or call option only if
the value of its premium, when aggregated with the premiums on all other options
held by the Fund, does not exceed 5% of the Fund's total assets.
Stock Index Futures
Each Fund may buy and sell stock index futures contracts for bona fide
hedging purposes, e.g., in order to hedge against changes in prices of the
Fund's securities. No more than 25% of a Fund's assets will be hedged.
A stock index futures contract is an agreement pursuant to which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made. If the Advisor
expected general stock market prices to rise, it might purchase a stock index
futures contract as a hedge against an increase in prices of particular equity
securities it wanted ultimately to buy. If in fact the stock index did rise, the
price of the equity securities intended to be purchased might also increase, but
that increase would be offset in part by the increase in the value of the Fund's
futures contract resulting from the increase in the index. On the other hand, if
the Advisor expected general stock market prices to decline, it might sell a
futures contract on the index. If that index did in fact decline, the value of
some or all of the equity securities held by the Fund might also be expected to
decline, but that decrease would be offset in part by the increase in the value
of the futures contract.
There is no assurance that it will be possible at any particular time to
close a futures position. In the event that a Fund could not close a futures
position and the value of the position declined, the Fund would be required to
continue to make daily cash payments to the other party to the contract to
offset the decline in value of the position. There can be no assurance that
hedging transactions will be successful, as there may be an imperfect
correlation between movements in the prices of the futures contracts and of the
securities being hedged, or price distortions due to market conditions in the
futures markets. Successful use of futures contracts is subject to the Advisor's
ability to predict correctly movements in the direction of interest rates,
market prices and other factors affecting the value of securities.
Illiquid and Restricted Securities; Short Sales Against the Box
Each Fund may invest up to 5% of its net assets in illiquid securities,
including (i) securities for which there is no readily available market; (ii)
securities which may be subject to legal restrictions on resale (so-called
"restricted securities") other than Rule 144A securities noted below; (iii)
repurchase agreements having more than seven days to maturity; and (iv) fixed
time deposits subject to withdrawal penalties (other than those with a term of
less than seven days). Illiquid securities do not include those which meet the
requirements of Securities Act Rule 144A and which the Trustees have determined
to be liquid based on the applicable trading markets. Each Fund is permitted to
engage in short sales "against the box." Such short sales are a method of
locking in unrealized capital gains without current recognition of such gains.
9
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions, which are described
fully in the Statement of Additional Information. Like the Funds' investment
objectives, certain of these restrictions are fundamental and may be changed
only by a majority vote of a Fund's outstanding shares.
ORGANIZATION AND MANAGEMENT
The Trust is organized as a Delaware business trust, and is registered as
an open-end diversified management investment company. The Trust's Board of
Trustees decides on matters of general policy and reviews the activities of the
Advisor, Distributor and Administrator. The Trust's officers conduct and
supervise its daily business operations.
The Advisor
The Advisor is a limited partnership organized in May 1995 as the successor
to its general partner, Brandes Investment Partners, Inc., which was founded in
1974. The Advisor currently manages over $6 billion in assets for various
clients, including corporations, public and corporate pension plans, foundations
and charitable endowments, and individuals. Charles H. Brandes, who owns over
25% of the common stock of Brandes Investment Partners, Inc., serves as a
Trustee of the Trust. The Advisor's offices are located at 12750 High Bluff
Drive, San Diego, California 92130.
Management Fee. Subject to the direction and control of the Trustees, the
Advisor formulates and implements an investment program for the Funds, including
determining which securities should be bought and sold. The Advisor also
provides certain officers for the Funds. For its services, the Advisor receives
a fee, accrued daily and paid monthly at the annual rate of 1.00% of average net
assets. This fee is higher than that charged by most other investment companies.
Managers of the Funds. The Funds are team-managed by the Advisor's
Investment Committee, whose members are firm principals and/or portfolio
managers. Current members of the Investment Committee are Charles H. Brandes,
CFA; Jeffrey A. Busby, CFA; Glenn R. Carlson, CFA; Douglas C. Edman; Robert J.
Gallagher; Ann W. Humphreville; Marnelle A. Marchese, CFA; Jeffrey R. Meyer,
CFA; William A. Pickering, CFA; Ann M. Priebe; James A. Shore, CFA; and Brent V.
Woods, J.D.
Operating Expenses; Expense Limitation
The Funds are responsible for paying their operating expenses, including,
but not limited to, management and administrative fees, legal and auditing fees,
fees and expenses of its custodian, accounting services and shareholder
servicing agents, 12b-1 and shareholder servicing fees, Trustees' fees, the cost
of communicating with shareholders and registration fees. In order to comply
with a regulation of a state in which the Funds' shares are sold, the Advisor is
required to reduce its fees or reimburse each Fund for its annual operating
expenses which exceed the limit set by the regulation. However, the Advisor has
voluntarily
10
<PAGE>
agreed through at least October 31, 1996 to limit the Funds' operating expenses
to 1.20% of average net assets in the case of the Institutional Class. Any such
reductions made by the Advisor in its fees or reimbursement of expenses are
subject to reimbursement by each Fund within the following three years, provided
that the Fund is able to effect such reimbursement while remaining within the
expense limitation. Shareholders will receive 30 days prior notice in the event
the Advisor determines not to maintain this voluntary limit in the future. The
Board of Trustees has determined that it is possible, but not probable, that the
Funds will be large enough in the future for the expense ratio to be
sufficiently reduced to permit reimbursement of the Advisor.
Portfolio Transactions and Brokerage
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Funds' portfolio transactions. These factors include, but
are not limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Funds receive prompt execution at competitive prices, the Advisor may also
consider the sale of shares of the Funds as a factor in selecting broker-dealers
for the Funds' portfolio transactions. The Advisor does not expect the portfolio
turnover rate of either Fund to exceed, under normal conditions, 50% per year.
The Administrator
Investment Company Administration Corporation (the "Administrator"),
pursuant to administration agreements with the Trust, supervises the overall
administration of the Funds including, among other responsibilities, the
preparation and filing of documents required for compliance by the Funds with
applicable laws and regulations, arranging for the maintenance of books and
records of the Funds, and supervision of other organizations that provide
services to the Funds. Certain officers of the Trust may be provided by the
Administrator. For its services, the Administrator receives a fee from the Trust
at the annual rate of 0.10% of average net assets, subject to a minimum of
$70,000 per year.
PURCHASES
General
Institutional Class Shares of the Funds are offered on a continuous basis
only to certain institutional investors, including qualified retirement plans,
foundations, endowments, corporations and other taxable and tax-exempt investors
that would otherwise generally qualify as advisory clients of the Advisor.
Shares may also be purchased by officers and employees of the Advisor, the
Administrator and the Distributor and their immediate family members, as well as
to certain other persons determined from time to time by the Distributor.
Shares of the Funds are sold without a sales charge. The Funds' Distributor
is Worldwide Value Distributors, Inc., an affiliate of the Advisor. The minimum
initial investment in either Fund is $1 million; there is no minimum subsequent
investment. The minimum investment may be waived by the Distributor for
institutions making continuing investments in a Fund and from time to time for
other investors, including retirement plans with assets in excess of $10
million.
11
<PAGE>
Purchases
Purchases of shares of a Fund may be made only by wiring funds to the
Transfer Agent. Before making an initial investment in a Fund, the investor
should first call the Transfer Agent at (800) 543-7518 between the hours of 9:00
a.m. and 4:00 p.m., Eastern time, on a day when the New York Stock Exchange is
open for trading in order to receive an account number. The Transfer Agent will
request the investor's name, address, tax identification number, amount being
wired and wiring bank. The investor should then instruct the wiring bank to
transfer funds by wire to: RSMC, c/o Wilmington Trust Company, Wilmington,
Delaware, ABA # 0311-0009-2, DDA #2670-3514, for credit to either Brandes
International Fund or Brandes Small Cap International Fund, for further credit
to [Investor's name and account number]. If the funds are received by the
Transfer Agent prior to the time that the Fund's net asset value is calculated,
the funds will be invested on that day; otherwise, they will be invested on the
next business day at the next calculated net asset value.
In addition to wiring funds, the investor must also forward a completed
Application Form to the Transfer Agent. The investor should write the account
number provided by the Transfer Agent on the Application Form. Certain
institutional investors may open separate accounts with a Fund for individual
employees or plan participants, in which case the institution is responsible for
providing an Application Form to the individual. Plan sponsors and
administrators are also responsible for forwarding to the Transfer Agent the
Application Forms and other relevant information for plan participants.
To make a subsequent purchase by wire, the investor should call the
Transfer Agent at (800) 543-7518 before the wire is sent. Failure to do so may
cause the purchase to be delayed indefinitely. The investor should wire funds to
the Transfer Agent, care of Wilmington Trust Company, in the manner described
above, including the name of the Fund and the investor's account number with the
wire.
Individual participants in qualified retirement plans should purchase
shares of a Fund through their plan sponsor or administrator, which is
responsible for transmitting orders. The procedures for investing in a Fund
depend on the provisions of the qualified retirement plan and any arrangements
that the plan sponsor may have made for special processing services, including
subaccounting.
Other
Shares are credited to an investor's account, and certificates are
generally not issued. The Trust and the Distributor each reserve the right to
reject any purchase order or suspend or modify the offering of the Funds'
shares.
Purchasing with Securities
In addition to cash purchases, shares may be purchased by tendering payment
in kind in the form of securities, provided that any such securities are
consistent with a Fund's investment objective and policies, are acquired for
investment and not for resale, are liquid, unrestricted and have a readily
determinable value by exchange or NASDAQ listing and that such a purchase has
been approved by the Advisor.
Net Asset Value
To determine the net asset value per share of a class of shares of a Fund,
the current value of the Fund's total assets, less all liabilities, is divided
by the total number of shares of that class outstanding, and
12
<PAGE>
the result is rounded to the nearer cent. The Funds value their investments on
the basis of their market value. Securities and other assets for which market
prices are not readily available are valued at fair value as determined in good
faith by the Board of Trustees. Debt securities with remaining maturities of 60
days or less are normally valued at amortized cost, unless the Board of Trustees
determines that amortized cost does not represent fair value. Cash and
receivables will be valued at their face amounts. Interest will be recorded as
accrued, and dividends will be recorded on their ex-dividend date.
Each Fund will calculate its net asset value once daily at the close of
public trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time)
on days that the Exchange is open for trading, except on days on which no orders
to purchase, sell or redeem shares have been received by the Fund. The New York
Stock Exchange is closed on the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Other Classes
Currently, each series of the Trust is divided into three classes. The
Institutional Classes are offered pursuant to this Prospectus; Class A Shares
and Class C Shares of each series are offered pursuant to a separate prospectus
which can be obtained by calling (619) 755-0239. The Class A Shares and Class C
Shares have different expenses which may affect their performance.
SHAREHOLDER SERVICES
Automatic Reinvestment
Dividends and capital gain distributions are reinvested without any sales
charge in additional shares unless indicated otherwise on the Application Form.
A shareholder may elect to have dividends or capital gain distributions paid in
cash.
Shareholder Reports
Shareholders will receive an audited annual report and an unaudited
semiannual report, both of which present the financial statements of the Funds.
Exchange Privilege
A shareholder may exchange shares of either Fund for shares of the
Institutional Class of the other Fund, based on the respective net asset values
as of the date of the exchange. Shares of either Fund may also be exchanged for
shares of the Money Market Portfolio of The Rodney Square Fund, a money market
mutual fund advised by Rodney Square Management Corporation and not affiliated
with the Funds. Prior to making such an exchange, a shareholder should obtain
and read a prospectus for The Rodney Square Fund, by calling (800) 543-7518.
Exchanges are limited to four per shareholder account per year; the exchange
privilege is available only in states where all funds are qualified for sale.
The exchange privilege may be modified or terminated on 60 days written notice
to shareholders. For tax purposes, an exchange is considered a redemption and a
new purchase.
13
<PAGE>
REDEEMING SHARES
How to Redeem Shares
Shares may be redeemed only by instructions from the registered owner of a
shareholder account. Individuals who are participants in a retirement or other
plan should direct redemption requests to the plan sponsor or administrator,
which may have special procedures for processing such requests and which is
responsible for forwarding requests to the Funds' Transfer Agent.
An investor may redeem shares by mailing instructions to the Transfer
Agent, Rodney Square Management Corporation, P.O. Box 8987, Wilmington, DE
19899, or by delivering instructions to the Transfer Agent at 1105 N. Market
Street, Wilmington, Delaware 19890. The instructions must specify the name of
the Fund, the number of shares or dollar amount to be redeemed and the
shareholder's name and account number. If a redemption is requested by a
corporation, partnership, trust or fiduciary, written evidence of authority
acceptable to the Transfer Agent must be submitted before such request will be
accepted. If the proceeds of the redemption exceed $50,000, are to be paid to a
person other than the record owner, are to be sent to an address other than the
address on the Transfer Agent's records, or are to be paid to a corporation,
partnership, trust or fiduciary, the signature(s) on the redemption request and
on the certificates, if any, or stock powers must be guaranteed by an "eligible
guarantor," which includes a bank or savings and loan association that is
federally insured or a member firm of a national securities exchange. The price
the shareholder will receive for the Fund shares redeemed is at the next
determined net asset value for the shares after a completed redemption request
is received by the Transfer Agent.
Telephone Redemptions. A shareholder may establish telephone redemption
privileges by checking the appropriate box and supplying the necessary
information on the Application Form. Shares may then be redeemed by telephoning
the Transfer Agent at (800) 543-7518, between the hours of 9:00 a.m. and 4:00
p.m. Eastern time on a day when the New York Stock Exchange is open for trading.
Redemption requests received by the Transfer Agent before 4:00 p.m. Eastern time
on a day when the New York Stock Exchange is open for trading will be processed
that day; otherwise processing will occur on the next business day.
Institutional investors may also make special arrangements with the Transfer
Agent for designating personnel of the investor who are authorized to place
telephone redemption requests.
Special Factors Regarding Telephone Redemptions. The Trust will use
procedures, such as assigned personal identification numbers, designed to
provide reasonable verification of the identity of a person making a telephone
redemption request. The Trust reserves the right to refuse a telephone
redemption request if it believes that the person making the request is neither
the record owner of the shares being redeemed nor otherwise authorized by the
shareholder to request the redemption. Shareholders will be promptly notified of
any refused request for a telephone redemption. If these normal identification
procedures are not followed, the Trust or its agents could be liable for any
loss, liability or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
Redemption Payments
Payment for redemptions will be made within seven days after receipt by the
Transfer Agent of the written or telephone redemption request, any share
certificates, and, if required, a signature guarantee
14
<PAGE>
and any other necessary documents, except as indicated below. Payment may be
postponed or the right of redemption suspended at times when the New York Stock
Exchange is closed for other than customary weekends and holidays, when trading
on such exchange is restricted, when an emergency exists as a result of which
disposal by the Trust of securities owned by a Fund is not reasonably
practicable or it is not reasonably practicable for the Trust fairly to
determine the value of a Fund's net assets, or during any other period when the
SEC, by order, so permits.
Redemption proceeds are generally paid by check. However, at the
shareholder's request, redemption proceeds of $300 or more may be wired by the
Transfer Agent to the shareholder's bank account. Requests for redemption by
wire should include the name, location and ABA or bank routing number (if known)
of the designated bank and the shareholder's bank account number.
Redemption of Small Accounts
In order to reduce expenses, the Funds may redeem shares in any account,
other than a qualified retirement plan, if at any time, due to redemptions, the
total value of a shareholder's account falls below $500. Shareholders will be
given 30 days prior written notice in which to purchase sufficient additional
shares to avoid such a redemption.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
Dividends and Distributions
Both Funds expect to pay income dividends for each class of shares
annually. Distributions of net capital gains with respect to each class of
shares, if any, will be made at least annually. The Board of Trustees may
determine to declare dividends and make distributions more frequently.
Dividends and capital gain distributions are automatically reinvested in
additional shares at the net asset value per share on the reinvestment date
unless the shareholder has previously requested in writing to the Transfer Agent
that payment be made in cash.
Any dividend or distribution paid by a Fund has the effect of reducing the
net asset value per share on the reinvestment date by the amount of the dividend
or distribution. Investors should note that a dividend or distribution paid on
shares purchased shortly before such dividend or distribution was declared will
be subject to income taxes as discussed below even though the dividend or
distribution represents, in substance, a partial return of capital to the
shareholder.
Tax Status
Each Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Code. As long as a Fund continues
to qualify, and as long as a Fund distributes all of its income each year to
shareholders, the Fund will not be subject to any federal income or excise
taxes. The distributions made by the Funds will be taxable to shareholders
whether received in shares (through dividend reinvestment) or in cash.
Distributions derived from net investment income, including net short-term
capital gains, are taxable to shareholders as ordinary income. Distributions
designated as capital
15
<PAGE>
gains dividends are taxable as long-term capital gains regardless of the length
of time shares of a Fund have been held. Although distributions are generally
taxable when received, certain distributions made in January are taxable as if
received in the prior December. Shareholders will be informed annually of the
amount and nature of the Funds' distributions.
The Trust may be required to impose backup withholding at a rate of 31%
from income dividends and capital gain distributions and upon payment of
redemption proceeds if provisions of the Code relating to the furnishing and
certification of taxpayer identification numbers and reporting of dividends are
not complied with by a shareholder. Any shareholder account without a tax
identification number may be liquidated and distributed to the shareholder, net
of withholding, after the sixtieth day of investment. In addition, dividends and
capital gains distributions to foreign shareholders may be subject to U.S.
withholding at a rate of up to 30%.
Dividends and interest earned by the Funds may be subject to withholding
and other taxes imposed by foreign countries, at rates from 10% to 40%, which
taxes would reduce the Funds' investment income. However, under certain
circumstances shareholders may be able to claim credits against their U.S. taxes
for such foreign taxes. The Trust will also notify shareholders each year as to
the amounts available as credits.
Additional information about taxes is set forth in the Statement of
Additional Information. Shareholders should consult their own advisers
concerning federal, state and local taxation of distributions from the Funds.
PERFORMANCE INFORMATION
From time to time, the Trust may publish the total return of the Funds in
advertisements and communications to investors. Total return information will
include a Fund's average annual compounded rate of return over the four most
recent calendar quarters and over the period from the Fund's inception of
operations. The Trust may also advertise aggregate and average total return
information of the Funds over different periods of time. A Fund's total return
will be based upon the value of the shares acquired through a hypothetical
$1,000 investment (at the maximum public offering price) at the beginning of the
specified period and the net asset value of such shares at the end of the
period, assuming reinvestment of all distributions. Total return figures will
reflect all recurring charges against Fund income for each respective class.
Investors should note that the investment results of each Fund will fluctuate
over time, and any presentation of a Fund's total return for any prior period
should not be considered as a representation of what an investor's total return
may be in any future period.
In addition to standardized return, performance advertisements and sales
literature may also include other total return performance data
("non-standardized return"). Non-standardized return may be quoted for the same
or different periods as those for which standardized return is quoted and may
consist of aggregate or average annual percentage rate of return, actual
year-by-year rates or any combination thereof. All data included in performance
advertisements will reflect past performance and will not necessarily be
indicative of future results. The Trust may also advertise relative rankings by
mutual fund ranking services such as Lipper Analytical Services or Morningstar,
Inc. The investment return and principal value of an
16
<PAGE>
investment in a Fund will fluctuate and an investor's proceeds upon redeeming
Fund shares may be more or less than the original cost of the shares.
GENERAL INFORMATION
The Trust was organized as a Delaware business trust on July 6, 1994. The
Trustees have authority to issue an unlimited number of shares of beneficial
interest of separate series, par value $.01 per share. Although it has no
present intention to do so, the Trust has reserved the right to convert to a
master-feeder structure in the future by investing all of the Funds' assets in
the securities of another investment company, upon notice to and approval of
shareholders.
Shares of beneficial interest of each Fund are currently divided into three
classes, designated Class A Shares, Class C Shares and Institutional Shares.
Each class represents interests in the same assets of the respective Fund. The
classes differ as follows: (1) each class has exclusive voting rights on matters
pertaining to its plan of distribution; (2) Class A Shares are subject to an
initial sales charge; (3) all Class C Shares are subject to a contingent
deferred sales charge, whereas only some Class A Shares are subject to such a
charge; (4) Institutional Shares require a higher minimum initial investment and
are not subject to an initial sales charge, a contingent deferred sales charge,
or fees pursuant to a distribution plan or shareholder service plan; and (5)
each class may bear differing amounts of certain class-specific expenses, such
as distribution fees. The Board of Trustees does not anticipate that there will
be any conflicts among the interests of the holders of the different classes of
shares of the Funds. On an ongoing basis, the Board will consider whether any
such conflict exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings of the Funds. There
normally will be no meetings of shareholders to elect Trustees unless fewer than
a majority of the trustees holding office have been elected by shareholders.
Shareholders of record holding at least two-thirds of the outstanding shares of
the Trust may remove a Trustee by votes cast in person or by proxy at a meeting
called for that purpose. The Trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
Trustee when so requested in writing by the shareholders of record owning at
least 10% of the Trust's outstanding shares. Each share of the Funds has equal
voting rights except as noted above. Each share of each Fund is entitled to
participate equally in dividends and distributions and the proceeds of any
liquidation from the respective Fund except that, due to the differing expenses
borne by the three classes, such dividends and proceeds are likely to be lower
for the Class C Shares than for the Class A Shares or Institutional Shares. The
shares of each Fund will be voted together except when a separate vote by Fund
or class is required by the 1940 Act.
Custodian and Transfer Agent. Investors Bank and Trust Company is the
custodian of the Funds' assets and employs foreign sub-custodians, approved by
the Board of Trustees in accordance with applicable requirements under the 1940
Act, to provide custody of the Funds' foreign assets. Rodney Square Management
Corporation is the Funds' transfer and dividend disbursing agent.
17
<PAGE>
BRANDES
INTERNATIONAL
FUND
[BRANDES LOGO]
BRANDES
SMALL CAP
INTERNATIONAL
FUND
APRIL 1, 1996
(SUPPLEMENTED MAY 1, 1996)
PROSPECTUS
INSTITUTIONAL
SHARES
<PAGE>
BRANDES INVESTMENT TRUST
Statement of Additional Information
Dated April 1, 1996
(Supplemented May 1, 1996)
This Statement of Additional Information is not a prospectus, and it
should be read in conjunction with the prospectuses of Brandes Investment Trust
(the "Trust") dated April 1, 1996. Brandes Investment Partners, L.P. (the
"Advisor") is the Advisor to the Trust. Copies of the prospectuses may be
obtained from the Trust at 12750 High Bluff Drive, Suite 420, San Diego, CA
92130 or by calling 1-800-237-7119.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference to page in
prospectus for:
Class A and Institutional
Page Class C Shares Shares
---- -------------- ------
<S> <C> <C> <C>
Investment Objective and Policies............................. B-2 4 4
Investment Restrictions....................................... B-2 9 10
Other Securities and Investment Techniques.................... B-4 6 7
Repurchase Agreements................................ B-4 7 8
When-Issued Securities............................... B-4 7 8
Rule 144A Securities................................. B-5 9 10
Put and Call Options................................. B-5 8 9
Futures Contracts.................................... B-7 8 10
Management.................................................... B-7 9 11
Advisory Agreement................................... B-8 10 11
Administration Agreement............................. B-9 11 12
Distribution Arrangements..................................... B-10 11 12
Portfolio Transactions and Brokerage.......................... B-11 11 12
Net Asset Value............................................... B-12 13 13
Redemptions................................................... B-12 16 15
Taxation...................................................... B-12 19 17
Dividends and Distributions................................... B-14 19 16
Performance Information....................................... B-14 20 17
General Information........................................... B-14 21 18
Financial Statements.......................................... B-15 3
Appendix...................................................... B-15
</TABLE>
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Brandes International Fund (the "International Fund") and Brandes
International Small Cap Fund (the "Small Cap Fund") (collectivelly, the "Funds")
are mutual funds whose investment objective is long-term capital appreciation.
Each Fund seeks to achieve its objective by investing principally in equity
securities of foreign issuers.
Foreign Securities
The U.S. Government has, from time to time, imposed restrictions,
through taxation or otherwise, on foreign investments by U.S. entities such as
the Funds. If such restrictions should be reinstituted, the Board of Trustees of
the Trust would consider alternative arrangements, including reevaluation of the
Funds' investment objective and policies. However, a Fund would adopt any
revised investment objective and fundamental policies only after approval by the
holders of a "majority of the outstanding voting securities" of the Fund, which
is defined in the Investment Company Act of 1940 (the "1940 Act") to mean the
lesser of (i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares.
Investments in foreign securities involve certain inherent risks.
Individual foreign economies may differ from the U.S. economy in such aspects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, diversification and balance of payments position. The
internal politics of certain foreign countries may not be as stable as those of
the United States. Governments in certain foreign countries also continue to
participate to a significant degree in their respective economies. Action by
these governments could include restrictions on foreign investment,
nationalization, expropriation of propery or imposition of taxes, and could have
a significant effect on market prices of securities and payment of interest. The
economies of many foreign countries are heavily dependent on international trade
and are accordingly affected by the trade policies and economic conditions of
their trading partners. Enactment by these trading partners of protectionist
trade legislation could have a significant adverse effect on the securities
markets of such countries.
Because most of the securities in which the Funds will invest are
denominated in foreign currencies, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Funds' assets which are denominated in that currency. Such changes
will also affect the Fund's income. The values of the Funds' assets may also be
affected significantly by currency restrictions and exchange control regulations
imposed from time to time.
Foreign securities markets may be more volatile than those in the
United States. While growing in volume, they usually have substantially less
volume than U.S. markets, and the Fund's portfolio securities may be less liquid
and more volatile than U.S. securities. Settlement practices for transactions
may differ from those in the United States and may include delays beyond periods
customary in the United States. Such differences and potential delays may expose
the Funds to increased risk of loss in the event of a failed trade or the
insolvency of a foreign broker-dealer.
INVESTMENT RESTRICTIONS
The Trust has adopted the following fundamental investment policies and
restrictions with respect to each Fund in addition to the policies and
restrictions discussed in the prospectus. The policies and restrictions listed
below cannot be changed with respect to a Fund without approval by
B-2
<PAGE>
the holders of a majority of the outstanding voting securities of the Fund. As a
matter of fundamental policy, each Fund is diversified; i.e., at least 75% of
the value of its total assets is represented by cash and cash items (including
receivables), Government securities, securities of other investment companies,
and other securities for the purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value of the
total assets of the Fund and to not more than 10% of the outstanding voting
securities of such issuer.
In addition, neither Fund may:
1. Issue senior securities, borrow money or pledge its assets, except
that a Fund may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not exceeding
10% of its total assets (not including the amount borrowed), provided that it
will not make investments while borrowings in excess of 5% of the value of its
total assets are outstanding;
2. Make short sales of securities or maintain a short position, except
for short sales against the box;
3. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;
4. Write put or call options, except that a Fund may (i) write covered
call options on individual securities and on stock indices; (ii) purchase put
and call options on securities which are eligible for purchase by the Fund and
on stock indices; and (iii) engage in closing transactions with respect to its
options writing and purchases, in all cases subject to applicable federal and
state laws and regulations;
5. Act as underwriter (except to the extent a Fund may be deemed to be
an underwriter in connection with the sale of securities in its investment
portfolio);
6. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities), except that each Fund reserves the right to invest all
of its assets in shares of another investment company;
7. Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although each Fund may purchase and sell securities
which are secured by real estate, securities of companies which invest or deal
in real estate and securities issued by real estate investment trusts);
8. Purchase or sell commodities or commodity futures contracts, except
that a Fund may purchase and sell stock index futures contracts for hedging
purposes to the extent permitted under applicable federal and state laws and
regulations and except that each Fund may engage in foreign exchange forward
contracts, although it has no current intention to do so;
9. Make loans (except for purchases of debt securities consistent with
the investment policies of the Fund and except for repurchase agreements);
10. Make investments for the purpose of exercising control or
management;
11. Invest in oil and gas limited partnerships or oil, gas or mineral
leases;
Each Fund observes the following restrictions as a matter of operating,
but not fundamental, policy, which can be changed by the Board of Trustees
without shareholder approval, pursuant to positions taken by federal and state
regulatory authorities:
B-3
<PAGE>
Each Fund may not:
1. Purchase any security if as a result the Fund would then hold more
than 10% of any class of voting securities of an issuer (taking all common stock
issues as a single class, all preferred stock issues as a single class, and all
debt issues as a single class), except that each Fund reserves the right to
invest all of its assets in a class of voting securities of another investment
company;
2. Invest in securities of any issuer if any officer or Trustee of the
Trust or any officer or Director of the Advisor owns more than 1/2 of 1% of the
outstanding securities of such issuer, and such officers, Trustees and Directors
who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer;
3. Invest more than 10% of its assets in real estate investment trusts;
4. Invest more than 5% of the value of its net assets in warrants
(included in that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants which are not listed on the New York or American Stock
Exchange), although neither Fund has any present intention to invest in
warrants;
5. Invest in any security if, as a result, the Fund would have more
than 5% of its total assets invested in securities of companies which together
with any predecessor have been in continuous operation for fewer than three
years ("unseasoned securities");
6. Invest more than 10% of its assets in the securities of other
investment companies or purchase more than 3% of any other investment company's
voting securities or make any other investment in other investment companies
except as permitted by federal and state law, except that each Fund reserves the
right to invest all of its assets in another investment company;
7. Invest more than 5% of its total assets in restricted securities,
other than restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 that have been determined to be liquid;
8. Invest more than 5% in the aggregate of illiquid and unseasoned
securities;
9. Invest more than 15% of its total assets in unseasoned securities
and illiquid securities, including Rule 144A securities.
OTHER SECURITIES AND INVESTMENT TECHNIQUES
Repurchase Agreements
Repurchase agreements are transactions in which a Fund purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or maturity of
the purchased security. The purchaser maintains custody of the underlying
securities prior to their repurchase; thus the obligation of the bank or dealer
to pay the repurchase price on the date agreed to is, in effect, secured by such
underlying securities. If the value of such securities is less than the
repurchase price, the other party to the agreement will provide additional
collateral so that at all times the collateral is at least equal to the
repurchase price.
Although repurchase agreements carry certain risks not associated with
direct investments in securities, each Fund intends to enter into repurchase
agreements only with banks and dealers
B-4
<PAGE>
believed by the Advisor to present minimum credit risks in accordance with
guidelines established by the Board of Trustees. The Advisor will review and
monitor the creditworthiness of such institutions under the Board's general
supervision. To the extent that the proceeds from any sale of collateral upon a
default in the obligation to repurchase were less than the repurchase price, the
purchaser would suffer a loss. If the other party to the repurchase agreement
petitions for bankruptcy or otherwise becomes subject to bankruptcy or other
liquidation proceedings, there might be restrictions on the purchaser's ability
to sell the collateral and the purchaser could suffer a loss. However, with
respect to financial institutions whose bankruptcy or liquidation proceedings
are subject to the U.S. Bankruptcy Code, each Fund intends to comply with
provisions under such Code that would allow it immediately to resell the
collateral.
When-Issued Securities
Either Fund may from time to time purchase securities on a
"when-issued" basis. The price of such securities, which may be expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities take place at a later date.
Normally, the settlement date occurs within one month of the purchase; during
the period between purchase and settlement, no payment is made by the Fund to
the issuer and no interest accrues to the Fund. To the extent that assets of the
Fund are held in cash pending the settlement of a purchase of securities, the
Fund would earn no income. While when-issued securities may be sold prior to the
settlement date, the Fund intends to purchase such securities with the purpose
of actually acquiring them unless a sale appears desirable for investment
reasons. At the time the Fund makes the commitment to purchase a security on a
when-issued basis, it will record the transaction and reflect the value of the
security in determining its net asset value. The market value of the when-issued
securities may be more or less than the purchase price. The Advisor does not
believe that a Fund's net asset value or income will be adversely affected by
the purchase of securities on a when-issued basis. A Fund will establish a
segregated account with the Custodian in which it will maintain cash or liquid
assets such as U.S. Government securities or other high-grade debt obligations
equal in value to commitments for when-issued securities. Such segregated
securities either will mature or, if necessary, be sold on or before the
settlement date.
Rule 144A Securities
As noted in the prospectus, each Fund may invest no more than 5% of its
net assets in securities that at the time of purchase have legal or contractual
restrictions on resale, are otherwise illiquid or do not have readily available
market quotations. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933 ("restricted securities"),
securities which are otherwise not readily marketable such as over-the-counter,
or dealer traded, options, and repurchase agreements having a maturity of more
than seven days. Mutual funds do not typically hold a significant amount of
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities, and a Fund might not be
able to dispose of such securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions. A Fund might also have to
register such restricted securities in order to dispose of them, resulting in
additional expense and delay.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act of 1933,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or
B-5
<PAGE>
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such investments. If such
securities are subject to purchase by institutional buyers in accord with Rule
144A promulgated by the Securities and Exchange Commission, the Trustees may
determine that such securities, up to a limit of 5% of a Fund's total net
assets, are not illiquid notwithstanding their legal or contractual restrictions
on resale.
Put and Call Options
Purchasing Options. By purchasing a put option, a Fund obtains the
right (but not the obligation) to sell the option's underlying instrument at a
fixed "strike" price. In return for this right, the Fund pays the current market
price for the option (known as the option premium). Options have various types
of underlying instruments, including specific securities, indices of securities
prices, and futures contracts. A Fund may terminate its position in a put option
it has purchased by allowing it to expire or by exercising the option. If the
option is allowed to expire, the Fund will lose the entire premium it paid. If
the Fund exercises the option, it completes the sale of the underlying
instrument at the strike price. A Fund also may terminate a put option position
by closing it out in the secondary market at its current price (i.e., by selling
an option of the same series as the option purchased), if a liquid secondary
market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to suffer
a loss if the underlying prices do not rise sufficiently to offset the cost of
the option.
Writing Options. When a Fund writes a call option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to sell or deliver the
option's underlying instrument, in return for the strike price, upon exercise of
the option. A Fund may seek to terminate its position in a call option it writes
before exercise by closing out the option in the secondary market at its current
price (i.e., by buying an option of the same series as the option written). If
the secondary market is not liquid for a call option the Fund has written,
however, the Fund must continue to be prepared to deliver the underlying
instrument in return for the strike price while the option is outstanding,
regardless of price changes, and must continue to segregate assets to cover its
position. A Fund will establish a segregated account with the Custodian in which
it will maintain the security underlying the option written, or securities
convertible into that security, or cash or liquid assets such as U.S. Government
securities or other high-grade debt obligations equal in value to commitments
for options written.
Writing a call generally is a profitable strategy if the price of the
underlying security remains the same or falls. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in the underlying price
increases.
B-6
<PAGE>
Combined Positions. Each Fund may purchase and write options in
combination with each other to adjust the risk and return characteristics of the
overall position. For example, a Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options contracts, it is likely that the standardized
contracts available will not match the Funds' current or anticipated investments
exactly. A Fund may invest in options contracts based on securities with
different issuers, maturities, or other characteristics from the securities in
which it typically invests.
Options prices also can diverge from the prices of their underlying
instruments, even if the underlying instruments match the Funds' investments
well. Options prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
the security prices the same way. Imperfect correlation also may result from:
differing levels of demand in the options markets and the securities markets,
structural differences in how options are traded, or imposition of daily price
fluctuation limits or trading halts. A Fund may purchase or sell options with a
greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in a Fund's options positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains or
result in losses that are not offset by gains in other investments.
Liquidity of Options. There is no assurance a liquid secondary market
will exist for any particular options contract at any particular time. Options
may have relatively low trading volume and liquidity if their strike prices are
not close to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options contracts, and may halt
trading if a contract's price moves upward or downward more than the limit in a
given day. On volatile trading days when the price fluctuation limit is reached
or a trading halt is imposed, it may be impossible for a Fund to enter into new
positions or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and potentially could
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, a Fund's access to other assets
held to cover its options positions also could be impaired.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options, i.e., options not traded on
exchanges ("OTC options"), generally are established through negotiation with
the other party to the option contract. While this type of arrangement allows a
Fund greater flexibility to tailor an option to its needs, OTC options generally
involve greater credit risk than exchange-traded options, which are guaranteed
by the clearing organization of the exchanges where they are traded. OTC options
are considered to be illiquid, since these options generally can be closed out
only by negotiation with the other party to the option.
B-7
<PAGE>
Stock Index Options. The distinctive characteristics of options on
stock indices create certain risks that are not present with stock options
generally. Because the value of an index option depends on movements in the
level of the index rather than the price of a particular stock, whether a Fund
will realize a gain or loss on an options transaction depends on movements in
the level of stock prices generally rather than movements in the price of a
particular stock. Accordingly, successful use of options on a stock index will
be subject to the Advisor's ability to predict correctly movements in the
direction of the stock market generally. Index prices may be distorted if
trading in certain stocks included in the index is interrupted. Trading of index
options also may be interrupted in certain circumstances, such as if trading
were halted in a substantial number of stocks included in the index. If this
were to occur, the Fund would not be able to close out positions it holds. It is
the policy of the Funds to engage in options transactions only with respect to
an index which the Advisor believes includes a sufficient number of stocks to
minimize the likelihood of a trading halt in the index.
Futures Contracts
Each Fund may buy and sell stock index futures contracts. Such a
futures contract is an agreement between two parties to buy and sell an index
for a set price on a future date. Futures contracts are traded on designated
"contract markets" which, through their clearing corporations, guarantee
performance of the contracts. A stock index futures contract does not require
the physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date, a final cash
settlement occurs. Changes in the market value of a particular stock index
futures contract reflects changes in the specified index of equity securities on
which the future is based.
There are several risks in connection with the use of futures
contracts. In the event of an imperfect correlation between the index and the
portfolio position which is intended to be protected, the desired protection may
not be obtained and a Fund may be exposed to risk of loss. Further,
unanticipated changes in stock price movements may result in a poorer overall
performance for the Fund than if it had not entered into any futures on stock
indexes.
In addition, the market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
securities and futures markets. Second, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
Finally, positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
There is no assurance that a liquid secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time.
A Fund will engage in futures transactions only as a hedge against the
risk of unexpected changes in the values of securities held or intended to be
held by the Fund. As a general rule, neither Fund will purchase or sell futures
if, immediately thereafter, more than 25% of its net assets would be hedged. In
addition, neither Fund will purchase or sell futures or related options if,
immediately thereafter, the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for such options would exceed 5% of
the market value of the Fund's net assets.
B-8
<PAGE>
MANAGEMENT
The overall management of the business and affairs of the Trust is
vested with its Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it, including
the agreements with the Advisor, Administrator, Custodian and Transfer Agent.
The day-to-day operations of the Trust are delegated to its officers, subject to
the Funds' investment objectives and policies and to general supervision by the
Board of Trustees.
The Trustees and officers of the Trust, their business addresses and
principal occupations during the past five years are:
<TABLE>
<CAPTION>
<S> <C>
Barry P. O'Neil,* (age 48) President and Trustee Managing Partner of the Advisor since May
12750 High Bluff Drive 1996, and Managing Director of its
San Diego, CA 92130 predecessor since 1991; formerly Vice
President, Investment Brokerage of Dean
Witter & Co. Director, RCM Equity Funds, Inc.
DeWitt F. Bowman, C.F.A, (age 65) Trustee Pension investment consultant; formerly Chief
79 Eucalyptus Knoll Investment Officer of the California Public
Mill Valley, CA 94941 Employees Retirement System.
Charles H. Brandes,* (age 52) Trustee Managing Partner of the Advisor since May
12750 High Bluff Drive 1996 and Managing Director of its
San Diego, CA 92130 predecessor prior thereto.
Gordon Clifford Broadhead, (age 71) Trustee Marine biologist and consultant in fisheries.
P.O. Box 1427
Rancho Santa Fe, CA 92067
Joseph E. Coberly, Jr., (age 78) Trustee Managing Partner, Red Tail Golf Association
P.O. Box 944 (real estate developer).
Rancho Santa Fe, CA 92067
W. Daniel Larsen, (age 68) Trustee Retired. Honorary Danish Consul for San
1405 Savoy Circle Diego.
San Diego, CA 92107
Betsy M. Blodgett, (age 38) Vice President Partner of the Advisor since May 1996 and Vice
121 Corte Ramon President of its predecessor since 1994.
Greenbrae, CA 94904 Formerly Principal, Cameron Capital
Management (investment adviser) from 1992
to 1994 and consultant in 1994; Vice
President, Van Kasper & Co. (broker-dealer)
from 1991 to 1992; Vice President, Prudential
Capital Corporation (investments) prior
thereto.
Glenn R. Carlson, (age 34) Secretary Managing Partner of the Advisor since May
12750 High Bluff Drive 1996 and Managing Director of its
San Diego, CA 92130 predecessor prior thereto.
Gregory S. Houck, (age 34) Treasurer Partner and Operations Officer of the Advisor
12750 High Bluff Drive since May 1996 and Vice President of its
San Diego, CA 92130 predecessor since 1994. Formerly Senior
Consultant, Ernst & Young.
- --------------------------------------
*Denotes "interested person" as defined in the 1940 Act.
</TABLE>
B-9
<PAGE>
The Trust pays a fee of $800 per meeting to Trustees who are not
"interested persons" of the Trust. Trustees also receive a fee of $800 for any
committee meetings held on dates other than scheduled Board meeting dates. Such
Trustees are reimbursed for any expenses incurred in attending meetings.During
the fiscal year ended October 31, 1995, Messrs. Bowman, Broadhead, Coberly and
Larsen each received fees from the Trust in the amount of $1,600; no other
compensation or other benefits were paid.
Mr. O'Neil is the the President, and Ms. Blodgett is Vice President and
Secretary, of Worldwide Value Distributors, Inc., the Distributor of the Funds'
shares.
Advisory Agreement
Subject to the supervision of the Board of Trustees, investment
management and services are provided to each Fund by the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement"). Under the Advisory
Agreement, the Advisor provides a continuous investment program for each Fund
and makes decisions and place orders to buy, sell or hold particular securities.
In addition to the fees payable to the Advisor and the Administrator, each Fund
is responsible for its operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of Trustees other than those affiliated with the Advisor or the
Administrator; (v) legal and audit expenses; (vi) fees and expenses of the
custodian, shareholder service and transfer agents; (vii) fees and expenses for
registration or qualification of the Fund and its shares under federal and state
securities laws; (viii) expenses of preparing, printing and mailing reports and
notices and proxy material to shareholders; (ix) other expenses incidental to
holding any shareholder meetings; (x) dues or assessments of or contributions to
the Investment Company Institute or any successor; (xi) such non-recurring
expenses as may arise, including litigation affecting the Trust or the Fund and
the legal obligations with respect to which the Trust or the Fund may have to
indemnify the Trust's officers and Trustees; and (xii) amortization of
organization costs.
Under the Advisory Agreement, the Advisor and its officers, directors,
agents, employees, controlling persons, shareholders and other affiliates will
not be liable to a Fund for any error of judgment by the Advisor or any loss
sustained by the Funds, except in the case of a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages will be limited as provided in the 1940 Act) or of willful misfeasance,
bad faith, gross negligence or reckless disregard of duty. In addition, the Fund
will indemnify the Advisor and such other persons from any such liability to the
extent permitted by applicable law.
The Advisory Agreement with respect to each Fund will remain in effect
for two years from its execution. Thereafter, if not terminated, it will
continue automatically for successive annual periods, provided that such
continuance is specifically approved at least annually (i) by a majority vote of
the Trustees who are not parties to the Agreement or "interested persons" of the
Fund as defined in the 1940 Act, cast in person at a meeting called for the
purpose of voting on such approval, and (ii) by the Board of Trustees or by vote
of a majority of the outstanding voting securities.
The Advisory Agreement with respect to each Fund is terminable by vote
of the Board of Trustees or by the holders of a majority of the outstanding
voting securities of the Fund at any time without penalty, on 60 days written
notice to the Advisor. The Advisory Agreement also may be terminated by the
Advisor on 60 days written notice to the Fund. The Advisory Agreement terminates
automatically upon its assignment (as defined in the 1940 Act).
As required by state regulation, the Advisor will reimburse a Fund if
and to the extent that the
B-10
<PAGE>
aggregate operating expenses of the Fund exceed applicable limits in any fiscal
year. Currently, the most restrictive such limit applicable to the Funds are
2.5% of the first $30 million of the Fund's average daily net assets, 2.0% of
the next $70 million of its average daily net assets and 1.5% of its average
daily net assets in excess of $100 million. Certain expenses, such as brokerage
commissions, taxes, interest, distribution fees, certain expenses attributable
to investing outside the U.S. and extraordinary items, are excluded from this
limitation. During the fiscal year ended October 31, 1995, the Advisor
voluntarily agreed to limit the total operating expenses of the Class A Shares
of the International Fund to 1.85% of average net assets, and the total
operating expenses of the Class C Shares to 2.50% of average net assets. As a
result of those limitations, the Advisor waived its entire advisory fee of
$34,019 and reimbursed the International Fund for expenses in excess of such
limitations in an additional amount of $173,175. The Advisor has agreed to
continue such limitations through October 31, 1996.
Neither Fund invests in a security for the purpose of exercising
control or management. When a Fund receives a proxy in connection with matters
to be voted on by holders of securities in which it invests, that proxy will be
voted by the Advisor in accordance with the Advisor's judgment as to the best
interests of the Fund, considering the effect of any such vote on the value of
the Fund's investment. The Advisor does not solicit or consider the views of
individual shareholders of Funds in voting proxies. Because voting proxies of
foreign securities may entail additional costs to the Funds, the Advisor
considers the costs and benefits to a Fund in deciding whether or not to vote a
particular proxy.
Administration Agreement
Investment Company Administration Corporation serves as Administrator
for the Funds, subject to the overall supervision of the Trustees. The
Administrator is responsible for providing such services as the Trustees may
reasonably request, including but not limited to (i) maintaining the Funds'
books and records (other than financial or accounting books and records
maintained by any custodian, transfer agent or accounting services agent); (ii)
overseeing the Funds' insurance relationships; (iii) preparing for the Funds (or
assisting counsel and/or auditors in the preparation of) all required tax
returns, proxy statements and reports to the Funds' shareholders and Trustees
and reports to and other filings with the Securities and Exchange Commission and
any other governmental agency; (iv) preparing such applications and reports as
may be necessary to register or maintain the Funds' registration and/or the
registration of the shares of the Funds under the blue sky laws of the various
states; (v) responding to all inquiries or other communications of shareholders;
(vi) overseeing all relationships between the Funds and any custodian(s),
transfer agent(s) and accounting services agent(s); and (vii) authorizing and
directing any of the Administrator's directors, officers and employees who may
be elected as Trustees or officers of the Trust to serve in the capacities in
which they are elected. The Trust's Agreement with the Administrator contains
limitations on liability and indemnification provisions similar to those of the
Advisory Agreement described above. For its services, the Administrator receives
a fee at the annual rate of 0.10% of each Fund's average net assets, subject to
a $60,000 annual minimum. During the fiscal year ended October 31, 1995, the
Administrator received a fee in the amount of $39,452 from the International
Fund.
DISTRIBUTION ARRANGEMENTS
As described in the prospectus, under the Distribution Plans adopted by
the Trustees with respect to the Class A and Class C Shares, each Fund pays the
Distributor monthly distribution fees at the annual rate of 0.25% of the average
daily net assets of the Class A shares and 0.75% of the average daily net assets
of the Class C shares. During the fiscal year ended October 31, 1995, the
B-11
<PAGE>
Fund paid to the Distributor distribution fees with respect to the Class A
Shares of the International Fund aggregating $3,627, and with respect to the
Class C Shares, fees aggregating $14,633. All of the fees paid with respect to
the Class C Shares of the International Fund were paid by the Distributor to
dealers who sold Class C Shares. Of the fees paid with respect to Class A
Shares, $2,179 were paid to dealers who sold Class A Shares and the balance was
paid for printing sales material. During year ended December 31, 1995, the
Distributor also received gross sales charges in connection with the sale of
Class A Shares of the International Fund in the amount of $194,620, of which
$21,790 was reallowed to selling dealers. The Distribution Plans do not apply to
institutional Shares.
Among other things, each Fund's Plan provides that (1) the Distributor
will submit to the Trustees at least quarterly, and the Trustees will review,
reports regarding all amounts expended under the Plan and the purposes for which
such expenditures were made; (2) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendment thereto is
approved, by the Trustees, including those Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the Plan or any agreement related thereto, acting in person at a meeting called
for that purpose; (3) the Plan may be terminated at any time by such Trustees or
by a vote of a majority of the outstanding shares of the Fund; (4) payments by
the Fund under the Plan shall not be materially increased without the
affirmative vote of the holders of a majority of the outstanding shares of the
relevant Class of that Fund; and (5) while the Plan remains in effect, the
selection and nomination of the Trustees who are not "interested persons" of the
Trust shall be committed to the discretion of such Trustees.
In reporting amounts expended under the Plans to the Trustees, the
Distributor will allocate expenses attributable to the sale of both Classes of
Fund shares to each Class based on the ratio of sales of shares of such Class to
the sales of both Classes of shares.
The Trust has also adopted a Shareholder Service Plan with respect to
the Class A and Class C Shares of each Fund, pursuant to which the Fund pays the
Distributor for expenses incurred in connection with non-distribution
shareholder services provided by the Distributor to securities broker-dealers
and other securities professionals ("Service Organizations") and/or beneficial
owners of the shares of the Fund, including, but not limited to, shareholder
servicing provided by the Distributor at facilities dedicated to the Fund,
provided that such shareholder servicing is not duplicative of the servicing
otherwise provided on behalf of the Fund.
Under the Plans, each Fund also reimburses the Distributor for fees
paid by the Distributor to Service Organizations (which may include the
Distributor itself) for the providing of support services to beneficial owners
of shares of the Fund ("Clients"). Such services may include, but are not
limited to, (a) establishing and maintaining accounts and records relating to
Clients who invest in the Fund; (b) aggregating and processing orders involving
the shares of the Fund; (c) processing dividend and other distribution payments
from the Fund on behalf of Clients; (d) providing information to Clients as to
their ownership of shares of the Fund or about other aspects of the operations
of the Fund; (e) preparing tax reports or forms on behalf of Clients; (f)
forwarding communications from the Fund to Clients; (g) assisting Clients in
changing the Fund's records as to their addresses, dividend options, account
registrations or other data; and (h) providing such other similar services as
the Distributor may reasonably request to the extent the Service Organization is
permitted to do so under applicable statutes, rules or regulations.
Each Fund reimburses the Distributor, for its services under the
Shareholder Service Plans, at an annual rate of 0.10% of the average daily net
assets of the Class A Shares and 0.25% of the average daily net assets of the
Class C Shares of the Fund. Payments to the Distributor may be discontinued, or
the rate amended, at any time by the Board of Trustees of the Trust, in its sole
B-12
<PAGE>
discretion. Each Plan provides that (1) the Distributor will report in writing
at least quarterly to the Trustees, and the Trustees will review, the amounts
expended under this Plan and the purposes for which such expenditures were made;
(2) the Plan will continue in effect only so long as it has been approved at
least annually, by the Trustees, including a majority of the Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Trust and who have
no direct or indirect financial interest in the operation of the Plan, acting in
person at a meeting called for that purpose; and (3) the Plan may be terminated
at any time by a vote of a majority of such Trustees or by the vote of the
holders of a majority of the outstanding voting securities of the Fund. The
amounts paid by the International Fund to the Distributor under the Shareholder
Service Plan for the fiscal year ended October 31, 1995 aggregated $1,450 and
$4,878 for the Class A Shares and the Class C Shares, respectively. The
Shareholder Service Plans do not apply to the Institutional Shares.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In all purchases and sales of securities for the Funds, the primary
consideration is to obtain the most favorable price and execution available.
Pursuant to the Advisory Agreement, the Advisor determines which securities are
to be purchased and sold by a Fund and which broker-dealers are eligible to
execute portfolio transactions, subject to the instructions of and review by the
Trust's Board of Trustees.
Purchases of portfolio securities may be made directly from issuers or
from underwriters. Where possible, purchase and sale transactions are effected
through dealers (including banks) which specialize in the types of securities
which a Fund will be holding, unless better executions are available elsewhere.
Dealers and underwriters usually act as principals for their own accounts.
Purchases from underwriters include a commission paid by the issuer to the
underwriter and purchases from dealers include the spread between the bid and
the asked price.
In placing portfolio transactions, the Advisor uses its best efforts to
choose a broker-dealer capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services available are considered in making these determinations, such as the
size of the order, the difficulty of execution, the operational facilities of
the firm involved, the firm's risk in positioning a block of securities, and
other factors.
In those instances where it is reasonably determined that more than one
broker-dealer can offer the services needed to obtain the most favorable price
and execution available and the transaction involves a brokerage commission,
consideration may be given to those broker-dealers which furnish or supply
research and statistical information to the Advisor that it may lawfully and
appropriately use in its investment advisory capacity for the Funds and for
other accounts, as well as provide other services in addition to execution
services. The Advisor considers such information, which is in addition to, and
not in lieu of, the services required to be performed by it under the Agreement,
to be useful in varying degrees, but of indeterminable value. The Board of
Trustees reviews brokerage allocations where services other than best
price/execution capabilities are a factor to ensure that the other services
provided meet the tests outlined above and produce a benefit to the Funds.
Brokerage commissions paid by the International Fund during the fiscal year
ended October 31, 1995 aggregated $9,822, all of which was paid to brokers which
provided research to the Advisor.
The placement of portfolio transactions with broker-dealers who sell
shares of the Funds is subject to rules adopted by the National Association of
Securities Dealers, Inc. ("NASD"). Provided the Trust's officers are satisfied
that the Funds are receiving the most favorable price and execution available,
the Advisor may also consider the sale of the Funds' shares as a factor in the
selection of
B-13
<PAGE>
broker-dealers to execute its portfolio transactions.
Investment decisions for the Funds are made independently from those of
other client accounts of the Advisor. Nevertheless, it is possible that at times
the same securities will be acceptable for a Fund and for one or more of such
client accounts. To the extent any of these client accounts and a Fund seek to
acquire the same security at the same time, the Fund may not be able to acquire
as large a portion of such security as it desires, or it may have to pay a
higher price or obtain a lower yield for such security. Similarly, the Fund may
not be able to obtain as high a price for, or as large an execution of, an order
to sell any particular security at the same time. If one or more of such client
accounts simultaneously purchases or sells the same security that a Fund is
purchasing or selling, each day's transactions in such security will be
allocated between the Fund and all such client accounts in a manner deemed
equitable by the Advisor, taking into account the respective sizes of the
accounts, the amount being purchased or sold and other factors deemed relevant
by the Advisor. It is recognized that in some cases this system could have a
detrimental effect on the price or value of the security insofar as a Fund is
concerned. In other cases, however, it is believed that the ability of a Fund to
participate in volume transactions may produce better executions for the Fund.
The Funds do not effect securities transactions through broker-dealers
in accordance with any formula, nor do they effect securities transactions
through such broker-dealers solely for selling shares of either Fund. However,
as stated above, broker-dealers who execute transactions for the Funds may from
time to time effect purchases of shares of the Funds for their customers.
NET ASSET VALUE
The net asset value of each Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange (normally
4:00 p.m. Eastern time) each business day. The Exchange annually announces the
days on which it will not be open for trading. The most recent announcement
indicates that it will not be open on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, the Exchange may close on days not
included in that announcement.
Options and futures contracts which are traded on exchanges are valued
at their last sale or settlement price as of the close of such exchanges or, if
no sales are reported, at the mean between the last reported bid and asked
prices. However, if an exchange closes later than the New York Stock Exchange,
the options or futures traded on it are valued based on the sales price, or the
mean between bid and asked prices, as the case may be, as of the close of the
New York Stock Exchange.
Trading in securities in foreign securities markets is normally
completed well before the close of the New York Stock Exchange. In addition,
foreign securities trading may not take place on all days on which the New York
Stock Exchange is open for trading, and may occur in certain foreign markets on
days on which a Fund's net asset value is not calculated. Events affecting the
values of portfolio securities that occur between the time their prices are
determined and the close of the New York Stock Exchange will not be reflected in
the calculation of net asset value unless the Board of Trustees deems that the
particular event would materially affect net asset value, in which case an
adjustment will be made. Assets or liabilities expressed in foreign currencies
are translated, in determining net asset value, into U.S. dollars based on the
spot exchange rates at 1:00 p.m., Eastern time, or at such other rates as the
Advisor may determine to be appropriate.
The Funds may use a pricing service approved by the Board of Trustees.
Prices provided by
B-14
<PAGE>
such a service represent evaluations of the mean between current bid and asked
prices, may be determined without exclusive reliance on quoted prices, and may
reflect appropriate factors such as institution-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, individual
trading characteristics, indications of values from dealers and other market
data. Such services also may use electronic data processing techniques and/or a
matrix system to determine valuations.
Securities and other assets for which market quotations are not readily
available, or for which the Board of Trustees or its designate determines the
foregoing methods do not accurately reflect current market value, are valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees. Such valuations and procedures, as well as any pricing services, are
reviewed periodically by the Board of Trustees.
REDEMPTIONS
Each Fund intends to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Fund may
make payment partly in readily marketable securities with a current market value
equal to the redemption price. Although neither Fund anticipates that it will
make any part of a redemption payment in securities, if such payment were made,
an investor may incur brokerage costs in converting such securities to cash.
Each Fund has elected to be governed by the provisions of Rule 18f-1 under the
1940 Act, which commits the Fund to paying redemptions in cash, limited in
amount with respect to each shareholder during any 90-day period to the lesser
of $250,000 or 1% of the Fund's total net assets at the beginning of such 90-day
period.
TAXATION
The International Fund qualified for treatment as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code (the
"Code") during its last fiscal year, and each Fund intends to do so in the
future. In each taxable year that a Fund qualifies, the Fund (but not its
shareholders) will be relieved of federal income tax on that part of its
investment company taxable income (consisting generally of interest and dividend
income, net short-term capital gain and net realized gains from currency
transactions) and net capital gain that is distributed to shareholders.
In order to qualify for treatment as a RIC, a Fund must distribute
annually to shareholders at least 90% of its investment company taxable income
and must meet several additional requirements. Among these requirements are the
following: (1) at least 90% of the Fund's gross income each taxable year must be
derived from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of securities or foreign currencies, or
other income derived with respect to its business of investing in securities or
currencies; (2) less than 30% of the Fund's gross income each taxable year may
be derived from the sale or other disposition of securities held for less than
three months; (3) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, limited in respect of any one issuer to an amount that does not
exceed 5% of the value of the Fund and that does not represent more than 10% of
the outstanding voting securities of such issuer; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its assets
may be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.
Each Fund will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain
B-15
<PAGE>
net income for the one-year period ending on October 31 of that year, plus
certain other amounts.
Dividends and interest received by the Funds may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
Shareholders may be able to claim U.S. foreign tax credits with respect to such
taxes, subject to provisions and limitations contained in the Code. For example,
certain retirement accounts cannot claim foreign tax credits on investments in
foreign securities held by a Fund. If more than 50% in value of a Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate share of such withholding taxes in the
U.S. income tax returns as gross income, treat such proportionate share as taxes
paid by them, and deduct such proportionate share in computing their taxable
incomes or, alternatively, use them as foreign tax credits against their U.S.
income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
Each Fund will report annually to its shareholders the amount per share of such
withholding taxes.
Many of the options, futures and forwards contracts used by the Funds
are "section 1256 contracts." Any gains or losses on section 1256 contracts are
generally treated as 60% long-term and 40% short-term capital gains or losses
("60/40") although gains and losses from hedging transactions, certain mixed
straddles and certain foreign currency transactions from such contracts may be
treated as ordinary in character. Also section 1256 contracts held by a Fund at
the end of its fiscal year (and, for purposes of the 4% excise tax, 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, and
the resulting gain or loss is treated as ordinary or 60/40 gain or loss,
depending on the circumstances.
Generally, the transactions in options, futures and forward contracts
undertaken by a Fund may result in "straddles" for federal income tax purposes.
The straddle rules may affect the character of gains or losses realized by the
Fund. In addition, losses realized on positions that are part of a straddle may
be deferred under the rules, rather than being taken into account in the fiscal
year in which the losses were realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of
transactions in options, futures and forward contracts are not entirely clear.
These transactions may increase the amount of short-term capital gain realized
by the Fund and taxed as ordinary income when distributed to shareholders. The
Funds may make certain elections available under the Code which are applicable
to straddles. If a Fund makes such elections, recognition of gains or losses
from certain straddle positions may be accelerated.
The tests which a Fund must meet to qualify as a RIC, described above,
may limit the extent to which the Fund will be able to engage in transactions in
options, futures contracts or forward contracts.
Under the Code, fluctuations in exchange rates which occur between the
dates various transactions are entered into or accrued and subsequently settled
may cause gains or losses, referred to as "section 988" gains or losses. Section
988 gains or losses may increase or decrease the amount of income taxable as
ordinary income distributed to shareholders.
DIVIDENDS AND DISTRIBUTIONS
Dividends from each Fund's investment company taxable income (whether
paid in cash or
B-16
<PAGE>
invested in additional shares) will be taxable to shareholders as ordinary
income to the extent of the Fund's earnings and profits. Distributions of a
Fund's net capital gain (whether paid in cash or invested in additional shares)
will be taxable to shareholders as long-term capital gain, regardless of how
long they have held their Fund shares. Dividends declared by a Fund in October,
November or December of any year and payable to shareholders of record on a date
in one of such months will be deemed to have been paid by the Fund and received
by the shareholders on the record date if the dividends are paid by the Fund
during the following January. Accordingly, such dividends will be taxed to
shareholders for the year in which the record date falls.
Each Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Each Fund also is required to withhold 31% of
all dividends and capital gain distributions paid to such shareholders who
otherwise are subject to backup withholding.
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations used in a Fund's advertising and
promotional materials are calculated according to the following formula:
n
P(1 + T) = ERV
where P equals a hypothetical initial payment of $1000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1000 payment made at the
beginning of the period.
The time periods used in advertising will be updated to the last day of
the most recent quarter prior to submission of the advertising for publication.
Average annual total return, or "T" in the above formula, is computed by finding
the average annual compounded rates of return over the period that would equate
the initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions. Any
performance information used in advertising and sales literature will include
information based on this formula for the most recent one, five and ten year
periods, or for the life of the Fund, whichever is available.
Other Information
Performance data of a Fund quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount. In advertising and promotional materials a Fund may
compare its performance with data published by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar") or CDA Investment Technologies,
Inc.("CDA"). A Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA or Morningstar. Advertising and promotional materials
also may refer to discussions of the Fund and comparative mutual fund data and
ratings reported in independent periodicals including, but not limited to, The
Wall Street Journal, Money Magazine, Forbes, Business Week, Financial World and
Barron's
GENERAL INFORMATION
Each Fund might determine to allocate certain of its expenses (in
addition to distribution fees) to the specific classes of the Fund's shares to
which those expenses are attributable. For example,
B-17
<PAGE>
Class C shares may bear higher transfer agency fees per shareholder account than
those borne by Class A shares. The higher fee is imposed due to the higher costs
incurred by the Transfer Agent in tracking shares subject to a contingent
deferred sales charge. The specific extent to which such fees may differ between
the Classes as a percentage of net assets is not certain because fees will be
affected by the number of accounts and relative amounts of net assets in each
Class.
The Trust's custodian, Investors Bank and Trust Company, is responsible
for holding the Funds' assets and also acts as the Funds' accounting services
agent. Rodney Square Management Corporation acts as the Funds' transfer agent.
The Trust's independent accountants, Ernst & Young, LLP, examine the Funds'
financial statements annually and prepare the Funds' tax returns.
The Trust's Declaration of Trust provides that obligations of the Trust
are not binding on the Trustees, officers, employees and agents individually and
that the Trustees, officers, employees and agents will not be liable to the
Trust or its investors for any action or failure to act, but nothing in the
Declaration of Trust protects a Trustee, officer, employee or agent against any
liability to the Trust, the Funds or their investors to which the Trustee,
officer, employee or agent would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his or her
duties.
As of December 31, 1995, the following persons owned more than 5% of
the Fund's outstanding Class A Shares:
Charles H. Brandes, 12650 High Bluff Drive, San Diego, CA 92130 (7.13%)
Memphis Jewish Federation, 6560 Poplar Avenue, Memphis, TN 38138
(7.70%)
First American Trust Company, Trustee for Rutan & Tucker Profit Sharing
Plan, 421 N. Main Street, Santa Ana, CA 92701 (5.02%)
No person owned more than 5% of the outstanding Class C Shares at
December 31, 1995. The Class A Shares owned by the Trustees and officers as a
group amounted to 7.35%; the amount of Class C Shares owned by such Trustees and
officers as a group amounted to less than 1%.
The Trust's Registration Statement on Form N-1A may be examined at the
office of the Securities and Exchange Commission in Washington, DC. Statements
contained in the prospectus and this Statement of Additional Information as to
the contents of any contract or other document are not necessarily complete and,
in each instance, reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
FINANCIAL STATEMENTS
The annual reports to shareholders for the Funds for the fiscal year
ended October 31, 1995 are separate documents supplied with this Statement of
Additional Information and the financial statements, accompanying notes and
report of independent accountants appearing therein are incorporated by
reference in this Statement of Additional Information.
APPENDIX
Description of Ratings
Moody's Investors Service, Inc.: Corporate Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large, or by an exceptionally stable, margin, and principal is secure. While
the various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
B-18
<PAGE>
issues.
Aa---Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa
and Aa rating classifications. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great period of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Standard & Poor's Corporation: Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category. Commercial Paper Ratings
Moody's commercial paper ratings are assessments of the issuer's
ability to repay punctually promissory obligations. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1--highest quality; Prime
2--higher quality; Prime 3--high quality.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A- 1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation "A-3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than
B-19
<PAGE>
obligations carrying the higher designations.
B-20
