Investec Asia New Economy Fund
PROSPECTUS September 27, 2000
The Investec Asia New Economy Fund (the "Fund") is a separate non-diversified
series of Investec Funds ("Investec Funds"). You will find specific information
in this Prospectus about the Fund plus general information about investing in
the other Investec Funds. You may find additional information about the Fund in
the Statement of Additional Information for Investec Funds, which is
incorporated by reference into this Prospectus. If you require the separate
prospectus that covers the other funds offered by Investec Funds, please contact
us.
The Securities and Exchange Commission ("SEC") has not approved or disapproved
these securities or passed on whether the information in this Prospectus is
accurate or complete. Anyone who indicates otherwise is committing a Federal
crime.
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The 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;
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
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core business practices.
The Fund 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 they fall into.
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.
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
o India, Pakistan, Bangladesh and Sri Lanka in South Asia.
The Fund will invest primarily in the following types of securities:
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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;
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
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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 that in a diversified investment company.
See "Risks of Investing" on page _ 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
[CHART OMITTED] 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.
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 as Since Inception
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
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have been different if the Fund's investments had been managed to invest
primarily in equity securities issued by New Economy companies.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
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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.
** Investec is contractually obligated to cap the Fund's Total Annual Fund
Operating Expenses at 1.98% at least through June 30, 2001.
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;
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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.
The New Economy in Asia:
The New Economy in Asia is in its infancy. The Fund's manager believes that,
while the New Economy has developed more rapidly outside of Asia to date, the
fluid nature of the global economic landscape has begun to lay the foundations
for the emergence of Asia's own New Economy. The region is already a key
manufacturer and supplier of the technology hardware so vital to the New Economy
around the world. The number of Asian mobile communications and Internet users
is expected to grow from 18 million in 1999 to 100 million by 2005. Furthermore,
old economy businesses that can see the onset of the New Economy are
restructuring themselves to better compete within the new dynamic regionally and
globally. The New Economy cannot be categorized simply as a technology meter. It
is a frame of mind and will permanently change business and consumer behavior.
In the opinion of the manager, the current Asian market is undervalued at this
critical point in its evolution. Asia enters this next great period of
development armed with a more valuable form of capital than the inexpensive
labor that it traditionally offered its global partners. Rather, Asia is now a
center of rapid technological growth as the drive to create new ideas
accelerates. The Fund will take advantage of this fundamental shift in
philosophy and reap the benefits as the core competencies that exist in Asian
technological development continue to expand.
Asia is currently benefiting from a global convergence of ideas that have proven
better than any other at generating wealth and innovation. Market competition
between firms within Asian economies has increased, as has competition with
European and American based entities and among economies in the region, trends
that will make the Asian region more competitive with the rest of the world.
Asian companies participating in the New Economy focus on revolutionary
development in hopes of being leaders in the Internet and information
technology.
There are times in the evolution of technology when threshold effects occur: a
critical mass permits massive innovation and new wealth creation in a relatively
short period. This is the technical phenomenon that the Fund's manager believes
Asia is currently experiencing as it evolves in the New Economy. The utilization
of the Internet for business-to-business, business-to-consumer, and
individual-to-individual purposes seems to be one such threshold, justifying in
part the present techno-mania that will result in a significant increase in the
value of these New Economy participants.
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PRINCIPAL RISKS OF INVESTING IN THE FUND
RISKS OF INVESTING
As with all mutual funds, investing in the Fund involves certain risks. We
cannot guarantee that the Fund will meet its investment objective or that the
Fund will perform as it has in the past. You may lose money if you invest in the
Fund.
The Fund 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 Fund is 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 the
Fund.
RISKS OF INVESTING IN MUTUAL FUNDS
The following risks are common to all mutual funds and therefore apply to the
Fund:
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. The 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.
RISKS OF INVESTING IN FOREIGN SECURITIES
The following risks are common to mutual funds that invest in foreign securities
and therefore apply to the Fund:
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 they are traded. The Fund's 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 the Fund will be affected by a change in the exchange rate
between the U.S. Dollar and the currencies in which the Fund's stocks
are denominated. The Fund 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,
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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.
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 the 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 the 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 the Fund:
o Currency Devaluation. During 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 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 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):
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
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;
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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.
RISKS OF INVESTING IN NEW ECONOMY COMPANIES
The 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.
MANAGEMENT
Investec Asset Management U.S. Limited ("Investec") is the investment advisor
for the Investec Funds. Investec supervises all aspects of the Fund's operations
and advises the Fund, subject to oversight by the Board of Trustees of the
Investec Funds. For providing these services, the Fund pays Investec an annual
advisory fee of 1% of average daily net assets.
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 Asset Management. Investec and its subsidiaries manage 105
investment funds domiciled in the United Kingdom, South Africa, Guernsey, Dublin
and the United States. Prior to June 30, 2000, Investec was known as Investec
Guinness Flight Global Asset Management, Ltd.
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.
PORTFOLIO MANAGEMENT
Robert Conlon. Mr. Conlon joined Guinness Flight Hambro's 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 and
Asia Small Cap Funds and serves as chief investment officer for Investec Asia
Limited.
Agnes Chow. Ms. Chow joined Hambro Pacific Fund Management, now Investec, in
1995 as a Fund Manager. Prior to joining Guinness Flight Hambro, she worked as
an Assistant Fund Manager at Dao
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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 New Economy and Asia Small Cap
Funds.
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)
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. With respect to the Asia New Economy Fund, the 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.
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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
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.
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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 Funds account.
Purchase Order Cut-Off. We may cease taking purchase orders for the Funds at any
time when we believe that it is in 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 ____.
TELEPHONE:
You may redeem or exchange your shares of an Investec Fund by telephone if you
authorized telephone redemption on your account application. 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.
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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
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.
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 Fund. 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.
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.
14
<PAGE>
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 Fund is 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 the 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.
Market Value. Portfolio securities of the 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. 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 Fund's Board of Trustees.
Money market instruments with less than sixty days remaining to maturity when
acquired by the Fund will be valued on an amortized cost basis. 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.
Dividends and Capital Gains Distributions. The Fund distributes all or most of
its net investment income and net capital gains to shareholders. Dividends of
the Fund's net investment income are normally declared and paid semi-annually,
in June and December. The Fund's net capital gains are normally distributed in
June and December. When calculating the amount of capital gain for the 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 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 the Fund on or before the record
date, for a dividend or capital gains distribution, you will receive that
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.
15
<PAGE>
Tax Issues. The following tax information is based on federal income 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 that 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.
o Distributions to Shareholders. Distributions to shareholders fall into
two tax categories. The first category is ordinary income distributions,
which are distributions of net investment income, including dividends,
foreign currency gains and short-term capital gains. The second category
is capital gains distributions, which are distributions of the Fund's
long-term capital gain it receives from selling stocks within its
portfolio. A shareholder is taxed on capital gain distributions at the
rate applicable to long-term capital gains even if the shareholder's
holding period in the Fund's shares is 1 year or less. Short-term
capital losses are used to offset long-term capital gain. You have to
pay taxes on both types of 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 the 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 to
the extent of any capital gain dividends received on those shares. If
you sell shares of the Fund at a loss and repurchase shares of the Fund
30 days before or after the sale, a deduction for all or a portion of
the loss is generally disallowed (a wash sale).
o Foreign Source Income and Withholding Taxes. Some of the Fund's
investment income may be subject to foreign income taxes that are
withheld at the source. If the Fund meets certain legal requirements, it
may elect to pass through these foreign taxes to shareholders. If the
Fund so elects, shareholders would be required to include in gross
income, even though not actually received, their pro rata share of such
foreign taxes and would be able to claim a foreign tax credit or a
foreign tax deduction for their share of foreign taxes paid.
Distribution Plan. The Fund has adopted a Distribution Plan (distribution fee of
0%) under Rule 12b-1 of the 1940 Act. Under this plan, no direct payments are
made by the Fund. To the extent that any payments made by the Fund 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 Fund within the context of Rule 12b-1 of the 1940 Act, then such
payments shall be deemed to be authorized by the plan.
FINANCIAL HIGHLIGHTS
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.
16
<PAGE>
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) -----
Net asset value, end of $11.41 $7.08 $8.08 $12.98
period
Total return 61.16% (11.78)% (37.68)% 3.84%++
</TABLE>
17
<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>
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
BANK LOANS
Amount outstanding at end $---^ ----- ----- N/A
of period (000)
18
<PAGE>
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>
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.
++ Not annualized.
+ Annualized.
^ The Fund's line of credit expired June 15, 1999.
Statement of Additional Information. The Statement of Additional Information
dated September 27, 2000 provides a more complete discussion about the Fund and
is incorporated by reference into this Prospectus, which means that it is
considered part of this Prospectus.
Annual and Semi-Annual Reports. Additional information about the Fund's
investments is available in the Fund's annual report to shareholders. In the
Fund's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
the last fiscal year.
To Review or Obtain this Information. To obtain a free copy of the Statement of
Additional Information and annual and semi-annual reports or to make any other
inquiries about the Fund, you may call Investec Funds at (800) 915-6566. This
information may be reviewed and copied 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 (1) writing the Public Reference Room of the Securities and Exchange
Commission, Washington, D.C. 20549-0102, or (2) electronic request at the
following e-mail address: [email protected]. You may call the SEC at (202)
942-8090 for information on the operation of the Public Reference Room. Finally,
you may also call or write a broker-dealer or financial intermediary that sells
our Funds for a copy of the Statement of Additional Information and other
information.
Investment Company Act File No. 811-0836047
19
<PAGE>
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
September 27, 2000 is not a prospectus, but should be read in conjunction with
the current prospectuses dated April 28, 2000 and September 27, 2000 (the
"Prospectuses"), 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 Prospectuses. 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............................................2
INVESTMENT STRATEGIES AND RISKS..............................................4
OTHER RISK FACTORS AND SPECIAL CONSIDERATIONS...............................13
INVESTMENT RESTRICTIONS AND POLICIES........................................17
PORTFOLIO TRANSACTIONS......................................................18
COMPUTATION OF NET ASSET VALUE..............................................20
PERFORMANCE INFORMATION.....................................................20
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................22
TAX MATTERS.................................................................22
MANAGEMENT OF THE FUNDS.....................................................28
THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS..............................30
THE ADMINISTRATOR...........................................................32
ADMINISTRATION AGREEMENT, DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN......32
DESCRIPTION OF THE FUNDS....................................................33
SHAREHOLDER REPORTS.........................................................34
FINANCIAL STATEMENTS........................................................35
GENERAL INFORMATION.........................................................35
APPENDIX A..................................................................36
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.
2
<PAGE>
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 Prospectuses dated April 28, 2000, and September 27, 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
3
<PAGE>
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.
4
<PAGE>
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.
5
<PAGE>
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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<PAGE>
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
14
<PAGE>
(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
15
<PAGE>
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.
16
<PAGE>
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.
17
<PAGE>
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,
18
<PAGE>
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> <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:
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<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) 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.
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<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
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<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
Aggregate Retirement Benefits Estimated Annual Total Compensation
Compensation from Accrued as Part of Benefits Upon from Investec Funds
Name of Person Position Investec Funds Fund Expenses Retirement Paid to 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
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<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 prospectuses, 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.
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<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.
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<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> <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 prospectuses, 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
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<PAGE>
Funds under the Plan without shareholder approval, and all material amendments
to the provisions of the Plan must 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 June 26, 2000, principal holders owning
5% or more of the outstanding shares of the Fund as of record date are set forth
below:
<TABLE>
<CAPTION>
Fund Shareholder Name & Address % held as of June 26, 2000
---- -------------------------- --------------------------
<S> <C> <C>
China & Hong Kong Fund Charles Schwab & Co. Inc. 27.89%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
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<PAGE>
Fund Shareholder Name & Address % held as of June 26, 2000
---- -------------------------- --------------------------
<S> <C> <C>
Asia New Economy Fund Charles Schwab & Co. Inc. 33.18%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
Asia Small Cap Fund Charles Schwab & Co. Inc. 28.62%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
Mainland China Fund Charles Schwab & Co. Inc. 21.13%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
National Investor Services Corp. 5.83%
Special Custody Acct for the Exclusive
Benefit of Customers
55 Water Street, 32nd Floor
New York, New York 10041-3299
Wired Index(TM)Fund Charles Schwab & Co. Inc. 7.66%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
Charles Schwab & Co. Inc. 38.53%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
internet.com Index(TM)Fund Charles Schwab & Co. Inc. 40.29%
Special Custody Account for the Exclusive
Benefit of
Customers
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
Wireless World Fund(TM) Special Custody Account for the Exclusive
Benefit of Customers 25.59%
Attn: Mutual Funds
101 Monterey Street
San Francisco, CA 94104-4122
National Investor Services Corp. 9.48%
Special Custody Acct for the Exclusive
Benefit of Customers
55 Water Street, 32nd Floor
New York, New York 10041-3299
</TABLE>
35
<PAGE>
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.
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<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."
38
