As filed with the Securities and Exchange Commission on October 13, 2000
Reg. ICA No. 811-8360
File No. 33-75340
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 28 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 28
INVESTEC FUNDS
(Formerly Guinness Flight Investment Funds)
(Exact name of Registrant as Specified in Trust Instrument)
225 South Lake Avenue, Suite 777
Pasadena, California 91101
---------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(800) 362-5365
(Area Code and Telephone Number)
Susan Penry-Williams, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
------------------------------------
(Name and Address of Agent for Service)
Copy to
Mr. Royce N. Brennen
Investec Funds
225 South Lake Avenue, Suite 777
Pasadena, California 91101
It is proposed that this filing will become effective:
|X| Immediately upon filing |_| on (date) pursuant to paragraph (b)
pursuant to paragraph (b)
|_| 60 days after filing |_| on (date) pursuant to paragraph (a)(1)
pursuant to paragraph (a)(1)
|_| 75 days after filing
pursuant to paragraph (a)(2)
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Investec Funds
|_| Asia New Economy Fund |_| Wired Index(TM) Fund
|_| Asia Small Cap Fund |_| Wireless World Fund(TM)
|_| China & Hong Kong Fund |_| internet.com Index(TM) Fund
|_| Mainland China Fund
Prospectus
October 13, 2000
<PAGE>
TABLE OF CONTENTS
ASIA NEW ECONOMY FUND 2
ASIA SMALL CAP FUND 11
CHINA & HONG KONG FUND 17
MAINLAND CHINA FUND 22
WIRED INDEX(TM)FUND 27
WIRELESS WORLD FUND(TM) 33
INTERNET.COM INDEX(TM) FUND 39
RISKS OF INVESTING 47
FUND MANAGEMENT 54
ACCOUNT SERVICES 58
FINANCIAL HIGHLIGHTS 69
<PAGE>
INVESTEC FUNDS
PROSPECTUS
October 13, 2000
ASIA NEW ECONOMY FUND
ASIA SMALL CAP FUND
CHINA & HONG KONG FUND
MAINLAND CHINA FUND
WIRED INDEX(TM) FUND
WIRELESS WORLD FUND(TM)
INTERNET.COM INDEX(TM) FUND
This Prospectus covers seven different Funds currently offered by Investec
Funds. You will find specific information in this Prospectus about each of the
Funds plus general information on the Funds. You may find additional information
in the Funds' Statement of Additional Information, which is incorporated by
reference into this Prospectus.
The Securities and Exchange Commission has not approved any of the above listed
Funds. The Securities and Exchange Commission also has not determined whether
this Prospectus is accurate or complete. Any person who tells you that the
Securities and Exchange Commission has made such an approval or determination is
committing a crime.
1
<PAGE>
ASIA NEW ECONOMY FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Asia New Economy Fund's investment objective is long-term capital
appreciation.
Investment Policies and Strategies
The Fund seeks to achieve its investment objective by investing primarily in
equity securities of companies located in Asia that will help to shape and
benefit from the regional and global development of the New Economy. The New
Economy consists of those companies that use communications technology to create
global competition. New Economy participants strive to innovate in a competitive
environment. New Economy companies recognize that rapid change is constant and
understand that these advances are what will drive the global market. The New
Economy centers on the use and development of intelligent technology that adds
significant value to the global society.
The Fund intends to invest at least 85% of its total assets in securities issued
by New Economy companies that are traded primarily on the Asian stock markets.
The primary investment sub-themes for portfolio selection are:
o Companies currently benefiting from the New Economy. Among
others, this group will include those companies that
manufacture and export technology hardware and software;
[Below appears in left hand margin]
NEW ECONOMY COMPANIES RECOGNIZE THAT RAPID CHANGE IS CONSTANT AND UNDERSTAND
THAT THESE ADVANCES ARE WHAT WILL DRIVE THE GLOBAL MARKET.
2
<PAGE>
o Companies with the potential to benefit from the New Economy,
especially in light of the growth of mobile communications,
circuitry development, personal computing, lifestyle
technology, and the Internet; and
o Old Economy companies transforming themselves into New Economy
competitors. Such companies can originate from a variety of
industries, including financial services, media, logistics and
trading services. These dynamic companies with established
business lines are increasing their technological capabilities
and integrating them into core business practices.
The Fund's manager will use a "bottom up" approach to stock analysis and
selection, focusing on tangible earnings. The "bottom-up" approach values
individual companies over larger market themes such as industry or sector. This
approach examines companies to determine which ones are the best managed and
represent the best value regardless of the industry or sector into which they
fall. Examination criteria will include, but are not limited to:
o the companies' strategic plans and progressive products
supported by adequate research, development and marketing;
o the companies' returns on capital employed, returns on equity
and earnings per share growth that is higher than the market
as a whole; and
o the companies' long-term opportunity to succeed based on
potential of the product offerings and understanding of
competition in the market.
3
<PAGE>
Under normal market conditions, the Fund intends to invest in approximately 35
to 40 stocks. The Fund manager will invest primarily in medium to large market
capitalization companies (companies with market capitalizations greater than $1
billion) but may from time to time invest in smaller capitalization issues
(companies with market capitalization less than $1 billion).
The Fund's investment policies and strategies may be changed by the Fund's Board
of Trustees without shareholder approval.
A New Economy company for purposes of this Fund is a company that:
o leverages new technology, either by creating it or by using it
effectively to change the company's business model and benefit
from the technology;
o is information-driven and digitally focused, connecting itself
to the developing innovations in new technologies and
harnessing the advantages gained; and
o demonstrates throughout its business the priority of
information and intellectual capital over traditional
industrial manufacturing capabilities to compete in the global
economy.
Under normal market conditions, the Fund will invest in at least four different
countries. These countries include, but are not limited to:
o Mainland China, Hong Kong, Taiwan and South Korea in Northeast
Asia;
o Singapore, Thailand, Malaysia, Indonesia, Vietnam and the
Philippines in Southeast Asia; and
[Below appears in left hand margin]
THE FUND'S MANAGER WILL USE A "BOTTOM UP" APPROACH TO STOCK ANALYSIS AND
SELECTION, FOCUSING ON TANGIBLE EARNINGS. THE "BOTTOM-UP" APPROACH VALUES
INDIVIDUAL COMPANIES OVER LARGER MARKET THEMES SUCH AS INDUSTRY OR SECTOR.
4
<PAGE>
o India, Pakistan, Bangladesh and Sri Lanka in South Asia.
The Fund will invest primarily in the following types of securities:
o common and preferred stock; and
o convertible preferred stocks
Temporary Defensive Investing. When current market, economic, political or other
conditions are unsuitable for the Fund's investment objective, the Fund may
temporarily invest up to 100% of its assets in cash, cash equivalents or high
quality short-term money market instruments. To the extent that the Fund is
invested in cash, cash equivalents or high quality short-term money market
instruments for defensive purposes, the Fund's investment objective may not be
achieved. When investing for temporary defensive purposes, the Fund will not
engage in market timing. The philosophy of the Fund is to remain invested.
PRINCIPAL RISKS
The Fund is subject to the risks common to all mutual funds that invest in
equity securities and foreign securities. Investing in this Fund may be more
risky than investing in a Fund that invests in U.S. New Economy companies. You
may lose money by investing in this Fund if any of the following occur:
o the Asian stock markets decline in value;
o Asian New Economy stocks fall out of favor with investors;
o the value of Asian currencies declines relative to the U.S.
dollar;
5
<PAGE>
o a foreign government expropriates the Fund's assets;
o political, social or economic instability in Asia causes the
value of the Fund's investments to decline; or
o the Fund manager's investment strategy does not achieve the
Fund's objective or the manager does not implement the
strategy properly.
To the extent that the Fund invests in small capitalization companies there may
be additional risks associated with such stocks. Stocks of small capitalization
companies are more difficult to sell during market downturns due to lower
liquidity.
In addition, investing in common stocks entails a number of risks. The stock
markets in which the Fund invests may experience periods of volatility and
instability. A variety of factors can negatively impact the value of common
stocks. These factors include a number of economic factors such as changes in
interest rates, currency values, economic growth rates, savings rates, and
inflation rates as well as non-economic factors such as political events.
Foreign securities experience more volatility than their domestic counterparts,
in part because of higher political and economic risks, lack of reliable
information, fluctuations in currency exchange rates, and the risks that a
foreign government may take over assets, restrict the ability to exchange
currency or restrict the delivery of securities. The prices of foreign
securities issued in emerging countries experience more volatility because the
securities markets in these countries may not be well established.
6
<PAGE>
The Fund is non-diversified which means that, compared to other funds, the Fund
may invest a greater percentage of its assets in a particular issuer. To the
extent that the Fund invests in a small number of issuers, there may be a
greater risk of losing money than in a diversified investment company.
See "Risks of Investing" for a more detailed discussion of the risks associated
with investing in this Fund.
Annual Returns and Performance Table
The Annual Returns bar chart demonstrates the risks of investing in the Fund
(formerly known as the Guinness Flight Asia Blue Chip Fund) by showing changes
in the Fund's performance from December 31, 1996 through December 31, 1999. The
performance information presented reflects management of the Fund to achieve
long-term capital appreciation for investors by investing primarily in equity
securities of established and sizeable companies that are located in Asia,
rather than through investments in equity securities of companies located in
Asia that will help to shape and benefit from the regional and global
development of the New Economy, the Fund's present investment policy. The Fund
adopted its present policy on September 27, 2000. The performance information
presented below may have been different if the Fund's investments had been
managed to invest primarily in equity securities issued by New Economy
companies. The performance information also demonstrates the risks of investing
in the Fund by showing how the Fund's average annual returns compare with those
of the MSCI Asia Free ex-Japan Index (a broad measure of market performance for
the region in which the Fund invests). Past performance is not an indication of
future performance.
[OBJECT OMITTED]
[The following was presented as a bar chart]
ANNUAL RETURNS
1997 1998 1999
-37.68% -11.78% 61.16%
ASIA NEW ECONOMY FUND
7
<PAGE>
During the period shown in the bar chart, the best performance for a quarter was
35.67% (for the quarter ended 12/31/99). The worst performance was -26.75% (for
the quarter ended 6/30/98).
Average Annual Returns Since Inception
as of 12/31/99 One Year 4/29/96
------------------------------ -------- ----------------
Asia Blue Chip Fund* 61.16% (2.24%)
MSCI Asia Free
Ex-Japan Index 59.40% (5.67%)
---------------
* Changed to the Asia New Economy Fund on September 27, 2000. The
performance information may have been different if the Fund's
investments had been managed to invest primarily in equity securities
issued by New Economy companies.
8
<PAGE>
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases:
(as % of offering price) 0%
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
30-Day Redemption/Exchange Fee: 1%*
Maximum Account Fee: 0%
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Advisory Fee: 1.00%
Distribution Fee: 0.00%
Other Expenses**: 1.99%
Total Annual Fund
Operating Expenses**: 2.99%
Expenses Reimbursed to Fund**: 1.01%
Net Annual Fund Operating Expenses
(expenses actually incurred by the Fund)**: 1.98%
---------------
* You will be charged a 1% fee if you redeem or exchange shares of this
Fund within 30 days of purchase. There is a $10 fee for redemptions by
wire.
** The Fund's manager is contractually obligated to cap the Fund's Total
Annual Fund Operating Expenses at 1.98% at least through June 30, 2001.
9
<PAGE>
Example:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that:
o you invest $10,000 in the Fund for the time periods indicated
and you redeem your shares at the end of those periods;
o your investment has a 5% return each year; and
o the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
1 Year*** 3 Years*** 5 Years*** 10 Years***
$201 $829 $1,484 $3,237
--------------
*** Your costs of investing in the Fund for 1 year reflect the amount you
would pay after we reimburse the Fund for some or all of the other
expenses. Your costs of investing in the Fund for 3, 5 and 10 years
reflect the amount you would pay if we did not reimburse the Fund for
some or all of the other expenses. If we continue to cap the Fund's
expenses for 3, 5 or 10 years as we are doing for the first year, your
actual costs for those periods would be lower than the amounts shown.
We are currently under no obligation to cap expenses for any period
beyond June 30, 2001.
10
<PAGE>
ASIA SMALL CAP FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Asia Small Cap Fund's investment objective is long-term capital appreciation
primarily through investments in equity securities of smaller capitalization
issuers that are located in Asia.
Investment Strategies
The Asia Small Cap Fund intends to invest at least 65% of its total assets in
securities issued by "small cap" companies that are traded on the Asian markets.
A small cap company for purposes of this Fund is a company that has a market
value of less than U.S. $1 billion.
Under normal market conditions, the Asia Small Cap Fund will invest in at least
four different countries. These countries include, but are not limited to:
o Mainland China, Hong Kong, Taiwan and South Korea in Northeast
Asia;
o Singapore, Thailand, Malaysia, Indonesia, Vietnam and the
Philippines in Southeast Asia; and
o India, Pakistan, Bangladesh and Sri Lanka in South Asia.
[Below appears in right hand margin]
THE ASIA SMALL CAP FUND'S DECISION TO INVEST IN A PARTICULAR COUNTRY IS BASED
UPON:
o the size and liquidity of the country's stock market;
o the reliability of the legal, accounting, and regulatory
regimes of the country; and
o currency restrictions of the country.
11
<PAGE>
The Asia Small Cap Fund's decision to invest in a particular company is based
upon:
o internal proprietary company financial data/estimates
developed from information gathered through company visits and
interviews with senior executives;
o the outlook for the particular company's sector of the
economy;
o the company's potential to generate high returns on capital in
the next three years demonstrated by, among other factors, a
growing market for the company's products;
o the company's intrinsic value demonstrated by, among other
indicators, a price/earnings or price/cash flow ratio that is
less than the market average, and a dividend yield that is
higher than the market as a whole.
When current market, economic, political or other conditions are unsuitable for
the Asia Small Cap Fund's investment objective, the Asia Small Cap Fund may
temporarily invest up to 100% of its assets in cash, cash equivalents or high
quality short-term money market instruments. However, the Fund will not engage
in market timing. The philosophy of the Fund is to remain invested.
PRINCIPAL RISKS
The Asia Small Cap Fund is subject to the risks common to all mutual funds that
invest in equity securities, foreign companies and smaller capitalization
securities. You may lose money by investing in this Fund if any of the following
occur:
o the Asian stock markets decline in value,
[Below appears in left hand margin]
THE ASIA SMALL CAP FUND INVESTS PRIMARILY IN THE FOLLOWING TYPES OF SECURITIES:
o common and preferred stock; and
o convertible preferred stocks.
12
<PAGE>
o Asian small cap stocks fall out of favor with investors;
o small cap stocks are more difficult to sell during a down
market due to lower liquidity;
o a stock or stocks in the Fund's portfolio do not perform well;
o the value of Asian currencies declines relative to the U.S.
dollar;
o a foreign government expropriates the Fund's assets; or
o political, social or economic instability in Asia causes the
value of the Fund's investments to decline.
See "Risks of Investing" for a more detailed discussion of the risks associated
with investing in this Fund.
Annual Returns and Performance Table
The Annual Returns bar chart demonstrates the risks of investing in the Asia
Small Cap Fund by showing changes in the Fund's performance from December 31,
1996 through December 31, 1999. The following table also demonstrates these
risks by showing how the Fund's average annual returns compare with those of the
HSBC James Capel Southeast Asia Smaller Companies Index (a broad measure of
market performance for the region in which the Fund invests). Past performance
is not an indication of future performance.
During the period shown in the bar chart, the best performance for a quarter was
40.59% (for the
[OBJECT OMITTED]
[Following was presented as a bar chart]
ANNUAL RETURNS
1997 1998 1999
-30.77% -30.87% 42.43%
ASIA SMALL CAP FUND
13
<PAGE>
quarter ended 6/30/99). The worst performance was -37.39% (for the quarter ended
12/31/97).
Average Annual Returns Since Inception
as of 12/31/99 One Year 4/29/96
---------------------- -------- -----------------
Asia Small Cap Fund 42.43% -6.82%
HSBC James Capel
Southeast Asia Smaller
Companies Index 43.35% -15.11%
14
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Asia Small Cap Fund:
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases:
(as % of offering price) 0%
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
30-Day Redemption/Exchange Fee: 1%*
Maximum Account Fee: 0%
---------------
* You will be charged a 1% fee if you redeem or exchange shares of this
Fund within 30 days of purchase. There is a $10 fee for redemption by
wire.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Advisory Fee: 1.00%
Distribution Fee: 0.00%
Other Expenses*: 1.39%
Total Annual Fund
Operating Expenses*: 2.39%
Expenses Reimbursed to Fund*: 0.41%
Net Actual Fund Operating Expenses
(expenses actually incurred by the Fund)*: 1.98%
---------------
* The Fund's manager is contractually obligated to cap the Fund's Total
Annual Operating Expenses at 1.98% through June 30, 2001.
15
<PAGE>
Example:
This example is intended to help you compare the cost of investing in the Asia
Small Cap Fund with the cost of investing in other mutual funds.
The Example assumes that:
o you invest $10,000 in the Fund for the time periods indicated
and you redeem your shares at the end of those periods;
o your investment has a 5% return each year; and
o the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
1 Year** 3 Years** 5 Years** 10 Years**
$201 $706 $1,238 $2,695
---------------
** Your costs of investing in the Fund for 1 year reflect the amount you
would pay after we reimburse the Fund for some or all of the Other
Expenses. Your costs of investing in the Fund for 3, 5 and 10 years
reflect the amount you would pay if we did not reimburse the Fund for
some or all of the Other Expenses. If we continue to cap the Fund's
expenses for 3, 5 or 10 years as we are doing for the first year, your
actual costs for those periods would be lower than the amounts shown.
We are currently under no obligation to cap expenses for any period
beyond June 30, 2001.
16
<PAGE>
CHINA & HONG KONG FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The China & Hong Kong Fund's investment objective is long-term capital
appreciation primarily through investments in securities of China and Hong Kong.
Investment Strategies
The China & Hong Kong Fund intends to invest at least 85% of its total assets in
the following types of equity securities:
o equity securities of companies that are primarily traded on
the China or Hong Kong exchanges; or
o equity securities of companies that derive a substantial
portion of their revenues from business activities in China
and/or Hong Kong, but which are listed and traded elsewhere.
The Fund normally invests at least 65% of its assets in companies listed on the
Hang Seng Index(1), with the actual weightings of the Hang Seng Index companies
held in the Fund's portfolio normally higher than that.
When current market, economic, political or other conditions are unsuitable for
the China & Hong
---------------
(1) The Hang Seng Index is a barometer of the Hong Kong Stock Market. The
Index comprises 33 constituent stocks, whose aggregate market cap
accounts for about 70% of the total market capitalization of the Stock
Exchange of Hong Kong Limited.
[Below appears in right hand margin]
THE CHINA & HONG KONG FUND'S DECISION TO INVEST IN A PARTICULAR COMPANY IS BASED
UPON:
o the weighting of the company and sector in the Hang Seng
Index;
o internal proprietary company models developed from information
gathered through company visits and interviews with senior
executives; and
o the ability of the company to generate regular cash flows and
provide a sustained or growing return on capital.
17
<PAGE>
Kong Fund's investment objective, the China & Hong Kong Fund may temporarily
invest up to 100% of its assets in cash, cash equivalents or high quality
short-term money market instruments. However, the Fund will not engage in market
timing. The philosophy of the Fund is to remain invested.
PRINCIPAL RISKS
The China & Hong Kong Fund is subject to the risks common to all mutual funds
that invest in equity securities and foreign securities. You may lose money by
investing in this Fund if any of the following occur:
o the Hong Kong and/or China stock markets decline in value;
o China and/or Hong Kong stocks fall out of favor with
investors;
o a stock or stocks in the Fund's portfolio do not perform well;
o the value of Chinese currencies declines relative to the U.S.
dollar;
o the Chinese government expropriates the Fund's assets; or
o political, social or economic instability in China causes the
value of the Fund's investments to decline.
See "Risks of Investing" for a more detailed discussion of the risks associated
with investing in this Fund.
[Below appears in left hand margin]
THE CHINA & HONG KONG FUND INVESTS PRIMARILY IN THE FOLLOWING TYPES OF
SECURITIES:
o common and preferred stock; and
o convertible preferred stocks.
18
<PAGE>
Annual Returns and Performance Table
The Annual Returns bar chart demonstrates the risks of investing in the China &
Hong Kong Fund by showing changes in the Fund's performance from December 31,
1994 through December 31, 1999. The following table also demonstrates these
risks by showing how the Fund's average annual returns compare with those of the
Hang Seng Index (a broad measure of market performance for the region in which
the Fund invests). Past performance is not an indication of future performance.
During the period shown in the bar chart, the best performance for a quarter was
32.16% (for the quarter ended 12/31/99). The worst performance was -28.32% (for
the quarter ended 12/31/97).
Average Annual Returns Since Inception
as of 12/31/99 One Year Five Year 6/30/94
---------------------- -------- --------- ---------------
China & Hong Kong Fund 66.27% 12.68% 9.83%
Hang Seng Index 68.80% 13.90% 12.75%
[OBJECT OMITTED]
[Following was presented as a bar chart]
ANNUAL RETURNS
1995 1996 1997 1998 1999
20.45% 34.38% -20.34% -15.27% 66.27%
CHINA & HONG KONG FUND
19
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the China & Hong Kong Fund:
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases:
(as % of offering price) 0%
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
30-Day Redemption/Exchange Fee: 2%*
Maximum Account Fee: 0%
---------------
* You will be charged a 2% fee if you redeem or exchange shares of this
Fund within 30 days of purchase. There is a $10 fee for redemption by
wire.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Advisory Fee: 1.00%
Distribution Fee: 0.00%
Other Expenses: 0.86%
Total Annual Fund
Operating Expenses: 1.86%
Expenses Reimbursed to Fund: 0.00%
Net Actual Fund Operating Expenses
(expenses actually incurred by the Fund): 1.86%
20
<PAGE>
Example:
This example is intended to help you compare the cost of investing in the China
& Hong Kong Fund with the cost of investing in other mutual funds.
The Example assumes that:
o you invest $10,000 in the Fund for the time periods indicated
and you redeem your shares at the end of those periods;
o your investment has a 5% return each year; and
o the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
1 Year 3 Years 5 Years 10 Years
$189 $585 $1,006 $2,180
21
<PAGE>
MAINLAND CHINA FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Mainland China Fund's investment objective is long-term capital appreciation
primarily through investments in equity securities of companies which are
located in Mainland China ("Chinese companies") and companies located outside
Mainland China that have a majority of their assets in China or that derive a
majority of their revenues from activities in China.
Investment Strategies
The Mainland China Fund intends to invest at least 65% of its total assets in
the following types of equity securities:
o "B" shares - shares issued by Chinese companies that are
listed on the Shanghai Stock Exchange or the Shenzhen Stock
Exchange;
o "H" shares - shares issued by Chinese companies that are
listed on the Hong Kong Stock Exchange;
o "N" shares - shares issued by Chinese companies that are
listed on the New York Stock Exchange;
o "Red Chips" - shares issued by Hong Kong companies that are
controlled by Chinese corporations and listed on the Hong Kong
Stock Exchange; and
[Below appears in left hand margin]
THE MAINLAND CHINA FUND'S DECISION TO INVEST IN A PARTICULAR COMPANY IS BASED
UPON:
o the quality of the company's management as determined by
visits to the company and meetings with management;
o the ability of the company to maximize shareholder return
under the prevailing business environment;
o the outlook for the particular company's sector of the
economy; and
o internal proprietary company financial data/estimates
developed from information gathered through company visits and
interviews with senior executives.
22
<PAGE>
o "China Plays" - shares issued by non-Chinese companies that
have the majority of their assets in China or that derive a
majority of their revenues from activities in China.
When current market, economic, political or other conditions are unsuitable for
the Mainland China Fund's investment objective, the Mainland China Fund may
temporarily invest up to 100% of its assets in cash, cash equivalents or high
quality short-term money market instruments. However, the Fund will not engage
in market timing. The philosophy of the Fund is to remain invested.
PRINCIPAL RISKS
The Mainland China Fund is subject to the risks common to all mutual funds that
invest in equity securities and foreign securities. You may lose money by
investing in this Fund if any of the following occur:
o the China and/or Hong Kong stock markets decline in value;
o China and/or Hong Kong stocks fall out of favor with
investors;
o a stock or stocks in the Fund's portfolio do not perform well;
o the value of Chinese currencies declines relative to the U.S.
dollar;
o the Chinese government expropriates the Fund's assets; or
o political, social or economic instability in China causes the
value of the Fund's investments to decline.
[Below appears in right hand margin]
THE MAINLAND CHINA FUND INVESTS PRIMARILY IN THE FOLLOWING TYPES OF SECURITIES:
o common and preferred stock; and
o convertible preferred stocks.
23
<PAGE>
See "Risks of Investing" for a more detailed discussion of the risks associated
with investing in this Fund.
Fund Asset Cap
Because the stock of Mainland Chinese companies is less liquid (it trades less
often) than that of other more developed markets, Investec Asset Management will
close the Mainland China Fund to new shareholders when the Fund has $50 million
in net assets. Existing shareholders will be able to add to their Mainland China
Fund account after it closes. The Fund may reopen at a later date to new
shareholders when Investec Asset Management believes that the Mainland Chinese
markets are more liquid and developed.
Annual Returns and Performance Table
The Annual Returns bar chart demonstrates the risks of investing in the Mainland
China Fund by showing changes in the Fund's performance from December 31, 1997
through December 31, 1999. The following table also demonstrates these risks by
showing how the Fund's average annual return compares with that of the MSCI
China Free Index (a broad measure of market performance for the region in which
the Fund invests). Past performance is not an indication of future performance.
During the period shown in the bar chart, the best performance for a quarter was
53.66% (for the quarter ended 6/30/99). The worst performance was -29.59% (for
the quarter ended 6/30/98).
Average Annual Returns Since Inception
as of 12/31/99 One Year 11/03/97
------------------------ -------- ----------------
Mainland China Fund 32.20% -2.95%
MSCI China Free Index 9.94% -28.08%
[OBJECT OMITTED]
[Following was presented as a bar chart]
ANNUAL RETURNS
1998 1999
-24.96% 32.30%
MAINLAND CHINA FUND
24
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Mainland China Fund:
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases:
(as % of offering price) 0%
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
30-Day Redemption/Exchange Fee: 2%*
Maximum Account Fee: 0%
---------------
* You will be charged a 2% fee if you redeem or exchange shares of this
Fund within 30 days of purchase. There is a $10 fee for redemption by
wire.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Advisory Fee: 1.00%
Distribution Fee: 0.00%
Other Expenses*: 2.33%
Total Annual Fund
Operating Expenses*: 3.33%
Expenses Reimbursed to Fund*: 1.35%
Net Annual Fund Operating Expenses
(expenses actually incurred by the Fund)*: 1.98%
---------------
* The Fund's manager is contractually obligated to cap the Fund's Total
Annual Fund Operating Expenses at 1.98% through June 30, 2001.
25
<PAGE>
Example:
This example is intended to help you compare the cost of investing in the
Mainland China Fund with the cost of investing in other mutual funds.
The Example assumes that:
o you invest $10,000 in the Fund for the time periods indicated
and you redeem those shares at the end of those periods;
o your investment has a 5% return each year; and
o the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
1 Year** 3 Years** 5 Years** 10 Years**
$201 $899 $1,620 $3,531
----------
** Your costs of investing in the Fund for 1 year reflect the amount you
would pay after we reimburse the Fund for some or all of the Other
Expenses. Your costs of investing in the Fund for 3, 5 and 10 years
reflect the amount you would pay if we did not reimburse the Fund for
some or all of the Other Expenses. If we continue to cap the Fund's
expenses for 3, 5 or 10 years as we are doing for the first year, your
actual costs for those periods would be lower than the amounts shown.
We are currently under no obligation to cap expenses for any period
beyond June 30, 2001.
26
<PAGE>
WIRED INDEX(TM)FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Wired Index(TM) Fund's investment objective is long-term capital
appreciation primarily through investments in equity securities of companies
that comprise the Wired Index(TM).
Principal Investment Strategies
The Wired Index(TM) Fund will invest at least 85% of its total assets in
securities that comprise the Wired Index(TM). As an index fund, the Wired
Index(TM) Fund will attempt to replicate the performance of the Wired Index(TM).
In managing the Fund, we will follow a principal investment policy of "full
replication", meaning that the Fund will attempt to invest in all 40 component
issues that comprise the Wired Index(TM) in the proportion they are represented
within the Index. From time to time, we may also use a method known as "index
sampling", to efficiently handle cash inflows and outflows on a short-term
basis. "Index sampling" is an investment technique that seeks to replicate the
performance of the Wired Index(TM) by investing in fewer than the 40 component
stocks. The Wired Index(TM) is comprised of the following companies:
Affymetrix AIG
America Online Applied Materials
Aventis S.A BroadVision Inc.
Charles Schwab Cisco Systems
Daimler-Chrysler EMC
Enron FDX
First Data Flextronics International
Globalstar i2 Technologies, Inc.
[Below appears in right hand margin]
THE WIRED INDEX(TM) WAS CREATED BY WIRED(r) MAGAZINE TO ". . . TRACK THE GROWTH
OF THE COMPANIES THAT ARE BUILDING THE NEW ECONOMY - NOT JUST (HIGH TECH
COMPANIES), BUT A BROAD RANGE OF ENTERPRISES THAT ARE USING TECHNOLOGY,
NETWORKS, AND INFORMATION TO RESHAPE THE WORLD."
(Wired, June 1998). Wired(r) magazine is not an affiliate of Investec
Asset Management U.S. Limited.
27
<PAGE>
Incyte Pharmaceuticals Intel
JDS Uniphase Lucent Technologies
Marriott International Microsoft
News Corporation Nokia
Nucor Oracle Corporation
Parametric Technology Qwest Communications
Reuters Sabre Holdings
Schlumberger SmithKline Beecham
Sony State Street Corporation
Sun Microsystems Vodafone AirTouch, PLC
Wal-Mart Walt Disney
WorldCom Yahoo!
Although technology and telecommunication companies make up approximately 50% of
the Wired Index(TM), the Index represents a wide range of industries including
the financial, retail, consumer and energy industries.
The Wired Index(TM) is weighted by market capitalization with a ceiling of $30
billion. If the Wired Index(TM) changes in any way, the Fund will adjust its
investments accordingly to mirror the Index.
Temporary Defensive Investing. During unusual economic or business circumstances
as determined by the manager, the Fund may adopt a temporary defensive position
and invest a portion or all of its portfolio in Money Market Instruments. To the
extent the Fund is invested in Money Market Instruments for defensive purposes
the Fund's investment objective may not be achieved.
PRINCIPAL RISKS
The Wired Index(TM) Fund is subject to the risks common to all mutual funds that
invest in equity securities and the securities
[Below appears in left hand margin]
THE WIRED INDEX(TM) CONSISTS OF COMPANIES THAT PLAY A ROLE IN THE NEW ECONOMY.
THE NEW ECONOMY IS BASED ON:
o the use of technology, networks, communication and
information; and
o the evolution of globalism, innovation and strategic vision.
28
<PAGE>
that make up the Wired Index(TM). You may lose money under any of the following
circumstances:
o the Wired Index(TM) declines in value;
o the Wired Index(TM) is more adversely affected by a market
downturn than a larger, more broad-based index due to its
concentration and focus on specific sectors;
o technology or telecommunication stocks fall out of favor with
investors; or
o technology companies in the Wired Index(TM) lose money due to
intense pricing pressure or high capital investment costs.
The Wired Index(TM) Fund currently has a meaningful minority percentage of its
assets represented by companies in the technology, Internet and communications
industries. These industries are extremely competitive and subject to rapid
rates of change. The competitive nature of these industries and rapid rate of
change places a challenge on the management of these companies to be successful.
In addition, investing in common stocks entails a number of risks. The stock
markets in which the Fund invests may experience periods of volatility and
instability. A variety of factors can negatively impact the value of common
stocks. These factors include a number of economic factors such as changes in
interest rates, currency values, economic growth rates, savings rates, inflation
rates as well as non-economic factors such as political events.
The Wired Index(TM) Fund is non-diversified which means that, compared to other
funds, the Fund may invest a greater percentage of its assets in a particular
issuer. To the extent that the Fund invests
29
<PAGE>
in a small number of issuers, there may be a greater risk of losing money than
in a diversified investment company.
See "Risks of Investing" for a more detailed discussion of the risks associated
with investing in this Fund.
Annual Returns and Performance Table
The Annual Returns bar chart demonstrates the risks of investing in the Wired
Index(TM) Fund by showing changes in the Fund's performance from December 31,
1998 through December 31, 1999. The bar chart does not reflect any sales charges
that you may be required to pay when you sell your shares. If sales charges were
reflected, returns would be lower than those shown. The following table also
demonstrates the risks of investing in the Wired Index(TM) Fund by showing how
the Fund's average annual returns compare with those of a broad based securities
market index. Past performance is not an indication of future performance.
During the period shown in the bar chart, the best performance for a quarter was
40.06% (for the quarter ended 12/31/99). The worst performance was -4.11% (for
the quarter ended 9/30/99).
Average Annual Returns Since Inception
as of December 31, 1999 One Year 12/5/98
------------------------ -------- ---------------
Wired Index(TM) Fund 68.68% 83.31%
NASDAQ Composite Index 85.59% 96.35%
Wired Index(TM) 71.32% 90.07%
[OBJECT OMITTED]
[Following was presented as a bar chart}
ANNUAL RETURNS
1999
68.68%
WIRED INDEX(TM)FUND
30
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Wired Index(TM) Fund:
Shareholder Fees (fees paid
directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases:
(as % of offering price) 0%
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
30-Day Redemption/Exchange Fee: 1%*
Maximum Account Fee: 0%
---------------
* You will be charged a 1% fee if you redeem or exchange shares of this
Fund within 30 days of purchase. There is a $10 fee for redemption by
wire.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Advisory Fee**: 0.90%
Rule 12b-1 Fee: 0.00%
Other Expenses*: 0.48%
Total Annual Fund Operating Expenses*: 1.38%
Expenses Reimbursed to Fund*: 0.03%
Net Annual Fund Operating Expenses
(expenses actually incurred by the Fund)*: 1.35%
---------------
* The Fund's manager is contractually obligated to cap the Fund's Total
Annual Fund Operating Expenses at 1.35% through June 30, 2001.
** Pursuant to an Investment Advisory Agreement, the Fund will pay an
advisory fee of 0.90% on the first $100 million in assets, 0.75% on the
next $100 to $500 million, and 0.60% on assets over $500 million.
31
<PAGE>
Example:
This example is intended to help you compare the cost of investing in the Wired
Index(TM) Fund with the cost of investing in other mutual funds.
The Example assumes that:
o you invest $10,000 in the Fund for the time periods indicated
and you redeem your shares at the end of those periods;
o your investment has a 5% return each year; and
o the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
1 Year** 3 Years** 5 Years** 10 Years**
$137 $434 $752 $1,655
---------------
** Your costs of investing in the Fund for 1 year reflect the amount you
would pay after we reimburse the Fund for some or all of the Other
Expenses. Your costs of investing in the Fund for 3, 5 and 10 years
reflect the amount you would pay if we did not reimburse the Fund for
some or all of the Other Expenses. If we continue to cap the Fund's
expenses for 3, 5 or 10 years as we are doing for the first year, your
actual costs for those periods would be lower than the amounts shown.
We are currently under no obligation to cap expenses for any period
beyond June 30, 2001.
Wired Index Service Mark and Registered Trademark
"WIRED INDEX" is a service mark, and "WIRED" a registered trademark, of Advance
Magazine Publishers Inc. ("Advance"), used with permission of Advance. Wired
Magazine and Advance make no representation or warranty, express or implied, to
Investec or any member of the public regarding the advisability of investing in
securities generally or in the Fund particularly or the ability of the Wired
Index to track any aspect of market performance. Wired Magazine will continue to
determine the composition of the Index without regard to Investec or the Fund,
and Wired Magazine has no obligation to take the needs of Investec or investors
in the Fund into consideration in determining or composing the Index. Advance
does not guarantee the quality, accuracy, currency, and/or the completeness of
the index or any data included therein. Advance makes no warranty, express or
implied, as to the results to be obtained by Investec, investors in the fund, or
any other person or entity from the use of the wired index or any data included
therein connection with the fund or for any other use. Advance makes no express
or implied warranties, and hereby expressly disclaims all warranties, or
merchantability or fitness for a particular purpose or use with respect to the
wired index or any data included therein. Without limiting any of the foregoing,
in no event shall advance have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even if notified of
the possibility of such damages.
32
<PAGE>
WIRELESS WORLD FUND(TM)
RISK/RETURN SUMMARY
Investment Objective
The Wireless World Fund(TM)'s investment objective is long-term capital
appreciation primarily through investments in equity securities of companies
with substantial business interest in, or that will benefit from, a shift toward
wireless communication.
Investment Strategies
The Fund intends to invest at least 85% of its assets in companies with
substantial interest in, or that may benefit from, a shift toward wireless
communications. This would include telecommunications companies, hardware
manufacturers, Internet companies, content providers and service companies that
supply equipment, hardware, information or services via wireless communications
devices.
The Fund intends to invest in a portfolio of approximately 40 stocks that the
manager believes represent the most attractive "wireless companies."
Personal communications are in the process of moving from traditional "wired
based" to wireless transmission. The mobile phone, which is the most obvious
example, represents just the beginning of this shift. The growth in wireless
communication is a result of advances in telecommunications and technology
coupled with the explosive growth in Internet usage. In a wireless world a
variety of products and services will be available to consumers that either are
not available now or will
[Below appears in right hand margin]
THE GROWTH IN WIRELESS COMMUNICATION IS A RESULT OF ADVANCES IN
TELECOMMUNICATIONS AND TECHNOLOGY COUPLED WITH THE EXPLOSIVE GROWTH IN INTERNET
USAGE.
33
<PAGE>
be available in a much more convenient and time effective manner. Industries
that may be able to provide enhanced wireless services include the automobile,
banking, computer, entertainment, financial services, media, software,
telecommunications, and transportation industries. The Fund is designed to allow
investors a means to participate in this shift to wireless communication.
In evaluating and selecting companies for inclusion in the Fund the manager uses
a "bottom up" process. This process places a premium on examining and selecting
individual stocks based on their individual investment merits. The manager will
be particularly interested in growth companies that are likely to benefit from
new or innovative products, services or processes that should enhance such
companies' prospects for future growth in earnings and revenues. The manager
will invest mainly in medium to large capitalization companies (companies with
market capitalizations of more than U.S. $1 billion at the time of purchase) but
will from time to time invest in smaller capitalization issues (companies with
market capitalizations of less than U.S. $1 billion at the time of purchase).
Temporary Defensive Investing. During unusual economic or business circumstances
as determined by the manager, the Fund may adopt a temporary defensive position
and invest a portion or all of its portfolio in Money Market Instruments. To the
extent the Fund is invested in Money Market Instruments for defensive purposes
the Fund's investment objective may not be achieved.
[Below appears in left hand margin]
INDUSTRIES THAT MAY BE ABLE TO PROVIDE ENHANCED WIRELESS SERVICES INCLUDE THE
AUTOMOBILE, BANKING, COMPUTER, ENTERTAINMENT, FINANCIAL SERVICES, MEDIA,
SOFTWARE, TELECOMMUNICATIONS, AND TRANSPORTATION INDUSTRIES.
34
<PAGE>
PRINCIPAL RISKS
The Fund is subject to the following risks common to all mutual funds that
invest in equity securities and that invest in companies involved in the
telecommunications, Internet or technology industries. You may lose money if any
of the following occur:
o The stock market declines in value;
o Telecommunications, technology or wireless services stocks
decline in value;
o Telecommunications, technology or wireless services stocks
fall out of favor with investors;
o Telecommunications, technology or wireless services companies
in which the Fund invests lose money due to competitive
business pressures or failure to keep pace with the rapid rate
of technological change; or
o The Fund manager's investment strategy does not achieve the
Fund's objective or the manager does not implement the
strategy properly.
You should also be aware that the share prices of telecommunications, technology
and wireless services companies fluctuate more than other stocks because these
industries are subject to more rapid change in technology and products than
stocks of companies in most other industries. Further, to the extent that the
Fund invests in small companies there may be additional risks associated with
such stocks. Stocks of small companies are more difficult to sell during market
downturns due to lower liquidity. The Fund may exhibit a greater degree of
volatility and fluctuation on a day-to-day basis than a more diversified fund.
[Below appears in left hand margin]
THE FUND INTENDS TO INVEST IN A PORTFOLIO OF 40 STOCKS THAT THE MANAGER BELIEVES
REPRESENT THE MOST ATTRACTIVE "WIRELESS COMPANIES."
35
<PAGE>
In addition, investing in common stocks entails a number of risks. The stock
markets in which the Fund invests may experience periods of volatility and
instability. A variety of factors can negatively impact the value of common
stocks. These factors include a number of economic factors such as changes in
interest rates, currency values, economic growth rates, savings rates, inflation
rates as well as non-economic factors such as political events. Foreign
securities experience more volatility than their domestic counterparts, in part
because of higher political and economic risks, lack of reliable information,
fluctuations in currency exchange rates, and the risks that a foreign government
may take over assets, restrict the ability to exchange currency or restrict the
delivery of securities. The prices of foreign securities issued in emerging
countries experience more volatility because the securities markets in these
countries may not be well established.
The Fund is non-diversified which means that, compared to other funds, the Fund
may invest a greater percentage of its assets in a particular issuer. To the
extent that the Fund invests in a small number of issuers, there may be a
greater risk of losing money than in a diversified investment company.
See "Risks of Investing" for a more detailed discussion of the risks associated
with investing in this Fund.
No bar chart or performance table is available because the Fund has not been in
operation for a full calendar year.
36
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases:
(as a % of offering price) 0%
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
30-Day Redemption/Exchange Fee* (as % of amount
redeemed, if applicable): 1%
Maximum Account Fee: 0%
---------------
* You will be charged a 1% fee if you redeem or exchange shares of the
Fund within 30 days of purchase. There is a $10 fee for redemption by
wire.
Annual Operating Expenses
(Expenses that are deducted from Fund assets)
Advisory Fee: 1.00%
Distribution Fee: 0.00%
Other Expenses**: 0.75%
Total Annual Fund Operating Expenses**: 1.75%
-----------------
** These expenses are based on estimated amounts for the current fiscal
year.
37
<PAGE>
Example:
This example is to help you compare the cost of investing in the Wireless World
Fund(TM) with the cost of investing in other mutual funds.
The Example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o your investment has a 5% return each year;
o the Fund's operating expenses remain the same; and
o you redeem all your shares.
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
1 Year 3 Years
$178 $551
The Wireless World Fund(TM) is a trademark of Investec Asset Management U.S.
Limited and application for registration has been applied for.
38
<PAGE>
INTERNET.COM INDEX(TM)FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The internet.com Index(TM) Fund's investment objective is long-term capital
appreciation primarily through investments in equity securities of companies
that comprise the internet.com Index.
Investment Strategies
The internet.com Index(TM) Fund will invest at least 85% of its total assets in
the securities that comprise the internet.com Index. As an index fund, the
internet.com Index(TM) Fund will attempt to replicate the performance of the
internet.com Index. In managing the Fund, we will follow a principal investment
policy of "full replication," meaning that the Fund will attempt to invest in
all 50 component issues that comprise the internet.com Index in proportion to
their weighting in the Index. From time to time, we may also use a method known
as "index sampling" to efficiently handle cash inflows and outflows on a
short-term basis. "Index sampling" is an investment technique that seeks to
replicate the performance of the Index by investing in fewer than the 50
component stocks.
The internet.com Index consists of companies (including some small cap
companies) that represent the following sub-sectors within the Internet sector.
o Search/Portals-These are companies that run Web sites designed
to be gateways to the Internet. Most feature news and
information
[Below appears in right hand margin]
THE INTERNET.COM INDEX CONSISTS OF COMPANIES THAT REPRESENT THE FOLLOWING
SUB-SECTORS WITHIN THE INTERNET SECTOR:
o Search/Portals
o Content/Communities
o e-tailers
o Financial Services
o e-commerce enablers
o Security
o Performance Software
o Internet Services Advertising/Marketing
o Consultants/Designers
o Speed/Bandwidth
o ISPs/Access Providers
39
<PAGE>
organized by category, and all offer Internet search
capabilities. With the exception of AOL and GoTo.com, most
search/portals rely primarily on advertising revenue, though
all are seeking to increase e-commerce revenue.
o Content/Communities-These are Web sites and networks organized
around specific content (sports, politics, stocks, etc.) and
personal or professional interests. Some are B2B-oriented
(VerticalNet, internet.com), others are geared toward
consumers or a mix. A few charge membership fees or for
premium content-and, like Search/Portals, all are trying to
increase e-commerce revenue-but most live and die by
advertising revenue.
o e-tailers-These companies sell stuff online, to consumers,
business, or both. E-tailers include sellers of products
(toys, books), downloadable music, plane tickets, hotel rooms,
etc. Consumer auction sites also are considered e-tailers.
o Financial Services-These include online stockbrokers, loan
processors, credit card providers, banks, venture capital
companies (CMGI, Internet Capital Group).
o e-commerce enablers-A lot of the companies in this sector are
classified as B2B e-commerce software providers. Some sell
transaction software for e-tailers, others make e-commerce
software linking companies with their suppliers and customers.
A few run sites bringing together buyers and sellers in
certain industries (cattle auction site eMerge Interactive,
software site Intraware).
[Below appears in left hand margin]
AS AN INDEX FUND, THE INTERNET.COM INDEX(TM) FUND WILL ATTEMPT TO REPLICATE THE
PERFORMANCE OF THE INTERNET.COM INDEX.
40
<PAGE>
o Security-These companies sell firewalls and e-commerce
security software (digital certificates) and provide
outsourced services.
o Performance Software-These companies cover a wide range:
operating systems (Red Hat), software that measures Web site
performance, software that allows users to do something
(stream audio and video, use to Internet to make long-distance
calls), software that allows you to build applications.
o Internet Services-These companies offer services such as Web
hosting, e-mail management, application hosting and delivery
and employment listings.
o Advertising/Marketing-Companies in this sector include ad
services providers such as DoubleClick, direct marketing
companies, Web site traffic measurers and opt-in e-mailers.
Business models vary.
o Consultants/Designers-These companies provide Web site design,
business consulting, some e-commerce services, etc.
o Speed/Bandwidth-These are companies that, one way or another,
are trying to improve the performance of the Internet. Cable
access providers, caching server vendors, router and switch
makers, etc.
41
<PAGE>
o ISPs/Access Providers-They provide Internet access to
computers, corporate clients (VPNs), wireless devices, etc.
Some charge a monthly fee, others offer free access in
exchange for bombarding you with ads.
The Index is reviewed quarterly by internet.com to insure that it includes the
most representative list of Internet stocks. If a company representing a new
sub-sector (meaning it offers a service or product not included in the twelve
sub-sectors already identified) becomes publicly traded, or if a company changes
direction into a new market sub-sector, it may be added to the Index
intra-quarterly. In managing the Fund, the manager will seek to adjust the
Fund's holdings as soon as practicable to reflect any underlying changes in the
Index.
For the purposes of the internet.com Index, an Internet stock is defined as a
company that derives a majority of its revenue from the Internet.
As an Internet index, it attempts to capture the growth of the Internet, which
is a global collection of connected computers that allows commercial and
professional organizations, educational institutions, government agencies, and
consumers to communicate electronically, access and share information, and
conduct business.
The internet.com Index is adjusted for stock splits, mergers, acquisitions or
delistings similar to how the Dow Jones Industrial Average is adjusted.
[Below appears in left hand margin]
FOR THE PURPOSES OF THE INTERNET.COM INDEX, AN INTERNET STOCK IS DEFINED AS A
COMPANY THAT DERIVES A MAJORITY OF ITS REVENUE FROM THE INTERNET.
42
<PAGE>
PRINCIPAL RISKS
The internet.com Index(TM) Fund is subject to the following risks common to all
mutual funds that invest in equity securities and the securities that make up
the internet.com Index. You may lose money under any of the following
circumstances:
o the internet.com Index declines in value;
o Internet stocks fall out of favor with investors (market value
of an Internet stock goes down);
o the internet.com Index is more adversely affected by a market
downturn than a larger, more broad-based index due to its
concentration and focus on Internet stocks or a specific
sub-sector within the Internet sector;
o Internet companies in the internet.com Index lose money due to
intense pricing pressure or high capital investment costs;
o the Fund manager's investment strategy does not achieve the
Fund's objective or the manager does not implement the
strategy properly; or
o the stock market goes down.
[Below appears in right hand margin]
THE INDEX IS REVIEWED QUARTERLY BY INTERNET.COM TO INSURE THAT IT INCLUDES THE
MOST REPRESENTATIVE LIST OF INTERNET STOCKS.
43
<PAGE>
In addition, you should be aware that share prices of Internet companies will
fluctuate more than other stocks because Internet stocks are subject to more
rapid change in technology and products than other stocks and that small cap
stocks which comprise the internet.com Index are more difficult to sell during a
down market due to lower liquidity. The Fund may exhibit a greater degree of
volatility and fluctuation on a day-to day basis than a larger, broad-based
index.
See "Risks of Investing" for a more detailed discussion of the risks associated
with investing in this Fund.
No bar chart or performance table is available because the Fund has not been in
operation for a full calendar year.
[Below appears in left hand margin]
THE INTERNET.COM INDEX(TM) FUND INVESTS PRIMARILY IN THE FOLLOWING TYPES OF
SECURITIES:
o common and preferred stock;
o convertible preferred stocks.
44
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the internet.com Index(TM) Fund:
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases:
(as % of offering price) 0%
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
30-Day Redemption/ Exchange Fee*: 2%
Maximum Account Fee: 0%
----------------
* You will be charged a 2% fee if you redeem or exchange shares of this
Fund within 30 days of purchase. There is a $10 fee for redemption by
wire.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Advisory Fee: 0.90%**
Distribution Fee: 0.00%
Other Expenses***: 1.48%
Total Annual Fund Operating Expenses****: 2.38%
Expenses Reimbursed to Fund: 1.03%
Net Annual Fund Operating Expenses
(expenses actually incurred by the Fund): 1.35%
----------------
** Pursuant to an Investment Advisory Agreement, the Fund will pay an
advisory fee of 0.90% on the first $100 million in assets, 0.75% on the
next $100 to $500 million, and 0.60% on assets over $500 million.
*** These expenses are based on estimated amounts for the current fiscal
year.
**** The Fund's manager is contractually obligated to cap the Fund's Total
Annual Fund Operating Expenses at 1.35% through June 30, 2001.
45
<PAGE>
Example:
This example is to help you compare the cost of investing in the internet.com
Index(TM) Fund with the cost of investing in other mutual funds.
The Example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o your investment has a 5% return each year;
o the Fund's operating expenses remain the same; and
o you redeem all your shares.
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
1 Year 3 Years 5 Years 10 Years
$137 $644 $1,177 $2,637
internet.com Index Trademark
"ISDEX INDEX" and "internet.com" are service marks, internet.com is a trademark
and ISDEX is a registered trademark of internet.com Corporation, and are used by
Investec Asset Management U.S. Limited in connection with the Fund pursuant to a
license agreement between Investec Asset Management U.S. Limited and
internet.com.
Under the license agreement, internet.com is partially compensated for its
license to Investec Asset Management U.S. Limited and the Fund of the service
mark and trademarks described above based on the total assets invested in the
Fund. internet.com makes no representation or warranty, express or limited, to
Investec Asset Management U.S. Limited or any member of the public regarding the
advisability of investing in securities generally or in the Fund particularly or
the ability of the ISDEX to track any aspect of market performance. internet.com
will continue to determine the composition of the ISDEX Index without regard to
Investec Asset Management U.S. Limited or the Fund, and internet.com has no
obligation, express or implied, to take the needs of Investec Asset Management
U.S. Limited or investors in the Fund into consideration in determining or
composing the ISDEX Index. Internet.com does not guarantee the quality,
accuracy, currency, and/or the completeness of the ISDEX index or any data
included therein. Internet.com makes no express or implied warranty as to the
results to be obtained by Investec Asset Management U.S. Limited, investors in
the fund, or any other person or entity from the use of the ISDEX index or any
data included therein in connection with the fund or for any other use.
Internet.com makes no express or implied warranties, and hereby expressly
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the ISDEX index or any data included therein. Without
limiting any of the foregoing, in no event shall internet.com have any liability
for any special, punitive, indirect or consequential damages (including lost
profits), even if notified of the possibility of such damages.
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RISKS OF INVESTING IN OUR FUNDS
RISKS OF INVESTING
As with all mutual funds, investing in our Funds involves certain risks. We
cannot guarantee that a Fund will meet its investment objective or that a Fund
will perform as it has in the past. You may lose money if you invest in one of
our Funds.
The Funds may use various investment techniques, some of which involve greater
amounts of risk. We discuss these investment techniques in detail in the
Statement of Additional Information. To reduce risk, the Funds are subject to
certain limitations and restrictions, which we also describe in the Statement of
Additional Information.
You should consider the risks described below before you decide to invest in our
Funds.
RISKS OF INVESTING IN MUTUAL FUNDS
The following risks are common to all mutual funds and therefore apply to all
our Funds:
o Market Risk. The market value of a security may go up or down,
sometimes rapidly and unpredictably. These fluctuations may
cause a security to be worth less than it was at the time of
purchase. Market risk applies to individual securities, a
particular sector or the entire economy.
o Manager Risk. Fund management affects Fund performance. A Fund
may lose money if the Fund manager's investment strategy does
not achieve the Fund's objective or the manager does not
implement the strategy properly.
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o Portfolio Turnover Risk. We may trade actively and frequently
to achieve a Fund's goals. This may result in higher capital
gains distributions, which would increase your tax liability.
Frequent trading may also increase the Fund's costs which
would affect the Fund's performance over time.
RISKS OF INVESTING IN FOREIGN SECURITIES
The following risks are common to mutual funds that invest in foreign securities
and therefore apply to all our Funds:
o Legal System and Regulation Risks. Foreign countries have
different legal systems and different regulations concerning
financial disclosure, accounting, and auditing standards.
Corporate financial information that would be disclosed under
U.S. law may not be available. Foreign accounting and auditing
standards may render a foreign corporate balance sheet more
difficult to understand and interpret than one subject to U.S.
law and standards. Additionally, government oversight of
foreign stock exchanges and brokerage industries may be less
stringent than in the U.S.
o Currency Risk. Most foreign stocks are denominated in the
currency of the stock exchange where it is traded. The Funds'
Net Asset Values are denominated in U.S. Dollars. The exchange
rate between the U.S. Dollar and most foreign currencies
fluctuates; therefore the Net Asset Value of a Fund will be
affected by a change in the exchange rate between the U.S.
Dollar and the currencies in which a Fund's stocks are
denominated. The Funds may also incur transaction costs
associated with exchanging foreign currencies into U.S.
Dollars.
o Stock Exchange and Market Risk. Foreign stock exchanges
generally have less volume than U.S. stock exchanges.
Therefore, it may be more difficult to buy or sell shares of
foreign securities, which increases the volatility of share
prices on such markets. Additionally, trading on foreign stock
markets may involve longer settlement periods and higher
transaction costs.
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o Market Concentration. Many foreign stock markets are more
concentrated than the U.S. stock market as a smaller number of
companies make up a larger percentage of the market.
Therefore, the performance of a single company or group of
companies could have a much greater impact on a foreign stock
market than a single company or group of companies would on
the U.S. stock market.
o Expropriation Risk. Foreign governments may expropriate a
Fund's investments either directly by restricting the Fund's
ability to sell a security, or by imposing exchange controls
that restrict the sale of a currency, or indirectly by taxing
the Fund's investments at such high levels as to constitute
confiscation of the security. There may be limitations on the
ability of a Fund to pursue and collect a legal judgment
against a foreign government.
RISKS OF INVESTING IN ASIA
The following risks are common to all mutual funds that invest in Asia, and
therefore apply to all our Funds that invest in Asia:
o Currency Devaluation. Over 1997 and 1998, the values of many
Asian currencies declined because corporations in these Asian
countries had to buy U.S. Dollars to pay large U.S. Dollar
denominated debts. The decline in the value of the currencies
triggered a loss of investor confidence that resulted in a
decline in the value of the stock markets of the effected
countries. Similar devaluations could occur in countries that
have not yet experienced currency devaluation to date or could
continue to occur in countries that have already experienced
such devaluations.
o Political Instability. The economic reforms that Asian nations
are instituting under the guidelines of the International
Monetary Fund (IMF) could cause higher interest rates and
higher unemployment. This could, in turn, cause political
instability as the people in these nations feel the effects of
higher interest rates
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and higher unemployment, which could cause some Asian nations
to abandon economic reform or could result in the election or
installation of new governments.
o Foreign Trade. Asian nations tend to be very export-oriented.
Countries that receive large amounts of Asian exports could
enact protectionist trade barriers in response to cheaper
Asian exports, which would hurt the profits of Asian
exporters.
RISKS OF INVESTING IN COUNTRY SPECIFIC FUNDS
The above risks apply to our Mainland China Fund and China & Hong Kong Fund to a
greater extent because the investments of these Funds are not diversified across
many countries.
RISKS OF INVESTING IN SMALL CAP COMPANIES
The following risks are common to all mutual funds that invest in small
capitalization companies (those with a market value of less than U.S. $1
billion), and therefore apply to all our Funds that invest in small cap stocks
(including, but not limited to, the Asia Small Cap Fund, the Mainland China
Fund, the Wired Index(TM) Fund, the Wireless World Fund(TM), and the
internet.com Index(TM) Fund):
As a general rule, investments in stock of small cap companies are more risky
than investments in the stock of larger companies (those with a market value of
greater than U.S. $1 billion) for the following reasons, among others:
o Limited Product Line. Small cap companies tend to rely on more
limited product lines and business activities, which make them
more susceptible to setbacks or down turns;
o Illiquidity. The stock of small cap companies may be traded
less frequently than that of larger companies; and
o Limited Resources. Small cap companies have more limited
financial resources.
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RISKS OF INVESTING IN INDEX FUNDS
As index funds, the Wired Index(TM) Fund and the internet.com Index(TM) Fund
will attempt to replicate the performance of the Wired Index(TM) and the
internet.com Index(TM), respectively. Each Fund will attempt to invest in all of
the issues that comprise its index in proportion to their weighting in the
Index. However, in order to satisfy an asset diversification test and qualify as
a regulated investment company under subchapter M of the Internal Revenue Code
of 1986, as amended, investments in issues that comprise the applicable index
for the Wired Index(TM) and internet.com Index(TM) Funds may not correspond to
the actual weighting in the Index. Accordingly, an investment in either of such
Funds may not track the investment performance of the Fund's Index.
RISKS OF INVESTING IN NEW ECONOMY COMPANIES
The following risks apply to the Asia New Economy Fund and any other Investec
Fund investing in New Economy companies:
The Asia New Economy Fund will invest in companies from a variety of industry
sectors poised to benefit from the New Economy. Many of these companies may be
technology or telecommunications related and as such the Fund may be
concentrated in the companies in these industry sectors. Such a concentration
would cause the Fund to exhibit more volatility and fluctuation on a day-to-day
basis than a more broadly diversified fund. Furthermore, because of the
increasing rate of technological innovation, the products of technology
companies are subject to intense pricing pressure and may become obsolete at a
more frequent rate than other types of companies. In addition, such companies
tend to be capital intensive and, as a result, may not be able to recover all
capital investment costs.
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RISKS OF INVESTING IN THE WIRED INDEX(TM)
The following risks apply to the Wired Index(TM) Fund:
o Index Concentration. The Wired Index(TM) is comprised of 40
companies. Because of this concentration and focus, the Wired
Index(TM) may exhibit more volatility and fluctuation on a
day-to-day basis than a larger, broad-based index and may be
more affected by the performance of those 10 largest
companies.
o Technology/Telecommunication Company Risk. Half of the
companies that make up the Wired Index(TM) are technology or
telecommunication companies, which are subject to special
risks. Because of the increasing rate of technological
innovation, the products of technology companies are subject
to intense pricing pressure and may become obsolete at a more
frequent rate than other types of companies. In addition, such
companies tend to be capital intensive and as a result, may
not be able to recover all capital investment costs.
RISKS OF INVESTING IN COMPANIES WITH SUBSTANTIAL INTEREST IN WIRELESS
COMMUNICATION
The following risks apply to the Wireless World Fund(TM):
o Concentration. The Fund will invest in companies from a
variety of sectors poised to benefit from a shift in personal
communications (including telephone, the Internet and e-mail)
to wireless technology. Many of these companies may be
telecommunications or technology related and as such the Fund
may be concentrated in these companies. Such a concentration
would cause the Fund to exhibit more volatility and
fluctuation on a day-to-day basis than a more broadly
diversified fund.
o Wireless Business Risk. Companies involved in providing
wireless technology and services are competing in a rapidly
changing business environment. As a result, the share price of
companies
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involved in the delivery of wireless services will fluctuate
to a greater degree than other stocks. Changes in telephone
and communications regulations, anti-trust regulations and
freedom of speech laws may have a material effect on the
demand and business prospects for wireless services. Many of
the products and services of these companies are subject to
high risks of obsolescence caused by advances in science and
technology.
RISKS OF INVESTING IN THE INTERNET.COM INDEX(TM)
The following risks apply to the internet.com Index(TM) Fund:
o Index Concentration. The internet.com Index(TM) Fund
is comprised of 50 companies. Because of this
concentration and focus on Internet stocks, the
internet.com Index(TM) Fund may exhibit more
volatility and fluctuation on a day-to-day basis than
a larger, broad-based index.
o Internet Sector Concentration. The internet.com
Index(TM) Fund is solely invested in Internet
companies or Internet-related companies. Because of
this concentration and focus, the Fund may exhibit a
greater degree of volatility and fluctuation on a
day-to-day basis than a larger, broader-based index.
o Internet Company Risk. Internet companies, which are
the primary components of the internet.com Index, are
subject to special risks. Internet companies are
subject to a more rapid rate of change in technology
and products than non-Internet companies. As a
result, the share prices of Internet companies will
fluctuate to a greater degree than other stocks.
Changes in telephone and cable regulations,
anti-trust regulations and freedom of speech laws may
have a material effect on the demand for Internet
services. Many of the products and services of
Internet companies are subject to high risks of
obsolescence caused by advances in science and
technology.
o See Risks of Investing in Index Funds.
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FUND MANAGEMENT
INVESTEC
Investec Asset Management U.S. Limited ("Investec") is the investment advisor
for the Investec Funds. Investec supervises all aspects of the Funds' operations
and advises the Funds, subject to oversight by the Fund's Board of Trustees. For
providing these services, the Funds pay Investec an annualized 1% advisory fee
for the Asian Equity Funds and the Wireless World Fund(TM), an annualized 0.90%
or less advisory fee for the Wired Index(TM) Fund and the internet.com Index(TM)
Fund.
Investec is a subsidiary of Investec Group Limited. Investec was created in
November 1998 through the merger of Guinness Flight Hambro Asset Management
Limited and Investec. Investec Guinness Flight and its subsidiaries manage
investment funds domiciled in the United Kingdom, South Africa, Guernsey, Dublin
and the United States.
Investec Group, established in 1974, is an independent, international investment
and private banking group. It was listed on the Johannesburg Stock Exchange in
1986 and is the largest independent investment banking group in South Africa.
The primary offices of Investec are located in the U.K., South Africa, Guernsey
Hong Kong, and the U.S. The U.S. office is located at 225 S. Lake Avenue, Suite
777, Pasadena, CA 91101. Investec's main office is located in London, England at
2 Gresham Street, London EC2V 7QP. The Hong Kong office is located at 2106-2108
Jardine House, One Connaught Place, Central, Hong Kong. Investec Group's main
office is located at 100 Grayston Drive, Sandown, Sandton, Johannesburg, 2196,
South Africa.
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PORTFOLIO MANAGEMENT
ASIA BLUE CHIP FUND AND ASIA SMALL CAP FUND
Robert Conlon. Mr. Conlon joined the Guinness Flight Hambro, now Investec, Hong
Kong investment team in 1998 as a Fund Manager. Prior to joining the company,
Mr. Conlon had over 10 years of investment management experience with Ivory &
Sime, including the last four years as Senior Investment Manager in their Hong
Kong office. At Ivory & Sime, Mr. Conlon managed Asian portfolios as well as
portfolios investing in U.S. small cap stocks. He is co-manager of the Asia New
Economy Fund, Asia Small Cap and Mainland China Funds and serves as chief
investment officer for Investec Asset Management Asia Limited.
Agnes Chow. Ms. Chow joined Hambro Pacific Fund Management, now Investec, in
1995 as a Fund Manager. She previously worked as an Assistant Fund Manager at
Dao Heng Fund Management from November 1994 to August 1995 and as an Investment
Analyst and Assistant Fund Manager with Sun Hung Kai Securities from 1993
through 1994. Ms. Chow is co-manager of the Asia Blue Chip and Asia Small Cap
Funds.
CHINA & HONG KONG FUND
Edmund Harriss. Mr. Harriss joined Investec in July 1993 as a Marketing
Executive and transferred to the Far East Desk in 1994. He has assisted with the
management of the China & Hong Kong Fund since November 1994. He was named a
co-manager in early 1998. Previously, from 1991 to 1993, he was the Assistant to
the Managing Director at a computer software company, PP Systems Ltd. of
Salisbury, England. Mr. Harriss is an Associate Member of the Institute of
Management & Research.
Adrian Fu. Mr. Fu joined Hambro Pacific Fund Management, now Investec, in 1996
as a member of the Hong Kong investment team. Prior to joining the company,
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he was an Associate at Indo-Suez Asia Shipping Finance Services, Ltd. from
December 1994 to October 1996.
MAINLAND CHINA FUND
Robert Conlon. See biography under Asia New Economy Fund and Asia Small Cap
Fund.
Adrian Fu. See biography under China & Hong Kong Fund.
WIRED INDEX(TM) FUND
Doug Blatch. Mr. Blatch joined Investec in April 1996 and is the portfolio
manager responsible for all domestic and international index funds and
derivatives trading. He currently manages four index funds available to offshore
investors as well as the Wired Index(TM) Fund and internet.com Index(TM) Fund.
He also manages Investec USA Equity Fund, Investec European Equity Fund,
Investec Japanese Equity Fund and Investec Index Fund. Prior to joining
Investec, Mr. Blatch was a manager at Schitag Ernst & Young GMBH (Berlin) from
1993 to 1995.
WIRELESS WORLD FUND(TM)
Nigel Dutson. Prior to joining Investec in 1999, Mr. Dutson was affiliated with
Schroder Investment Management where he managed 23 institutional accounts with a
combined value of approximately 2.2 billion. Mr. Dutson had specific
responsibility for U.K. equity stock selection. From 1988 to 1996 Mr. Dutson was
an Investment Analyst (U.S. Equities) and Investment Manager (Continental
European Equities) at Hill Samuel Asset Management where he had specific
responsibility for the Headline H.S. European Trust and offshore funds.
Seth Kirkham. Mr. Kirkham joined Investec in April 2000 with analytical
responsibility for Pan-European telecommunications. Upon graduating from Bristol
University with a joint degree in Economics and Accounting, Mr. Kirkham entered
the Schroder Investment Management Graduate Program. He subsequently entered
Schroder's
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Pan-European research department, responsible for telecommunications and
Internet stocks. He has completed the Institute of Investment Management and
Research (IIMR) analyst exams, with an award in Corporate Finance and
Accounting.
Adrian Brass. Mr. Brass joined Investec in April 2000. He has analytical
responsibility for Pan-European technology hardware and software sectors. Mr.
Brass received Joint Honors in Economics and Politics from the University of
Bristol in 1995. Upon graduation, he joined Schroder Investment Management,
first as an assistant fund manager, then as an analyst covering technology
hardware and industrial sectors. Mr. Brass headed the Pan-European Industrials
and Technology Hardware research team during his last year at Schroder. He is a
CFA and has completed the IMRO member exams.
THE INTERNET.COM INDEX(TM) FUND
Doug Blatch. See biography under Wired Index(TM) Fund.
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SHAREHOLDER GUIDE:
YOUR ACCOUNT WITH INVESTEC
INVESTMENT MINIMUMS
THE MINIMUM INITIAL INVESTMENTS ARE:
TYPE OF ACCOUNT
Regular(new investor) $2,500
Regular(Investec shareholders) $1,000
Retirement $1,000
Gift $ 250
Pre-authorized investment plan
(Initial and installment payments) $ 100
Additional investments $ 250
We may reduce or waive the minimum investment requirements in some cases.
OVERVIEW OF ACCOUNTS WE OFFER
REGULAR RETIREMENT
o Individual o Roth IRA
o Joint Tenant o Regular IRA
o UGMA/UTMA o Rollover IRA
o Trust o Roth Conversion
o Corporate o SEP IRA
o 401 (k)
o 403 (b)
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PURCHASING, EXCHANGING & SELLING
HOW TO PURCHASE, EXCHANGE, AND SELL SHARES
The Transfer Agent is open from 8 a.m. to 6 p.m. Eastern Time for purchase,
redemption and exchange orders. Shares will be purchased, exchanged and redeemed
at NAV per share. For trades in the Wired Index(TM) Fund, Wireless World
Fund(TM) and internet.com Index(TM) Fund, the transfer agent must receive your
request by the close of the New York Stock Exchange (generally 4:00 p.m. Eastern
Time) to receive the NAV of that day. If your request is received after the
close of the New York Stock Exchange, it will be processed the next business
day. With respect to the Asia New Economy, Asia Small Cap Fund, China & Hong
Kong Fund, and Mainland China Fund, this cut-off time is 9:30 a.m. Eastern Time,
meaning that purchase, exchange and redemption orders must be received by that
time to be processed that day. The phone number you should call for account
transaction requests is (800) 915-6566.
SSGA MONEY MARKET FUND
Investec does not operate a money market fund; however you may purchase or
exchange shares of the SSgA Money Market Fund through Investec. State Street
Bank & Trust Co. advises the SSgA Money Market Fund. Their address is 225
Franklin Street, Boston MA 02110. You may only purchase shares of SSgA Money
Market Fund if it is available to residents of the state in which you reside.
Please read the prospectus of the SSgA Money Market before you decide to invest.
You may request a SSgA Money Market prospectus by calling (800) 915-6566.
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PURCHASING
HOW TO PURCHASE SHARES
You may purchase shares of any Investec Fund or the SSgA Money Market Fund by
mail, wire or auto-buy. You may exchange shares of any Investec Fund for shares
of another Investec Fund or the SSgA Money Market Fund by mail or phone. A
broker may charge you a transaction fee for making a purchase for you.
MAIL
To purchase by mail, you should:
o Complete and sign the account application;
o To open a regular account, write a check payable to:
"Investec Funds";
o To open a retirement account, write a check payable to the
custodian or trustee;
o Send your account application and check or exchange request to
one of the following addresses:
For a stamped envelope:
Investec Funds
P.O. Box 8116
Boston, MA 02266-8116
For an overnight package:
Boston Financial Data Services
ATTN: Investec Funds
66 Brooks Drive
Braintree, MA 02184
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WIRE
To purchase by wire, call the Transfer Agent at (800) 915-6566 between 8 a.m.
and 6 p.m. Eastern Time on a business day to get an account number and detailed
instructions. You must then provide the Transfer Agent with an original signed
application within 10 business days of the initial purchase. Instruct your bank
to send the wire to:
State Street Bank and Trust Company
ABA #0110 00028
Shareholder and Custody Services
DDA # 99050171
(Your Name)
ATTN: [Fund Name]
(Fund /Account Number)
Pre-Authorized Investment Plan: With a pre-authorized investment plan, your
personal bank account is automatically debited on a monthly or quarterly basis
to purchase shares of a Fund. You will receive the Net Asset Value (NAV) per
share as of the date the debit is made.
Auto-Buy: You may purchase additional shares of a Fund you own by ACH (automated
clearing house) after you elect the Auto-Buy option on your account. To elect
the Auto-Buy option, select it on your account application or call the Transfer
Agent and request an optional shareholder services form. ACH is similar to the
pre-authorized investment plan, except that you may choose the date on which you
want to make the purchase. We will need a voided check or deposit slip before
you may purchase by ACH.
Subsequent Investments: If you are making an additional investment in a Fund,
via the mail, you should include either the stub from a previous confirmation
statement or a letter providing your name and account number to ensure that the
money is invested in your existing Investec Fund account.
Purchase Order Cut-Off. We may cease taking purchase orders for the Funds at any
time when we believe that it is in
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the best interest of our current shareholders. The purpose of such action is to
limit increased Fund expenses incurred when certain investors buy and sell
shares of the Funds for the short-term when the markets are highly volatile.
EXCHANGING AND REDEEMING
How to Exchange and Redeem Shares. You may exchange or redeem shares by mail or
telephone. When you exchange shares, you sell shares of one Investec Fund and
buy shares of another Fund. You may realize either a gain or loss on those
shares and will be responsible for paying the appropriate taxes. If you exchange
or redeem through a broker, the broker may charge you a transaction fee. If you
purchased your shares by check, you may not receive your redemption proceeds
until the check has cleared, which may take up to 15 calendar days. You may
receive the proceeds of redemption by wire or through a systematic withdrawal
plan as described below.
MAIL:
To exchange or redeem by mail, please:
o Provide your name and account number;
o Specify the number of shares or dollar amount and the
Fund name or number;
o To exchange shares, specify the name of the Fund (either
another Investec Fund or the SSgA Money Market) you want to
purchase;
o Sign the redemption or exchange request (the signature must be
exactly the same as the one on your account application). Make
sure all parties that are required by the account registration
sign the request;
o Send your request to the appropriate address as given under
purchasing by mail on page 60.
TELEPHONE:
You may redeem or exchange your shares of your Investec Fund by telephone if you
authorized telephone redemption on your account application.
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To exchange or redeem by telephone, call the Transfer Agent at (800) 915-6566
between the hours of 8 a.m. and 6 p.m. Eastern Time on a day the New York Stock
Exchange is open for business. For your protection against fraudulent telephone
transactions, we will use reasonable procedures to verify your identity. As long
as we follow these procedures, we will not be liable for any loss or cost to you
if we act on instructions to redeem your account that we reasonably believe to
be authorized by you. You will be notified if we refuse telephone redemption or
exchange. Telephone exchanges or redemptions may be difficult during periods of
extreme market or economic conditions. If this is the case, please send your
exchange request by mail or overnight courier.
WIRE:
You may have the proceeds of the redemption request wired to your bank account
for redemptions of $500 or more. Please provide the name, location, ABA or bank
routing number of your bank and your bank account number. Payment will be made
within 3 business days after the Transfer Agent receives your written or
telephone redemption request. There is a $10 fee for redemption by wire.
Systematic Withdrawal Plan: You may establish a systematic withdrawal plan where
you have regular monthly or quarterly payments redeemed from your Investec Fund
account and sent to either you or a third party you designate. Payments must be
at least $100 and your Investec Fund must have an account value of at least
$1,000. You will receive the NAV on the date of the scheduled withdrawal and
will redeem enough full and fractional shares at that NAV to equal the requested
withdrawal. You may realize either a capital gain or loss on the withdrawals
that must be reported for tax purposes. You may purchase additional shares of a
Fund under this plan as long as the additional purchases are equal to at least
one year's scheduled withdrawals.
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Signature Guarantee. The redemption requests listed below require a signature
guarantee. You can get a signature guarantee from certain banks, brokers,
dealers, credit unions, securities exchanges, clearing agencies and savings
associations. A notarization and acknowledgment by a notary public is not a
signature guarantee.
o Redemptions by corporations, partnerships, trusts or other
fiduciary accounts.
o Redemption of an account with a value of at least $50,000 if
you are making the request in writing (if you have authorized
telephone redemption on your account, you may redeem by
telephone without a signature guarantee).
o Redemption of an account where proceeds are to be paid to
someone other than the record owner.
o Redemption of an account where the proceeds are to be sent to
an address other than the record address.
ADDITIONAL EXCHANGE/REDEMPTION INFORMATION
Redemption Fee. You will be charged a redemption fee of 1% of the value of the
shares being redeemed if you redeem your shares of the Asia New Economy Fund,
Asia Small Cap Fund, Wireless World Fund(TM) or Wired Index(TM) Fund within 30
days of purchase. You will be charged a redemption fee of 2% of the value of the
shares being redeemed if you redeem your shares of the China & Hong Kong Fund,
internet.com Index(TM) Fund and Mainland China Fund within 30 days of purchase.
There will not be a redemption fee if the shares were acquired through
reinvestment of distributions. Redemptions are on a first-in, first-out basis.
The redemption fee will be waived if the fee is equal to or less than .10% of
the total value of the redemption.
Small Accounts. To reduce our expenses, we may redeem an account if the total
value of the account falls below $500 due to redemptions. You will be given 30
days prior written notice of this redemption. During that period, you may
purchase additional shares to avoid the redemption.
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Check Clearance. The proceeds from a redemption request may be delayed up to 15
calendar days from the date of the receipt of a purchase check until the check
clears. If the check does not clear, you will be responsible for the loss. This
delay can be avoided by purchasing shares by wire or certified bank checks.
Exchange Limit. In order to limit expenses, we reserve the right to limit the
total number of exchanges you can make in any year to four.
Credit Line. We may borrow cash temporarily from an established line of credit
with Deutsche Bank AG to satisfy redemption requests.
Suspension of Redemptions. We may temporarily suspend the right of redemption or
postpone payments under certain emergency circumstances or when the SEC orders a
suspension.
FINANCES
Net Asset Value. The NAV per share of the Wired Index(TM) Fund, Wireless World
Fund(TM) and internet.com Index(TM) Fund are determined at the close of business
of the New York Stock Exchange (generally 4:00 p.m. Eastern Time). The NAV per
share of the Asia New Economy Fund, Asia Small Cap Fund, China & Hong Kong Fund
and Mainland China Fund are determined as of 9:30 a.m. Eastern Time on each day
the New York Stock Exchange is open for business.
The NAV is calculated by 1) subtracting a Fund's liabilities from its assets and
then 2) dividing that number by the total number of outstanding shares. This
procedure is in accordance with Generally Accepted Accounting Principles.
Securities without a readily available price quotation may be priced at fair
value. Fair value is determined in good faith by or under the supervision of the
Funds' officers under methods authorized by the Board of Trustees.
65
<PAGE>
Dividends and Capital Gains Distributions. All Funds distribute all or most of
their net investment income and net capital gains to shareholders. Dividends
(investment income) for all the Funds are normally declared and paid
semi-annually, in June and December. Net Capital Gains for all Funds are
normally distributed in June and December. When calculating the amount of
capital gain for a Fund, the Fund can offset any capital gain with net capital
loss (which may be carried forward from a previous year).
Your dividends and/or capital gains distributions will be automatically
reinvested on the ex-dividend date when there is a distribution, unless you
elect otherwise, so that you will be buying more of both full and fractional
shares of the Fund. You will be buying those new shares at the NAV per share on
the ex-dividend date. You may choose to have dividends and capital gains
distributions paid to you in cash. You may also choose to reinvest dividends and
capital gains distributions in shares of another Investec Fund. You may
authorize either of these options by calling the Transfer Agent at (800)
915-6566 and requesting an optional shareholder services form. You must complete
the form and return it to the Transfer Agent before the record date in order for
the change to be effective for that dividend or capital gains distribution.
Buying Before a Dividend. If you purchased shares of a Fund on or before the
record date, you will receive a dividend or capital gains distribution. The
distribution will lower the NAV per share on that date and represents, in
substance, a return of basis (your cost); however you will be subject to Federal
income taxes on this distribution.
Tax Issues. The following tax information is based on tax laws and regulations
in effect on the date of this Prospectus. These laws and regulations are subject
to change. Shareholders should consult a tax professional for the tax
consequences of investing in our Funds as well as for information on state and
local taxes which may apply. A statement that provides the Federal income tax
status of the Funds' distributions will be sent to shareholders promptly at the
end of each year.
66
<PAGE>
o Distributions to Shareholders. Distributions to shareholders
fall into two tax categories. The first category is ordinary
income distributions. Ordinary income distributions are
distributions of net investment income, including dividends,
foreign currency gains and short-term capital gains. The
second category of distribution is capital gains
distributions. Capital gains distributions are distributions
of a Fund's net long-term capital gain it receives from
selling stocks within its portfolio. Short-term capital losses
are used to offset long-term capital gain. You have to pay
taxes on both distributions even though you have them
automatically reinvested. On some occasions a distribution
made in January will have to be treated for tax purposes as
having been distributed on December 31 of the prior year.
o Gain or Loss on Sale of Shares of a Fund. You will recognize
either a gain or loss when you sell shares of your Fund. The
gain or loss is the difference between the proceeds of the
sale (the NAV of the Fund on the date of sale times the number
of shares sold) and your adjusted basis. Any loss realized on
a taxable sale of shares within six months from the date of
their purchase will be treated as a long-term capital loss
that can be used to offset short-term capital gains on those
shares. If you sell shares of a Fund at a loss and repurchase
shares of the same Fund 30 days before or after the sale (a
wash sale), a deduction for the loss is generally disallowed.
67
<PAGE>
o Foreign Source Income and Withholding Taxes. Some of the
Funds' investment income may be subject to foreign income
taxes that are withheld at the source. If the Funds meet
certain legal requirements, they may elect to "pass-through"
these foreign taxes to shareholders. If a Fund so elects, each
shareholder would be required to include in gross income, even
though not actually received, his pro rata share of such
foreign taxes and would therefore be allowed to claim a
foreign tax credit or a foreign tax deduction for their share
of foreign taxes paid.
Distribution Plan. The Funds have adopted a Distribution Plan under Rule 12b-1
of the 1940 Act. Under this plan, no separate payments are authorized by a Fund.
We must use fee revenues or other resources to pay the expenses of shareholder
servicing and record keeping. We may also make payments from these sources to
third parties, including affiliates and independent contractors, for these types
of services.
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<PAGE>
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS FOR ASIA NEW ECONOMY FUND
(Prior to September 27, 2000, the Asia New Economy Fund was operated as the Asia
Blue Chip Fund)
This financial highlights table is intended to help you understand the Fund's
financial performance for the period since its inception on April 29, 1996.
Certain information reflects financial results for a single share of the Fund.
The total returns in the table represent the rate that an investor would have
earned or lost on an investment in the Fund assuming reinvestment of all
dividends and distributions. Ernst & Young LLP audited this information. Ernst &
Young's report along with further detail on the Fund's financial statements are
included in the annual report, which is available upon your request.
for a capital share outstanding throughout the period
<TABLE>
<CAPTION>
For the For the For the April 29,
year year year 1996*
Ended Ended Ended through
12/31/99 12/31/98 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, $7.08 $8.08 $12.98 $12.50
beginning of period
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.05 0.02 -----
Net realized and 4.31 (1.01) (4.91) 0.48
unrealized gain (loss) on
investments
Total from investment 4.33 (0.96) (4.89) 0.48
operations
LESS DISTRIBUTIONS:
Dividends from net ----- (0.04) (0.01) -----
investment income
Distributions from ----- ----- ----- -----
taxable net capital gains
Total distributions ----- (0.04) (0.01) -----
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
For the For the For the April 29,
year year year 1996*
Ended Ended Ended through
12/31/99 12/31/98 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, end of $11.41 $7.08 $8.08 $12.98
period
Total return 61.16% (11.78)% (37.68)% 3.84%++
RATIOS/SUPPLEMENTAL DATA:
Net asset value, end of $10,786 $7,849 $6,917 $3,687
period
(thousands)
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense 2.99% 3.85% 4.41% 9.14%+
reimbursement
After expense 1.98% 1.98% 1.98% 1.98%+
reimbursement
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS:
Before expense (0.89)% (1.03)% (2.16)% (7.10)%+
reimbursement
After expense 0.12% 0.91% 0.28% 0.06%+
reimbursement
Portfolio 82.34% 77.62% 34.69% 10.97%++
turnover rate
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
For the For the For the April 29,
year year year 1996*
Ended Ended Ended through
12/31/99 12/31/98 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BANK LOANS
Amount outstanding at end $---^ ----- ----- N/A
of period (000)
Average amount of bank $---^ ----- $121 N/A
loans outstanding during
the period (monthly
average) (000)
Average number of shares ---^ ----- 479 N/A
outstanding during the
period (monthly average)
(000)
Average amount of debt $---^ ----- $0.25 N/A
per share during the
period
</TABLE>
--------------------
* Commencement of operations.
^ The Fund's line of credit expired June 15, 1999.
++ Not annualized.
+ Annualized.
<PAGE>
71
<PAGE>
FINANCIAL HIGHLIGHTS FOR ASIA SMALL CAP FUND
This financial highlights table is intended to help you understand the Asia
Small Cap Fund's financial performance for the period since its inception on
April 29, 1996. Certain information reflects financial results for a single
share of the Fund. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund assuming
reinvestment of all dividends and distributions. Ernst & Young LLP audited this
information. Ernst & Young's report along with further detail on the Fund's
financial statements are included in the annual report, which is available upon
your request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
For the April 29,
Year For the Year For the Year 1996*
Ended Ended Ended through
12/31/99 12/31/98 12/31/97 12/31/96
----------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, $6.73 $9.73 $14.10 $12.50
beginning of period
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.06 0.07 0.02
Net realized and unrealized
gain (loss) on investments 2.81 (3.06) (4.38) 1.61
Total from investment
operations 2.86 (3.00) (4.31) 1.63
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.08) ___ ___ (0.02)
Distributions from
taxable net capital gains ___ ___ (0.01) (0.01)
Return of Capital ___ ___ (0.05) ___
Total distributions (0.08) ___ (0.06) (0.03)
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
For the April 29,
Year For the Year For the Year 1996*
Ended Ended Ended through
12/31/99 12/31/98 12/31/97 12/31/96
----------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, end of period $9.51 $6.73 $9.73 $14.10
Total return 42.43% (30.83)% (30.77)% 13.08++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end $37,674 $49,417 $108,478 $50,868
of period (thousands)
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense
reimbursement (recoupment) 2.39% 2.31% 1.76% 3.09%+
After expense
reimbursement (recoupment) 1.98% 1.98% 1.80% 1.98%+
RATIO OF NET INVESTMENT INCOME (LOSS ) TO AVERAGE NET ASSETS:
Before expense
reimbursement (recoupment) 0.07% 0.52% 0.53% (0.76)%+
After expense
reimbursement (reimbursement) 0.48% 0.89% 0.49% 0.36%+
Portfolio turnover rate 67.24% 48.95% 52.33% 21.91%++
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
For the April 29,
Year For the Year For the Year 1996*
Ended Ended Ended through
12/31/99 12/31/98 12/31/97 12/31/96
----------------------------------------------------
<S> <C> <C> <C> <C>
BANK LOANS
Amount outstanding at end
of period (000) $___^ $810 N/A N/A
Average amount of bank
loans outstanding during
the period (monthly
average) (000) $654^ $67 N/A N/A
Average number of shares
outstanding during the
period (monthly
average) (000) 5,519^ 6,566 N/A N/A
Average amount of debt
per share during the period $0.12^ $0.01 N/A N/A
</TABLE>
* Commencement of operations.
^ The Fund's line of credit expired June 15, 1999.
++Not Annualized.
+Annualized.
74
<PAGE>
FINANCIAL HIGHLIGHTS FOR CHINA & HONG KONG FUND
This financial highlights table is intended to help you understand the China &
Hong Kong Fund's financial performance for the period since its inception on
June 30, 1994. Certain information reflects financial results for a single share
of the Fund. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund assuming reinvestment of
all dividends and distributions. Ernst & Young LLP audited this information.
Ernst & Young's report along with further detail on the Fund's financial
statements are included in the annual report, which is available upon your
request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
For the For the For the
Year For the Year For the Year Year Year
Ended Ended Ended Ended Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, $10.77 $12.91 $17.71 $13.64 $11.47
beginning of period
INCOME FROM INVESTMENT OPERATIONS:
Net investment 0.23 0.15 0.20 0.19 0.14
income
Net realized and
unrealized gain
(loss) on
investments 6.91 (2.14) (3.71) 4.43 2.20
Total from investment
operations 7.14 (1.99) (3.51) 4.62 2.34
LESS DISTRIBUTIONS:
Dividends from
net investment
income (0.26) (0.15) (0.20) (0.19) (0.14)
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
For the For the For the
Year For the Year For the Year Year Year
Ended Ended Ended Ended Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distributions
from taxable
net capital gains ___ ___ (1.09) (0.36) (0.03)
Total
distributions (0.26) (0.15) (1.29) (0.55) (0.17)
Net asset value,
end of period $17.65 $10.77 $12.91 $17.71 $13.64
Total return 66.27% (15.27)% (20.34)% 34.38% 20.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands) $163,372 $146,810 $241,808 $311,521 $55,740
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense
reimbursement
(recoupment) 1.86% 1.89% 1.70% 1.78% 3.02%+
After expense
reimbursement
(recoupment) 1.86% 1.89% 1.70% 1.96% 1.98%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS:
Before expense
reimbursement
(recoupment) 1.45% 1.60% 1.18% 1.57% 0.49%
After expense
reimbursement
(recoupment) 1.45% 1.60% 1.18% 1.39% 1.52%
Portfolio
turnover rate 29.49% 86.59% 53.62% 30.40% 10.89%
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
For the For the For the
Year For the Year For the Year Year Year
Ended Ended Ended Ended Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BANK LOANS
Amount outstanding at end
or period (000) $____^ $4,274 ___ ___ N/A
Average amount
of bank loans outstanding
during the period
(monthly average) (000) $1,017^ $8,765 $2,305 $1,413 N/A
Average number of
shares outstanding
during the period
(monthly average)
(000) 12,041^ 18,533 16,944 11,419 N/A
Average amount of
debt per share
during the period $0.08^ $0.47 $0.14 $0.12 N/A
</TABLE>
+ Includes directly paid expenses. Excluding indirectly paid expenses for the
year ended December 31, 1995, the ratio of expenses to average net assets
before expense reimbursement would have been 3.0%.
^ The Fund's line of credit expired June 15, 1999.
77
<PAGE>
FINANCIAL HIGHLIGHTS FOR MAINLAND CHINA FUND
This financial highlights table is intended to help you understand the Mainland
China Fund's financial performance for the period since its inception on
November 3, 1997. Certain information reflects financial results for a single
share of the Fund. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund assuming
reinvestment of all dividends and distributions. Ernst & Young LLP audited this
information. Ernst & Young's report along with further detail on the Fund's
financial statements are included in the annual report, which is available upon
your request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
November 3,
For the Year For the Year 1997*
Ended Ended through
12/13/99 12/31/98 12/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $8.74 $11.79 $12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.09 0.11 0.02
Net realized and unrealized gain (loss) on
investments 2.72 (3.05) (0.71)
Total from investment operations 2.81 (2.94) (0.69)
LESS DISTRIBUTIONS:
From net investment income (0.08) (0.11) (0.02)
Net asset value, end of period $11.47 $8.74 $11.79
Total return 32.20% (24.96)% (5.50)%**
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
November 3,
For the Year For the Year 1997*
Ended Ended through
12/13/99 12/31/98 12/31/97
<S> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $12,852 $10,353 $16,402
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense reimbursement 3.33% 3.13% 2.69%+
After expense reimbursement 1.98% 1.98% 1.98%+
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS:
Before expense reimbursement (0.53)% (0.05)% 1.17%+
After expense reimbursement 0.82% 1.10% 1.88%+
Portfolio turnover rate 99.39% 82.00% __**
BANK LOANS
Amount outstanding at end of period
(thousands) $__^ $115 N/A
Average amount of bank loans outstanding
during the period (monthly average)
(thousands) $16^ $10 N/A
Average number of shares outstanding during
the period (monthly average) (thousands) 1,164^ 1,403 N/A
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
November 3,
For the Year For the Year 1997*
Ended Ended through
12/13/99 12/31/98 12/31/97
<S> <C> <C> <C>
Average amount of debt per share during the
period $0.01^ $0.01 N/A
</TABLE>
* Commencement of operations
** Not annualized.
+ Annualized
^ The Fund's line of credit expired June 15, 1999.
80
<PAGE>
FINANCIAL HIGHLIGHTS FOR WIRED INDEX(TM) FUND
This financial highlights table is intended to help you understand the Wired
Index(TM) Fund's financial performance for the period since its inception on
December 15, 1998. Certain information reflects financial results for a single
share of the Fund. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund assuming
reinvestment of all dividends and distributions. Ernst & Young LLP audited this
information. Ernst & Young's report along with further detail on the Fund's
financial statements are included in the annual report, which is available upon
your request. For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
December 15,
For the Year 1998*
Ended through
12/31/99 12/31/98
1999 1998
<S> <C> <C>
Net asset value, beginning of period $13.95 $12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.12) 0.00+
Net realized and unrealized gain on investments 9.69 1.45
Total from investment operations 9.57 1.45
LESS DISTRIBUTION:
From net investment income 0.00+ --
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
December 15,
For the Year 1998*
Ended through
12/31/99 12/31/98
1999 1998
<S> <C> <C>
Net asset value, end of period $23.52 $13.95
Total return 68.68% 11.60%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $164,014 $9,433
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense reimbursement 1.38% 1.97%+
After expense reimbursement 1.35% 1.35%+
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS:
Before expense reimbursement (0.92)% 0.02%+
After expense reimbursement (0.89)% 0.60%+
Portfolio turnover rate 39.82% 0.11%++
</TABLE>
* Commencement of operations.
+ Amount represent less than $0.01 per share.
+ Annualized.
++ Not annualized.
82
<PAGE>
Financial Highlights For internet.com Index(TM) Fund
This financial highlights table is intended to help you understand the
Internet.Com Index(TM) Fund's financial performance for the period since its
inception on July 30, 1999. Certain information reflects financial results for a
single share of the Fund. The total returns in the table represent the rate that
an investor would have earned or lost on an investment in the Fund assuming
reinvestment of all dividends and distributions. Ernst & Young LLP audited this
information. Ernst & Young's report along with further detail on the Fund's
financial statements are included in the annual report, which is available upon
your request.
For a capital share outstanding throughout the period
July 30, 1999*
through
12/31/99
Net asset value, beginning of period $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.04)
Net realized and unrealized gain on investments 10.30
Total from investment operations 10.26
Net asset value, end of period $ 22.76
Total return 82.08%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $42,916
83
<PAGE>
July 30, 1999*
through
12/31/99
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense reimbursement 2.38 %+
After expense reimbursement 1.34 %+
RATIO OF NET INVESTMENT LOSS TO AVERAGE NET ASSETS:
Before expense reimbursement (2.23) %+
After expense reimbursement (1.19) %+
Portfolio turnover rate 13.30 %++
* Commencement of operations.
+ Annualized.
++ Not Annualized.
84
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85
<PAGE>
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86
<PAGE>
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87
<PAGE>
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88
<PAGE>
Statement of Additional Information. The Statement of Additional Information
provides a more complete discussion about the Funds and is incorporated by
reference into this prospectus, which means that it is considered a part of this
prospectus.
Annual and Semi-Annual Reports. The annual and semi-annual reports to
shareholders contain additional information about each Fund's investments,
including a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
To Review or Obtain this Information: The Statement of Additional Information
and annual and semi-annual reports are available without charge upon your
request by calling Investec at (800) 915-6566 or by calling or writing a
broker-dealer or other financial intermediary that sells our Funds. This
information may be reviewed at the Public Reference Room of the Securities and
Exchange Commission or by visiting the SEC's World Wide Website at
http://www.sec.gov. In addition, this information may be obtained for a fee by
writing or calling the Public Reference Room of the Securities and Exchange
Commission, Washington, D.C. 20549-6009, telephone (800) SEC-0330.
Investment Company Act file no. 811-0836047
<PAGE>
Contact Investec Funds
Website: www.investecfunds.com
Email: [email protected]
Shareholder Services: 800-915-6566
Literature Request: 800-915-6565
Automated OneCall Center: 800-915-6564
100 (10/00)
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INVESTEC FUNDS
225 South Lake Avenue, Suite 777
Pasadena, California 91101
INVESTEC CHINA & HONG KONG FUND
INVESTEC ASIA NEW ECONOMY FUND
INVESTEC ASIA SMALL CAP FUND
INVESTEC MAINLAND CHINA FUND
INVESTEC WIRED INDEX(TM) FUND
INVESTEC internet.com INDEX(TM) FUND
INVESTEC WIRELESS WORLD FUND(TM)
This Statement of Additional Information (the "SAI") dated October 13,
2000 is not a prospectus, but should be read in conjunction with the current
Prospectus dated October 13, 2000 (the "Prospectuse"), pursuant to which the
Investec China & Hong Kong Fund (the "China & Hong Kong Fund"), Investec Asia
New Economy Fund (the "Asia New Economy Fund"), Investec Asia Small Cap Fund
(the "Asia Small Cap Fund"), Investec Mainland China Fund (the "Mainland China
Fund"), Investec Wired Index(TM)(1) Fund (the "Wired Index(TM) Fund"), Investec
internet.com Index(TM) Fund (the "internet.com Index(TM) Fund") and Investec
Wireless World Fund(TM) (the "Wireless World Fund(TM)") are offered (each fund
to which this SAI relates will be referred to as, collectively, the "Funds").
This SAI is incorporated by reference in its entirety into the Prospectuse. The
report on the audited statement of assets and liabilities of the Funds for the
year ended December 31, 1999 is incorporated by reference in its entirety into
this SAI. Please retain this SAI for future reference.
For a free copy of a Prospectus, please call the Funds at
1-800-915-6565.
---------------
(1) "WIRED INDEX" is a service mark, and "WIRED" a registered trademark, of
Advance Magazine Publishers Inc. ("Advance"), used with permission of Advance.
Wired Magazine and Advance make no representation or warranty, express or
implied, to Investec or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of
the Wired Index to track any aspect of market performance. Wired Magazine will
continue to determine the composition of the Index without regard to Investec or
the Fund, and Wired Magazine has no obligation to take the needs of Investec or
investors in the Fund into consideration in determining or composing the Index.
ADVANCE DOES NOT GUARANTEE THE QUALITY, ACCURACY, CURRENCY, AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN. ADVANCE MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY INVESTEC,
INVESTORS IN THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE WIRED
INDEX OR ANY DATA INCLUDED THEREIN CONNECTION WITH THE FUND OR FOR ANY OTHER
USE. ADVANCE MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY
DISCLAIMS ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE WIRED INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL ADVANCE HAVE ANY LIABILITY FOR
ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>
GENERAL INFORMATION AND HISTORY..........................................2
INVESTMENT OBJECTIVE AND POLICIES........................................3
INVESTMENT STRATEGIES AND RISKS..........................................5
OTHER RISK FACTORS AND SPECIAL CONSIDERATIONS...........................14
INVESTMENT RESTRICTIONS AND POLICIES....................................18
PORTFOLIO TRANSACTIONS..................................................19
COMPUTATION OF NET ASSET VALUE..........................................20
PERFORMANCE INFORMATION.................................................21
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..........................23
TAX MATTERS.............................................................23
MANAGEMENT OF THE FUNDS.................................................29
THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS..........................30
THE ADMINISTRATOR.......................................................33
ADMINISTRATION AGREEMENT, DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN..33
DESCRIPTION OF THE FUNDS................................................34
SHAREHOLDER REPORTS.....................................................34
FINANCIAL STATEMENTS....................................................36
GENERAL INFORMATION.....................................................36
APPENDIX A..............................................................37
GENERAL INFORMATION AND HISTORY
Investec Funds ("Investec Funds") was first organized as a Maryland
Corporation on January 7, 1994 and converted to a Delaware business trust on
April 28, 1997 as an open-end, series, management investment company. Currently,
Investec Funds offers seven separate, non-diversified, series portfolios: the
China & Hong Kong Fund, the Asia New Economy Fund, the Asia Small Cap Fund, the
Mainland China Fund, the Wired Index(TM) Fund, the internet.com Index(TM) Fund
and the Wireless World Fund(TM), each of which has unique investment objectives
and strategies. Shares of the New Economy Fund and another class of shares of
the Wired Index(TM) Fund are not currently offered for sale.
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INVESTMENT OBJECTIVE AND POLICIES
General Information about the Funds
The China & Hong Kong Fund's investment objective is long term capital
appreciation primarily through investments in securities of China and Hong Kong.
The Asia New Economy Fund's investment objective is long-term capital
appreciation. This Fund seeks to achieve its investment objective by investing
primarily in equity securities of companies located in Asia that will help shape
and benefit from the regional and global development of the New Economy. The
Asia Small Cap Fund's investment objective is long-term capital appreciation
primarily through investments in equity securities of smaller capitalization
issuers located in Asia. The Mainland China Fund's investment objective is
long-term capital appreciation primarily through investments in equity
securities of companies which are located in Mainland China and in companies
located outside Mainland China which have a significant part of their interests
in China. The Wired Index(TM) Fund's investment objective is long-term capital
appreciation primarily through investments in the equity securities of companies
that comprise the Wired Index(TM). The internet.com Index(TM) Fund's investment
objective is long-term capital appreciation primarily through investments in
equity securities of companies that comprise the internet.com (TM)Index. The
Wireless World Funds'(TM) investment objective is long-term capital appreciation
primarily through investments in equity securities of companies with substantial
business interest in, or that will benefit from, a shift toward wireless
communication. The objective of each Fund is a fundamental policy and may not be
changed except by a majority vote of shareholders.
In addition to the primary investment strategies set forth in the
Prospectuse dated October 13, 2000, each of the China & Hong Kong Fund, Asia New
Economy Fund, Asia Small Cap Fund and Mainland China Fund may invest in
investment grade debt securities and may also invest up to 5% of its net assets
in options on equity securities and warrants, including those traded in the
over-the-counter markets.
The Funds do not intend to employ leveraging techniques. Accordingly,
no Fund will purchase new securities if amounts borrowed exceed 5% of its total
assets at the time the loan is made.
The Funds may invest in Money Market Instruments in anticipation of
investing cash positions. "Money Market Instruments" are short-term (less than
twelve months to maturity) investments in (a) obligations of the United States
or foreign governments, their respective agencies or instrumentalities; (b) bank
deposits and bank obligations (including certificates of deposit, time deposits
and bankers' acceptances) of United States or foreign banks denominated in any
currency; (c) floating rate securities and other instruments denominated in any
currency issued by international development agencies; (d) finance company and
corporate commercial paper and other short-term corporate debt obligations of
United States and foreign corporations meeting the credit quality standards set
by Investec Funds' Board of Trustees; and (e) repurchase agreements with banks
and broker-dealers with respect to such securities. While the Funds do not
intend to limit the amount of their assets invested in Money Market Instruments,
except to the extent believed necessary to achieve their investment objective,
the Funds do not expect under normal market conditions to have a substantial
portion of their assets invested in Money Market Instruments.
The following information concerning the Funds augments the disclosure
provided in the Prospectus.
The Wired Index(TM)Fund and the internet.com Index(TM)Fund:
As index funds, the Wired Index(TM) Fund and the Internet.Com Index(TM)
Fund will attempt to replicate the performance of the Wired Index(TM) and the
internet.com Index, respectively. Each Fund will attempt to invest in all of the
issues that comprise its index in proportion to their weighting in the Index.
However, in order to satisfy an asset diversification test and qualify as a
regulated investment company under subchapter M of the Internal Revenue Code of
1986, as amended, investments in issues that comprise the applicable index for
the Wired Index(TM) and Internet.Com Index(TM) Funds may not correspond to the
actual weighting in the Index. Accordingly, an investment in either of such
Funds may not track the investment performance of the Fund's Index. See
"Risk/Return
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Summary - Investment Strategies" in the Funds' Prospectus. You should also
review the more detailed discussion of tax considerations in the section "Tax
Matters."
The China & Hong Kong Fund, Asia New Economy Fund, Asia Small Cap Fund,
Mainland China Fund, Wired Index(TM) Fund, internet.com Index(TM) Fund and
Wireless World Fund(TM) (the "Equity Funds"):
Investec Asset Management U.S., Limited ("Investec") does not intend to
invest in any security in a country where the currency is not freely convertible
to United States dollars, unless it has obtained the necessary governmental
licensing to convert such currency or other appropriately licensed or sanctioned
contractual guarantee to protect such investment against loss of that currency's
external value, or Investec has a reasonable expectation at the time the
investment is made that such governmental licensing or other appropriately
licensed or sanctioned guarantee would be obtained or that the currency in which
the security is quoted would be freely convertible at the time of any proposed
sale of the security by an Equity Fund.
An Equity Fund may invest indirectly in issuers through sponsored or
unsponsored American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs"), Global Depository Receipts ("GDRs"), Global Depository Shares ("GDSs")
and other types of Depository Receipts (which, together with ADRs, EDRs, GDRs,
and GDSs, are hereinafter referred to as "Depository Receipts"). Depository
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the issuers
of the stock of unsponsored Depository Receipts are not obligated to disclose
material information in the United States and, therefore, there may not be a
correlation between such information and the market value of the Depository
Receipts. ADRs are Depository Receipts typically issued by a United States bank
or trust company which evidence ownership of underlying securities issued by a
foreign corporation. GDRs and other types of Depository Receipts are typically
issued by foreign banks or trust companies, although they also may be issued by
either a foreign or a United States corporation. Generally, Depository Receipts
in registered form are designed for use in the United States securities markets
and Depository Receipts in bearer form are designed for use in securities
markets outside the United States. For purposes of the Equity Funds' investment
policies, investments in ADRs, GDRs and other types of Depository Receipts will
be deemed to be investments in the underlying securities. Depository Receipts
other than those denominated in United States dollars will be subject to foreign
currency exchange rate risk. Certain Depository Receipts may not be listed on an
exchange and therefore may be illiquid securities.
Securities in which an Equity Fund may invest include those that are
neither listed on a stock exchange nor traded over-the-counter. As a result of
the absence of a public trading market for these securities, they may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Equity Fund or less than what may be
considered the fair value of such securities. Further, companies whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements which would be applicable if their
securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Equity Fund may be required to bear the expenses of registration. To
the extent that such securities are illiquid by virtue of the absence of a
readily available market, or legal or contractual restrictions on resale, they
will be subject to such Equity Fund's investment restrictions on illiquid
securities, discussed below.
An Equity Fund, together with any of its "affiliated persons," as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), may
only purchase up to 3% of the total outstanding securities of any underlying
investment company. Accordingly, when an Equity Fund or such "affiliated
persons" hold shares of any of the underlying investment companies, such Fund's
ability to invest fully in shares of those investment companies is restricted,
and Investec must then, in some instances, select alternative investments that
would not have been its first preference.
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There can be no assurance that appropriate investment companies will be
available for investment. The Equity Funds do not intend to invest in such
investment companies unless, in the judgment of Investec, the potential benefits
of such investment justify the payment of any applicable premium or sales
charge.
INVESTMENT STRATEGIES AND RISKS
Options and Futures Strategies
Through the writing of call options and the purchase of options and the
purchase and sale of stock index futures contracts, interest rate futures
contracts, foreign currency futures contracts and related options on such
futures contracts, Investec may at times seek to hedge against a decline in the
value of securities included in a Fund's portfolio or an increase in the price
of securities which it plans to purchase for a Fund or to reduce risk or
volatility while seeking to enhance investment performance. Expenses and losses
incurred as a result of such hedging strategies will reduce a Fund's current
return.
The ability of a Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Although the Funds will not enter into an option or futures
position unless a liquid secondary market for such option or futures contract is
believed by Investec to exist, there is no assurance that a Fund will be able to
effect closing transactions at any particular time or at an acceptable price.
Reasons for the absence of a liquid secondary market include the following: (i)
there may be insufficient trading interest in certain options; (ii) restrictions
may be imposed by an Exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
Exchange; (v) the facilities of an Exchange or the Options Clearing Corporation
("OCC") may not at all times be adequate to handle current trading volume; or
(vi) one or more Exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market
thereon would cease to exist, although outstanding options on that Exchange that
had been issued by the OCC as a result of trades on that Exchange would continue
to be exercisable in accordance with their terms.
Low initial margin deposits made upon the opening of a futures position
and the writing of an option involve substantial leverage. As a result,
relatively small movements in the price of the contract can result in
substantial unrealized gains or losses. However, to the extent a Fund purchases
or sells futures contracts and options on futures contracts and purchases and
writes options on securities and securities indexes for hedging purposes, any
losses incurred in connection therewith should, if the hedging strategy is
successful, be offset, in whole or in part, by increases in the value of
securities held by the Fund or decreases in the prices of securities the Fund
intends to acquire. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments effectively
for the purposes stated below. Furthermore, a Fund's ability to engage in
options and futures transactions may be limited by tax considerations. Although
the Funds will only engage in options and futures transactions for limited
purposes, such transactions involve certain risks. The Funds will not engage in
options and futures transactions for leveraging purposes.
Upon purchasing futures contracts of the type described above, the
Funds will maintain in a segregated account with their Custodian cash or liquid
high grade debt obligations with a value, marked-to-market daily, at least equal
to the dollar amount of the Funds' purchase obligation, reduced by any amount
maintained as margin. Similarly, upon writing a call option, the Funds will
maintain in a segregated account with their Custodian, liquid or high grade debt
instruments with a value, marked-to-market daily, at least equal to the market
value of the underlying contract (but not less than the strike price of the call
option) reduced by any amounts maintained as margin.
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Writing Covered Call Options on Securities
Call options may be used to anticipate a price increase of a security
on a more limited basis than would be possible if the security itself were
purchased. The Funds may write only covered call options. Since it can be
expected that a call option will be exercised if the market value of the
underlying security increases to a level greater than the exercise price, this
strategy will generally be used when Investec believes that the call premium
received by the Fund plus anticipated appreciation in the price of the
underlying security up to the exercise price of the call, will be greater than
the appreciation in the price of the security. By writing a call option, a Fund
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option.
A Fund may write covered call options on optionable securities (stocks,
bonds, foreign exchange related futures, options and options on futures) of the
types in which it is permitted to invest in seeking to attain its objective.
Call options written by a Fund give the holder the right to buy the underlying
securities from the Fund at a stated exercise price. As the writer of the call
option, the Fund is obligated to own the underlying securities subject to the
option (or comparable securities satisfying the cover requirements of securities
exchanges).
A Fund will receive a premium from writing a call option, which
increases the writer's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, a Fund limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option.
A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. The Fund will realize a
profit or loss from such transaction if the cost of such transaction is less or
more, respectively, than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by a Fund.
Options written by the Funds will normally have expiration dates not
more than one year from the date written. The exercise price of the options may
be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current market price of the underlying securities at
the times the options are written. A Fund may engage in buy-and-write
transactions in which the Fund simultaneously purchases a security and writes a
call option thereon. Where a call option is written against a security
subsequent to the purchase of that security, the resulting combined position is
also referred to as buy-and-write. Buy-and-write transactions using in-the-money
call options may be utilized when it is expected that the price of the
underlying security will remain flat or decline moderately during the option
period. In such a transaction, a Fund's maximum gain will be the premium
received from writing the option reduced by any excess of the price paid by the
Fund for the underlying security over the exercise price. Buy-and-write
transactions using at-the-money call options may be utilized when it is expected
that the price of the underlying security will remain flat or advance moderately
during the option period. In such a transaction, a Fund's gain will be limited
to the premiums received from writing the option. Buy-and-write transactions
using out-of-the-money call options may be utilized when it is expected that the
premiums received from writing the call option plus the appreciation in market
price of the underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone. In any of the
foregoing situations, if the market price of the underlying security declines,
the amount of such decline will be offset wholly or in part by the premium
received and a Fund may or may not realize a loss.
To the extent that a secondary market is available on the Exchanges,
the covered call option writer may liquidate his position prior to the
assignment of an exercise notice by entering a closing purchase transaction for
an option of the same series as the option previously written. The cost of such
a closing purchase, plus transaction
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costs, may be greater than the premium received upon writing the original
option, in which event the writer will have incurred a loss in the transaction.
Purchasing Put and Call Options on Securities
A Fund may purchase put options to protect its portfolio holdings in an
underlying security against a decline in market value. Such hedge protection is
provided during the life of the put option since the Fund, as holder of the put
option, is able to sell the underlying security at the put exercise price
regardless of any decline in the underlying security's market price. In order
for a put option to be profitable, the market price of the underlying security
must decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, the Funds will reduce
any profit they might otherwise have realized in the underlying security by the
premium paid for the put option and by transaction costs.
A Fund may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, the Funds will reduce
any profit they might have realized had they bought the underlying security at
the time they purchased the call option by the premium paid for the call option
and by transaction costs.
Purchase and Sale of Options and Futures on Stock Indices
The Equity Funds may purchase and sell options on stock indices and
stock index futures as a hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than on price movements in
particular stocks. Currently, index options traded include the S&P 100 Index,
the S&P 500 Index, the NYSE Composite Index, the AMEX Market Value Index, the
National Over-the-Counter Index and other standard broadly based stock market
indices.
A stock index futures contract is an agreement in which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount multiplied by 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. For example, the China & Hong Kong Fund may invest in
Hang-Seng Index Futures. No physical delivery of securities is made.
If Investec expects general stock market prices to rise, it might
purchase a call option on a stock index or a futures contract on that index as a
hedge against an increase in prices of particular equity securities they want
ultimately to buy. If in fact the stock index does rise, the price of the
particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of the Equity
Fund's index option or futures contract resulting from the increase in the
index. If, on the other hand, Investec expects general stock market prices to
decline, it might purchase a put option or sell a futures contract on the index.
If that index does in fact decline, the value of some or all of the equity
securities in the Equity Fund's portfolio may also be expected to decline, but
that decrease would be offset in part by the increase in the value of the Fund's
position in such put option or futures contract.
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Purchase and Sale of Interest Rate Futures
A Fund may purchase and sell U.S. dollar interest rate futures
contracts on U.S. Treasury bills, notes and bonds and non-U.S. dollar interest
rate futures contracts on foreign bonds for the purpose of hedging fixed income
and interest sensitive securities against the adverse effects of anticipated
movements in interest rates.
A Fund may purchase futures contracts in anticipation of a decline in
interest rates when it is not fully invested in a particular market in which it
intends to make investments to gain market exposure that may in part or entirely
offset an increase in the cost of securities it intends to purchase. The Funds
do not consider purchases of futures contracts to be a speculative practice
under these circumstances. In a substantial majority of these transactions, the
Funds will purchase securities upon termination of the futures contract.
A Fund may sell U.S. dollar and non-U.S. dollar interest rate futures
contracts in anticipation of an increase in the general level of interest rates.
Generally, as interest rates rise, the market value of the fixed income
securities held by the Funds will fall, thus reducing the net asset value to the
holder. This interest rate risk can be reduced without employing futures as a
hedge by selling long-term fixed income securities and either reinvesting the
proceeds in securities with shorter maturities or by holding assets in cash.
This strategy, however, entails increased transaction costs to the Funds in the
form of dealer spreads and brokerage commissions.
The sale of U.S. dollar and non-U.S. dollar interest rate futures
contracts provides an alternative means of hedging against rising interest
rates. As rates increase, the value of a Fund's short position in the futures
contracts will also tend to increase, thus offsetting all or a portion of the
depreciation in the market value of the Fund's investments which are being
hedged. While the Funds will incur commission expenses in entering and closing
out futures positions (which is done by taking an opposite position from the one
originally entered into, which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
Options on Stock Index Futures Contracts and Interest Rate Futures Contracts
A Fund may write call options and purchase call and put options on
stock index and interest rate futures contracts. The Funds may use such options
on futures contracts in connection with their hedging strategies in lieu of
purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options on stock index or interest rate futures,
rather than purchasing such futures, to hedge against possible increases in the
price of equity securities or debt securities, respectively, which the Fund
intends to purchase.
Purchase and Sale of Currency Futures Contracts and Related Options
In order to hedge its portfolio and to protect it against possible
variations in foreign exchange rates pending the settlement of securities
transactions, a Fund may buy or sell foreign currencies or may deal in forward
currency contracts. A Fund may also invest in currency futures contracts and
related options. If a fall in exchange rates for a particular currency is
anticipated, a Fund may sell a currency futures contract or a call option
thereon or purchase a put option on such futures contract as a hedge. If it is
anticipated that exchange rates will rise, a Fund may purchase a currency
futures contract or a call option thereon or sell (write) a put option to
protect against an increase in the price of securities denominated in a
particular currency the Fund intends to purchase. These futures contracts and
related options thereon will be used only as a hedge against anticipated
currency rate changes, and all options on currency futures written by the Funds
will be covered.
A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by a Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt,
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in most instances the contracts are closed out before the settlement date
without the making or taking of delivery of the currency. Closing out of a
currency futures contract is effected by entering into an offsetting purchase or
sale transaction. Unlike a currency futures contract, which requires the parties
to buy and sell currency on a set date, an option on a currency futures contract
entitles its holder to decide on or before a future date whether to enter into
such a contract or let the option expire.
The Funds will write (sell) only covered call options on currency
futures. This means that the Funds will provide for their obligations upon
exercise of the option by segregating sufficient cash or short-term obligations
or by holding an offsetting position in the option or underlying currency
future, or a combination of the foregoing. The Funds will, so long as they are
obligated as the writer of a call option on currency futures, own on a
contract-for-contract basis an equal long position in currency futures with the
same delivery date or a call option on stock index futures with the difference,
if any, between the market value of the call written and the market value of the
call or long currency futures purchased maintained by the Funds in cash, cash
equivalents or other liquid securities in a segregated account with its
custodian. If at the close of business on any day the market value of the call
purchased by a Fund falls below 100% of the market value of the call written by
the Fund, the Fund will so segregate an amount of cash, cash equivalents or
other liquid securities equal in value to the difference. Alternatively, a Fund
may cover the call option through segregating with the custodian an amount of
the particular foreign currency equal to the amount of foreign currency per
futures contract option times the number of options written by the Fund.
If other methods of providing appropriate cover are developed, the
Funds reserve the right to employ them to the extent consistent with applicable
regulatory and exchange requirements.
In connection with transactions in stock index options, stock index
futures, interest rate futures, foreign currency futures and related options on
such futures, the Funds will be required to deposit as "initial margin" an
amount of cash and short-term U.S. Government securities generally equal to from
5% to 10% of the contract amount. Thereafter, subsequent payments (referred to
as "variation margin") are made to and from the broker to reflect changes in the
value of the futures contract.
Options on Foreign Currencies
A Fund may write call options and purchase call and put options on
foreign currencies to enhance investment performance and for hedging purposes in
a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized as described above. For example, a decline
in the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their value
in the foreign currency remains constant. In order to protect against such
diminution in the value of portfolio securities, a Fund may purchase put options
on the foreign currency. If the value of the currency does decline, the Funds
will have the right to sell such currency for a fixed amount in dollars and will
thereby offset, in whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may purchase call options thereon. The purchase
of such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to a Fund deriving from purchases of foreign currency options will
be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, a Fund could sustain losses on transactions in foreign
currency options which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
Also, where a Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may
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be exercised and the Fund would be required to sell the underlying currency at a
loss that may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, a Fund also may be required to forego all or a
portion of the benefits that might otherwise have been obtained from favorable
movements in exchange rates.
The Funds intend to write only covered call options on foreign
currencies. A call option written on a foreign currency by a Fund is "covered"
if the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian, which acts as the Fund's custodian, or by a designated
sub-custodian) upon conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if the Fund has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
or the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash, U.S. Government
Securities and other high-grade liquid debt securities in a segregated account
with its custodian or with a designated sub-custodian.
Forward Foreign Currency Exchange Contracts
A Fund may purchase or sell forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund from
variations in foreign exchange rates. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date, which
is individually negotiated and privately traded by currency traders and their
customers. A Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Additionally, for example, when a Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency, or when a Fund believes that the U.S.
dollar may suffer a substantial decline against foreign currency, it may enter
into a forward purchase contract to buy that foreign currency for a fixed dollar
amount ("position hedge"). In this situation, the Fund may, in the alternative,
enter into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where it believes that the U.S. dollar value of the currency
to be sold pursuant to the forward contract will fall whenever there is a
decline in the U.S. dollar value of the currency in which portfolio securities
of the sector are denominated ("cross-hedge"). If a Fund enters into a position
hedging transaction, cash not available for investment or U.S. Government
Securities or other high quality debt securities will be placed in a segregated
account in an amount sufficient to cover the Fund's net liability under such
hedging transactions. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account so
that the value of the account will equal the amount of the Fund's commitment
with respect to its position hedging transactions. As an alternative to
maintaining all or part of the separate account, a Fund may purchase a call
option permitting it to purchase the amount of foreign currency being hedged by
a forward sale contract at a price no higher than the forward contract price or
a Fund may purchase a put option permitting it to sell the amount of foreign
currency subject to a forward purchase contract at a price as high or higher
than the forward contract price. Unanticipated changes in currency prices would
result in lower overall performance for a Fund than if it had not entered into
such contracts.
Generally, the Funds will not enter into a forward foreign currency
exchange contract with a term of greater than one year. At the maturity of the
contract, a Fund may either sell the portfolio security and make delivery of the
foreign currency, or may retain the security and terminate the obligation to
deliver the foreign currency by purchasing an "offsetting" forward contract with
the same currency trader obligating the Fund to purchase, on the same maturity
date, the same amount of foreign currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the contract. Accordingly, it may
be necessary for a Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency
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received upon the sale of the portfolio security if its market value exceeds the
amount of foreign currency the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or a loss (as described below) to the extent
that there has been movement in forward contract prices. If a Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between entering into a forward contract for the sale of a foreign currency and
the date the Fund enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the price of the
currency the Fund has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency the Fund has agreed to purchase exceeds
the price of the currency the Fund has agreed to sell.
The Funds' dealing in forward foreign currency exchange contracts will
be limited to the transactions described above. Of course, a Fund is not
required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
Investec. It also should be realized that this method of protecting the value of
a Fund's portfolio securities against the decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange that one can achieve at some future point
in time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain that might result should the value of such currency
increase.
Additional Risks of Futures Contracts and Related Options, Forward Foreign
Currency Exchange Contracts and Options on Foreign Currencies
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 that 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.
In addition, futures contracts in which a Fund may invest may be
subject to commodity exchange imposed limitations on fluctuations in futures
contract prices during a single day. Such regulations are referred to as "daily
price fluctuation limits" or "daily limits." During a single trading day no
trades may be executed at prices beyond the daily limit. Once the price of a
futures contract has increased or decreased by an amount equal to the daily
limit, positions in those futures cannot be taken or liquidated unless both a
buyer and seller are willing to effect trades at or within the limit. Daily
limits, or regulatory intervention in the commodity markets, could prevent a
Fund from promptly liquidating unfavorable positions and adversely affect
operations and profitability.
Options on foreign currencies and forward foreign currency exchange
contracts ("forward contracts") are not traded on contract markets regulated by
the Commodity Futures Trading Commission ("CFTC") and are not regulated by the
SEC. Rather, forward currency contracts are traded through financial
institutions acting as market makers. Foreign currency options are traded on
certain national securities exchanges, such as the Philadelphia Stock Exchange
and the Chicago Board Options Exchange, subject to SEC regulation. In the
forward currency market, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Moreover, a trader of forward contracts could lose amounts
substantially in excess of its initial investments, due to the collateral
requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the OCC, thereby reducing the risk of
counterparty default. Further, a liquid secondary market in options traded on a
national securities exchange
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may exist, potentially permitting a Fund to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.
The purchase and sale of exchange-traded foreign currency options,
however, are subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exercise and settlement of such
options must be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions or taxes would
prevent the orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose special
procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, futures contracts and related options and forward
contracts and options on foreign currencies may be traded on foreign exchanges,
to the extent permitted by the CFTC. Such transactions are subject to the risk
of governmental actions affecting trading in or the prices of foreign currencies
or securities. The value of such positions also could be adversely affected by
(a) other complex foreign political and economic factors, (b) lesser
availability than in the United States of data on which to make trading
decisions, (c) delays in a Fund's ability to act upon economic events occurring
in foreign markets during nonbusiness hours in the United States and the United
Kingdom, (d) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (e) lesser
trading volume.
Forward Commitments
The Funds may make contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments")
because new issues of securities are typically offered to investors, such as the
Funds, on that basis. Forward commitments involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date. Although the
Funds will enter into such contracts with the intention of acquiring the
securities, the Funds may dispose of a commitment prior to a settlement date if
Investec deems it appropriate to do so. A Fund may realize short-term profits or
losses upon the sale of forward commitments.
Regulatory Matters
In connection with its proposed futures and options transactions, each
Fund will file with the CFTC a notice of eligibility for exemption from the
definition of (and therefore from CFTC regulation as) a "commodity pool
operator" under the Commodity Exchange Act.
The Staff of the SEC has taken the position that the purchase and sale
of futures contracts and the writing of related options may involve senior
securities for the purposes of the restrictions contained in Section 18 of the
1940 Act on investment companies issuing senior securities. However, the Staff
has issued letters declaring that it will not recommend enforcement action under
Section 18 if an investment company:
(i) sells futures contracts on an index of securities that
correlate with its portfolio securities to offset expected
declines in the value of its portfolio securities;
(ii) writes call options on futures contracts, stock indexes or
other securities, provided that such options are covered by
the investment company's holding of a corresponding long
futures position, by its ownership of portfolio securities
which correlate with the underlying stock index, or otherwise;
(iii) purchases futures contracts, provided the investment company
establishes a segregated account ("cash segregated account")
consisting of cash or cash
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equivalents in an amount equal to the total market value of
such futures contracts less the initial margin deposited
therefor; and
(iv) writes put options on futures contracts, stock indices or
other securities, provided that such options are covered by
the investment company's holding of a corresponding short
futures position, by establishing a cash segregated account in
an amount equal to the value of its obligation under the
option, or otherwise.
In addition, the Funds are eligible for, and are claiming, exclusion
from the definition of the term Commodity Pool Operator in connection with the
operations of the Funds, in accordance with subparagraph (1) of paragraph (a) of
CFTC Rule 4.5, because each Fund represents that it will operate in a manner
such that:
(i) each Fund will use commodity futures or commodity options
contracts solely for bona fide hedging purposes within the meaning and
intent of Commission Rule 1.3(z)(1); provided, however, that in
addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of
Rule 1.3(z)(1), each Fund will not enter into commodity futures and
commodity options contracts for which the aggregate initial margin and
premiums exceed five (5) percent of the fair market value of the Fund's
assets, after taking into account unrealized profits and unrealized
losses on any such contracts it has entered into; and, provided
further, that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount as defined in Commission Rule
190.01(x) may be excluded in computing such five (5) percent;
(ii) each Fund will not be, and has not been, marketing
participations to the public as or in a commodity pool or otherwise as
or in a vehicle for trading in the commodity futures or commodity
options markets;
(iii) each Fund will disclose in writing to each prospective
participant the purpose of and the limitations on the scope of the
commodity futures and commodity options trading in which the Fund
intends to engage; and
(iv) each Fund will submit to such special calls as the
Commission may make to require the Fund to demonstrate compliance with
the provisions of Commission Rule 4.5(c).
The Funds will conduct their purchases and sales of futures contracts
and writing of related options transactions in accordance with the foregoing.
Repurchase Agreements
A Fund may enter into repurchase agreements. Under a repurchase
agreement, a Fund acquires a debt instrument for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the Fund to resell such debt instrument at a fixed price. The
resale price is in excess of the purchase price in that it reflects an agreed
upon market interest rate effective for the period of time during which the
Fund's money is invested. A Fund's risk is limited to the ability of the seller
to pay the agreed upon sum upon the delivery date. When a Fund enters into a
repurchase agreement, it obtains collateral having a value at least equal to the
amount of the purchase price. Repurchase agreements can be considered loans as
defined by the 1940 Act, collateralized by the underlying securities. The return
on the collateral may be more or less than that from the repurchase agreement.
The securities underlying a repurchase agreement will be marked to market every
business day so that the value of the collateral is at least equal to the value
of the loan, including the accrued interest earned. In evaluating whether to
enter into a repurchase agreement, Investec will carefully consider the
creditworthiness of the seller. If the seller defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss.
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Illiquid and Restricted Securities
The Funds have adopted the following investment policy, which may be
changed by the vote of the Board of Trustees. The Funds will not invest in
illiquid securities if immediately after such investment more than 15% of a
Fund's net assets (taken at market value) would be invested in such securities.
For this purpose, illiquid securities include (a) securities that are illiquid
by virtue of the absence of a readily available market or legal or contractual
restrictions on resale, (b) participation interests in loans that are not
subject to puts, (c) covered call options on portfolio securities written by a
Fund over-the-counter and the cover for such options and (d) repurchase
agreements not terminable within seven days.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered for sale to the public, securities that are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty in satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
Although securities which may be resold only to "qualified
institutional buyers" in accordance with the provisions of Rule 144A under the
Securities Act of 1933, as amended, are technically considered "restricted
securities", the Funds may purchase Rule 144A securities without regard to the
limitation on investments in illiquid securities described above, provided that
a determination is made that such securities have a readily available trading
market. Investec will determine the liquidity of Rule 144A securities under the
supervision of the Funds' Board of Trustees. The liquidity of Rule 144A
securities will be monitored by Investec, and if as a result of changed
conditions, it is determined that a Rule 144A security is no longer liquid, a
Fund's holdings of illiquid securities will be reviewed to determine what, if
any, action is required to assure that the Fund does not exceed its applicable
percentage limitation for investments in illiquid securities.
In reaching a liquidity decision, Investec will consider, among other
things, the following factors: (1) the frequency of trades and quotes for the
security; (2) the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers; (3) dealer undertakings to make a
market in the security and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
OTHER RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should recognize that investing in securities of companies in
emerging market countries involves certain special considerations and risk
factors which are not typically associated with investing in securities of U.S.
companies. The following disclosure augments the information provided in the
prospectus.
Economic and Political Risks
The economies of foreign countries may differ unfavorably from the
United States economy in such respects as, but not limited to, growth of
domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions. Further, economies of foreign
countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by the economic
conditions of the countries in which they trade, as well as trade barriers,
managed adjustments in relative currency values and other protectionist measures
imposed or negotiated by such countries.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulations, social instability or diplomatic developments
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(including war) which could adversely affect the economies of such countries or
the Funds' investments in those countries. In addition, it may be more difficult
to obtain a judgment in a court outside the United States.
China Political Risks
The Chinese economy previously operated as a Socialist economic system,
relying heavily upon government planning from 1949, the year in which the
Communists seized power, to 1978, the year Deng Xiaoping instituted his first
economic reforms.
Economic reforms in China are transforming its economy into a market
system that has stimulated significant economic growth. As a result of such
reform, the living standards of the 800 million rural workers have improved.
Farm reform led to the doubling of China's farmers' incomes over the 1980's. The
next stage of reform gave rise to small scale entrepreneurs and stimulated light
and medium industry. In addition, a cheap and abundant supply of labor has
attracted foreign investment in China. Special Economic Zones, five originally
and over thirty today, were set up, providing tax advantages to foreign
investors. Further, the Shenzhen and Shanghai Stock Exchanges have recently
opened. Class "A" and Class "B" shares are traded on both exchanges. While only
resident Chinese can purchase Class "A" shares, foreign investors (such as the
Funds) can purchase Class "B" shares. Over the period 1978 to 1997, China's
gross domestic product grew between 9% and 10% per annum. By 1995, China had
become one of the world's major trading nations. The World Bank forecasts that
China will have the world's largest economy by 2003.
In 1984, China and Britain signed the Joint Declaration, which allowed
for the termination of British rule in Hong Kong on June 30, 1997, but which
maintains the previously existing capitalist economic and social system of Hong
Kong for 50 years beyond that date. Obviously, there are risks arising from Hong
Kong's return to China under the "one country two systems" proposal. However,
Hong Kong and China are interdependent; 70% of foreign investment in China is
from Hong Kong and China has large shareholdings in Hong Kong companies.
Investec believes that China is unlikely to damage the Hong Kong economy and
destroy the value of their investments. Today, Hong Kong's stock market is one
of the largest in the world and is highly liquid and extensively regulated.
Notwithstanding the beliefs of Investec, investors should realize that
there are significant risks to investing in China and Hong Kong. The risks
include:
(1) that political instability may arise as a result of indecisive
leadership;
(2) that hard line Marxist Leninists might regain the political
initiative;
(3) that social tensions caused by widely differing levels of
economic prosperity within Chinese society might create
unrest, as they did in the tragic events of 1989, culminating
in the Tiananmen Square incident; and
(4) that the threat of armed conflict exists over the unresolved
situation concerning Taiwan.
Investors should further realize that the central government of China
is communist and, while a liberal attitude towards foreign investment and
capitalism prevails at present, a return to hard line communism and a reaction
against capitalism and the introduction of restrictions on foreign investment is
a possibility. There can be no assurance that the Chinese government will
continue to pursue its economic reform policies or, if it does, that those
policies will be successful. The issue of "B" shares, "H" shares and "N" shares
by Chinese companies and the ability to obtain a "back-door listing" through
"Red Chips" is still regarded by the Chinese authorities as an experiment in
economic reform. "Back door listing" is a means by which Mainland Chinese
Companies acquire and invest in Hong Kong Stock Exchange listed companies ("Red
Chips") to obtain quick access to international listing and international
capital. The reformist elements which now dominate Chinese policies remain
ideologically communist and political factors may, at any time, outweigh
economic policies and the encouragement of foreign
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investment. The Funds will be highly sensitive to any significant change in
political, social or economic policy in China. Such sensitivity may, for the
reasons specified above, adversely affect the capital growth and thus the
performance of the Funds. Investec, however, believes that the process of reform
has now gone too far to be easily reversed.
INVESTMENT IN CHINA AT PRESENT INVOLVES ABOVE AVERAGE RISK DUE TO A NUMBER OF
SPECIAL FACTORS DESCRIBED HEREIN. INVESTMENT IN THE FUNDS SHOULD BE REGARDED AS
LONG TERM IN NATURE. THE FUNDS ARE SUITABLE ONLY FOR THOSE INVESTORS WHO CAN
AFFORD THE RISKS INVOLVED AND SHOULD CONSTITUTE ONLY A LIMITED PART OF AN
INVESTOR'S PORTFOLIO. THE PRICE OF THE FUNDS MAY EXPERIENCE SIGNIFICANT
FLUCTUATIONS.
Securities Market Risks
In general, trading volume on foreign stock exchanges is substantially
less than that on the New York Stock Exchange. Further, securities of some
foreign companies are less liquid and more volatile than securities of
comparable United States companies. Securities without a readily available
market will be treated as illiquid securities for purposes of the Funds'
limitations on such purchases. Similarly, volume and liquidity in most foreign
bond markets can be substantially less than in the United States, and
consequently, volatility of price can be greater than in the United States.
Fixed commissions on foreign markets are generally higher than negotiated
commissions on United States exchanges; however, the Funds will endeavor to
achieve the most favorable net results on their portfolio transactions and may
be able to purchase the securities in which the Funds may invest on other stock
exchanges where commissions are negotiable.
With regard to China, both the Shanghai and the Shenzhen securities
markets are in their infancy and are undergoing a period of development and
change. This may lead to trading volatility, difficulty in the settlement and
recording of transactions and difficulty in interpreting and applying the
relevant regulations. In addition, the choice of investments available to the
Funds will be severely limited as compared with the choice available in other
markets due to the small but increasing number of "B" share, "H" share, "N"
share and Red Chip issues currently available. There is a low level of liquidity
in the Chinese securities markets, which are relatively small in terms of both
combined total market value and the number of "B" shares, "H" shares, "N" shares
and Red Chips available for investment. Shareholders are warned that this could
lead to severe price volatility.
Small Capitalization Issuers
Investors should be aware that investments in small capitalization
issuers carry more risk than investments in issuers with market capitalizations
greater than $1 billion. Generally, small companies rely on limited product
lines, financial resources, and business activities that make them more
susceptible to setbacks or downturns. In addition, the stock of such companies
may be more thinly traded. Accordingly, the performance of small capitalization
issuers may be more volatile.
Interest Rate Fluctuations
Generally, the value of fixed income securities will change as interest
rates fluctuate. During periods of falling interest rates, the values of
outstanding long-term debt obligations generally rise. Conversely, during
periods of rising interest rates, the value of such securities generally
declines. The magnitude of these fluctuations generally will be greater for
securities with longer maturities.
Governmental Credit Risk
The obligations of foreign government entities, including supranational
issuers, have various kinds of government support. Although obligations of
foreign governmental entities include obligations issued or guaranteed by
national, provincial, state or other government with taxing power, or by their
agencies, these obligations may or may not be supported by the full faith and
credit of a foreign government.
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Accounting Standards and Legal Framework
Many foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards, practices and disclosure
requirements comparable to those applicable to United States companies.
Consequently, there may be less publicly available information about such
companies than about United States companies. Further, there is generally less
governmental supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the United States.
With regard to China, the national regulatory and legal framework for
capital markets and joint stock companies is not well developed compared to
those of Western countries. Certain matters of concern to foreign shareholders
are not adequately dealt with or are only covered in a number of national and
local laws and regulations. As the efficacy of such laws and regulations is as
yet uncertain, there can be no assurance as to the extent to which rights of
foreign shareholders will be protected.
Further, Chinese companies are not required to follow international
accounting standards. There are a number of differences between international
accounting standards and accounting practice in China, including the valuation
of property and other assets (in particular inventory and investments and
provisions against debtors), accounting for depreciation, consolidation,
deferred taxation and contingencies and the treatment of exchange differences.
There may, therefore, be significant differences in the preparation of financial
statements by accountants following Chinese accounting standards and practices
when compared with those prepared in accordance with international accounting
standards. All issuers of "B" shares, "H" shares, "N" shares and Red Chips are,
however, required to produce accounts which are prepared in accordance with
international accounting standards.
Additional Foreign Currency Considerations
The Funds' assets will be invested principally in securities of
entities in foreign markets and substantially all of the income received by the
Funds will be in foreign currencies. If the value of the foreign currencies in
which a Fund receives its income falls relative to the U.S. dollar between the
earning of the income and the time at which the Fund converts the foreign
currencies to U.S. dollars, the Fund will be required to liquidate securities in
order to make distributions if the Fund has insufficient cash in U.S. dollars to
meet distribution requirements. The liquidation of investments, if required, may
have an adverse impact on a Fund's performance.
Changes in foreign currency exchange rates also will affect the value
of securities in the Funds' portfolios and the unrealized appreciation or
depreciation of investments. Further, a Fund may incur costs in connection with
conversions between various currencies. Foreign exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to a Fund at one rate, while offering a lesser rate of exchange should
the Fund desire immediately to resell that currency to the dealer. The Funds
will conduct their foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward, futures or options contracts to
purchase or sell foreign currencies.
A Fund may enter into forward currency exchange contracts and currency
futures contracts and options on such futures contracts, as well as purchase put
or call options on currencies, in U.S. or foreign markets to protect the value
of some portion or all of its portfolio holdings against currency risks by
engaging in hedging transactions. There can be no guarantee that instruments
suitable for hedging currency or market shifts will be available at the time
when a Fund wishes to use them. Moreover, investors should be aware that in most
emerging market countries, such as China, the markets for certain of these
hedging instruments are not highly developed and that in many emerging market
countries no such markets currently exist.
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Investment Funds and Repatriation Restrictions
Some foreign countries have laws and regulations which currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities listed and traded on the
stock exchanges in these countries is permitted by certain foreign countries
through investment funds which have been specially authorized. See "Tax Matters"
for an additional discussion concerning such investments. The Funds may invest
in these investment funds; however, if the acquired investment fund is
registered pursuant to the 1940 Act, then the acquiring Fund may not own (i)
more than three percent of the total outstanding voting stock of the acquired
investment fund, (ii) securities issued by the acquired investment fund having
an aggregate value of more than five percent of the total assets of the Fund, or
(iii) securities issued by the acquired investment fund and all other registered
investment funds having an aggregate value of more than 10 percent of the total
assets of the Fund. If a Fund invests in such investment funds, the Fund's
shareholders will bear not only their proportionate share of the expenses of the
Fund, but also will bear indirectly similar expenses of the underlying
investment funds. Investec has voluntarily agreed to waive its management fees
with respect to the portion of a Fund's assets invested in shares of other
open-end investment companies. A Fund would continue to pay its own management
fees and other expenses with respect to its investments in shares of closed-end
investment companies.
In addition to the foregoing investment restrictions, prior
governmental approval for foreign investments may be required under certain
circumstances in some foreign countries, and the extent of foreign investment in
foreign companies may be subject to limitation. Foreign ownership limitations
also may be imposed by the charters of individual companies to prevent, among
other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales by
foreign investors may require governmental registration and/or approval in some
foreign countries. A Fund could be adversely affected by delays in or a refusal
to grant any required governmental approval for such repatriation.
INVESTMENT RESTRICTIONS AND POLICIES
Investment restrictions are fundamental policies and cannot be changed
without approval of the holders of a majority (as defined in the 1940 Act) of
the outstanding shares of a Fund. As used in the Prospectus and Statement of
Additional Information, the term "majority of the outstanding shares" of a Fund
means, respectively, the vote of the lesser of (i) 67% or more of the shares of
the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. The following are the Funds'
investment restrictions set forth in their entirety. Investment policies are not
fundamental and may be changed by the Board of Trustees without shareholder
approval.
Investment Restrictions
Each Fund may not:
1. Issue senior securities, except that a Fund may borrow up to 33 1/3%
of the value of its total assets from a bank (i) to increase its holdings of
portfolio securities, (ii) to meet redemption requests, or (iii) for such
short-term credits as may be necessary for the clearance or settlement of the
transactions. A Fund may pledge its assets to secure such borrowings.
2. Invest 25% or more of the total value of its assets in a particular
industry, except that this restriction shall not apply to U.S. Government
Securities.
3. Buy or sell commodities or commodity contracts or real estate or
interests in real estate (including real estate limited partnerships), except
that it may purchase and sell futures contracts on stock indices,
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interest rate instruments and foreign currencies, securities which are secured
by real estate or commodities, and securities of companies which invest or deal
in real estate or commodities.
4. Make loans, except through repurchase agreements to the extent
permitted under applicable law.
5. Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an underwriter
under applicable securities laws.
Investment Policies
Each Fund may not:
1. Purchase securities on margin, except such short-term credits as may
be necessary for clearance of transactions and the maintenance of margin with
respect to futures contracts.
2. Make short sales of securities or maintain a short position (except
that the Fund may maintain short positions in foreign currency contracts,
options and futures contracts).
3. Purchase or otherwise acquire the securities of any open-end
investment company (except in connection with a merger, consolidation,
acquisition of substantially all of the assets or reorganization of another
investment company) if, as a result, the Fund and all of its affiliates would
own more than 3% of the total outstanding stock of that company.
Percentage restrictions apply at the time of acquisition and any
subsequent change in percentages due to changes in market value of portfolio
securities or other changes in total assets will not be considered a violation
of such restrictions.
Code of Ethics
Investec Funds, Investec and the Distributor each have adopted a code
of ethics as required by applicable law, which is designed to prevent affiliated
persons of Investec Funds, Investec and the Distributor from engaging in
deceptive, manipulative or fraudulent activities in connection with securities
held or to be acquired by a Fund (which may also be held by persons subject to a
code of ethics). There can be no assurance that the codes of ethics will be
effective in preventing such activities.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of the Funds by Investec subject to the supervision of the Investec
Funds and the Board of Trustees and pursuant to authority contained in the
Investment Advisory Agreement between the Funds and Investec. In selecting
brokers or dealers, Investec will consider various relevant factors, including,
but not limited to: the best net price available, the size and type of the
transaction, the nature and character of the markets for the security to be
purchased or sold, the execution efficiency, settlement capability, financial
condition of the broker-dealer firm, the broker-dealer's execution services
rendered on a continuing basis and the reasonableness of any commissions.
In addition to meeting the primary requirements of execution and price,
brokers or dealers may be selected who provide research services, or statistical
material or other services to a Fund or to Investec for the Fund's use, which in
the opinion of the Board of Trustees, are reasonable and necessary to the Fund's
normal operations. Those services may include economic studies, industry
studies, security analysis or reports, sales literature and statistical services
furnished either directly to a Fund or to Investec. Such allocation shall be in
such amounts as Investec Funds shall determine and Investec shall report
regularly to Investec Funds who will in turn report to the Board of Trustees on
the allocation of brokerage for such services.
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<PAGE>
The receipt of research from brokers or dealers may be useful to
Investec in rendering investment management services to its other clients, and
conversely, such information provided by brokers or dealers who have executed
orders on behalf of Investec's other clients may be useful to Investec in
carrying out its obligations to the Funds. The receipt of such research may not
reduce Investec's normal independent research activities.
Investec is authorized to place portfolio transactions with brokerage
firms that have provided assistance in the distribution of shares of the Funds
and is authorized to use the Funds' Distributor on an agency basis, to effect a
substantial amount of the portfolio transactions which are executed on the New
York or American Stock Exchanges, Regional Exchanges and Foreign Exchanges where
relevant, or which are traded in the over-the-counter market.
Brokers or dealers who execute portfolio transactions on behalf of a
Fund may receive commissions which are in excess of the amount of commissions
which other brokers or dealers would have charged for effecting such
transactions provided Investec Funds determines in good faith that such
commissions are reasonable in relation to the value of the brokerage and/or
research services provided by such executing brokers or dealers viewed in terms
of a particular transaction or Investec's overall responsibilities to a Fund.
It may happen that the same security will be held by other clients of
Investec. When the other clients are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts will be allocated in
accordance with a formula considered by Investec to be equitable to each, taking
into consideration such factors as size of account, concentration of holdings,
investment objectives, tax status, cash availability, purchase cost, holding
period and other pertinent factors relative to each account. In some cases this
system could have a detrimental effect on the price or volume of the security as
far as a Fund is concerned. In other cases, however, the ability of a Fund to
participate in volume transactions will produce better executions for the Fund.
Brokerage commissions paid by the Funds were as follows:
<TABLE>
<CAPTION>
Year China &
Ended Hong Kong Asia New Asia Small Mainland Wired Index(TM) internet.com
December 31, Fund Economy Fund Cap Fund China Fund Fund Index(TM)Fund
<S> <C> <C> <C> <C> <C> <C>
1999 $316,299 $47,945 $308,693 $71,607 $120,825 $4,432
1998 $607,981 $53,232 $340,342 $88,875 $12,152(2)
1997 $714,450 $37,794 $1,271,036 $18,313(3)
</TABLE>
The high amount of brokerage commissions for the Asia Small Cap Fund in 1997 was
primarily due to volatile Asian equity markets in that year
The Fund's portfolio turnover rate for the fiscal years ended December 31, 1999
and 1998 was 82.34% and 77.62%, respectively.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Wired Index(TM) Fund is determined at 4:00
p.m. Eastern Time, on each day that the New York Stock Exchange is open for
business and on such other days as there is sufficient trading in a Fund's
securities to affect materially the net asset value per share of the Fund. The
net asset value of the
---------------
(2) For the period 12/15/98 (commencement of operations) to 12/31/98.
(3) For the period 11/3/97 (commencement of operations) to 12/31/97.
20
<PAGE>
internet.com Index(TM) Fund and the Wireless World Fund(TM) are determined at
the close of the New York Stock Exchange (generally 4:00 p.m. Eastern Time) on
each day the New York Stock Exchange is open for business. The net asset value
of the Asia New Economy Fund, Asia Small Cap Fund, China Hong Kong Fund and
Mainland China Fund are determined as of 9:30 a.m. Eastern Time on each day the
New York Stock Exchange is open for business. The Funds will be closed on New
Years Day, Presidents' Day, Martin Luther King, Jr.'s Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The Funds will invest in foreign securities, and as a result, the
calculation of the Funds' net asset value may not take place contemporaneously
with the determination of the prices of certain of the portfolio securities used
in the calculation. Occasionally, events which affect the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of the New York Stock Exchange and will therefore not
be reflected in the computation of a Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities may be valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Board of
Trustees. Portfolio securities of a Fund that are traded both on an exchange and
in the over-the-counter market will be valued according to the broadest and most
representative market. All assets and liabilities initially expressed in foreign
currency values will be converted into U.S. Dollar values at the mean between
the bid and offered quotations of the currencies against U.S. Dollars as last
quoted by any recognized dealer. When portfolio securities are traded, the
valuation will be the last reported sale price on the day of valuation. (For
securities traded on the New York Stock Exchange, the valuation will be the last
reported sales price as of the close of the Exchange's regular trading session,
currently 4:00 p.m. New York time.) If there is no such reported sale or the
valuation is based on the over-the-counter market, the securities will be valued
at the last available bid price or at the mean between the bid and asked prices,
as determined by the Board of Trustees. As of the date of this Statement of
Additional Information, such securities will be valued by the latter method.
Securities for which reliable quotations are not readily available and all other
assets will be valued at their respective fair market value as determined in
good faith by, or under procedures established by, the Board of Trustees of the
Funds.
Money market instruments with less than sixty days remaining to
maturity when acquired by the Funds will be valued on an amortized cost basis by
the Funds, excluding unrealized gains or losses thereon from the valuation. This
is accomplished by valuing the security at cost and then assuming a constant
amortization to maturity of any premium or discount. If a Fund acquires a money
market instrument with more than sixty days remaining to its maturity, it will
be valued at current market value until the 60th day prior to maturity, and will
then be valued on an amortized cost basis based upon the value on such date
unless the Board of Trustees determines during such 60 day period that this
amortized cost value does not represent fair market value.
All liabilities incurred or accrued are deducted from a Fund's total
assets. The resulting net assets are divided by the number of shares of the Fund
outstanding at the time of the valuation and the result (adjusted to the nearest
cent) is the net asset value per share.
PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of a Fund to that
of other mutual funds and to stock or other relevant indices in advertisements
or in reports to shareholders, performance will be stated both in terms of total
return and in terms of yield. The total return basis combines principal and
dividend income changes for the periods shown. Principal changes are based on
the difference between the beginning and closing net asset values for the period
and assume reinvestment of dividends and distributions paid by the Fund.
Dividends and distributions are comprised of net investment income and net
realized capital gains. Under the rules of the Commission, funds advertising
performance must include total return quotes calculated according to the
following formula:
21
<PAGE>
n
P(1 + T) = ERV
Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year periods or at the end of the
1, 5 or 10 year periods (or fractional
portion thereof)
In calculating the ending redeemable value, all dividends and
distributions by a Fund are assumed to have been reinvested at net asset value
as described in the prospectus on the reinvestment dates during the period.
Total return, or "T" in the formula above, is computed by finding the average
annual compounded rates of return over the 1, 5 and 10 year periods (or
fractional portion thereof) that would equate the initial amount invested to the
ending redeemable value.
A Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing a Fund's total return with data
published by Lipper Analytical Services, Inc. or similar independent services or
financial publications, the Fund calculates its aggregate total return for the
specified periods of time by assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial net asset value of the investment from
the ending net asset value and by dividing the remainder by the beginning net
asset value. Such alternative total return information will be given no greater
prominence in such advertising than the information prescribed under the
Commission's rules.
In addition to the total return quotations discussed above, a Fund may
advertise its yield based on a 30 day (or one month) period ended on the date of
the most recent balance sheet included in the Fund's Post-Effective Amendment to
its Registration Statement, computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
6
YIELD = 2[(ab +1) ]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on
the last day of the period.
Under this formula, interest earned on debt obligations for purposes of
"a" above, is calculated by (1) computing the yield to maturity of each
obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last day of
each month, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest), (2) dividing that figure by 360
and multiplying the quotient by the market value of the obligation (including
actual accrued interest as referred to above) to determine the interest income
on the obligation for each day of the subsequent month that the obligation is in
the Fund's portfolio (assuming a month of 30 days) and (3) computing the total
of the interest earned on all debt obligations and all dividends accrued on all
equity securities during the 30 day or one month period. In computing dividends
accrued, dividend income is recognized by accruing 1/360 of the stated dividend
rate of a security each day that the security is in the Fund's portfolio. For
purposes of "b" above, Rule 12b-1 expenses are included among the expenses
accrued for the period. Undeclared earned income, computed in accordance with
generally accepted accounting principles, may be subtracted from the maximum
offering price calculation required pursuant to "d" above.
22
<PAGE>
Any quotation of performance stated in terms of yield will be given no
greater prominence than the information prescribed under the SEC's rules. In
addition, all advertisements containing performance data of any kind will
include a legend disclosing that such performance data represents past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
The annual compounded rate of total return for the one year period
ended December 31, 1999 and the average annual compounded rate of total return
from June 30, 1994 (inception) to December 31, 1999 for the China & Hong Kong
Fund was 66.27% and 9.83%. The annual compounded rate of total return for the
one year period ended December 31, 1999 and the average annual compounded rate
of total return from April 29, 1996 (inception) to December 31, 1999 for the
Asia New Economy Fund was 61.16% and -2.24%, respectively, and for the Asia
Small Cap Fund was 42.43% and -6.82%, respectively. The annual compounded rate
of total return for the one year period ended December 31, 1999 and the average
annual compounded rate of total return from November 3, 1997 (inception) to
December 31, 1999 for the Mainland China Fund was 32.20% and -2.95%,
respectively. The annual compounded rate of total return for the one year period
ended December 31, 1999 and the average compounded rate of total return from
December 15, 1998 (inception) to December 31, 1999 for the Wired (R)Index Fund
was 68.68% and 83.31% respectively. The average compounded rate of total return
from July 31, 1999 (inception) to December 31, 1999 for the internet.com
Index(TM) Fund was 82.08%.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Funds have elected to be governed by Rule 18f-1 of the 1940 Act,
under which a Fund is obligated to redeem the shares of any shareholder solely
in cash up to the lesser of 1% of the net asset value of the Fund or $250,000
during any 90 day period. Should any shareholder's redemption exceed this
limitation, a Fund can, at its sole option, redeem the excess in cash or in
readily marketable portfolio securities. Such securities would be selected
solely by the Fund and valued as in computing net asset value. In these
circumstances a shareholder selling such securities would probably incur a
brokerage charge and there can be no assurance that the price realized by a
shareholder upon the sale of such securities will not be less than the value
used in computing net asset value for the purpose of such redemption.
Each Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders. Such brokers are authorized to designate
intermediaries to accept orders on the Fund's behalf. Each Fund will be deemed
to have received the order when an authorized broker or broker authorized
designee accepts the order. Customer orders will be priced at the Fund's net
asset value next computed after they are accepted by an authorized broker or the
broker authorized designee.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting each Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company for
federal income tax purposes under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, a Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses)
and capital gain net income (i.e., the excess of capital gains over capital
losses) that it distributes to shareholders, provided that it distributes at
least 90% of its investment company taxable income (i.e., net investment income
and the excess of net short-term capital gain over net long-term capital loss)
for the taxable year (the "Distribution Requirement"), and satisfies certain
other requirements of the Code that are described below. Distributions by a Fund
made during the taxable year or, under
23
<PAGE>
specified circumstances, within twelve months after the close of the taxable
year, will be considered distributions of income and gains of the taxable year
and will therefore count toward satisfaction of the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement").
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. In addition, gain will be recognized as a
result of certain constructive sales, including short sales "against the box."
However, gain recognized on the disposition of a debt obligation purchased by a
Fund at a market discount (generally, at a price less than its principal amount)
will be treated as ordinary income to the extent of the portion of the market
discount which accrued during the period of time the Fund held the debt
obligation. In addition, under the rules of Code section 988, gain or loss
recognized on the disposition of a debt obligation denominated in a foreign
currency or an option with respect thereto, and gain or loss recognized on the
disposition of a foreign currency forward contract, futures contract, option or
similar financial instrument, or of foreign currency itself, except for
regulated futures contracts or non-equity options subject to Code Section 1256
(unless a Fund elects otherwise), will generally be treated as ordinary income
or loss to the extent attributable to changes in foreign currency exchange
rates.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (as applicable, depending on
the type of the Fund) (1) the asset is used to close a "short sale" (which
includes for certain purposes the acquisition of a put option) or is
substantially identical to another asset so used, or (2) the asset is otherwise
held by the Fund as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Fund grants a qualified covered call
option (which, among other things, must not be deep-in-the-money) with respect
thereto) or (3) the asset is stock and the Fund grants an in-the-money qualified
covered call option with respect thereto. In addition, a Fund may be required to
defer the recognition of a loss on the disposition of an asset held as part of a
straddle to the extent of any unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss.
Further, the Code also treats as ordinary income a portion of the
capital gain attributable to a transaction where substantially all of the
expected return is attributable to the time value of a Fund's net investment in
the transaction and: (1) the transaction consists of the acquisition of property
by the Fund and a contemporaneous contract to sell substantially identical
property in the future; (2) the transaction is a straddle within the meaning of
section 1092 of the Code; (3) the transaction is one that was marketed or sold
to the Fund on the basis that it would have the economic characteristics of a
loan but the interest-like return would be taxed as capital gain; or (4) the
transaction is described as a conversion transaction in the Treasury
Regulations. The amount of the gain that is recharacterized generally will not
exceed the amount of the interest that would have accrued on the net investment
for the relevant period at a yield equal to 120% of the federal long-term,
mid-term, or short-term rate, depending upon the type of instrument at issue,
reduced by an amount equal to: (1) prior inclusions of ordinary income items
from the conversion transaction and (2) under Treasury Regulations that have not
yet been promulgated, the capitalized interest on acquisition indebtedness under
Code section 263(g). Built-in losses will be preserved where the Fund has a
built-in loss with respect to property that becomes a part of a conversion
transaction. No authority exists that indicates that the converted character of
the income will not be passed through to the Fund's shareholders.
Certain transactions that may be engaged in by a Fund (such as
regulated futures contracts, certain foreign currency contracts, and options on
stock indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such
24
<PAGE>
contracts have not terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
taken into account for that taxable year together with any other gain or loss
that was previously recognized upon the termination of Section 1256 contracts
during that taxable year. Any gain or loss for the taxable year with respect to
Section 1256 contracts (including any capital gain or loss arising as a
consequence of the year-end deemed sale of such contracts) is generally treated
as 60% long-term capital gain or loss and 40% short-term capital gain or loss. A
Fund, however, may elect not to have this special tax treatment apply to Section
1256 contracts that are part of a "mixed straddle" with other investments of the
Fund that are not Section 1256 contracts.
A Fund may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If a Fund invests in a PFIC, it has three separate
options. First, it may elect to treat the PFIC as a qualifying electing fund (a
"QEF"), in which case it will each year have ordinary income equal to its pro
rata share of the PFIC's ordinary earnings for the year and long-term capital
gain equal to its pro rata share of the PFIC's net capital gain for the year,
regardless of whether the Fund receives distributions of any such ordinary
earnings or capital gains from the PFIC. Second, for tax years beginning after
December 31, 1997, the Fund may make a mark-to-market election with respect to
its PFIC stock. Pursuant to such an election, the Fund will include as ordinary
income any excess of the fair market value of such stock at the close of any
taxable year over its adjusted tax basis in the stock. If the adjusted tax basis
of the PFIC stock exceeds the fair market value of such stock at the end of a
given taxable year, such excess will be deductible as ordinary loss in the
amount equal to the lesser of the amount of such excess or the net
mark-to-market gains on the stock that the Fund included in income in previous
years. The Fund's holding period with respect to its PFIC stock subject to the
election will commence on the first day of the following taxable year. If the
Fund makes the mark-to-market election in the first taxable year it holds PFIC
stock, it will not incur the tax described below under the third option.
Finally, if the Fund does not elect to treat the PFIC as a QEF and does
not make a mark-to-market election, then, in general, (1) any gain recognized by
the Fund upon a sale or other disposition of its interest in the PFIC or any
"excess distribution" (as defined) received by the Fund from the PFIC will be
allocated ratably over the Fund's holding period in the PFIC stock, (2) the
portion of such gain or excess distribution so allocated to the year in which
the gain is recognized or the excess distribution is received shall be included
in the Fund's gross income for such year as ordinary income (and the
distribution of such portion by the Fund to shareholders will be taxable as an
ordinary income dividend, but such portion will not be subject to tax at the
Fund level), (3) the Fund shall be liable for tax on the portions of such gain
or excess distribution so allocated to prior years in an amount equal to, for
each such prior year, (i) the amount of gain or excess distribution allocated to
such prior year multiplied by the highest tax rate (individual or corporate, as
the case may be) in effect for such prior year, plus (ii) interest on the amount
determined under clause (i) for the period from the due date for filing a return
for such prior year until the date for filing a return for the year in which the
gain is recognized or the excess distribution is received, at the rates and
methods applicable to underpayments of tax for such period, and (4) the
distribution by the Fund to shareholders of the portions of such gain or excess
distribution so allocated to prior years (net of the tax payable by the Fund
thereon) will again be taxable to the shareholders as an ordinary income
dividend.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it made a taxable year election for excise
tax purposes as discussed below) to treat all or any part of any net capital
loss, any net long-term capital loss or any net foreign currency loss
(including, to the extent provided in Treasury Regulations, losses recognized
pursuant to the PFIC mark-to-market election) incurred after October 31 as if it
had been incurred in the succeeding year.
In addition to satisfying the requirements described above, a Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to each of which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government
25
<PAGE>
securities and securities of other regulated investment companies), or in two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses. Generally, an option (call or put) with respect to
a security is treated as issued by the issuer of the security not the issuer of
the option.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally may be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election"). The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses and ordinary gains or losses arising as a
result of a PFIC mark-to-market election (or upon an actual disposition of the
PFIC stock subject to such election) incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
Fund Distributions
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares or whether such gain
was recognized by a Fund prior to the date on which the shareholder acquired his
shares.
Conversely, if a Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each such
shareholder received a distribution of his pro rata share of such gain, with the
result that each shareholder will be required to report his pro rata share of
such gain on his tax return as long-term capital gain, will receive a refundable
tax credit for his pro rata share of tax paid by the Fund on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
26
<PAGE>
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular income tax and is computed at a maximum
marginal rate of 28% for noncorporate taxpayers and 20% for corporate taxpayers
on the excess of the taxpayer's alternative minimum taxable income ("AMTI") over
an exemption amount.
Investment income that may be received by a Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
may entitle a Fund to a reduced rate of, or exemption from, taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of each Fund's assets to be invested in various
countries is not known. If more than 50% of the value of a Fund's total assets
at the close of its taxable year consist of the stock or securities of foreign
corporations, a Fund may elect to "pass through" to the Fund's shareholders the
amount of foreign taxes paid by the Fund. If a Fund so elects, each shareholder
would be required to include in gross income, even though not actually received,
his pro rata share of the foreign taxes paid by the Fund, but would be treated
as having paid his pro rata share of such foreign taxes and would therefore be
allowed to either deduct such amount in computing taxable income or use such
amount (subject to various Code limitations) as a foreign tax credit against
federal income tax (but not both). For purposes of the foreign tax credit
limitation rules of the Code, each shareholder would treat as foreign source
income his pro rata share of such foreign taxes plus the portion of dividends
received from a Fund representing income derived from foreign sources. No
deduction for foreign taxes could be claimed by an individual shareholder who
does not itemize deductions. Each shareholder should consult his own tax adviser
regarding the potential application of foreign tax credits.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described above
regardless of whether they are paid in cash or reinvested in additional shares
of the Fund (or of another fund). Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects realized but undistributed
income or gain, or unrealized appreciation in the value of the assets held by
the Fund, distributions of such amounts to the shareholder will be taxable in
the manner described above, although such distributions economically constitute
a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by a Fund) on December 31 of
such calendar year provided such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of distributions, and the proceeds of redemption of
shares, paid to any shareholder (1) who has failed to provide a correct taxpayer
identification number, (2) who is subject to backup withholding for failure
properly to report the receipt of interest or dividend income, or (3) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is an "exempt recipient" (such as a corporation).
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of a Fund (including an exchange of shares of a Fund for
shares of another Fund) within 30 days before or after the sale or redemption.
In general, any gain or loss arising from (or treated as arising from) the sale
or redemption of shares of a Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for
27
<PAGE>
longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) generally will apply in determining the holding period of
shares. Capital losses in any year are deductible only to the extent of capital
gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
paid to a foreign shareholder will be subject to U.S. withholding tax at the
rate of 30% (or lower applicable treaty rate) upon the gross amount of the
dividend. Furthermore, such a foreign shareholder may be subject to U.S.
withholding tax at the rate of 30% (or lower applicable treaty rate) on the
gross income resulting from a Fund's election to treat any foreign taxes paid by
it as paid by its shareholders, but may not be allowed a deduction against this
gross income or a credit against this U.S. withholding tax for the foreign
shareholder's pro rata share of such foreign taxes which it is treated as having
paid. Such a foreign shareholder would generally be exempt from U.S. federal
income tax on gains realized on the sale of shares of a Fund, capital gain
dividends and amounts retained by the Fund that are designated as undistributed
capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income and capital
gain dividends, and any gains realized upon the sale of shares of the Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. taxpayers.
In the case of foreign noncorporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or subject to withholding tax at
a reduced treaty rate) unless such shareholders furnish the Fund with proper
notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued thereunder
as in effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect.
Rules of state and local taxation of ordinary income and capital gain
dividends from regulated investment companies may differ from the rules for U.S.
federal income taxation described above. Shareholders are urged to consult their
tax advisers as to the consequences of these and other state and local tax rules
affecting investment in a Fund.
28
<PAGE>
MANAGEMENT OF THE FUNDS
The Board of Trustees manages the business and affairs of the Funds.
The Board approves all significant agreements between the Funds and companies
and individuals that provide services to the Funds. The officers of the Funds
manage the day-to-day operations of the Funds. The day-to-day operations of the
Funds are always subject to the investment objective of each Fund. The Board of
Trustees supervises the day-to-day operations.
The Board of Trustees and executive officers of the Funds, their
principal occupations for the past five years and ages are listed below. The
address of each Trustee is 225 South Lake Avenue, Suite 777, Pasadena,
California, 91101.
Timothy W.N. Guinness (52)-- Trustee. Mr. Guinness has been the Chief Executive
Officer and Joint Chairman of Investec since August 1998. Previously, Mr.
Guinness was the Chief Executive Officer of Guinness Flight Hambro Asset
Management Limited, London, England.
James I. Fordwood* (53)-- Trustee. Mr. Fordwood is President of Balmacara
Production Inc., an investment holding and management services company that he
founded in 1987. Currently, Balmacara generally is responsible for the general
accounts and banking functions for United States companies specializing in oil
and gas operations.
Dr. Gunter Dufey* (60)-- Trustee. Dr. Dufey has been a member of the faculty of
the Graduate School of Business Administration at the University of Michigan
since 1969. His academic interests center on International Money and Capital
Markets as well as on Financial Policy of Multinational Corporations. Outside of
academia, he has been a member of the Board of Directors of GMAC Auto
Receivables Corporation since 1992.
Dr. Bret A. Herscher* (42)-- Trustee. Dr. Herscher is President of Pacific
Consultants, a technical and technology management consulting company serving
the Electronic industry and venture capital community, which he co-founded in
1988. Additionally, Dr. Herscher has been a Director of Strawberry Tree
Incorporated, a manufacturer of computer based Data Acquisition and Control
products for factory and laboratory use, since 1989.
J. Brooks Reece, Jr.* (53)-- Trustee. Mr. Reece has been a Vice-President of
Adcole Corporation, a manufacturer of precision measuring machines and sun angle
sensors for space satellites, since 1993. Prior to becoming a Vice-President, he
was the Manager of sales and marketing. In addition, Mr. Reece is the
Vice-President and Director of Adcole Far East, Ltd., a subsidiary that manages
Adcole sales and service throughout Asia. He has held this position since 1986.
Royce N. Brennan (42)-- President. Royce Brennan is Managing Director of the
U.S. operations for Investec Asset Management. Previously, he was Managing
Director of Investec Asset Management Asia based in Hong Kong. Mr. Brennan has
accumulated over fifteen years of investment experience, beginning in Australia
as an Investment Analyst at Royal Insurance Australia and CRA Funds Investment
Services, then on to County NatWest Investment Management in London as Assistant
Director for institutional international fixed income portfolios. He also served
as Fund Manager with Lincoln National Investment Management. In 1995, Mr.
Brennan joined Investec Guinness Flight Global Asset Management, Ltd. (now
Investec Asset Management U.S. Limited) as Director and Senior Investment
Manager. Mr. Brennan is a graduate of the University of Western Australia with a
degree in Geology.
Robert H. Wadsworth (60)-- Assistant Treasurer. 4455 East Camelback Road, Suite
261E, Phoenix, Arizona 85018. President, Robert H. Wadsworth and Associates,
Inc. (consultants) and Investment Company Administration, L.L.C. President and
Treasurer, First Fund Distributors, Inc.
Eric M. Banhazl (42)-- Treasurer. 2020 East Financial Way, Suite 100, Glendora,
California 91741. Senior Vice President, Robert H. Wadsworth & Associates, Inc.
(consultants) and Investment Company Administration, L.L.C. since March 1990;
Formerly Vice President, Huntington Advisors, Inc. (investment advisor).
---------------
* Not an "interested person", as that term is defined by the 1940 Act.
29
<PAGE>
Steven J. Paggioli (50)-- Secretary. 915 Broadway, Suite 1605, New York, New
York 10010. Executive Vice President, Robert H. Wadsworth & Associates, Inc.
(consultant) and Investment Company Administration, L.L.C. Vice President and
Secretary, First Fund Distributors, Inc.
Rita Dam (33)-- Assistant Treasurer. 2020 East Financial Way, Suite 100,
Glendora, California 91741. Vice President, Investment Company Administration,
L.L.C. since 1994. Member of the Financial Services Audit Group at Coopers &
Lybrand, LLP from 1989-1994.
Robin Berger (42)-- Assistant Secretary. 915 Broadway Suite 1605, New York, New
York, 10010. Vice President, Robert H. Wadsworth and Associates, Inc. since June
1993; Formerly Regulatory and compliance Coordinator, Equitable Capital
Management, Inc. (1991-93).
The table below illustrates the compensation paid to each Trustee for
the Investec Funds' most recently completed fiscal year:
<TABLE>
<CAPTION>
Pension or
Retirement Estimtated
Aggregate Benefits Annual Total Compensation
Name of Person, Compensation Accrued as Benefits from Investec
Position from Investec Part of Fund Upon Funds Paid to
Funds Expenses Retirement Trustees
--------------------------- ------------- ------------- ------------ -------------------
<S> <C> <C> <C> <C>
Dr. Gunter Dufey ........... $10,000 $ 0 $ 0 $10,000
James I. Fordwood .......... $10,000 $ 0 $ 0 $10,000
Dr. Bret Herscher .......... $10,000 $ 0 $ 0 $10,000
J. Brooks Reece, Jr ........ $11,000 $ 0 $ 0 $11,000
</TABLE>
As of the date of this Statement of Additional Information, to the best
of the knowledge of the Investec Funds, the Board of Trustees and officers of
the Funds, as a group, owned of record less than 1% of the Funds' outstanding
shares.
THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS
Investec Asset Management U.S., Limited ("Investec") furnishes
investment advisory services to the Funds. Under the Investment Advisory
Agreement (the "Agreement"), Investec directs the investments of the Funds in
accordance with the investment objectives, policies, and limitations provided in
the Funds' Prospectus or other governing instruments, the 1940 Act, and rules
thereunder, and such other limitations as the Funds may impose by notice in
writing to Investec. Investec also furnishes all necessary office facilities,
equipment and personnel for servicing the investments of the Funds; pays the
salaries and fees of all officers of Investec Funds other than those whose
salaries and fees are paid by Investec Funds' administrator or distributor; and
pays the salaries and fees of all Trustees of Investec Funds who are "interested
persons" of Investec Funds or of Investec and of all personnel of Investec Funds
or of Investec performing services relating to research, statistical and
investment activities. Investec is authorized, in its discretion and without
prior consultation with the Funds, to buy, sell, lend and otherwise trade,
consistent with the Fund's then current investment objective, policies and
restrictions in any bonds and other securities and investment instruments on
behalf of the Funds. The investment policies and all other actions of the Funds
are at all times subject to the control and direction of Investec Funds' Board
of Trustees.
Investec performs (or arranges for the performance of) the following
management and administrative services necessary for the operation of Investec
Funds: (i) with respect to the Funds, supervising
30
<PAGE>
relations with, and monitoring the performance of, custodians, depositories,
transfer and pricing agents, accountants, attorneys, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary or
desirable; (ii) investigating the development of and developing and
implementing, if appropriate, management and shareholder services designed to
enhance the value or convenience of the Funds as an investment vehicle; and
(iii) providing administrative services other than those provided by Investec
Funds' administrator.
Investec also furnishes such reports, evaluations, information or
analyses to Investec Funds as Investec Funds' Board of Trustees may request from
time to time or as Investec may deem to be desirable. Investec makes
recommendations to Investec Funds' Board of Trustees with respect to Investec
Funds' policies, and carries out such policies as are adopted by the Trustees.
Investec, subject to review by the Board of Trustees, furnishes such other
services as it determines to be necessary or useful to perform its obligations
under the Agreements.
All other costs and expenses not expressly assumed by Investec under
the Agreements or by the Administrator under the administration agreement
between it and the Funds on behalf of the Funds shall be paid by the Funds from
the assets of the Funds, including, but not limited to fees paid to Investec and
the Administrator, interest and taxes, brokerage commissions, insurance
premiums, compensation and expenses of the Trustees other than those affiliated
with the adviser or the administrator, legal, accounting and audit expenses,
fees and expenses of any transfer agent, distributor, registrar, dividend
disbursing agent or shareholder servicing agent of the Funds, expenses,
including clerical expenses, incident to the issuance, redemption or repurchase
of shares of the Funds, including issuance on the payment of, or reinvestment
of, dividends, fees and expenses incident to the registration under Federal or
state securities laws of the Funds or their shares, expenses of preparing,
setting in type, printing and mailing Prospectus, statements of additional
information, reports and notices and proxy material to shareholders of the
Funds, all other expenses incidental to holding meetings of the Funds'
shareholders, expenses connected with the execution, recording and settlement of
portfolio securities transactions, fees and expenses of the Funds' custodian for
all services to the Funds, including safekeeping of funds and securities and
maintaining required books and accounts, expenses of calculating net asset value
of the shares of the Funds, industry membership fees allocable to the Funds, and
such extraordinary expenses as may arise, including litigation affecting the
Funds and the legal obligations which the Funds may have to indemnify the
officers and Trustees with respect thereto.
Expenses which are attributable to the Funds are charged against the
income of the Funds in determining net income for dividend purposes. Investec,
from time to time, may voluntarily waive or defer all or a portion of its fees
payable under the Agreement.
The Agreement was approved by the Board of Trustees on June 3, 1998 and
by the shareholders of the Funds on August 25, 1998 at a shareholder meeting
called for that purpose. The Agreement will remain in effect for two years from
the date of execution and shall continue from year to year thereafter if it is
specifically approved at least annually by the Board of Trustees and the
affirmative vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any such party by votes cast in person at a
meeting called for such purpose. The Trustees or Investec may terminate the
Agreement on 60 days' written notice without penalty. The Agreement terminates
automatically in the event of its "assignment", as defined in the 1940 Act.
As compensation for all services rendered under the Agreement, Investec
will receive an annual fee, payable monthly, of 1.00% of the Asia New Economy
Fund's, Asia Small Cap Fund's, China & Hong Kong Fund's and Mainland China
Fund's average daily net assets. Investec will receive an annual fee of 0.90% of
the Wired Index(TM) Fund's average daily net assets up to $100 million, 0.75% of
average daily net assets between $100 and $500 million, and 0.60% of average
daily net assets in excess of $500 million. Investec will receive an annual fee
of 0.90% of the internet.com Index(TM) Fund's average daily net assets up to
$100 million, 0.75% of average daily net assets between $100 and $500 million,
and 0.60% of average daily net assets in excess of $500 million. Investec will
receive an annual fee of 1.00% of the Wireless World Funds'(TM) average daily
net assets.
31
<PAGE>
Advisory fees and expense reimbursements/(recoupments) were as follows:
Gross Expenses
Advisory (Reimbursed)/
Fee (Recouped)
------------- -----------
Fiscal year ended December 31, 1999:
China & Hong Kong Fund ........................ $1,419,339 $ 0
Asia New Economy Fund ......................... $ 88,646 ($ 89,137)
Asia Small Cap Fund ........................... $ 371,860 ($ 152,568)
Mainland China Fund ........................... $ 114,272 ($ 154,800)
Wired(R)Index Fund ............................ $ 821,521 ($ 27,776)
internet.com Index(TM)Fund .................... $ 59,986 ($ 69,971)
Gross Expenses
Advisory (Reimbursed)/
Fee (Recouped)
------------- -----------
Fiscal year ended December 31, 1998:
Asia New Economy Fund ......................... $ 72,318 ($ 140,722)
Mainland China Fund ........................... $ 140,740 ($ 160,801)
Asia Small Cap Fund ........................... $ 549,616 ($ 181,002)
China & Hong Kong Fund ........................ $1,986,087 $ 0
Wired(R)Index Fund(1) ......................... $ 1,771 ($ 1,214)
Gross Expenses
Advisory (Reimbursed)/
Fee (Recouped)
------------- -----------
Fiscal year ended December 31, 1997:
China & Hong Kong Fund ........................ $2,958,500 $ 0
Asia New Economy Fund ......................... $ 53,636 ($ 130,732)
Asia Small Cap Fund ........................... $1,692,574 $ 71,583
Mainland China Fund(2) ........................ $ 15,705 $ (11,487)
---------------
(1) For the period 12/15/98 (commencement of operations) to 12/31/98.
(2) For the period 11/3/97 (commencement of operations) to 12/31/97.
32
<PAGE>
THE ADMINISTRATOR
Investment Company Administration, L.L.C. (the "Administrator") acts as the
Funds' Administrator under an Administration Agreement. For its services, the
Administrator receives a monthly fee equal to, on an annual basis, 0.25% of the
Funds' average daily net assets, subject to a $40,000 annual minimum for the
China Fund and $80,000 allocated based on average daily net assets of the Asia
New Economy Fund, Asia Small Cap Fund and Mainland China Fund.
Administration fees paid by the Funds were as follows:
<TABLE>
<CAPTION>
Year Ended China & Hong Asia New Asia Small Mainland Wired Index(TM) internet.com
December 31 Kong Fund Economy Fund Cap Fund China Fund Fund Index(TM)Fund
----------- --------- ------------ -------- ---------- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
1999 $354,835 $ 22,161 $ 92,950 $ 28,561 $ 46,286 $ 8,332
1998 $496,522 $ 18,079 $137,404 $ 35,185 Waived(2) Waived(1)
1997 $739,625 $ 13,425 $424,336 $ 3,926(3)
</TABLE>
--------------------
(1) For the period 11/23/98 (commencement of operations) to 12/31/98.
(2) For the period 12/15/98 (commencement of operations) to 12/31/98.
(3) For the period 11/3/97 (commencement of operations) to 12/31/97.
ADMINISTRATION AGREEMENT, DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN
Investec Funds has entered into separate Administration and
Distribution Agreements with respect to the Funds with Investment Company
Administration, L.L.C. ("Administrator") and First Fund Distributors, Inc.
("Distributor"), respectively. Under the Distribution Agreement, the Distributor
uses all reasonable efforts, consistent with its other business, to secure
purchases for the Funds' shares and pays the expenses of printing and
distributing any Prospectus, reports and other literature used by the
Distributor, advertising, and other promotional activities in connection with
the offering of shares of the Funds for sale to the public. It is understood
that the Administrator may reimburse the Distributor for these expenses from any
source available to it, including the administration fee paid to the
Administrator by the Funds.
The Funds will not make separate payments as a result of the
Distribution Plan to Investec, the Administrator, Distributor or any other
party, it being recognized that the Funds presently pay, and will continue to
pay, an investment advisory fee to Investec and an administration fee to the
Administrator. To the extent that any payments made by the Funds to Investec or
the Administrator, including payment of fees under the Investment Advisory
Agreement or the Administration Agreement, respectively, should be deemed to be
indirect financing of any activity primarily intended to result in the sale of
shares of the Funds within the context of rule 12b-1 under the 1940 Act, then
such payments shall be deemed to be authorized by this Plan.
The Plan and related agreements were approved by the Board of
Trustees including all of the "Qualified Trustees" (Trustees who are not
"interested" persons of the Funds, as defined in the 1940 Act, and who have no
direct or indirect financial interest in the Plan or any related agreement). In
approving the Plan, in accordance with the requirements of Rule 12b-1 under the
1940 Act, the Board of Trustees (including the Qualified Trustees) considered
various factors and determined that there is a reasonable likelihood that the
Plan will benefit the Funds and their shareholders. The Plan may not be amended
to increase materially the amount to be spent by the Funds under the Plan
without shareholder approval, and all material amendments to the provisions of
the Plan must
33
<PAGE>
be approved by a vote of the Board of Trustees and of the Qualified Trustees,
cast in person at a meeting called for the purpose of such vote. During the
continuance of the Plan, Investec will report in writing to the Board of
Trustees quarterly the amounts and purposes of such payments for services
rendered to shareholders pursuant to the Plan. Further, during the term of the
Plan, the selection and nomination of those Trustees who are not "interested"
persons of the Funds must be committed to the discretion of the Qualified
Trustees. The Plan will continue in effect from year to year provided that such
continuance is specifically approved annually (a) by the vote of a majority of
the Funds' outstanding voting shares or by the Funds' Trustees and (b) by the
vote of a majority of the Qualified Trustees.
DESCRIPTION OF THE FUNDS
Shareholder and Trustees Liability. Each Fund is a series of Investec
Funds, a Delaware business trust.
The Delaware Trust Instrument provides that the Trustees shall not be
liable for any act or omission as Trustee, but nothing protects a Trustee
against liability to Investec Funds or to its shareholders to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office. Furthermore, a Trustee is entitled to indemnification against
liability and to all reasonable expenses, under certain conditions, to be paid
from the assets of Investec Funds; provided that no indemnification shall be
provided to any Trustee who has been adjudicated by a court to be liable to
Investec Funds or the shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office or not to have acted in good faith in the reasonable belief that his
action was in the best interest of Investec Funds. Investec Funds may advance
money for expenses, provided that the Trustee undertakes to repay Investec Funds
if his or her conduct is later determined to preclude indemnification, and one
of the following conditions are met: (i) the Trustee provides security for the
undertaking; (ii) Investec Funds is insured against losses stemming from any
such advance; or (iii) there is a determination by a majority of the Investec
Funds' independent non-party Trustees, or by independent legal counsel, that
there is reason to believe that the Trustee ultimately will be entitled to
indemnification.
Voting Rights. Shares of each Fund entitle the holders to one vote per
share. The shares have no preemptive or conversion rights. The dividend rights
and the right of redemption are described in the Prospectus. When issued, shares
are fully paid and nonassessable. The shareholders have certain rights, as set
forth in the Bylaws, to call a meeting for any purpose, including the purpose of
voting on removal of one or more Trustees.
SHAREHOLDER REPORTS
Shareholders will receive reports semiannually showing the investments
of the Funds and other information. In addition, shareholders will receive
annual financial statements audited by the Funds' independent accountants.
Principal Holders. As of October 3, 2000, principal holders owning 5%
or more of the outstanding shares of the Fund as of record date are set forth
below:
<TABLE>
<CAPTION>
% held as of
Fund Shareholder Name & Address October 3, 2000
---- -------------------------- ----------------------------
<S> <C> <C>
Guinness Flight China & Hong Charles Schwab & Co. Inc. 28.31%
Kong Fund Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
------------------------------ ----------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
% held as of
Fund Shareholder Name & Address October 3, 2000
---- -------------------------- ----------------------------
<S> <C> <C>
Guinness Flight Wired Index Charles Schwab & Co. Inc. 40.07%
Fund Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
6.84%
Charles Schwab & Co. Inc. Special
Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
------------------------------ ----------------------------------------------------------------
Guinness Flight Asia New Charles Schwab & Co. Inc. 35.17%
Economy Fund Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
------------------------------ ----------------------------------------------------------------
Guinness Flight Asia Small Charles Schwab & Co. Inc. 26.50%
Cap Fund Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
------------------------------ ----------------------------------------------------------------
Guinness Flight Mainland Charles Schwab & Co., Inc. Special 21.41%
China Fund Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
National Investor Services Corp 6.11%
Special Custody Acct for the
Exclusive Benefit of Customers
55 Water Street, 32nd Floor
New York, NY
------------------------------ ----------------------------------------------------------------
Guinness Flight Charles Schwab & Co., Inc. Special 26.90%
Wireless World Fund Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
National Investor Services Corp 7.43%
Special Custody Acct for the
Exclusive Benefit of Customers
55 Water Street, 32nd Floor
New York, NY
------------------------------ ----------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
% held as of
Fund Shareholder Name & Address October 3, 2000
---- -------------------------- ----------------------------
<S> <C> <C>
Guinness Flight Internet.com Charles Schwab & Co., Inc. Special 39.86%
Index Fund Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
------------------------------ ----------------------------------------------------------------
</TABLE>
FINANCIAL STATEMENTS
The audited statement of assets and liabilities and report thereon for
the Funds for the year ended December 31, 1999 are incorporated by reference.
The opinion of Ernst & Young LLP, independent accountants, with respect to the
audited financial statements, is incorporated herein in its entirety in reliance
upon such report of Ernst & Young LLP and on the authority of such firm as
experts in auditing and accounting. Shareholders will receive a copy of the
audited and unaudited financial statements at no additional charge when
requesting a copy of the Statement of Additional Information.
GENERAL INFORMATION
Independent Contractors: Investec may enter into agreements with independent
contractors to provide shareholder services for a fee. Shareholder services
include account maintenance and processing, direct shareholder communications,
calculating net asset value, dividend posting and other administrative
functions.
Transfer Agent. State Street Bank and Trust Company is the Transfer Agent for
the Funds. The Transfer Agent provides record keeping and shareholder services.
State Street is located at P.O. Box 1912, Boston, MA 02105.
Custodian. Investors Bank and Trust Company is the custodian for the Funds. The
custodian holds the securities, cash and other assets of the Funds. Investors
Bank and Trust is located at 200 Claredon Street, Boston, MA 02116.
Legal Counsel. Kramer Levin Naftalis & Frankel LLP serves as legal counsel for
the Investec Funds and Investec Asset Management U.S., Limited. Kramer Levin is
located at 919 Third Avenue, New York, NY 10022.
Independent Accountants. Ernst & Young LLP audits the financial statements and
financial highlights of the Funds and provides reports to the Board of Trustees.
Ernst & Young is located at 725 South Figueroa Street, Suite 500, Los Angeles,
CA 90017.
36
<PAGE>
APPENDIX A
Description of Moody's Investors Service, Inc.'s
Bond Ratings:
Investment grade debt securities are those rating categories indicated by an
asterisk (*).
*Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
*Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
*A: Bond which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
*Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its bond rating system. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category, the modifier 2 indicates a mid-range ranking, and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Description of Moody's Commercial Paper Ratings:
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months.
Issuers rated Prime1 or P1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime1 or
P1 repayment capacity will normally be evidenced by the following
characteristics:
Leading market positions in well-established industries.
High rates of return on funds employed.
Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
37
<PAGE>
Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime2 or P2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Description of Standard & Poor's Corporation's
Bond Ratings:
Investment grade debt securities are those rating categories indicated by an
asterisk (*).
*AAA: Debt rated AAA have the highest rating assigned by S&P to a debt
obligation. capacity to pay interest and repay principal is extremely strong.
*AA: Debt rated AA have a very strong capacity to pay interest; and
repay principal and differ from the higher rated issues only in small degree.
*A: Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
*BBB: Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Bonds may lack a S&P rating because no public rating has been
requested, because there is insufficient information on which to base a rating,
or because S&P does not rate a particular type of obligation as a matter of
policy.
Description of S&P's Commercial Paper Ratings:
S&P's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days.
A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
A1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A2: Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
<PAGE>
<PAGE>
Registration Statement
of
GUINNESS FLIGHT INVESTMENT FUNDS
on
Form N-1A
PART C. OTHER INFORMATION
Item 23.
Exhibits:
(a)(1) Certificate of Trust. (1)
(a)(2) Amendment to Certificate of Trust dated September 8, 2000. (2)
(a)(3) Trust Instrument. (1)
(a)(4) Amendment to Trust Instrument.(2)
(a)(5) Schedule A to Trust Instrument as of June 28, 2000. (2)
(b) Bylaws.(1)
(c) None.
(d) Investment Advisory Agreement between Registrant and Investec Asset
Management U.S. Limited (formerly Guinness Flight Investment Management
Limited).(3)
(e) General Distribution Agreement between Registrant and First Fund
Distributors, Inc.(3)
(f) None.
(g) Amended Custodian Agreement between Registrant and Investors Bank &
Trust Company.(3)
(h)(1) Amended Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company.(3)
(h)(2) Amended Administration Agreement between Registrant and Investment
Company Administration Corporation.(3)
(i)(1) Opinion of Kramer Levin Naftalis & Frankel LLP as to the legality of
securities being registered.(4)
---------------
(1) Filed as an Exhibit to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A filed electronically on March 20, 1997,
accession number 0000922423-96-000220 and incorporated herein by reference.
(2) Filed herewith.
(3) Filed as an Exhibit to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed electronically on August 28, 1998,
accession number 0000922423-98-000948 and incorporated herein by reference.
C-1
<PAGE>
(i)(2) Opinion of Morris, Nichols, Arsht & Tunnell.(5)
(j)(1) Consent of Kramer Levin Naftalis & Frankel LLP, Counsel for Registrant.
(2)
(j)(2) Consent of Ernst & Young LLP, Independent Auditors for the Registrant.
(2)
(k) Annual Report for the year ended December 31, 1999 is incorporated by
reference from the Rule 30D filing made by the Registrant on March 6,
2000 (Accession number 0000912057-00-009773).
(l) Investment Letters.(5)
(m)(1) Distribution and Service Plan.(3)
(m)(2) Form of Distribution Plan for a class of the Guinness Flight Wired
Index Fund.( 6)
(n) Form of Rule 18f-3 Multi-Class Plan.(7)
(o) None.
(p) Codes of Ethics.(8)
ITEM 24. Persons Controlled By or Under Common Control with Registrant
None.
ITEM 25. Indemnification
Article X, Section 10.02 of the Registrant's Delaware Trust Instrument,
incorporated herein by reference to Exhibit 1(b) to Post-Effective
Amendment No. 7 to Registrant's Registration Statement on Form N-1A
filed electronically on March 20, 1997, provides for the
indemnification of Registrant's Trustees and officers, as follows:
"Section 10.02 Indemnification.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
---------------
(4) Filed as an Exhibit to Post-Effective Amendment No. 11 to Registrant's
Registration Statement on Form N-1A filed electronically on June 17, 1998,
accession number 0000922423-98-000615 and incorporated herein by reference.
(5) Filed as an Exhibit to Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A filed electronically on April 25, 1997,
accession number 0000922423-97-000401 and incorporated herein by reference.
(6) Filed as an Exhibit to Post-Effective Amendment No. 24 to Registrant's
Registration Statement on Form N-1A filed electronically on December 23, 1999,
accession number 0000922423-99-001476 and incorporated herein by reference.
(7) Filed as an Exhibit to Post-Effective Amendment No. 26 to Registrant's
Registration Statement on Form N-1A filed electronically on June 30, 2000,
accession number 0000922423-00-000903 and incorporated herein by reference.
(8) Filed as an Exhibit to Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A filed electronically on April 28, 2000,
accession number 0000922423-00-000679 and incorporated herein by reference.
C-2
<PAGE>
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion of
independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered
Person may now or hereafter be entitled, shall continue as to a person
who has ceased to be a Covered Person and shall inure to the benefit of
the heirs, executors and administrators of such a person. Nothing
contained herein shall affect any rights to indemnification to which
Trust personnel, other than Covered Persons, and other persons may be
entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in Subsection (a) of this Section 10.02 may be paid by the
Trust or Series from time to time prior to final disposition thereof
upon receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the Trust or Series if it
is ultimately determined that he is not entitled to indemnification
under this Section 10.02; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of
any such advance payments or (iii) either a majority of the Trustees
who are neither Interested Persons of the Trust nor parties to the
matter, or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed
to a trial-type inquiry or full investigation), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Section 10.02."
C-3
<PAGE>
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling
persons or Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Investment Company Act of 1940, as
amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
ITEM 26. Business and Other Connections of Investment Adviser
Investec Asset Management U.S. Limited provides management services to
the Registrant and its series. To the best of the Registrant's knowledge, the
directors and officers have not held at any time during the past two fiscal
years or been engaged for his own account or in the capacity of director,
officer, employee, partner or trustee in any other business, profession,
vocation or employment of a substantial nature.
ITEM 27. Principal Underwriters
(a) First Fund Distributors, Inc., the Registrant's principal
underwriter, also acts as the principal underwriter for the following investment
companies:
1. Advisors Series Trust
2. Brandes Investment Funds
3. Builders Fixed Income Fund, Inc.
4. Dessauer Global Equity Fund, Inc.
5. Fleming Mutual Fund Group, Inc.
6. Fremont Mutual Funds
7. Investec Funds
8. Investors Research Fund, Inc.
9. Jurika & Voyles Mutual Funds
10. Kayne Anderson Mutual funds
11. Masters' Select Funds Trust
12. O'Shaughnessy Funds, Inc.
13. PIC Investment Trust
14. Professionally Managed Portfolios
15. Rainier Investment Management Mutual Funds
16. Rochdale Investment Trust
17. RNC Mutual Fund Group, Inc.
18. The Purisima Funds
19. Trust For Investment Managers
(b) The following information is furnished with respect to the officers
and directors of First Fund Distributors, Inc., Registrant's principal
underwriter:
C-4
<PAGE>
Name and Principal Position and Offices with Position and Offices
Business Address Principal Underwriter with Registrant
------------------ ------------------------- --------------------
Robert H. Wadsworth President/Treasurer Assistant Treasurer
4455 East Camelback Road
Suite 261E
Phoenix, AZ 85014
Steven J. Paggioli Vice President/Secretary Secretary
479 West 22nd Street
New York, NY 10011
Eric M. Banhazl Vice President Treasurer
2020 East Financial Way
Suite 100
Glendora, CA 91741
(c) not applicable.
ITEM 28. Location of Accounts and Records
The accounts, books or other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are
maintained by Investment Company Administration LLC, 2020 East Financial Way,
Suite 100, Glendora, CA 91741, except for those maintained by the Funds'
Custodian.
ITEM 29. Management Services
Not applicable.
ITEM 30. Undertakings
(1) Registrant undertakes to furnish each person to whom a prospectus
is delivered, a copy of the Fund's latest annual report to shareholders which
will include the information required by Item 5A, upon request and without
charge.
(2) Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a trustee or trustees if
requested to do so by the holders of at least 10% of the Registrant's
outstanding voting securities, and to assist in communications with other
shareholders as required by Section 16(c) of the 1940 Act.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has certified that it meets all
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 13th day of October, 2000.
INVESTEC FUNDS
By: /s/ Royce N. Brennan
------------------------------------------
Royce N. Brennan
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ------
/s/ Eric Banhazl Treasurer October 13, 2000
------------------------------
Eric Banhazl
/s/ Dr. Gunter Dufey Trustee October 13, 2000
------------------------------
*Dr. Gunter Dufey
/s/ J. I. Fordwood Trustee October 13, 2000
------------------------------
*J. I. Fordwood
/s/ Timothy Guinness Trustee October 13, 2000
------------------------------
*Timothy Guinness
/s/ Bret A. Herscher Trustee October 13, 2000
------------------------------
*Bret A. Herscher
/s/ J. Brooks Reece, Jr. Trustee October 13, 2000
------------------------------
*J. Brooks Reece, Jr.
*By: /s/ Susan Penry-Williams
--------------------------
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
EX-99.a(1) Amendment to Certificate of Trust dated September 8, 2000.
EX-99.a(2) Amendment to Trust Instrument.(2)
EX-99.a(3) Schedule A to Trust Instrument as of June 28, 2000.
EX-99.j(1) Consent of Kramer Levin Naftalis & Frankel LLP, Counsel for the
Registrant.
EX-99.j(2) Consent of Ernst & Young LLP, Independent Auditors for the
Registrant.
