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BRANDES
INSTITUTIONAL
GLOBAL
EQUITY
FUND
June 10, 1998
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As Supplemented November 30, 1998
PROSPECTUS
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PROSPECTUS
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BRANDES INSTITUTIONAL GLOBAL EQUITY FUND
12750 High Bluff Drive
San Diego, CA 92130
(619) 755-0239
The BRANDES INSTITUTIONAL GLOBAL EQUITY FUND (the "Fund") seeks to achieve
long-term capital appreciation by investing principally in equity securities of
U.S. and foreign issuers. The Fund invests primarily in equity securities of
companies with market capitalizations greater than $1 billion. Brandes
Investment Partners, L.P. (the "Advisor") serves as investment advisor to the
Fund.
The Fund is not insured or guaranteed by the U.S. Government or any other
person.
This Prospectus sets forth basic information about the Fund that prospective
investors should know before investing. It should be read and retained for
future reference. The Fund is a series of Brandes Investment Trust. A Statement
of Additional Information ("SAI") dated June 10, 1998, as supplemented November
30, 1998, as may be amended from time to time, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
SAI is available without charge by calling the number listed above or upon
written request to the Fund at the address given above. The SEC maintains an
internet site (http://www.sec.gov) that contains the SAI, other material
incorporated by reference and other information about companies that file
electronically with the SEC.
TABLE OF CONTENTS
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Expense Table................................................. 2
Investment Objective, Policies and Risks...................... 3
Other Securities and Investment Techniques and Risks.......... 7
Investment Restrictions....................................... 10
Organization and Management................................... 10
Purchases..................................................... 11
Shareholder Services.......................................... 14
Redeeming Shares.............................................. 14
Dividends, Distributions and Tax Status....................... 16
Performance Information....................................... 17
Prior Performance of the Advisor.............................. 18
General Information........................................... 19
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PROSPECTUS DATED JUNE 10, 1998
AS SUPPLEMENTED NOVEMBER 30, 1998
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The BRANDES INSTITUTIONAL GLOBAL EQUITY FUND (the "Fund") is a diversified
series of Brandes Investment Trust (the "Trust"), a registered open-end
management investment company or mutual fund. The investment objective of the
Fund is long-term capital appreciation. The minimum initial investment in the
Fund is $1 million; there is no minimum subsequent investment. If a shareholder
reduces his total investment in shares to less than $100,000, the investment may
be subject to redemption. See "Redeeming Shares - Redemption of Small Accounts."
Like all equity investments, an investment in the Fund involves certain
risks. The value of the Fund's 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 emerging market countries and small
capitalization companies, also is subject to certain additional risks, which are
described beginning on page 5. The Fund may invest in certain options and stock
index futures which are 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 the 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 the Fund. The expenses shown are estimated for the first fiscal
year of the Fund.
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SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases (as % of
offering price) None
Sales charge on reinvested dividends None
Maximum contingent deferred sales charge
(as % of redemption proceeds) None
Redemption fee None
TOTAL ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management fees 1.00 %
Other expenses (after reimbursement)(1) 0.20 %
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Total operating expenses (after reimbursement)(1) 1.20 %
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(1)The Advisor has voluntarily agreed to reimburse the Fund through at least
October 31, 1999 to ensure that the Fund's total annual operating expenses will
not exceed 1.20%. Shareholders will receive 30 days notice prior to any change
in this policy. In the absence of this reimbursement, "Other expenses" of the
Fund are estimated to be 0.76%, and "Total operating expenses" are estimated to
be 1.76%. To the extent that the Advisor reimburses the Fund, the Fund may repay
the Advisor when operating expenses (before reimbursement) are less than the
expense limitation during the following three years. Thus, overall operating
expenses in the future may not fall below the expense limitation until the
Advisor has been fully repaid for all of its reimbursements to the Fund; see
"Operating Expenses; Expense Limitation," in this prospectus.
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The purpose of the preceding table is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. For more information regarding costs and expenses,
see "Organization and Management" in this Prospectus.
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EXAMPLE OF EFFECT OF FUND EXPENSES 1 Year 3 Years 5 Years 10 Years
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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 $ 65 $ 144
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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, the Fund's actual return may be higher or
lower. See "Organization and Management," page 10.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The Fund has the investment objective of long-term capital appreciation, and
the Fund seeks to achieve its objective by investing principally in equity
securities of U.S. and foreign issuers. No assurance can be given that the Fund
will achieve its investment objective. Brandes Investment Partners, L.P. serves
as investment advisor to the Fund.
GLOBAL INVESTING
During the past decade, there has been significant growth in foreign capital
markets. Because of this growth, over half 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 Fund normally invests at least 65% of its total assets in equity
securities with market capitalizations greater than $1 billion. The Fund will
not invest more than 10% of its total assets at the time of purchase in small
capitalization companies, I.E., those with market capitalizations of $1 billion
or less.
Under normal circumstances, the Fund will invest at least 65% of its total
assets at the time of purchase in equity securities of issuers located in at
least three countries, one of which may be the United States. Countries in which
the Fund may invest include, but are not limited to, the nations of Western
Europe, North and South America, Australia, Africa and Asia. With respect to
Fund investments in any particular country or industry, the Fund may invest up
to the greater of either (a) 20% of total Fund assets at the time of purchase,
or (b) 150% of the weighting of such country or industry as represented in the
Morgan Stanley Capital International ("MSCI") World Index at the time of
purchase; but in no event may the Fund invest more than 25% of its total assets,
calculated at the time of purchase, in any one industry (other than U.S.
Government securities). No more than 20% of the value of the Fund's total
assets, measured at the time of purchase, may be invested in securities of
companies located in countries with emerging securities markets.
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
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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 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 to the holders of such securities and, accordingly, there
may not be a correlation between such information and the market value of the
Depositary Receipts.
In seeking out securities for purchase, the Advisor does not attempt to
match the security allocations of stock market indices. Therefore, the Fund's
country weightings may differ significantly from country weightings found in
published stock indices. For example, the Advisor may choose not to invest the
Fund's assets in a country whose stock market, at any given time, may comprise a
large portion of a published global stock market index. At the same time, the
Advisor may invest the Fund's assets in countries whose representation in such
an index may be small or non-existent. The Advisor selects stocks for the Fund
based on their individual merits and not necessarily on their geographic
locations.
THE ADVISOR APPLIES THE PRINCIPLES OF VALUE INVESTING IN THE ANALYSIS AND
SELECTION OF SECURITIES OF COMPANIES FOR THE FUND'S 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 judged to be sufficiently
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 fluctuation, a risk which was not addressed by Graham and Dodd, whose
work focused on U.S. stocks. The Advisor has
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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. Because the Advisor searches
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 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 Fund. 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 Fund 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 than U.S. investments.
All of the above issues should be considered before investing in the Fund.
The Fund may from time to time invest a substantial portion of the total
value of its assets in securities of issuers located in particular countries
and/or associated with particular industries. During such periods, the Fund may
be more susceptible to risks associated with a single economic, political or
regulatory occurrences than more diversified portfolios.
EMERGING MARKETS AND RELATED RISKS
The Fund may invest up to 20% 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, investing in many emerging market countries is not feasible or may
involve unacceptable risks. As opportunities to invest in other emerging markets
countries develop, the Fund expects to expand and diversify further the
countries in which it invests.
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 substantial
fluctuations or a steady devaluation relative to the U.S. dollar. Any
fluctuations or devaluations in the currencies in which the Fund's portfolio
securities are denominated may have a detrimental impact on the Fund.
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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, condition and stability of financial institutions, 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 than in the U.S.
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 Fund desires to invest in emerging
markets may be uninvested. Settlement problems in emerging markets countries
also could cause the Fund to miss attractive investment opportunities.
Satisfactory custodial services may not be available in some emerging markets
countries, which may result in the Fund's incurring additional costs and delays
in the transportation and custody of such securities.
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES
The Fund may invest up to 10% of its assets in securities of small
capitalization companies; I.E., companies with market capitalizations of $1
billion or less, measured at the time of purchase. 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 these 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 value and because the issuers typically
are more subject to changes in earnings and prospects.
EURO INTRODUCTION
On January 1, 1999, the European Union will introduce a single European
currency, the Euro. The first group of countries that will begin to convert
their currencies to the Euro include Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The expected
introduction of the Euro presents unique uncertainties, including: whether the
payment and operational systems of financial institutions will be ready by the
launch date; the legal treatment of certain outstanding financial contracts
after that date that refer to existing currencies rather than the Euro; and the
creation of suitable clearing and payment systems for the new currency. These or
other factors, including political and economic risks, could cause market
disruptions before or after the introduction of the Euro. The Fund understands
that the Advisor and other key service providers are taking steps to address
Euro-related issues.
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OTHER SECURITIES AND INVESTMENT TECHNIQUES AND RISKS
SHORT-TERM INVESTMENTS
At times the 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 the 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, as it reflects an agreed-upon market interest
rate effective for the period of time during which the Fund holds the
securities. 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 is required to provide additional collateral so
that at all times the collateral is at least equal to the repurchase price.
The majority of these transactions run from day to day and not more than
seven days from the original purchase. The 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 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
The 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
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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 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
The 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 the Fund
enters into such a transaction may not perform its commitment. The Fund will
segregate liquid assets, such as cash, U.S. Government securities and other
liquid securities in an amount sufficient to meet its payment obligations with
respect to these transactions.
SECURITIES LENDING
The Fund may lend its securities in an amount not exceeding 30% of its total
assets at the time of the loan 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 Fund or the borrower.
OPTIONS
The 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 the 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 a limit on the
appreciation of the securities set aside for settlement. The 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.
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The 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 the Fund, if
the option is exercised, at a specified price before a set date.
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. The 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 at the time of
purchase.
STOCK INDEX FUTURES
The 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 the Fund's total assets at the time of
any such transaction will be hedged with stock index futures contracts.
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, but profits and
losses resulting from changes in the market value of the contract are credited
or debited at the close of each trading day to the accounts of the parties to
the contract. If the Advisor expects 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 wants 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 expects 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 the 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.
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ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest up to 10% of its net assets at the time of purchase 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.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions, which are described
fully in the Statement of Additional Information. Like the Fund's investment
objective, certain of these restrictions are fundamental and may be changed only
by a majority vote of the Fund's outstanding shares.
ORGANIZATION AND MANAGEMENT
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 1996 as the successor
to an investment advisor which was founded in 1974. As of December 31, 1997, the
Advisor managed over $15 billion in assets for various clients, including
corporations, public and corporate pension plans, foundations and charitable
endowments, and individuals. Charles H. Brandes, who owns a controlling interest
in the Advisor's general partner, 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 Fund, including
determining which securities should be bought and sold. The Advisor also
provides certain officers for the Trust. For its services, the Advisor receives
a fee, accrued daily and paid monthly at the annual rate of 1.00% of the Fund's
average net assets.
MANAGERS OF THE FUND. The Fund is team-managed by an investment committee
of the Advisor, whose members are senior portfolio management professionals of
the firm.
OPERATING EXPENSES; EXPENSE LIMITATION
The Fund is responsible for paying its operating expenses, including, but
not limited to, management and administrative fees, legal and auditing fees,
fees and expenses of its custodian, accounting services and
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shareholder servicing agents, Trustees' fees, the cost of communicating with
shareholders and registration fees. However, the Advisor has voluntarily agreed
through at least October 31, 1999 to limit the Fund's operating expenses to
1.20% of average net assets. Any such reductions made by the Advisor in its fees
or reimbursement of expenses in any year are subject to reimbursement by the
Fund, provided that the Fund is able to effect such reimbursement while
remaining within the expense limitation during the following three years.
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 Fund
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 Fund's 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 Fund receives prompt execution at competitive prices, the Advisor may also
consider the sale of shares of the Fund as a factor in selecting broker-dealers
for the Fund's portfolio transactions.
THE ADMINISTRATOR
Investment Company Administration Corporation (the "Administrator"),
pursuant to an administration agreement with the Trust, supervises the overall
administration of the Fund including, among other responsibilities, the
preparation and filing of documents required for compliance by the Fund with
applicable laws and regulations, arranging for the maintenance of books and
records of the Fund, and supervision of other organizations that provide
services to the Fund. Certain officers of the Trust are provided by the
Administrator. For its services, the Administrator receives a fee from the Trust
at the annual rate of 0.10% of the Fund's average net assets, subject to a
minimum of $40,000 per year.
PURCHASES
GENERAL
Shares of the Fund are offered on a continuous basis to certain
institutional investors, including qualified retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in section 401(a), 403(b), or 457 of the Internal
Revenue Code (the "Code"), "rabbi trusts," 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
Trustees of the Trust, officers and employees of the Advisor, the Administrator
and the Distributor, and their immediate family members, as well as by certain
other persons determined from time to time by the Distributor, including
investment advisors 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. Investors who purchase or redeem
shares through a trust department, broker, dealer, agent,
11
<PAGE>
financial planner, financial services firm or investment advisor may be charged
an additional service or transaction fee by that institution.
Shares of the Fund are sold without a sales charge at the net asset value
per share which is next computed (1) after the investor's selected dealer or
other authorized intermediary receives the order which is promptly transmitted
to the Fund, or (2) after receipt of an order by the Transfer Agent from the
shareholder directly in proper form (which generally means a completed
Application Form together with a negotiable check in U.S. dollars or a wire
transfer of funds). The Fund and the Distributor reserve the right to refuse any
order for the purchase of shares. The Fund's Distributor is First Fund
Distributors, Inc., an affiliate of the Administrator. The minimum initial
investment in the 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 the Fund and from time to time for other investors,
including retirement plans. Investors may be charged a fee if they effect
transactions in Fund shares through a broker or agent.
PURCHASES THROUGH A SECURITIES DEALER
Shares of the Fund may be purchased through a securities broker or dealer
which has executed an agreement with the Distributor of the Fund (a "selected
dealer"). Selected dealers are authorized to designate other intermediaries to
accept purchase and redemption orders on the Fund's behalf. The Fund will be
deemed to have received a purchase or redemption order when a selected dealer
or, if applicable, a dealer's authorized designee, accepts the order. Customer
orders will be priced the Fund's net asset value next computed after they are
accepted by an authorized dealer or the dealer's authorized designee. The Fund
and the Distributor reserve the right to 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 fees imposed by
the dealer.
PURCHASES THROUGH THE TRANSFER AGENT
An investor who wishes to purchase shares of the Fund directly from the
Transfer Agent may do so by completing the Application form (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 check that
accompanies the Application Form, or it may be made by a wire transfer of funds,
as described below. 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 the Fund, the investor
should first call the Transfer Agent at (617) 946-1945 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: Investors Bank & Trust Company, ABA #0110-01438, DDA
#6691-36913, for credit to Brandes Institutional Global Equity Fund,
12
<PAGE>
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 at the net asset value next calculated: otherwise, they
will be invested on the next business day at the net asset value next
calculated. 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.
SUBSEQUENT PURCHASES
To make a subsequent purchase by wire, the investor should call the Transfer
Agent at (617) 946-1945 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 Investors Bank & Trust Company, in the manner described
above, including the name of the Fund and the investor's account number with the
wire.
RETIREMENT PLANS
Individual participants in qualified retirement plans should purchase shares
of the Fund through their plan sponsor or administrator, which is responsible
for transmitting orders. The procedures for investing in the 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 Fund's shares.
In addition to cash purchases, shares of the Fund may be purchased by
tendering payment "in-kind" in the form of securities, provided that any such
securities are of the type which the Fund can or may legally purchase and are
consistent with the Fund's investment objective and policies, 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 in its sole
discretion.
NET ASSET VALUE
To determine the net asset value per share of the Fund, the current value of
the Fund's total assets, less all its liabilities, is divided by the total
number of shares outstanding, and the result is rounded to the nearer cent. The
Fund values its 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 or under the direction of 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 are valued at
their face amounts. Interest is recorded as accrued, and dividends are recorded
on their ex-dividend date.
13
<PAGE>
The Fund calculates 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, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
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 Fund.
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 Transfer Agent.
A shareholder may redeem shares of the Fund by contacting the shareholder's
selected dealer or authorized intermediary. The selected dealer may arrange for
the repurchase of the shares through the Fund'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.
A shareholder may also redeem shares by mailing instructions to the Transfer
Agent, Investors Bank & Trust Company, P.O. Box 9130, Boston, MA 02117-9130, or
by delivering instructions to the Transfer Agent at 200 Clarendon Street, 16th
Floor, Boston, MA 02116. 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
14
<PAGE>
accepted. 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.
SIGNATURE GUARANTEE. If the value of the shares being redeemed exceeds
$500,000, or if payment is being made other than to the registered owner, the
signatures on the redemption request must be guaranteed by an "eligible
guarantor institution." These institutions include banks, broker-dealers, credit
unions and savings institutions. A broker-dealer guaranteeing a signature must
be a member of a clearing corporation or maintain net capital of at least
$100,000. Credit unions must be authorized to issue signature guarantees.
Signature guarantees will be accepted from any eligible guarantor institution
which participates in a signature guarantee program. A notary public is not an
acceptable guarantor.
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 (617) 946-1945, 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 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 the Fund is not reasonably practicable or it is not
reasonably practicable for the Trust fairly to determine the value of the Fund's
net assets, or during any other period when the SEC, by order, so permits. For
accounts opened by check, no redemption payments will be made until 15 business
days after funding of an amount equal to or greater than the redemption.
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.
15
<PAGE>
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
If the value of a shareholder's investment falls below $100,000 because of
shareholder redemption(s), the Fund may notify the shareholder, and if his
investment value remains below $100,000 for a continuous 60-day period, the
shares are subject to redemption by the Fund. The Fund, however, will not redeem
shares based solely upon changes in the market that reduce the net asset value
of the shares. The foregoing minimum account size requirements do not apply to
shares held by officers or employees of the Advisor or its affiliates or
Trustees of the Trust.
The Fund reserves the right to modify or terminate the involuntary
redemption features of the shares as stated above at any time upon 60-days'
notice to shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to pay income dividends annually. Distributions of net
capital gains, 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 the 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
The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Code. As long as the Fund continues
to qualify, and as long as the 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 Fund 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 gains dividends are taxable as long-term capital gains
regardless of the length of time shares of the Fund have been held. Although
distributions are generally taxable when received, certain distributions made in
16
<PAGE>
January are taxable as if received in the prior December. Shareholders will be
informed annually of the amount and nature of the Fund's 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 net short-term
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 Fund may be subject to withholding and
other taxes imposed by foreign countries, at rates from 10% to 40%, which taxes
would reduce the Fund's 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 Fund.
PERFORMANCE INFORMATION
From time to time, the Trust may publish the total return of the Fund in
advertisements and communications to investors. Total return information will
include the 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 Fund over different periods of time. The Fund's total return
will be based upon the value of the shares acquired through a hypothetical
$1,000 investment at the beginning of the specified period and the net asset
value of those shares at the end of the period, assuming reinvestment of all
distributions. Total return figures will reflect all recurring charges against
Fund income. Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the 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 rates 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 the Fund's
performance in comparison to the performance of various indices and investments
for which reliable performance data are available, and may advertise relative
rankings or other information prepared by mutual fund ranking services such as
Lipper Analytical Services or Morningstar, Inc. The Fund's annual report may
contain additional performance information and will be available to shareholders
upon request without charge.
17
<PAGE>
The investment return and principal value of an investment in the Fund will
fluctuate and an investor's proceeds upon redeeming Fund shares may be more or
less than the original cost of the shares.
PRIOR PERFORMANCE OF THE ADVISOR
Set forth below are certain performance data provided by the Advisor
relating to the composite of global equity accounts of clients of the Advisor.
The global equity accounts in the Advisor's composite had the same investment
objective as the Fund and were managed by the same team that manages the Fund's
securities, using substantially similar, though not identical, investment
strategies, policies and techniques as those used in managing the Fund. See
"Investment Objective, Policies and Risks." This composite information is
provided to illustrate the past performance of the Advisor in managing similar
accounts as measured against the Morgan Stanley Capital International (MSCI)
World Index, a standard global equity investment benchmark. The accounts that
are included in the Advisor's composite are not subject to the same types of
expenses to which the Fund is subject nor to the diversification requirements,
specific tax restrictions and investment limitations imposed on the Fund by the
Investment Company Act of 1940 or Subchapter M of the Code. Consequently, the
performance results for the Advisor's composite could have been adversely
affected if the accounts included in the composite had been regulated as
investment companies. The data below regarding the Advisor's composite of global
equity accounts do not represent the performance of the Fund. An investor should
not consider these performance data as an indication of future performance of
the Fund or of the Advisor.
The results presented below may not necessarily equate with the return
experienced by any particular account of the Advisor as a result of timing of
investments and redemptions. In addition, the effect of taxes on any client will
depend on such person's tax status, and the results have not been reduced to
reflect any income tax which may have been payable.
<TABLE>
<CAPTION>
Annualized Total Return
For Periods Ended September 30, 1998
--------------------------------------------------------
Fifteen Years Ten Years Five Years One Year
--------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Advisor's Composite* 15.31% 14.86% 14.77% -4.73%
MSCI World Index** 13.83% 9.73% 11.69% 0.14%
</TABLE>
*The net annualized returns presented above for the Advisor's global equity
composite were calculated on a time-weighted and asset-weighted total return
basis, including re-investment of all dividends, interest and income, realized
and unrealized gains or losses and are net of applicable investment advisory
fees, brokerage commissions and execution costs, custodial fees and any
applicable foreign withholding taxes, without provision for federal and state
income taxes, if any. The Advisor's composite results include all actual,
fee-paying and non-fee paying, fully discretionary global equity accounts under
management by the Advisor for at least one year beginning 1/1/80, having
substantially the same investment objectives, policies, techniques and
restrictions, other than client accounts denominated in currencies other than
U.S. dollars. The weighted annualized management fee during the period from
12/31/79 through 12/31/97 was 1.08% per year. Securities transactions are
accounted for on the trade date. Cash and cash equivalents are included in
performance returns. For calendar years 1985 through 1991, the net annual total
returns for the Advisor's composite were attested by independent accounting
firms, and for the years 1992 through 1997, the composite returns were examined
by a Big Five accounting firm in accordance with AIMR Level II verification
standards. Copies of the accountants' reports and a complete list and
description of the Advisor's composites are available on request. The results
for individual accounts and for different periods may vary. The asset-weighted
standard deviation measure of dispersion for the annual periods 1985 through
1997 are 6.08%, 5.39%, 4.84%, 10.12%, 6.41%, 5.63%, 7.56%, 3.98%, 4.56%, 2.52%,
3.04%, 2.23% and 3.32%, respectively. Investors should not rely on prior
performance results as a reliable indication of future results.
**The MSCI World Index is an unmanaged index consisting of securities listed on
exchanges in the major European and Asian countries, Australia and the U.S. and
includes dividends and distributions, but does not reflect fees, brokerage
commission or other expenses of investing.
18
<PAGE>
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. The Fund is currently one
of two series of the Trust. 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 Fund's assets in the securities of another
investment company, upon notice to and approval of shareholders.
The Trust does not hold annual shareholder meetings of the Fund. 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 Fund has equal
voting rights. Each share of the Fund is entitled to participate equally in
dividends and distributions and the proceeds of any liquidation from the Fund.
YEAR 2000 RISK. Like other business organizations around the world, the
Fund could be adversely affected if the computer systems used by its Advisor and
other service providers do not properly process and calculate information
related to dates beginning January 1, 2000. This is commonly known as the "Year
2000 Issue." The Fund's Advisor is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to its own computer
systems, and it has obtained assurances from the Fund's other service providers
that they are taking comparable steps. However, there can be no assurance that
these actions will be sufficient to avoid any adverse impact on the Fund.
CUSTODIAN AND TRANSFER AGENT. Investors Bank & Trust Company is the
custodian of the Fund's assets and employs foreign sub-custodians to provide
custody of the Fund's foreign assets. Investors Bank & Trust Company is also the
Fund's transfer and dividend disbursing agent.
19
<PAGE>
BRANDES INSTITUTIONAL GLOBAL EQUITY FUND
Statement of Additional Information
Dated June 10, 1998
As Supplemented November 30, 1998
This Statement of Additional Information is not a prospectus, and it should
be read in conjunction with the prospectus of Brandes Institutional Global
Equity Fund (the "Fund") dated June 10, 1998 and as supplemented November 30,
1998. Brandes Investment Partners, L.P. (the "Advisor") is the Advisor to the
Fund. Copies of the prospectus may be obtained from the Fund at 12750 High Bluff
Drive, San Diego, CA 92130 or by calling 1-800-237-7119.
TABLE OF CONTENTS
Cross-reference
to page in
Page Prospectus:
---- -----------
Investment Objective and Policies. . . . . . . . . B-2 4
Investment Restrictions. . . . . . . . . . . . . . B-2 10
Other Securities and Investment Techniques . . . . B-4 7
Repurchase Agreements . . . . . . . . . . . . B-4 7
When-Issued Securities. . . . . . . . . . . . B-4 8
Rule 144A Securities. . . . . . . . . . . . . B-5 10
Put and Call Options. . . . . . . . . . . . . B-5 9
Futures Contracts . . . . . . . . . . . . . . B-8 9
Management . . . . . . . . . . . . . . . . . . . . B-8 11
Advisory Agreement. . . . . . . . . . . . . . B-10 10
Administration Agreement. . . . . . . . . . . B-11 12
Portfolio Transactions and Brokerage . . . . . . . B-11 11
Net Asset Value. . . . . . . . . . . . . . . . . . B-12 14
Redemptions. . . . . . . . . . . . . . . . . . . . B-13 15
Taxation . . . . . . . . . . . . . . . . . . . . . B-13 17
Dividends and Distributions. . . . . . . . . . . . B-15 17
Performance Information. . . . . . . . . . . . . . B-15 18
General Information. . . . . . . . . . . . . . . . B-16 20
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Brandes Institutional Global Equity Fund (the "Fund") is a diversified
series of Brandes Investment Trust (the "Trust"), a registered open-end
management investment company or mutual fund. The investment objective is
long-term capital appreciation. The Fund seeks to achieve its objective by
investing principally in equity securities of U.S. and 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 Fund.
If such restrictions should be reinstituted, the Board of Trustees of the Trust
would consider alternative arrangements, including reevaluation of the Fund's
investment objective and policies. However, the 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 property 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 Fund 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 Fund's assets which are denominated in that currency. Such changes
will also affect the Fund's income. The values of the Fund's 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 Fund 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 the Fund in addition to the policies and
restrictions discussed in the prospectus. The policies and restrictions listed
below cannot be changed without approval by the holders of a
B-2
<PAGE>
majority of the outstanding voting securities of the Fund. As a matter of
fundamental policy, the 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, the Fund may not:
1. Issue senior securities, borrow money or pledge its assets, except that
the 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;
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 the 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 the 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 the 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 the 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
the 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 the Fund may engage in foreign exchange forward
contracts, although it has no current intention to use such contracts except to
settle transactions in securities requiring foreign currency;
9. Make loans (except for purchases of debt securities consistent with the
investment
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<PAGE>
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;
As a matter of operating, but not fundamental, policy, which can be changed
by the Board of Trustees without shareholder approval, the Fund will not make
any other investment in other investment companies except as permitted by
federal law.
OTHER SECURITIES AND INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS
Although repurchase agreements carry certain risks not associated with
direct investments in securities, the Fund intends to enter into repurchase
agreements only with banks and dealers 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, the Fund intends to comply with provisions under such Code that would
allow it immediately to resell the collateral.
WHEN-ISSUED SECURITIES
The 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
B-4
<PAGE>
does not believe that the Fund's net asset value or income will be adversely
affected by the purchase of securities on a when-issued basis. The 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, the 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 the Fund might not be
able to dispose of such securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions. The 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 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 the
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, the Fund obtains the right
(but not the obligation) to sell the option's underlying instrument at a fixed
"strike" price. In return for this
B-5
<PAGE>
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. The
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. The 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 the 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. The 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. The 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
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<PAGE>
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.
COMBINED POSITIONS. The Fund may purchase and write options in combination
with each other to adjust the risk and return characteristics of the overall
position. For example, the 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 Fund's current or anticipated investments
exactly. The 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 Fund's 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. The 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 the 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 the 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, the 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
the Fund greater flexibility to tailor an option to its needs, OTC options
generally involve
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<PAGE>
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organizations 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.
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 the 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
Fund 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
The 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 the Fund may be exposed to risk of unlimited 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.
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<PAGE>
The 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, the Fund will not purchase or sell futures
if, immediately thereafter, more than 25% of its net assets would be hedged. In
addition, the Fund will not 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.
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 Fund's 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>
<S> <C>
Betsy M. Blodgett, (age 40) PRESIDENT AND TRUSTEE Manager, Product Development of the Advisor
12750 High Bluff Drive since May 1996 and Vice President of its
San Diego, CA 92130 predecessor since 1994. Formerly Principal,
Cameron Capital Management (investment
adviser) from 1992 to 1994 and consultant in
1994.
DeWitt F. Bowman, C.F.A, (age 67) TRUSTEE Principal, Pension Investment Consulting;
79 Eucalyptus Knoll since 1994; Director, RCM Capital Funds, Inc.
Mill Valley, CA 94941 and RCM Equity Funds, Inc. (mutual funds) since
1996. Director, RREEF America REIT, Inc.
since 1995; Formerly Chief Investment
Officer of the California Public Employees
Retirement System. Director, RCM Equity
Funds, Inc., Director, Wilshire Target Funds,
Inc. since 1996.
Charles H. Brandes,* (age 55) 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 74) TRUSTEE Marine biologist and consultant in fisheries.
P.O. Box 1427
Rancho Santa Fe, CA 92067
Joseph E. Coberly, Jr., (age 80) TRUSTEE Managing Partner, Red Tail Golf Association
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<PAGE>
P.O. Box 944 (real estate developer).
Rancho Santa Fe, CA 92067
W. Daniel Larsen, (age 70) TRUSTEE Retired. Honorary Danish Consul for San
1405 Savoy Circle Diego.
San Diego, CA 92107
Glenn R. Carlson, (age 37) 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.
Gary Iwamura, (age 41) TREASURER Financial Resources Officer of the Advisor
12750 High Bluff Drive since 1996. Formerly Chief Administrative
San Diego, CA 92130 Officer for National Mutual Funds Management
from 1992 to 1996.
</TABLE>
- ----------------------------------------------------------------------
* Denotes "interested person" of the Trust as defined in the 1940 Act.
The table below illustrates the compensation paid to each Trustee for the
Trust's most recently completed fiscal year:
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Total
Compensation Retirement Benefits Annual Compensation
from the Accrued as Part of Benefits Upon from the Trust
Name of Person Trust Fund Expenses Retirement Paid to Trustees
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DeWitt F. Bowman $3,200 $0 $0 $3,200
Gordon Clifford
Broadhead $3,200 $0 $0 $3,200
Joseph E. Coberly, Jr. $3,200 $0 $0 $3,200
W. Daniel Larsen $3,200 $0 $0 $3,200
</TABLE>
The Trust pays a fee of $800 per meeting to Trustees who are not "interested
persons" of the Trust. Such Trustees also receive a fee of $800 for any
committee meetings held on dates other than scheduled Board meeting dates, and
are reimbursed for any expenses incurred in attending meetings. For the period
ended October 31, 1997, the Trust paid $12,800 to the Trustees.
ADVISORY AGREEMENT
Subject to the supervision of the Board of Trustees, investment management
and services are provided to the Fund by the Advisor, pursuant to an Investment
Advisory Agreement (the
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<PAGE>
"Advisory Agreement"). Under the Advisory Agreement, the Advisor provides a
continuous investment program for the 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, the 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 the Fund for any error of judgment by the Advisor or any loss
sustained by the Fund, 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 the 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 the 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).
The Fund does not invest in a security for the purpose of exercising
control or management. When the 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 the Fund in voting proxies. Because voting proxies of
foreign securities may entail additional costs to the Fund, the Advisor
considers the costs and benefits to the Fund in deciding whether or not to vote
a particular proxy.
ADMINISTRATION AGREEMENT
Investment Company Administration Corporation serves as Administrator for
the Fund,
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<PAGE>
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 Fund's books and
records (other than financial or accounting books and records maintained by
any custodian, transfer agent or accounting services agent); (ii) overseeing
the Fund's insurance relationships; (iii) preparing for the Fund (or
assisting counsel and/or auditors in the preparation of) all required tax
returns, proxy statements and reports to the Fund's 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 Fund's registration
and/or the registration of the shares of the Fund 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 Fund 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
the Fund's average net assets, subject to a $40,000 annual minimum.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In all purchases and sales of securities for the Fund, 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 the 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 the 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 Fund 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 Fund.
The placement of portfolio transactions with broker-dealers who sell shares
of the Fund is subject to rules adopted by the National Association of
Securities Dealers, Inc. ("NASD").
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<PAGE>
Provided the Trust's officers are satisfied that the Fund is receiving the most
favorable price and execution available, the Advisor may also consider the sale
of the Fund's shares as a factor in the selection of broker-dealers to execute
its portfolio transactions.
Investment decisions for the Fund 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 the Fund and for one or more of such
client accounts. To the extent any of these client accounts and the 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 the 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 the Fund is
concerned. In other cases, however, it is believed that the ability of the Fund
to participate in volume transactions may produce better executions for the
Fund.
The Fund does 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 the Fund. However, as stated
above, broker-dealers who execute transactions for the Fund may from time to
time effect purchases of shares of the Fund for their customers.
NET ASSET VALUE
The net asset value of the 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, Martin Luther
King, Jr. 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 the 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 Fund may use a pricing service approved by the Board of Trustees.
Prices provided by such a service represent evaluations of the mean between
current bid and asked prices, may be
B-13
<PAGE>
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
The 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 the Fund does not anticipate 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. The 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 Fund intends to elect to qualify for treatment as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code (the
"Code"). In each taxable year that the 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, the 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; and (2) 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.
The 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 net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by the Fund 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,
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certain retirement accounts cannot claim foreign tax credits on investments in
foreign securities held by the Fund. If more than 50% in value of the 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.
The 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 Fund 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 the 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 the 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 Fund may make certain elections available under the Code which
are applicable to straddles. If the Fund makes such elections, recognition of
gains or losses from certain straddle positions may be accelerated.
The tests which the 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 the Fund's investment company taxable income (whether paid
in cash or invested in additional shares) will be taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits. Distributions
of the 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 the 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.
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The 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. The 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 the 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 the 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 the Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount. In advertising and promotional materials the Fund
may compare its performance with data published by Lipper Analytical Services,
Inc. ("Lipper"), Morningstar, Inc. ("Morningstar") or CDA Investment
Technologies, Inc.("CDA"). The 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
The Trust's custodian, Investors Bank & Trust Company, 200 Clarendon
Street, 16th Floor, Boston, Massachusetts 02116, is responsible for holding the
Fund's assets and also acts as the Fund's accounting services agent. Investors
Bank & Trust Company acts as the Fund's transfer agent. The Trust's independent
accountants, Ernst & Young, LLP, 515 South Flower Street, Los Angeles,
California 90071, examine the Fund's financial statements annually and prepare
the Fund's tax returns. Paul, Hastings, Janofsky & Walker LLP, 555 South Flower
Street, Los Angeles, California 90071, acts as legal counsel for the Advisor.
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 Fund 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
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reckless disregard of his or her duties.
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.
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