PICTET INTERNATIONAL SMALL COMPANIES FUND
One Exchange Place Boston, Massachusetts 02109
Prospectus - January 2, 1996
Panorama Trust, a Massachusetts business trust (the
"Trust"), is a no-load,
diversified, open-end management investment company which
currently offers shares of
two series, one of which is the Pictet International Small
Companies Fund (the "Fund").
The investment objective of the Fund is to provide long-term
growth of capital. The Fund
seeks to achieve this objective by investing primarily in equity
securities of companies
located outside the United States with small market
capitalizations. The net asset value of
the Fund will fluctuate. Shares of the Fund are subject to
investment risks, including the
possible loss of principal.
This Prospectus, which should be retained for future
reference, sets forth certain
information that you should know before you invest. A Statement of
Additional
Information ("SAI") containing additional information about the
Fund has been filed with
the Securities and Exchange Commission. The SAI, dated January 2,
1996, as amended or
supplemented from time to time, is incorporated by reference into
this Prospectus. A copy
of the SAI may be obtained, without charge, by calling the Trust
at 514-288-0253.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL
OFFENSE.
EXPENSES OF THE FUND
The following table illustrates the expenses and fees
expected to be incurred by the
Fund for the current fiscal year.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases NONE
Sales Load Imposed on Reinvested Dividends NONE
Deferred Sales Load NONE
Redemption Fees NONE
Exchange Fees NONE
Annual Fund Operating Expenses
(as a percentage of average net assets)
Investment Advisory Fees (after waiver)* .80%
Other Expenses .40%
Total Operating Expenses (after waiver)* 1.20%
_________________________________
* The Investment Adviser has voluntarily agreed to waive its
fees to the extent
necessary to assure that the total ordinary operating
expenses do not exceed
1.20% of the Fund's average daily net assets. Without such
voluntary waiver,
investment advisory fees and total operating expenses would be
1.00% and 1.40% of
the Fund's average daily net assets, respectively.
The purpose of the above table is to assist an investor in
understanding the various
estimated costs and expenses that an investor in the Fund will
bear directly or indirectly.
"Other Expenses" is based on estimated amounts for the current
fiscal year. Actual
expenses may be greater or less than such estimates. For further
information concerning
the Fund's expenses see "Investment Adviser" and "Administrative
Services."
The following example illustrates the estimated expenses
that an investor in the
Fund would pay on a $1,000 investment over various time periods
assuming (i) a 5%
annual rate of return and (ii) redemption at the end of each time
period. As noted in the
above table, the Fund charges no redemption fees of any kind.
1 Year 3 Years
$12 $38
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. THE ABOVE FIGURES ARE
ESTIMATES ONLY. ACTUAL EXPENSES MAY BE GREATER OR LESSER
THAN THOSE SHOWN.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide long-term
growth of capital.
The Fund seeks to achieve this objective by investing primarily in
equity securities of
companies located outside the United States ("U.S.") with small
market capitalizations.
Under normal conditions at least 65% of the Fund's total assets
will be invested in equity
securities of smaller capitalization companies (i.e., companies
with individual market
capitalization below $1 billion at time of investment) located in
at least three countries
other than the U.S. "Equity securities," as used in this
Prospectus, refers to common stock,
preferred stock, investment company shares, convertible
securities, warrants or rights to
subscribe to or purchase such securities, American Depositary
Receipts ("ADRs"),
European Depositary Receipts ("EDRs") and Global Depositary
Receipts ("GDRs").
The Fund will invest primarily in securities of issuers
whose market
capitalizations would place them (at the time of purchase) in the
same size range as
companies in approximately the lowest 20% by total market
capitalization of companies
that have equities listed on a U.S. national securities exchange
or traded in the NASDAQ
system. Based on recent U.S. share prices, these companies will
typically have individual
market capitalizations below $1 billion (although the Fund will be
allowed to invest in
larger capitalization companies that satisfy the Fund's size
standard). Because the Fund is
permitted to apply the U.S. size standard on an international
basis, it may invest in
companies that might rank above the lowest 20% by total market
capitalization in local
markets and, in fact, might in some countries rank among the
largest companies in terms of
capitalization. Determinations as to eligibility will be made by
the Fund's Adviser, Pictet
International Management Limited (the "Adviser"), based on
publicly available
information and inquiries made to the companies. See "Risk
Factors" for a discussion of
the nature of information publicly available for non-U.S.
companies.
The Adviser will determine the amount of the Fund's assets
to be invested in each
country and the markets within that country. Such allocations will
be based on its
assessment of where opportunities for long-term capital growth are
expected to be most
attractive. When making this determination, the Adviser will
evaluate key factors such as
current liquidity, capacity constraints, direction of interest
rates and market valuations.
The Adviser will invest in quality, growth-oriented smaller
companies while maintaining a
diversified approach to reduce stock specific risk. The Adviser
employs a "top-down"
approach in its assessment of countries, regions and currencies,
but it is essentially driven
by the "bottom-up" approach in stock selection. Generally, such
stock selection is based on
the Adviser's proprietary data base of approximately 4,000
companies and comprehensive
universe of about 10,000 companies, in more than 40 different
countries, and company
visits by research analysts and investment managers. The Adviser
utilizes a proprietary
model to determine asset/country allocation which includes
variables such as
macroeconomic factors and general equity and fixed income
valuation measures. In the
search for quality smaller company stocks that are relatively
inexpensive, the key criteria
are strong balance sheets, surplus net income, profitability
ratios above market/sector
average and reasonable valuations.
The Adviser believes that investing internationally in
smaller company stocks can,
over the long-term, produce superior returns but with increased
risks. See " Risk Factors"
for a discussion of these risks. Small capitalization stocks often
have sales and earnings
growth rates which exceed those of larger companies, and such
growth rates may in turn
result in more rapid share price appreciation. Investors should be
aware that although the
Fund diversifies across more investment types than most mutual
funds, no one mutual fund
can provide a complete investment program for all investors. There
can be no assurance
that the Fund will achieve its investment objective.
The Fund may invest up to 35% of its total assets in equity
securities which do not
meet its small company criteria and in debt securities (defined as
bonds, notes, debentures,
commercial paper, certificates of deposit, time deposits and
bankers' acceptances) which
are rated at least Baa by Moody's Investors Services, Inc.'s
("Moody's") or BBB by
Standard & Poor's Ratings Group ("S&P") or are unrated debt
securities deemed to be of
comparable quality by the Adviser. Securities with the lowest
rating in the investment
grade category (i.e., Baa by Moody's or BBB by S&P) are considered
to have some
speculative characteristics and are more sensitive to economic
change than higher rated
securities. Certain debt securities can provide the potential for
long-term growth of capital
based on various factors such as changes in interest rates,
economic and market
conditions, improvement in an issuer's ability to repay principal
and pay interest, and
ratings upgrades. Additionally, convertible bonds can provide the
potential for long-term
growth of capital through the conversion feature, which enables
the holder of the bond to
benefit from increases in the market price of the securities into
which they are convertible.
However, there can be no assurances that debt securities or
convertible bonds will provide
long-term growth of capital.
When deemed appropriate by the Adviser, the Fund may invest
cash balances in
repurchase agreements and other money market investments to
maintain liquidity in an
amount to meet expenses or for day-to-day operating purposes.
These investment
techniques are described below and under the heading "Investment
Objective and Policies"
in the SAI. When the Adviser believes that market conditions
warrant, the Fund may
adopt a temporary defensive position and may invest without limit
in high-quality money
market securities denominated in U.S. dollars or in the currency
of any foreign country.
See "Investment Techniques-Temporary Investments."
In addition, the Fund may enter into forward foreign
currency exchange contracts
and reverse repurchase agreements and may utilize forward foreign
currency exchange
contracts as a hedge against changes resulting from market
conditions and exchange rates.
INVESTMENT TECHNIQUES
Temporary Investments. As determined by the Adviser, when
market conditions
warrant, the Fund may invest up to 100% of its total assets in the
following high-quality
(that is, rated Prime-1 by Moody's or A-1 or better by S&P or, if
unrated, of comparable
quality as determined by the Adviser) money market securities,
denominated in U.S.
dollars or in the currency of any foreign country, issued by
entities organized in the United
States or any foreign country; short-term (less than twelve months
to maturity) and
medium-term (not greater than five years to maturity) obligations
issued or guaranteed by
the U.S. Government or the governments of foreign countries, their
agencies or
instrumentalities; finance company and corporate commercial paper,
and other short-term
corporate obligations; obligations (including certificates of
deposit, time deposits and
bankers' acceptances) of banks; and repurchase agreements with
banks and broker-dealers
with respect to such securities.
Repurchase Agreements. The Fund may enter into repurchase
agreements with
qualified brokers, dealers, banks and other financial institutions
deemed creditworthy by its
Adviser. In a repurchase agreement, the Fund purchases a security
and simultaneously
commits to resell that security at a future date to the seller (a
qualified bank or securities
dealer) at an agreed upon price plus an agreed upon market rate of
interest (itself unrelated
to the coupon rate or date of maturity of the purchased security).
Under normal
circumstances, however, the Fund will not enter into repurchase
agreements if entering into
such agreements would cause, at the time of entering into such
agreements, more than 20%
of the value of its total assets to be subject to repurchase
agreements. Under the
Investment Company Act of 1940, as amended (the "1940 Act"),
repurchase agreements
are considered to be loans collateralized by the underlying
securities. The Fund would
generally enter into repurchase transactions to invest cash
reserves and for temporary
defensive purposes. Delays or losses could result if the other
party to the agreement
defaults or becomes insolvent.
Reverse Repurchase Agreements. The Fund may enter into
reverse repurchase
agreements. In a reverse repurchase agreement the Fund sells a
security and
simultaneously commits to repurchase that security at a future
date from the buyer. In
effect, the Fund is temporarily borrowing funds at an agreed upon
interest rate from the
purchaser of the security, and the sale of the security represents
collateral for the loan. The
use of reverse repurchase agreements involves certain risks. For
example, the other party
to the agreement may default on its obligation or become insolvent
and unable to deliver
the securities to the Fund at a time when the value of the
securities has increased. Reverse
repurchase agreements also involve the risk that the Fund may not
be able to establish its
right to receive the underlying securities.
"When Issued," "Delayed Settlement," and "Forward Delivery"
Securities. The
Fund may purchase and sell securities on a "when issued," "delayed
settlement" or
"forward delivery" basis. "When issued" or "forward delivery"
refers to securities whose
terms and indenture are available and for which a market exists,
but which are not
available for immediate delivery. When issued or forward delivery
transactions may be
expected to occur one month or more before delivery is due.
Delayed settlement is a term
used to describe settlement of a securities transaction in the
secondary market which will
occur sometime in the future. No payment or delivery is made by
the Fund in a when
issued, delayed settlement or forward delivery transaction until
the Fund receives payment
or delivery from the other party to the transaction. The Fund
will maintain a separate
account of cash or liquid high grade debt obligations at least
equal to the value of purchase
commitments until payment is made. Such segregated securities
will either mature or, if
necessary, be sold on or before the settlement date. Although the
Fund receives no income
from the above described securities prior to delivery, the market
value of such securities is
still subject to change.
The Fund will engage in when issued transactions to obtain
what is considered to
be an advantageous price and yield at the time of the transaction.
When the Fund engages
in when issued, delayed settlement or forward delivery
transactions, it will do so for the
purpose of acquiring securities consistent with its investment
objective and policies and not
for the purposes of speculation. The Fund's when issued, delayed
settlement and forward
delivery commitments are not expected to exceed 25% of its total
assets absent unusual
market circumstances, and the Fund will only sell securities on
such a basis to offset
securities purchased on such a basis.
Borrowing. As a temporary measure for extraordinary or
emergency purposes,
the Fund may borrow money from banks. However, the Fund will not
borrow money for
speculative purposes.
Depositary Receipts. The Fund may purchase sponsored or
unsponsored ADRs,
EDRs and GDRs (collectively, "Depositary Receipts"). ADRs are
typically issued by a
U.S. bank or trust company and evidence ownership of underlying
securities issued by a
foreign corporation. EDRs and GDRs are typically issued by
foreign banks or trust
companies, although they also may be issued by U.S. banks or trust
companies, and
evidence ownership of underlying securities issued by either a
foreign or a United States
corporation. For purposes of the Fund's investment policies, the
Fund's investments in
Depositary Receipts will be deemed to be investments in the
underlying securities.
Privatizations. The Fund may invest in privatizations. The
Fund believes that
foreign government programs of selling interests in government-
owned or controlled
enterprises ("privatizations") may represent opportunities for
significant capital
appreciation. The ability of U.S. entities, such as the Fund, to
participate in privatizations
may be limited by local law, or the terms for participation may be
less advantageous than
for local investors. There can be no assurance that privatization
programs will be
available or successful.
Illiquid Securities. The Fund will not invest more than 15%
of its net assets in
securities that are illiquid as determined by the Adviser under
the supervision of the Board
of Trustees. An illiquid security is one which may not be sold or
disposed of in the
ordinary course of business within seven days at approximately the
value at which the
Fund has valued the security.
Investment Companies. The Fund may invest up to 10% of its
total assets in
shares of other investment companies investing in securities in
which it may otherwise
invest. Because of restrictions on direct investment by U.S.
entities in certain countries,
other investment companies may provide the most practical or only
way for the Fund to
invest in certain markets. Such investments may involve the
payment of substantial
premiums above the net asset value of those investment companies'
portfolio securities and
are subject to limitations under the 1940 Act. In addition to the
advisory fees and other
expenses that the Fund bears directly in connection with its own
operations, as a
shareholder of another investment company, the Fund would bear its
"pro rata" portion of
the other investment company's advisory fees and other expenses.
Therefore, to the extent
that the Fund invests in shares of other investment companies, the
Fund's shareholders will
be subject to expenses of such other investment companies, in
addition to expenses of the
Fund. The Fund also may incur a tax liability to the extent it
invests in the stock of a
foreign issuer that is a "passive foreign investment company"
regardless of whether such
"passive foreign investment company" makes distributions to the
Fund. See the SAI for
further information.
Forward Foreign Currency Exchange Contracts. A forward
foreign currency
exchange contract (a "forward contract") is individually
negotiated and privately traded by
currency traders and their customers and creates an obligation to
purchase or sell a
specific currency for an agreed-upon price at a future date. The
Fund normally conducts
its foreign currency exchange transaction either on a spot (i.e.,
cash) basis at the spot rate
in the foreign currency exchange market at the time of the
transaction, or through entering
into forward contracts to purchase or sell foreign currencies at a
future date. The Fund
generally does not enter into forward contracts with terms greater
than one year. The Fund
will maintain a segregated account consisting of cash or liquid
high grade debt securities in
an amount equal to the value of currency that the Fund is required
to purchase under a
forward contract.
The Fund generally enters into forward contracts only under
two circumstances.
First, if the Fund enters into a contract for the purchase or sale
of a security denominated
in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security by
entering into a forward contract to buy the amount of a foreign
currency needed to settle
the transaction. Second, if the Adviser believes that the
currency of a particular foreign
country will substantially rise or fall against the U.S. dollar,
it may enter into a forward
contract to buy or sell the currency approximating the value of
some or all of the Fund's
portfolio securities denominated in such currency. The Fund may
engage in cross-hedging
by using forward contracts in one currency to hedge against
fluctuations in the value of
securities denominated in a different currency if the Adviser
determines that there is a
pattern of correlation between the two currencies. Although
forward contracts are used
primarily to protect the Fund from adverse currency movements,
they involve the risk that
currency movements will not be accurately predicted which could
cause a loss to the Fund.
Except as specified on the preceding pages and as described
under "Investment
Limitations" in the SAI, the Fund's investment objective and
policies are not fundamental,
and the Board may change such objective and policies without
shareholder approval.
RISK FACTORS
All investments involve risk and there can be no guarantee
against loss resulting
from an investment in the Fund, nor can there be any assurance
that the Fund's investment
objective will be attained. As with any investment in securities,
the value of, and income
from, an investment in the Fund can decrease as well as increase,
depending on a variety of
factors which may affect the values and income generated by the
Fund's securities,
including general economic conditions, market factors and currency
exchange rates. An
investment in the Fund is not intended as a complete investment
program.
Small Companies. While small companies may present greater
opportunities for
capital appreciation, they may also involve greater risks than
larger, more mature issuers.
The securities of small market capitalization companies may be
more sensitive to market
changes than the securities of large companies. In addition,
smaller companies may have
limited product lines, markets or financial resources and they may
be dependent on one-
person management. Further, their securities may trade less
frequently and in more limited
volume than those of larger, more mature companies. As a result,
the prices of the
securities of such smaller companies may fluctuate to a greater
degree than the prices of
the securities of other issuers.
Foreign Securities. The Fund may purchase securities of
issuers located in any
foreign country, consistent with its investment objective.
Investors should consider
carefully the substantial risks involved in investing in
securities issued by companies and
governments of foreign nations, which are in addition to the usual
risks inherent in
domestic investments. Investing in the securities of foreign
companies involves special
risks and considerations not typically associated with investing
in U.S. companies. These
risks and considerations include differences in accounting,
auditing and financial reporting
standards, generally higher commission rates on foreign portfolio
transactions, the
possibility of expropriation or confiscatory taxation, adverse
changes in investment or
exchange control regulations, political instability which could
affect U.S. investment in
foreign countries and potential restrictions on the flow of
international capital. Moreover,
the dividend or interest income or gain from the Fund's foreign
portfolio securities may be
subject to foreign withholding or other foreign taxes, thus
reducing the net amount of
income available for distribution to the Fund's shareholders.
Further, foreign securities
often trade with less frequency and volume than domestic
securities and, therefore, may
exhibit greater price volatility. Also, changes in foreign
exchange rates will affect,
favorably or unfavorably, the value of those securities in the
Fund's portfolio which are
denominated or quoted in currencies other than the U.S. dollar.
In addition, in many
countries there is less publicly available information about
issuers than is available in
reports about companies in the United States. Foreign companies
are not generally subject
to uniform accounting, auditing and financial reporting standards,
and auditing practices
and requirements may not be comparable to those applicable to U.S.
companies. Further,
the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain
judgments in foreign courts.
There are additional risk factors, including possible losses
through the holding of
securities in domestic and foreign custodian banks and
depositories, described elsewhere in
the Prospectus under Investment Techniques - Repurchase
Agreements, Reverse
Repurchase Agreements, "When Issued", "Delayed Settlement" and
"Forward Delivery"
Securities, and Forward Foreign Currency Exchange Contracts and
under Foreign
Investments in the SAI.
PURCHASE OF SHARES
Shares of the Fund are sold without a sales commission on a
continuous basis to
the Adviser (or its affiliates) or to other institutions (the
"Institutions") acting on behalf of
the Institution's or an affiliate's clients, at the net asset
value per share next determined
after receipt of the purchase order by the transfer agent. See
"Valuation of Shares." The
minimum initial investment for the Fund is $100,000; the minimum
for subsequent
investments for the Fund is $10,000. The Fund reserves the right
to reduce or waive the
minimum initial and subsequent investment requirements from time
to time. Beneficial
ownership of shares will be reflected on books maintained by the
Adviser or the
Institutions. A prospective investor wishing to purchase shares in
the Fund should contact
the Adviser or his or her Institution.
Purchase orders for shares are accepted only on days on
which both the Adviser
and the Federal Reserve Bank of New York are open for business.
It is the responsibility
of the Adviser or Institution to transmit orders for shares
purchased to First Data Investor
Services Group, Inc. ("FDISG"), the Fund's transfer agent, and
deliver required funds to
Brown Brothers Harriman & Co., the Fund's custodian, on a timely
basis. Payment for
Fund shares must be made in federal funds immediately available to
Brown Brothers
Harriman & Co. by 12:00 noon Eastern time on the day after the
purchase order is
received by the transfer agent. Shareholders should contact the
Adviser for appropriate
purchase/wire procedures.
The Trust and its distributor reserve the right, in their
discretion, to suspend the
offering of shares of the Fund or reject purchase orders when, in
the judgment of
management, such suspension or rejection is in the best interests
of the Fund. Purchases of
the Fund's shares will be made in full and fractional shares of
the Fund calculated to three
decimal places. In the interest of economy and convenience,
certificates for shares will not
be issued.
General. The issuance of shares is recorded on the books of
the Trust. The
transfer agent will send to each shareholder of record a statement
of shares of the Fund
owned after each purchase or redemption transaction relating to
such shareholder. Neither
the distributor, Adviser nor the Institutions are permitted to
withhold placing orders to
benefit themselves by a price change.
REDEMPTION OF SHARES
Shares of the Fund may be redeemed at any time, without
cost, at the net asset
value of the Fund next determined after receipt of the redemption
request by the transfer
agent. The net asset value of redeemed shares may be more or less
than the purchase price
of the shares depending on the market value of the investment
securities held by the Fund.
An investor wishing to redeem shares should contact the Adviser or
his or her Institution.
No charge is made by the Fund for redemptions. It is the
responsibility of the Adviser or
Institution to transmit promptly redemption orders to the transfer
agent.
Payment of the redemption proceeds will ordinarily be made
by wire within one
business day, but in no event more than three business days, after
receipt of the order in
proper form by the transfer agent. The Fund may suspend the
right of redemption or
postpone the date of payment at times when the New York Stock
Exchange (the
"Exchange") is closed, or under any emergency circumstances as
determined by the
Securities and Exchange Commission (the "Commission"). See
"Valuation of Shares" for
the days on which the Exchange is closed.
If the Board determines that it would be detrimental to the
best interests of the
remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund
may pay the redemption proceeds in whole or in part by a
distribution in kind of securities
held by the Fund in lieu of cash in conformity with applicable
rules of the Commission.
Investors may incur brokerage charges on the sale of portfolio
securities received as a
redemption in kind.
The Fund reserves the right, upon 30 days' written notice,
to redeem an account in
the Fund if the net asset value of the account's shares falls
below $100,000 because of
redemptions and is not increased to at least such amount within
such 30-day period.
EXCHANGE OF SHARES
Shareholders may exchange shares of the Fund for shares of
other series of the
Trust based on the relative net asset values per share of the
series at the time the exchange
is effected. Currently, shares of the Fund may be exchanged for
shares of Pictet Global
Emerging Markets Fund. No sales charge or other fee is imposed in
connection with
exchanges. Before requesting an exchange, shareholders should
obtain and read the
prospectus of the series whose shares will be acquired in the
exchange. Prospectuses can
be obtained by calling the Trust at (514) 288-0253.
All exchanges are subject to applicable minimum initial and
subsequent
investment requirements of the series whose shares will be
acquired. In addition, an
exchange is permitted only between accounts that have identical
registrations. Shares of a
series may be acquired in an exchange only if the shares are
currently being offered and
are legally available for sale in the state of the shareholder's
residence.
An exchange involves the redemption of shares of the Fund
and the purchase of
shares of another series. Shares of the Fund will be redeemed at
the net asset value per
share of the Fund next determined after receipt of an exchange
request in proper form.
Shareholders that are not exempt from taxation may realize a
taxable gain or loss in an
exchange transaction. See "Dividends, Capital Gains Distributions
and Taxes."
A shareholder wishing to exchange shares of the Fund should
contact the Adviser
or his or her Institution. The exchange privilege may be modified
or terminated at any
time subject to shareholder notification. The Trust reserves the
right to limit the number of
times an investor may exercise the exchange privilege.
VALUATION OF SHARES
The net asset value of the Fund is determined by dividing
the total market value of
its investments and other assets, less any of its liabilities, by
the total outstanding shares of
the Fund. The Fund's net asset value per share is determined as
of the close of regular
trading on the Exchange on each day that the Adviser and Exchange
is open for business
and the Fund receives an order to purchase, exchange or redeem its
shares. Currently the
Exchange is closed on weekends and the customary national business
holidays of New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (or the days on which they are
observed).
Equity securities listed on a U.S. securities exchange for
which market quotations
are available are valued at the last quoted sale price as of the
close of the Exchange's
regular trading hours on the day the valuation is made.
Generally, securities listed on a
foreign exchange and unlisted foreign securities are valued at the
latest quoted sales price
available before the time when assets are valued. Portfolio
securities primarily traded on
the London Stock Exchange are generally valued at the mid-price
between the current bid
and asked prices. Price information on listed securities is taken
from the exchange where
the security is primarily traded. Unlisted U.S. equity securities
and listed securities not
traded on the valuation date for which market quotations are
readily available are valued at
the mean between the asked and bid prices. The value of
securities for which no
quotations are readily available (including restricted securities)
is determined in good faith
at fair value using methods determined by the Board. Foreign
currency amounts are
translated into U.S. dollars at the bid prices of such currencies
against U.S. dollars last
quoted by a major bank. One or more pricing services may be used
to provide securities
valuations in connection with the determination of the net asset
value of the Fund. Short
term investments that mature in 60 days or less are valued at
amortized cost.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund normally will distribute at least annually to
shareholders substantially
all of its net investment income and any net realized capital
gains. Undistributed net
investment income is included in the Fund's net assets for the
purpose of calculating net
asset value per share. Therefore, on the Fund's "ex-dividend"
date, the net asset value per
share excludes the dividend (i.e., is reduced by the per share
amount of the dividend).
Dividends paid shortly after the purchase of shares of the Fund by
an investor, although in
effect a return of a portion of the purchase price, are taxable to
the investor. Dividends or
distributions will automatically be reinvested in additional
shares of the Fund at net asset
value next determined after the dividend is declared.
FEDERAL TAXES
The Fund intends to qualify each year as a "regulated
investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally
relieves the Fund of liability for Federal income taxes to the
extent its earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the
Code for a taxable
year requires, among other things, that the Fund distribute to its
shareholders an amount at
least equal to 90% of its investment company taxable income and
90% of its net tax-
exempt interest income (if any) for such taxable year. In
general, the Fund's investment
company taxable income will be its net investment income,
including interest and
dividends, subject to certain adjustments, certain net foreign
currency gains, and any
excess of its net short-term capital gain over its net long-term
capital loss, if any, for such
year. The Fund intends to distribute as dividends substantially
all of its investment
company taxable income each year. Such dividends will be taxable
as ordinary income to
the Fund's shareholders who are not exempt from Federal income
taxes, whether such
income or gain is received in cash or reinvested in additional
shares. Subject to the
limitations prescribed in the Code, the dividends received
deduction for corporations will
apply to such ordinary income distributions only to the extent
they are attributable to
qualifying dividends received by the Fund from domestic
corporations for the taxable year.
It is anticipated that only a small part (if any) of the dividends
paid by the Fund will be
eligible for the dividends received deduction.
Substantially all of the Fund's net long-term capital gain,
if any, in excess of its
net short-term capital loss will be distributed at least annually
to its shareholders. The
Fund generally will have no tax liability with respect to such
gains and the distributions
will be taxable to the shareholders who are not exempt from
Federal income taxes as long-
term capital gains, regardless of how long the shareholders have
held the shares and
whether such gains are received in cash or reinvested in
additional shares.
The impact of dividends or distributions which are expected
to be declared or have
been declared, but not paid, should be carefully considered prior
to purchasing such
shares. Any dividend or distribution paid shortly after a
purchase of shares prior to the
record date will have the effect of reducing the per share net
asset value by the per share
amount of the dividend or distribution. All or a portion of such
dividend or distribution,
although in effect a return of a portion of the purchase price, is
subject to tax. A taxable
gain or loss may be realized by a shareholder upon redemption,
exchange or transfer of
shares of the Fund, depending upon the tax basis of such shares
and their value at the time
of redemption, exchange or transfer.
It is expected that dividends, certain interest income and
possibly certain capital
gains earned by the Fund from foreign securities will be subject
to foreign withholding
taxes or other foreign taxes. If more than 50% of the value of
the Fund's total assets at the
close of any taxable year consists of equity or debt securities of
foreign corporations, the
Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid
by it, including generally any withholding taxes and other foreign
income taxes, as paid by
its shareholders. If the Fund makes this election, the amount of
such foreign taxes paid by
the Fund will be included in its shareholders' income pro rata (in
addition to taxable
distributions actually received by them), and each shareholder who
is subject to tax will
generally, subject to certain limitations under the Code, be
entitled (a) to credit a
proportionate amount of such taxes against U.S. Federal income tax
liabilities, or (b) if
deductions are itemized, to deduct such proportionate amount from
U.S. income.
Miscellaneous. Dividends declared in October, November or
December of any
year payable to shareholders of record on a specified date in such
a month will be deemed
to have been received by the shareholders and paid by the Fund on
December 31, in the
event such dividends are paid during January of the following
year.
A 4% nondeductible excise tax is imposed under the Code on
regulated investment
companies that fail to currently distribute for each calendar year
specified percentages of
their ordinary taxable income and capital gain net income (excess
of capital gains over
capital losses) earned in specified periods. The Fund expects
that it will generally make
sufficient distributions or deemed distributions of its ordinary
taxable income and any
capital gain net income for each calendar year to avoid liability
for this excise tax.
The foregoing summarizes some of the important tax
considerations generally
affecting the Fund and its shareholders and is not intended as a
substitute for careful tax
planning. Accordingly, potential investors in the Fund should
consult their tax advisers
with specific reference to their own tax situations.
The foregoing discussion of tax consequences is based on tax
laws and regulations
in effect on the date of this Prospectus, which are subject to
change.
Shareholders will be advised at least annually as to the
federal income tax
consequences of distributions made each year.
The Fund will be required in certain cases to withhold and
remit to the United
States Treasury 31% of taxable dividends (including capital gains
distributions) or gross
proceeds realized upon a redemption, exchange or other sale of
shares paid to shareholders
who are subject to this "backup withholding" because they have
failed to provide a correct,
certified tax payer identification number in the manner required,
have received IRS Notice
of their failure properly to include on their return payments of
taxable interest or
dividends, or have failed to certify to the Fund that they are not
subject to backup
withholding when required to do so or that they are "exempt
recipients."
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local or
foreign taxes on
distributions from, or the value of an investment in, the Fund. A
shareholder should
consult with a tax adviser with respect to the tax status of an
investment in or distributions
from the Fund in a particular state, locality or other
jurisdiction that may impose tax on
the shareholder.
MANAGEMENT OF THE FUND
The Board of Trustees has overall responsibility for the
management of the Fund
under the laws of the Commonwealth of Massachusetts governing the
responsibilities of
trustees of business trusts. The SAI identifies and provides
information about the Trustees
and officers of the Trust.
INVESTMENT ADVISER
The Trust, on behalf of the Fund, has entered into an
investment advisory
agreement with Pictet International Management Limited. Subject
to the control and
supervision of the Trust's Board and in conformance with the
stated investment objective
and policies of the Fund, the Adviser manages the investment and
reinvestment of the
assets of the Fund. The Adviser's advisory and portfolio
transaction services also include
making investment decisions for the Fund, placing purchase and
sale orders for portfolio
transactions and employing professional portfolio managers and
security analysts who
provide research services to the Fund. The Adviser is entitled to
receive from the Fund for
its investment services a fee, computed daily and payable monthly,
at the annual rate of
1.00% of the average daily net assets of the Fund. The Adviser
has voluntarily agreed to
reduce its fees to the extent necessary to assure that the total
operating expenses of the
Fund will not exceed 1.20% of the average daily net assets of the
Fund. The aggregate
fees paid to the Fund's Adviser are higher than advisory fees paid
by most other U.S.
investment companies. The Fund's Board believes such fees are
comparable to those paid
by other similar funds.
The Adviser is an affiliate of Pictet & Cie (the "Bank"), a
Swiss private bank,
which was founded in 1805. As of December 31, 1995, the Bank
managed in excess of
$45 billion for institutional and private clients. The Bank is
owned by seven partners. The
Adviser was established in 1980 and manages institutional
investment funds with a
particular emphasis on the investment needs of U.S. and
international institutional clients
seeking to invest in the international fixed income and equity
markets. Registered with the
Commission in 1981 and regulated by the Investment Management
Regulatory
Organisation, the Adviser's London office has managed
international portfolios for U.S.
tax-exempt clients since 1981 and U.K. pension funds since 1984.
The Adviser currently
manages approximately $4 billion for more than 50 accounts.
The Fund is managed by the following individuals:
Jonathan Neill is a Senior Investment Manager having joint
responsibility for
worldwide smaller companies and emerging markets investment, with
Mr. Polunin. Prior
to joining the Adviser in 1990, Mr. Neill worked for two years
with Mercury Asset
Management as an investment manager with specific responsibility
for specialist
international funds. He also spent three years managing U.K. and
International Growth
Funds with Oppenheimer Fund Management.
Douglas Polunin is a Senior Investment Manager with joint
responsibility for
worldwide smaller companies and emerging markets investment,
working with Jonathan
Neill. Prior to joining the Adviser in 1989, Mr. Polunin spent
two and a half years with
the Union Bank of Switzerland in London, where he was in charge of
the Discretionary
Portfolio Management section. Before this, he spent four years as
an Equity Analyst with
UBS in Switzerland.
Richard Yarlott is a Senior Investment Manager within the
small companies and
emerging markets team. His main responsibilities currently
include asset allocation in
emerging markets and securities analysis on an international
basis. Prior to joining the
Adviser in 1994, Mr. Yarlott worked for over ten years in banking,
strategic consulting
and private investment. In 1985 he joined JP Morgan where he
worked in Structured
Finance and M & A roles until 1990. He spent two years as a
principal in a private
investment company, and subsequently worked for Marakon
Associates, a value-based
consulting firm.
Yves Kuhn is an Investment Manager within the smaller
companies and emerging
markets team. His main focus is on smaller companies and emerging
markets within
Eastern Europe. Prior to joining the Adviser in 1994, Mr. Kuhn
spent three years in
consultancy, essentially concerned with the restructuring and cost
saving programs of
major utility and consumer goods companies.
Richard Ormond is an Investment Manager in the smaller
companies and emerging
markets team. After joining the Bank in 1990 he spent two years
in Geneva with
responsibility for European Indexed Funds and performance analysis
for the Strategic
Investment Committee. He joined the Adviser's office in 1992 and
is currently responsible
for the Adviser's proprietary database, analyzing smaller
companies and emerging markets.
ADMINISTRATIVE SERVICES
FDISG serves as the Trust's administrator, accounting agent
and transfer agent
and in that capacity supervises the Trust's day-to-day operations,
other than management
of the Fund's investments. FDISG, formerly known as The
Shareholder Services Group,
Inc., is a wholly owned subsidiary of First Data Corporation. For
its services as
accounting agent, FDISG is entitled to receive a fee from the
Trust computed daily and
payable monthly at the annual rate of .04% of the aggregate
average daily net assets of the
Trust, subject to a $50,000 annual minimum from the Fund. For
administrative services,
FDISG is entitled to receive $220,000 per annum from the Trust,
allocated between the
Fund and other series of the Trust based on average daily net
assets. In addition, for its
services as transfer agent, FDISG is to be paid separate
compensation.
FDISG is located at One Exchange Place, Boston,
Massachusetts 02109.
OTHER SERVICES
Distribution. 440 Financial Distributors, Inc. (the
"Distributor") is the principal
underwriter and distributor of shares of the Fund pursuant to a
distribution agreement with
the Trust. The Distributor is located at 290 Donald Lynch
Boulevard, Marlboro,
Massachusetts 01752.
Custodian. Brown Brothers Harriman & Co., located at 40
Water Street, Boston,
Massachusetts 02109, serves as the custodian of the Trust's
assets.
Independent Accountants. Coopers & Lybrand L.L.P., located
at One Post Office
Square, Boston, Massachusetts 02109, serves as independent
accountants for the Trust
and will audit its financial statements annually.
Counsel. Hale and Dorr serves as counsel to the Trust.
EXPENSES
The Fund bears its own operating expenses including: taxes;
interest;
miscellaneous fees (including fees paid to Board members);
Commission fees; state Blue
Sky qualification fees; costs of preparing and printing
prospectuses and statements of
additional information for regulatory purposes and for
distribution to existing
shareholders; amortization of organizational costs; investment
advisory fees;
administration fees; charges of the custodian, any subcustodians
and the transfer and
dividend agent; certain insurance premiums; outside auditing,
pricing and legal expenses;
costs of shareholders' reports and meetings; and any extraordinary
expenses. The Fund
also pays for brokerage fees and commissions, if any, in
connection with the purchase and
sale of its portfolio securities.
As discussed under "Expenses of the Fund," the Adviser has
voluntarily
undertaken to waive its fees as may be necessary to limit total
ordinary operating expenses
of the Fund to a specified percentage of the Fund's average daily
net assets. The Adviser
may modify or terminate this undertaking at any time.
PERFORMANCE CALCULATIONS
The Fund may advertise or quote total return data from time
to time. Total return
will be calculated on an average annual total return basis, and
may also be calculated on
an aggregate total return basis, for various periods. Average
annual total return reflects
the average annual percentage change in value of an investment in
the Fund over the
measuring period. Aggregate total return reflects the total
percentage change in value over
the measuring period. Both methods of calculating total return
assume that dividends and
capital gain distributions made by the Fund during the period are
reinvested in Fund
shares.
The Fund may compare its total return to that of other
investment companies with
similar investment objectives and to stock and other relevant
indices or to rankings
prepared by independent services or other financial or industry
publications that monitor
the performance of mutual funds or investments similar to the
Fund. For example, the total
return of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc.,
Morningstar, Micropal, FTA World Medium Small-Cap Ex-U.S. Index
and the
International Financial Corporation Composite Index. Total return
and other performance
data as reported in national financial publications such as Money
Magazine, Forbes,
Barron's, The Wall Street Journal and The New York Times, or in
local or regional
publications, may also be used in comparing the performance of the
Fund.
Performance quotations will represent the Fund's past
performance, and should not
be considered as representative of future results. Since
performance will fluctuate,
performance data for the Fund should not be used to compare an
investment in the Fund's
shares with bank deposits, savings accounts and similar investment
alternatives which
often provide an agreed or guaranteed fixed yield/return for a
stated period of time.
Shareholders should remember that performance is generally a
function of the kind and
quality of the instruments held in the Fund, portfolio maturity,
operating expenses and
market conditions. Any fees charged by the Adviser or
institutions to their clients will not
be included in the Fund's calculations of total return.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Trust was organized as a Massachusetts business trust on
May 23, 1995.
The Declaration of Trust authorizes the Trustees to classify and
reclassify any unissued
shares into one or more series and classes of shares. Currently,
the Trust has two series,
one of which is the Fund. Each series currently has only one class
of shares. The Trust
offers shares of beneficial interest, $.001 par value, for sale to
the public. When matters
are submitted for shareholder vote, shareholders of the Fund will
have one vote for each
full share owned and proportionate, fractional votes for
fractional shares held. Shares of
each series are entitled to vote separately to approve investment
advisory agreements or
changes in fundamental investment policies, but will vote together
on the election of
Trustees or selection of accountants. Under Massachusetts law and
the Declaration of
Trust, the Trust is not required and does not currently intend to
hold annual meetings of
shareholders for the election of Trustees except as required under
the 1940 Act. There will
normally be no meetings of shareholders for the purpose of
electing Trustees unless less
than a majority of the Trustees holding office have been elected
by shareholders, at which
time the Trustees then in office will call a shareholders' meeting
for the election of
Trustees. Any Trustee may be removed from office upon the vote of
shareholders holding
at least two-thirds of the Trust's outstanding shares at a meeting
called for that purpose.
The Trustees are required to call a meeting of shareholders upon
the written request of
shareholders holding at least 10% of the Trust's outstanding
shares. In addition,
shareholders who meet certain criteria will be assisted by the
Trust in communicating with
other shareholders in seeking the holding of such meeting.
Shareholder inquiries should be addressed to the Trust at
the address or telephone
number stated on the cover page.
REPORTS
Shareholders receive unaudited semi-annual financial
statements and audited
annual financial statements.
PICTET INTERNATIONAL SMALL COMPANIES FUND
One Exchange Place
Boston, Massachusetts 02109
Prospectus
Dated January 2, 1996
Investment Adviser Administrator and Transfer Agent
Pictet International Management Limited First Data Investor
Services Group, Inc.
Cutlers Garden One Exchange Place
5 Devonshire Square Boston, MA 02109
London, United Kingdom
EC2M 4LD
Distributor
440 Financial Distributors, Inc.
290 Donald Lynch Boulevard
Marlboro, MA 01752
Table of Contents
Page Page
Expenses of the Fund .. 2 Valuation of Shares
9
Investment Objective and Policies 3 Dividends, Capital
Gain
Distributions and Taxes 10
Investment Techniques 4 Management of the Fund
12
Risk Factors 7 Performance Calculations
14
Purchase of Shares 8 General Information
15
Redemption of Shares 8
Exchange of Shares 9
No person has been authorized to give any information or to make
any representations not
contained in this Prospectus, or in the Trust's Statement of
Additional Information, in
connection with the offering made by this Prospectus and, if given
or made, such
information or representations must not be relied upon as having
been authorized by the
Trust or its Distributor. This Prospectus does not constitute an
offering by the Trust or the
Distributor in any jurisdiction in which such offering may not
lawfully be made.
2
16
PICTET INTERNATIONAL SMALL COMPANIES FUND
STATEMENT OF ADDITIONAL INFORMATION
January 2, 1996
This Statement of Additional Information is not a prospectus
but should be read in conjunction with Panorama Trust's (the
"Trust") Prospectus for the Pictet International Small Companies
Fund (the "Fund") dated January 2, 1996 (the "Prospectus"). To
obtain the Prospectus, please call the Trust at 514-288-0253.
Capitalized terms used in this Statement of Additional
Information and not otherwise defined have the same meanings given
to them in the Prospectus.
Table of Contents Page
Investment Objective and Policies 2
Purchase of Shares 7
Redemption of Shares 7
Investment Limitations 7
Management of the Fund 9
Investment Advisory and Other Services 11
Distributor 12
Portfolio Transactions 12
Additional Information Concerning Taxes 12
Performance Calculations 16
General Information 17
Appendix - Description of Ratings and U.S. Government
Securities
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the investment objective
and policies set forth in the Prospectus:
Repurchase Agreements. The Fund may enter into repurchase
agreements with qualified brokers, dealers, banks and other
financial institutions deemed creditworthy by its Adviser. In a
repurchase agreement, the Fund purchases a security and
simultaneously commits to resell that security at a future date to
the seller (a qualified bank or securities dealer) at an agreed
upon price plus an agreed upon market rate of interest (itself
unrelated to the coupon rate or date of maturity of the purchased
security). Under normal circumstances, however, the Fund will not
enter into repurchase agreements if entering into such agreements
would cause, at the time of entering into such agreements, more
than 20% of the value of its total assets to be subject to
repurchase agreements. The Fund would generally enter into
repurchase transactions to invest cash reserves and for temporary
defensive purposes. Delays or losses could result if the other
party to the agreement defaults or becomes insolvent.
The securities held subject to a repurchase agreement may
have stated maturities exceeding 13 months, but the Adviser
currently expects that repurchase agreements will mature in less
than 13 months. The seller under a repurchase agreement will be
required to maintain the value of the securities subject to the
agreement at not less than 101% of the repurchase price including
accrued interest. The Fund's administrator and the Adviser will
mark to market daily the value of the securities purchased, and
the Adviser will, if necessary, require the seller to deposit
additional securities to ensure that the value is in compliance
with the 101% requirement stated above. The Adviser will consider
the creditworthiness of a seller in determining whether the Fund
should enter into a repurchase agreement, and the Fund will only
enter into repurchase agreements with banks and dealers which are
determined to present minimal credit risk by the Adviser under
procedures adopted by the Board of Trustees.
In effect, by entering into a repurchase agreement, the Fund
is lending its funds to the seller at the agreed upon interest
rate, and receiving securities as collateral for the loan. Such
agreements can be entered into for periods of one day (overnight
repo) or for a fixed term (term repo). Repurchase agreements are a
common way to earn interest income on short-term funds.
The use of repurchase agreements involves certain risks. For
example, if the seller of a repurchase agreement defaults on its
obligation to repurchase the underlying securities at a time when
the value of these securities has declined, the Fund may incur a
loss upon disposition of them. Default by the seller would also
expose the Fund to possible loss because of delays in connection
with the disposition of the underlying obligations. If the seller
of an agreement becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, a
bankruptcy court may determine that the underlying securities are
collateral not within the control of the Fund and therefore
subject to sale by the trustee in bankruptcy. Further, it is
possible that the Fund may not be able to substantiate its
interest in the underlying securities.
Repurchase agreements that do not provide for payment to the
Fund within seven days after notice without taking a reduced price
are considered illiquid securities.
Reverse Repurchase Agreements. The Fund may enter into
reverse repurchase agreements. In a reverse repurchase agreement
the Fund sells a security and simultaneously commits to repurchase
that security at a future date from the buyer. In effect, the Fund
is temporarily borrowing funds at an agreed upon interest rate
from the purchaser of the security, and the sale of the security
represents collateral for the loan. The Fund retains record
ownership of the security and the right to receive interest and
principal payments on the security. At an agreed upon future date,
the Fund repurchases the security by remitting the proceeds
previously received, plus interest. In certain types of
agreements, there is no agreed upon repurchase date and interest
payments are calculated daily, often based on the prevailing
overnight repurchase rate. These agreements, which are treated as
if reestablished each day, are expected to provide the Fund with a
flexible borrowing tool. Reverse repurchase agreements are
considered to be borrowings by a fund under the Investment Company
Act of 1940, as amended (the "1940 Act").
The Adviser will consider the creditworthiness of the other
party in determining whether the Fund will enter into a reverse
repurchase agreement. Under normal circumstances the Fund will
not enter into reverse repurchase agreements if entering into such
agreements would cause, at the time of entering into such
agreements, more than 33 1/3% of the value of its total assets to
be subject to such agreements.
The use of reverse repurchase agreements involves certain
risks. For example, the other party to the agreement may default
on its obligation or become insolvent and unable to deliver the
securities to the Fund at a time when the value of the securities
has increased. Reverse repurchase agreements also involve the risk
that the Fund may not be able to establish its right to receive
the underlying securities.
Depositary Receipts. The Fund may purchase American
Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") and Global Depositary Receipts ("GDRs") (collectively,
"Depositary Receipts"). ADRs are typically issued by a U.S. bank
or trust company to evidence ownership of underlying securities
issued by a foreign corporation. EDRs and GDRs are typically
issued by foreign banks or trust companies, although they also may
be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a United
States corporation. Generally, Depositary Receipts in registered
form are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. Depositary Receipts
may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted.
Depositary Receipts may be issued pursuant to sponsored or
unsponsored programs. In sponsored programs, an issuer has made
arrangements to have its securities traded in the form of
Depositary Receipts. In unsponsored programs, the issuer may not
be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored
programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated
in the creation of a sponsored program. Accordingly, there may be
less information available regarding issuers of securities
underlying unsponsored programs and there may not be a correlation
between such information and the market value of the Depositary
Receipts. Depositary Receipts also involve the risks of other
investments in foreign securities, as discussed below. For
purposes of the Fund's investment policies, the Fund's investments
in Depositary Receipts will be deemed to be investments in the
underlying securities.
Foreign Investments. International investments are subject
to a variety of risks of loss beyond the risks ordinarily
associated with investing in the U.S. and other mature securities
markets. The discussion of risks set forth below refers to the
better understood risks of investing in less developed markets but
is not intended, and should not be assumed, to be a complete list
of all possible risks. Although the Board of Trustees, the
Adviser, and the Custodian and subcustodians each review and
attempt to minimize the risks of which they are aware, and even if
neither the Trustees nor any service provider to the Fund has
failed to fulfill its duties to the Fund, it is entirely possible
that the Fund may lose some or all of its investment in one or
more securities in an emerging or politically unstable market. An
example of such a loss may involve a fraud in a foreign market not
reasonably preventable by the service providers, notwithstanding
oversight by the Trustees and procedures of each service provider
generally considered to be adequate to prevent such a fraud. In
any such case, it is likely that the Fund would not be reimbursed
for any such loss.
Investors should recognize that investing in foreign
companies involves certain special considerations which are not
typically associated with investing in U.S. companies. Because
the stocks of foreign companies are frequently denominated in
foreign currencies, and because the Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the
Fund may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur
costs in connection with conversions between various currencies.
The investment policies of the Fund permit the Fund to enter into
forward foreign currency exchange contracts in order to hedge its
holdings and commitments against changes in the level of future
currency rates. Such contracts involve an obligation to purchase
or sell a specific currency at a future date at a price set at the
time of the contract.
As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and may
have policies that are not comparable to those of domestic
companies, there may be less information available about certain
foreign companies than about domestic companies. Securities of
some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is
generally less government supervision and regulation of stock
exchanges, brokers and listed companies than in the United States.
In addition, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in
foreign countries.
Although the Fund will endeavor to achieve most favorable
execution costs in its portfolio transactions, fixed commissions
on many foreign stock exchanges are generally higher than
negotiated commissions on U.S. exchanges. Certain foreign
governments levy withholding taxes on dividend and interest income
and, in some cases, also tax certain capital gains. Although in
some countries a portion of these taxes are reduced under
applicable income tax treaties and/or are recoverable, the non-
recovered portion of foreign taxes will reduce the income received
or returned from foreign companies the stock or securities of
which are held by the Fund.
Brokerage commissions, custodial services, and other costs
relating to investment in foreign securities markets are generally
more expensive than in the United States. Foreign securities
markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets
of the Fund are uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in
losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the
purchaser.
In addition, excess cash invested with depository
institutions domiciled outside the continental United States, as
with any offshore deposits, may be subject to both sovereign
actions in the jurisdiction of the depository institution and
sovereign actions in the jurisdiction of the currency, including
but not limited to freeze, seizure, and diminution. The risk
associated with the repayment of principal and payment of interest
on such instruments by the institution with whom the deposit is
ultimately placed will be exclusively for the Fund's account.
Other Investment Companies. The Fund may invest up to 10%
of its total assets in securities issued by other investment
companies investing in securities in which the Fund can invest,
provided that such investment companies invest in portfolio
securities in a manner consistent with the Fund's investment
objective and policies. Applicable provisions of the 1940 Act
require that the Fund limit its investments so that, as determined
immediately after a securities purchase is made: (a) not more
than 10% of the value of the Fund's total assets will be invested
in the aggregate in securities of investment companies as a group;
(b) the Fund and any company or companies controlled by the Fund
will not own together more than 3% of the total outstanding shares
of any one investment company at the time of purchase; and (c) the
Fund will not invest more than 5% of its total assets in any one
investment company. As a shareholder of another investment
company, the Fund would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to
the advisory and other expenses that the Fund bears directly in
connection with its own operations.
Illiquid Securities. The Fund may invest up to 15% of its
net assets in illiquid securities. The term "illiquid securities"
for this purpose means securities that cannot be disposed of
within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the
securities and includes, among other securities, repurchase
agreements maturing in more than seven days, certain restricted
securities and securities that are otherwise not freely
transferable. Restricted securities may be sold only in privately
negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities
Act of 1933, as amended ("1933 Act"). Illiquid securities
acquired by the Fund may include those that are subject to
restrictions on transferability contained in the securities laws
of other countries. Securities that are freely marketable in the
country where they are principally traded, but that would not be
freely marketable in the United States, will not be considered
illiquid. Where registration is required, a Fund may be obligated
to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a
less favorable price than prevailed when it decided to sell.
In recent years a large institutional market has developed
for certain securities that are not registered under the 1933 Act,
including securities sold in private placements, repurchase
agreements, commercial paper, foreign securities and corporate
bonds and notes. These instruments often are restricted
securities because the securities are sold in transactions not
requiring registration. Institutional investors generally will
not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional
market in which such unregistered securities can be resold readily
or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal
restrictions on resale to the general public or certain
institutions is not determinative of the liquidity of such
investments.
Rule 144A under the 1933 Act establishes a safe harbor from
the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers.
Institutional markets for restricted securities sold pursuant to
Rule 144A in many cases provide both readily ascertainable values
for restricted securities and the ability to liquidate an
investment to satisfy share redemption orders. Such markets might
include automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of
qualified buyers interested in purchasing Rule 144A-eligible
restricted securities, however, could adversely affect the
marketability of such portfolio securities and result in the
Fund's inability to dispose of such securities promptly or at
favorable prices.
The Board of Trustees has delegated the function of making
day-to-day determinations of liquidity to the Adviser pursuant to
guidelines approved by the Board. The Adviser takes into account
a number of factors in reaching liquidity decisions, including,
but not limited to: (i) the frequency of trades for the security,
(ii) the number of dealers that quote prices for the security,
(iii) the number of dealers that have undertaken to make a market
in the security, (iv) the number of other potential purchasers,
and (v) the nature of the security and how trading is effected
(e.g., the time needed to sell the security, how bids are
solicited and the mechanics of transfer). The Adviser monitors
the liquidity of restricted securities in the Fund's portfolio and
reports periodically on such decisions to the Board.
Forward Contracts. The Fund may enter into forward foreign
currency exchange contracts ("forward contracts") to attempt to
minimize the risk from adverse changes in the relationship between
the U.S. dollar and foreign currencies. A forward contract, which
is individually negotiated and privately traded by currency
traders and their customers, involves an obligation to purchase or
sell a specific currency for an agreed-upon price at a future
date.
The 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 or is expecting a
dividend or interest payment in order to "lock in" the U.S. dollar
price of a security, dividend or interest payment. When a Fund
believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract to
sell an amount of that foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in such
currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may
enter into a forward contract to buy that currency for a fixed
dollar amount.
In connection with the Fund's forward contract purchases,
the Fund's custodian will maintain in a segregated account cash or
high grade liquid debt securities with a value equal to the amount
of the Fund's purchase commitments. Segregated assets used to
cover forward contracts will be marked to market on a daily basis.
While these contracts are not presently regulated by the Commodity
Futures Trading Commission ("CFTC"), the CFTC may in the future
regulate them, and limit the ability of the Fund to achieve
potential gains from a positive change in the relationship between
the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in poorer overall performance by the
Fund than if it had not entered into such contracts. The Fund
generally will not enter into a forward foreign currency exchange
contract with a term greater than one year.
While transactions in forward contracts may reduce certain
risks, such transactions themselves entail certain other risks.
Thus, while the Fund may benefit from the use of hedging
positions, unanticipated changes in interest rates, securities
prices or currency exchange rates may result in a poorer overall
performance for the Fund than if it had not entered into any
hedging positions. If the correlation between a hedging position
and portfolio position which is intended to be protected is
imperfect, the desired protection may not be obtained, and the
Fund may be exposed to risk of financial loss.
Perfect correlation between the Fund's hedging positions and
portfolio positions may be difficult to achieve because hedging
instruments in many foreign countries are not yet available. In
addition, it is not possible to hedge fully against currency
fluctuations affecting the value of securities denominated in
foreign currencies because the value of such securities is likely
to fluctuate as a result of independent factors not related to
currency fluctuations.
PURCHASE OF SHARES
The purchase price of shares of the Fund is the net asset
value next determined after receipt of the purchase order by the
transfer agent.
The Fund and its distributor reserve the right in their sole
discretion (i) to suspend the offering of its shares, (ii) to
reject purchase orders when in the judgment of management such
rejection is in the best interest of the Fund, and (iii) to reduce
or waive the minimum for initial and subsequent investments from
time to time.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the
date of payment (i) during any period that the New York Stock
Exchange (the "Exchange") is closed, or trading on the Exchange is
restricted as determined by the Commission, (ii) during any period
when an emergency exists as defined by the rules of the Commission
as a result of which it is not reasonably practicable for the Fund
to dispose of securities owned by it, or fairly to determine the
value of its assets, and (iii) for such other periods as the
Commission may permit.
No charge is made by the Fund for redemptions. Redemption
proceeds may be greater or less than the shareholder's initial
cost depending on the market value of the securities held by the
Fund.
PORTFOLIO TURNOVER
The portfolio turnover rate of the Fund will depend upon
market and other conditions and it will not be a limiting factor
when the Adviser believes that portfolio changes are appropriate.
Although the portfolio turnover rate may vary from year to year,
the Adviser expects, during normal market conditions, that the
Fund's portfolio turnover rate will not exceed 100%.
INVESTMENT LIMITATIONS
The Fund is subject to the following restrictions which are
fundamental policies and may not be changed without the approval
of the lesser of: (1) 67% of the voting securities of the Fund
present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Fund are present or
represented by proxy, or (2) more than 50% of the outstanding
voting securities of the Fund. The Fund will not:
(1) enter into commodities or commodity contracts, other than
forward contracts;
(2) purchase or sell real estate (including real estate limited
partnership interests), although it may purchase and sell
securities of companies which deal in real estate and may purchase
and sell securities which are secured by interests in real estate;
(3) make loans except (i) by purchasing bonds, debentures or
similar obligations (including repurchase agreements and money
market instruments, including bankers acceptances and commercial
paper, and selling securities on a when issued, delayed settlement
or forward delivery basis) which are publicly or privately
distributed, and (ii) by entering into repurchase agreements;
(4) purchase on margin or sell short except as specified above
in investment limitation (1);
(5) purchase more than 10% of any class of the outstanding
voting securities of any issuer;
(6) with respect to 75% of its total assets, invest more than 5%
of its total assets at the time of purchase in the securities of
any single issuer (other than obligations issued or guaranteed by
the U.S. Government, its agencies, enterprises or
instrumentalities);
(7) issue senior securities, except that the Trust or the Fund
may issue shares of more than one series or class, may borrow
money in accordance with investment limitation (8) below, purchase
securities on a when issued, delayed settlement or forward
delivery basis and enter into reverse repurchase agreements;
(8) borrow money, except that the Fund may borrow money as a
temporary measure for extraordinary or emergency purposes and may
enter into reverse repurchase agreements in an amount not
exceeding 331/3% of its total assets at the time of the borrowing,
provided, however, that the Fund will not make additional
investments while borrowings representing more than 5% of the
Fund's total assets are outstanding;
(9) underwrite the securities of other issuers, except to the
extent that the purchase and subsequent disposition of securities
may be deemed underwriting;
(10) invest for the purpose of exercising control over management
of any company; and
(11) acquire any securities of companies within one industry if,
as a result of such acquisition, 25% or more of the value of the
Fund's total assets would be invested in securities of companies
within such industry; provided, however, that there shall be no
limitation on the purchase of obligations issued or guaranteed by
the U.S. Government, its agencies, enterprises or
instrumentalities.
In addition, as non-fundamental policies, the Fund will not
(i) invest more than 15% of the net assets of the Fund, at the
time of purchase, in securities for which there are no readily
available markets, including repurchase agreements which have
maturities of more than seven days; (ii) pledge, mortgage, or
hypothecate any of its assets to an extent greater than 15% of its
total assets at fair market value, except as described in the
Prospectus and this SAI, but the deposit of assets in a segregated
account in connection with the purchase of securities on a when
issued, delayed settlement or forward delivery basis will not be
deemed to be pledges of the Fund's assets for purposes of this
investment policy; (iii) invest its assets in securities of any
investment company, except in connection with mergers,
acquisitions of assets or consolidations and except as may
otherwise be permitted by the 1940 Act; (iv) invest more than 5%
of the value of the Fund's net assets in warrants, valued at the
lower of cost or market, including within that amount up to 2% of
the value of the Fund's net assets warrants which are not listed
on the New York or American Stock Exchange (warrants acquired by
the Fund in units or attached to securities may be deemed to be
without value); and (v) write or acquire options or interests in
oil, gas or other mineral leases.
With regard to non-fundamental policy (iii), the 1940 Act
currently prohibits an investment company from acquiring
securities of another investment company if, as a result of the
transaction, the acquiring company and any company or companies
controlled by it would own in the aggregate: (i) more than 3% of
the total outstanding voting stock of the acquired company, (ii)
securities issued by the acquired company having an aggregate
value in excess of 5% of the value of the total assets of the
acquiring company, or (iii) securities issued by the acquired
company and all other investment companies (other than treasury
stock of the acquired company) having an aggregate value in excess
of 10% of the value of the total assets of the acquiring company.
To the extent that the Fund invests in shares of other investment
companies, the Fund's shareholders will be subject to expenses of
such other investment companies, in addition to expenses of the
Fund. With regard to non-fundamental policy (v), the purchase of
securities of a corporation, a subsidiary of which has an interest
in oil, gas or other mineral leases, shall not be prohibited by
the limitation.
If a percentage restriction is adhered to at the time an
investment is made, a later increase in percentage resulting from
a change in value of assets will not constitute a violation of
such restriction, except that any borrowings by the Fund that
exceed the limitation set forth in investment limitation 8 above
must be reduced to meet such limitation within the period required
by the 1940 Act (currently three days, not including Sundays and
holidays). In addition, the Fund will limit its aggregate
holdings of illiquid assets to 15% of its net assets.
MANAGEMENT OF THE FUND
Board Members and Officers. The business and affairs of the Trust
are managed under the direction of its Board. The Trust's
officers, under the supervision of the Board, manage the day to
day operations of the Trust. The Board Members set broad policies
for the Trust and choose its officers. The following is a list of
the Board Members and officers of the Trust and a brief statement
of their principal occupations during the past five years. Each
Trustee who is an "interested person" of the Trust, as defined in
the 1940 Act, is indicated by an asterisk.
Name, Address and
Position
A
g
e
Principal Occupation
During Past Five Years
Jean G. Pilloud*,
President
and Chairman
Pictet & Cie
29, Boulevard
Georges-Favon
1204 Geneva
Switzerland
5
0
Senior Vice President of
Pictet & Cie.
Jean-Francois
Demole* , Trustee
Pictet Canada &
Company Ltd.
1800 McGill
College Avenue,
Suite 2900
Montreal, Quebec
H3A3J6
3
3
Chief Executive Officer of
Pictet (Canada) & Company
Ltd., since March 1994;
Vice President of Pictet &
Cie, December 1990 to
March 1994; Associate,
Wertheim Schroder & Co. in
the corporate finance area
from September 1988 to
September 1990.
Jeffrey P.
Somers,* Trustee
Morse, Barnes-
Brown & Pendleton
1601 Trapelo Road
Reservoir Place
Waltham, MA 02154
5
2
Officer, Director and
Stockholder of Morse,
Barnes-Brown & Pendleton
(law firm); Associate
lawyer and Partner, Gadsby
& Hannah, prior to
February 1995.
Bruce W.
Schnitzer, Trustee
Wand Partners,
Inc.
630 Fifth Avenue,
Suite 2435
New York, NY
10111
5
1
Chairman of the Board of
Wand Partners, Inc;
Director, Chartwell Re
Corporation, Life Partners
Group, Inc., PennCorp
Financial Group and
AMRESCO Inc.
David J. Callard,
Trustee
Wand Partners,
Inc.
630 Fifth Avenue,
Suite 2435
New York, NY
10111
5
7
President, Wand Partners,
Inc. since January 1991;
Director, Waverly, Inc.;
Director, Chartwell Re
Corporation. Mr. Callard
was self-employed as a
financial advisor doing
business as Callard &
Company prior to January
1991.
Patricia L.
Bickimer,
Secretary
The Shareholder
Services Group,
Inc.
One Exchange Place
Boston, MA. 02109
4
2
Vice President and
Associate General Counsel,
First Data Investor
Services Group, Inc. Ms.
Bickimer has been employed
by First Data Investor
Services Group, Inc. since
May 1994. She was
employed as Associate
General Counsel by The
Boston Company Advisors,
Inc. prior to May 1994.
Michael C. Kardok,
Treasurer
First Data
Investor Services
Group, Inc.
One Exchange Place
Boston, MA 02109
3
6
Vice President, First Data
Investor Services Group,
Inc. Mr. Kardok has been
employed by First Data
Investor Services Group,
Inc. since May 1994. He
was employed by The Boston
Company Advisors, Inc. as
Vice President, Assistant
Treasurer and Financial
Manager prior to May 1994.
__________________________
* Board Members Pilloud, Demole and Somers are "interested
persons" of the Trust as defined in the 1940 Act.
Remuneration of Board Members. The Trust pays each Board member
(except those employed by the Adviser or its affiliates) an annual
fee of $5,000 plus $500 for each Board meeting attended and out-
of-pocket expenses incurred in attending Board meetings.
The following table sets forth the anticipated compensation
to be paid to the Trustees of the Trust during the current fiscal
year. No compensation is paid to any officers of the Trust by the
Fund.
NAME
OF
PERSO
N AND
POSIT
ION
AGGR
EGAT
E
COMP
ENSA
TION
FROM
THE
TRUS
T
PENS
ION
OR
RETI
REME
NT
BENE
FITS
ACCR
UED
AS
PART
OF
FUND
EXPE
NSES
TOTAL
COMPENSATI
ON
FROM THE
TRUST
AND
COMPLEX
PAID
TO
TRUSTEES
David
J.
Calla
rd
Trust
ee
$7,0
00
0
$7,000
Jean-
Franc
ois
Demol
e
Trust
ee
0
0
$0
Jean
G.
Pillo
ud
Trust
ee
0
0
$0
Bruce
W.
Schni
zter
Trust
ee
$7,0
00
0
$7,000
Jeffr
ey P.
Somer
s
Trust
ee
$7,0
00
0
$7,000
INVESTMENT ADVISORY AND OTHER SERVICES
As noted in the Prospectus, the Adviser is entitled to
receive a fee from the Fund for its services, calculated daily and
payable monthly, at the annual rate of 1.00% of the Fund's average
daily net assets. Currently, the Adviser has voluntarily agreed
to waive its fees to the extent necessary to assure that the net
operating expenses of the Fund will not exceed 1.20% of the Fund's
average daily net assets. The Adviser, located at Cutlers Garden,
5 Devonshire Square, London, England EC2M 4LD, is the wholly-owned
subsidiary of Pictet (Canada) and Company Ltd. ("Pictet Canada").
Pictet Canada is a partnership, whose principal activity is
investment accounting, custody and securities brokerage. Pictet
Canada has two general partners, Pictet Advisory Services Overseas
and FINGEST, and seven limited partners, each of whom is also a
partner of Pictet & Cie, a Swiss private bank founded in 1805.
Administrative services are provided to the Trust by First
Data Investor Services Group, Inc. ("FDISG"), pursuant to an
administration agreement. See "Administrative Services" in the
Prospectus for information concerning the substantive provisions
of the administration agreement.
Custody services are provided to the Fund by Brown Brothers
Harriman & Co.
DISTRIBUTOR
Shares of the Fund are distributed continuously and are
offered without a sales load by 440 Financial Distributors, Inc.
(the "Distributor") pursuant to a distribution agreement between
the Trust and the Distributor. The Distributor is a wholly owned
subsidiary of FDISG.
PORTFOLIO TRANSACTIONS
The investment advisory agreement authorizes the Adviser to
select the brokers or dealers that will execute the purchases and
sales of investment securities for the Fund and directs the
Adviser to use its best efforts to obtain the best available price
and most favorable execution with respect to all transactions for
the Fund. The Adviser, may, however, consistent with the
interests of the Fund, select brokers on the basis of the
research, statistical and pricing services they provide to the
Fund. Information and research received from such brokers will be
in addition to, and not in lieu of, the services required to be
performed by the Adviser under the investment advisory agreement.
A commission paid to such brokers may be higher than that which
another qualified broker would have charged for effecting the same
transaction, provided that such commissions are paid in compliance
with the Securities Exchange Act of 1934, as amended, and that the
Adviser determines in good faith that such commission is
reasonable in terms either of the transaction or the overall
responsibility of the Adviser to the Fund and the Adviser's other
clients.
Some securities considered for investment by the Fund may
also be appropriate for other clients of the Adviser. If the
purchase or sale of securities is consistent with the investment
policies of the Fund and one or more of these other clients served
by the Adviser and is considered at or about the same time,
transactions in such securities will be allocated among the Fund
and clients in a manner deemed fair and reasonable by the Adviser.
While in some cases this practice could have a detrimental effect
on the price, value or quantity of the security as far as the Fund
is concerned, in other cases it is believed to be beneficial to
the Fund.
ADDITIONAL INFORMATION CONCERNING TAXES
General. The following summarizes certain additional tax
considerations generally affecting the Fund and its shareholders.
No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here
and in the Prospectus is not intended as a substitute for careful
tax planning. Potential investors should consult their tax
advisers with specific reference to their own tax situation.
The Fund is treated as a separate taxable entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and
intends to elect to be treated, and to qualify each year, as a
regulated investment company. Qualification as a regulated
investment company under the Code requires, among other things,
that the Fund distribute to its shareholders an amount equal to at
least the sum of 90% of its investment company taxable income and
90% of its tax-exempt interest income (if any) net of certain
deductions for a taxable year. In addition, the Fund must satisfy
certain requirements with respect to the source of its income for
each taxable year. At least 90% of the gross income of the Fund
for a taxable year must be derived from dividends, interest,
payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, and
other income (including, but not limited to, gains from forward
contracts) derived with respect to its business of investing in
such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency
gains which are not directly related to the Fund's principal
business of investing in stock or securities. Any income derived
by the Fund from a partnership or trust is treated for this
purpose as derived with respect to its business of investing in
stock, securities or currencies only to the extent that such
income is attributable to items of income which would have been
qualifying income if realized by the Fund in the same manner as by
the partnership or trust.
The Fund will not be treated as a regulated investment
company under the Code if 30% or more of its gross income for a
taxable year is derived from gains realized on the sale or other
disposition of the following investments held for less than three
months: (1) stock and securities (as defined in section 2(a)(36)
of the 1940 Act); (2) foreign currencies (and forward contracts on
foreign currencies) that are not directly related to the Fund's
principal business of investing in stock and securities. Interest
(including original issue discount and accrued market discount)
received by the Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross
income derived from the sale or other disposition of such security
within the meaning of this requirement. However, income which is
attributable to realized market appreciation will be treated as
gross income from the sale or other disposition of securities for
this purpose.
In order to qualify as a regulated investment company, the
Fund must also diversify its holdings so that, at the close of
each quarter of its taxable year, (i) at least 50% of the market
value of its total (gross) assets is comprised of cash, cash
items, United States Government securities, securities of other
regulated investment companies and other securities limited in
respect of any one issuer to an amount not greater in value than
5% of the value of the Fund's total assets and to not more than
10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its total assets is invested in
the securities of any one issuer (other than United States
Government securities and securities of other regulated investment
companies) or two or more issuers controlled by the Fund and
engaged in the same, similar or related trades or businesses.
Any distribution of the excess of net long-term capital gain
over net short-term capital loss is taxable to shareholders as
long-term capital gain, regardless of how long the shareholder has
held the Fund's shares and whether such distribution is received
in cash or additional Fund shares. The Fund will designate such
distributions as capital gain dividends in a written notice mailed
to shareholders within 60 days after the close of the Fund's
taxable year. Shareholders should note that, upon the sale of Fund
shares, if the shareholder has not held such shares for tax
purposes for more than six months, any loss on the sale of those
shares will be treated as long-term capital loss to the extent of
the capital gain dividends received with respect to the shares.
Losses on a redemption or other sale of shares may also be
disallowed under wash sale rules if other shares of the Fund are
acquired (including dividend reinvestments) within a prescribed
period.
An individual's net long-term capital gains are taxable at a
maximum effective rate of 28%. Ordinary income of individuals is
taxable at a maximum nominal rate of 39.6%, but because of
limitations on itemized deductions otherwise allowable and the
phase-out of personal exemptions, the maximum effective marginal
rate of tax for some taxpayers may be higher. For corporations,
long-term capital gains and ordinary income are both taxable at a
maximum nominal rate of 35% (although surtax provisions apply at
certain income levels to result in higher effective marginal
rates).
If the Fund retains net capital gain for reinvestment, the
Fund may elect to treat such amounts as having been distributed to
shareholders. As a result, the shareholders would be subject to
tax on undistributed net capital gain, would be able to claim
their proportionate share of the Federal income taxes paid by the
Fund on such gain as a credit against their own Federal income tax
liabilities, and would be entitled to an increase in their basis
in their Fund shares.
If for any taxable year the Fund does not qualify for the
special Federal income tax treatment afforded regulated investment
companies, all of its taxable income will be subject to Federal
income tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend
distributions would be taxable as ordinary income to shareholders
to the extent of the Fund's current and accumulated earnings and
profits and would be eligible for the dividends received deduction
for corporations.
Foreign Taxes. Income (including, in some cases, capital
gains) received from sources within foreign countries may be
subject to withholding and other income or similar taxes imposed
by such countries. If more than 50% of the value of the Fund's
total assets at the close of its taxable year consists of stock or
securities of foreign corporations, the Fund will be eligible and
may elect to "pass-through" to its shareholders the amount of
foreign income and other qualified foreign taxes paid by it. If
this election is made, each taxable shareholder will be required
to include in gross income (in addition to taxable dividends
actually received) his pro rata share of the qualified foreign
taxes paid by the Fund, and will be entitled either to deduct (as
an itemized deduction) his pro rata share of foreign taxes in
computing his taxable income or to use it as a foreign tax credit
against his U.S. Federal income tax liability, subject to
limitations. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions, but such a
shareholder may be eligible to claim the foreign tax credit (see
below). If the Fund makes this election, each shareholder will be
notified within 60 days after the close of the Fund's taxable
year.
Generally, a credit for foreign taxes is subject to the
limitation that it may not exceed the shareholder's U.S. tax
attributable to his or her foreign source taxable income. For
this purpose, if the pass-through election is made, the source of
the Fund's income flows through to its shareholders. With respect
to the Fund, gains from the sale of securities will be treated as
derived from U.S. sources and certain currency gains, including
currency gains from foreign currency denominated debt securities,
receivables and payables, will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income (as
defined for purposes of the foreign tax credit), including the
foreign source passive income passed through by the Fund.
Shareholders may be unable to claim a credit for the full amount
of their proportionate share of the foreign taxes paid by the
Fund. Foreign taxes may not be deducted in computing alternative
minimum taxable income and the foreign tax credit can be used to
offset only 90% of the alternative minimum tax (as computed under
the Code for purposes of this limitation) imposed on corporations
and individuals. If the Fund is not eligible to or does not make
the election to "pass through" to its shareholders its foreign
taxes, the foreign taxes it pays will reduce investment company
taxable income and the distributions by the Fund will be treated
as United States source income.
The Fund may invest up to 10% of its total assets in the
stock of foreign investment companies. Such companies are likely
to be treated as "passive foreign investment companies" ("PFICs")
under the Code. Certain other foreign corporations, not operated
as investment companies, may also satisfy the PFIC definition. A
portion of the income and gains that the Fund derives from an
equity investment in a PFIC may be subject to a non-deductible
federal income tax (including an interest-equivalent amount) at
the Fund level. In some cases, the Fund may be able to avoid this
tax by electing to be taxed currently on its share of the PFIC's
income, whether or not such income is actually distributed by the
PFIC or by making an election (if available) to mark its PFIC
investments to market or by otherwise managing its PFIC
investments. The Fund will endeavor to limit its exposure to the
PFIC tax by any available techniques or elections. Because it is
not always possible to identify a foreign issuer as a PFIC in
advance of making the investment, the Fund may incur the PFIC tax
in some instances.
Other Tax Matters. Special rules govern the Federal income
tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to
the value of one or more currencies other than the U.S. dollar.
The types of transactions covered by the special rules include the
following: transactions in foreign currency denominated debt
instruments, foreign currency denominated payables and
receivables, foreign currencies and foreign currency forward
contracts. With respect to transactions covered by the special
rules, foreign currency gain or loss is calculated separately from
any other gain or loss on the underlying transaction (subject to
certain netting rules) and is generally, absent an election that
may be available in some cases, taxable as ordinary gain or loss.
Any gain or loss attributable to the foreign currency component of
a transaction engaged in by the Fund which is not subject to the
special currency rules (such as foreign equity investments other
than certain preferred stocks) will be treated as capital gain or
loss and will not be segregated from the gain or loss on the
underlying transaction. Mark to market and other tax rules
applicable to certain currency forward contracts may affect the
amount, timing and character of the Fund's income, gain or loss
and hence of its distributions to shareholders. It is anticipated
that some of the non-U.S. dollar denominated investments and
foreign currency contracts the Fund may make or enter into will be
subject to the special currency rules described above.
The Fund may recognize income currently each taxable year
for Federal income tax purposes under the Code's original issue
discount rules in the amount of the unpaid, accrued interest with
respect to bonds structured as zero coupon or deferred interest
bonds or pay-in-kind securities, even though it receives no cash
interest until the security's maturity or payment date. As
discussed above, in order to qualify for treatment as a regulated
investment company, the Fund must distribute substantially all of
its income to shareholders. Thus, the Fund may have to dispose of
its portfolio securities under disadvantageous circumstances to
generate cash or leverage itself by borrowing cash, so that it may
satisfy the distribution requirement.
The Fund is not liable for Massachusetts corporate excise
taxes or franchise taxes and, provided that it qualifies as a
regulated investment company, will not be required to pay
Massachusetts income tax.
Exchange control regulations that may restrict repatriation
of investment income, capital, or the proceeds of securities sales
by foreign investors may limit the Fund's ability to make
sufficient distributions to satisfy the 90% and calendar year
distribution requirements described above.
Different tax treatment, including penalties on certain
excess contributions and deferrals, certain pre-retirement and
post-retirement distributions and certain prohibited transactions,
is accorded to accounts maintained as qualified retirement plans.
Shareholders should consult their tax advisers for more
information.
The foregoing discussion related solely to U.S. Federal
income tax law as applicable to U.S. persons (i.e., U.S. citizens
or residents and U.S. domestic corporations, partnerships, trusts
or estates) subject to tax under such law. The discussion does
not address special tax rules applicable to certain classes of
investors, such as tax-exempt entities, insurance companies, and
financial institutions. Dividends, capital gain distributions,
and ownership of or gains realized on the redemption (including an
exchange) of Fund shares may also be subject to state and local
taxes. Shareholders should consult their own tax advisers as to
the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their
particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business
with which their investment in the Fund is effectively connected
will be subject to U.S. Federal income tax treatment that is
different from that described above. These investors may be
subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts
treated as ordinary dividends from the Fund and, unless an
effective IRS Form W-8 or authorized substitute is on file, to 31%
backup withholding on certain other payments from the Fund. Non-
U.S. investors should consult their ax advisers regarding such
treatment and the application of foreign taxes to an investment in
the Fund.
PERFORMANCE CALCULATIONS
The Fund may advertise its average annual total return. The
Fund computes such return by determining the average annual
compounded rate of return during specified periods that equates
the initial amount invested to the ending redeemable value of such
investment according to the following formula:
T = [( ERV )1/n - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
terms of years.
The Fund computes its aggregate total return by determining
the aggregate rates of return during specified periods that
likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
T = [( ERV ) - 1]
P
The calculations of average annual total return and
aggregate total return assume the reinvestment of all dividends
and capital gain distributions. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming
complete redemption of the hypothetical investment and the
deduction of all nonrecurring charges at the end of the period
covered by the computations. The Fund's average annual total
return and aggregate total return do not reflect any fees charged
by Institutions to their clients.
GENERAL INFORMATION
Dividends and Capital Gain Distributions
The Fund's policy is to distribute substantially all of its
net investment income, if any, together with any net realized
capital gains in the amount and at the times that will generally
avoid both income and the Federal excise tax on undistributed
income and gains (see discussion under "Dividends, Capital Gain
Distributions and Taxes" in the Prospectus). The amounts of any
income dividends or capital gain distributions cannot be
predicted.
Any dividend or distribution paid shortly after the purchase
of shares of the Fund by an investor may have the effect of
reducing the per share net asset value of the Fund by the per
share amount of the dividend or distribution. Furthermore, such
dividends or distributions, although in effect a return of a
portion of the purchase price, are subject to income taxes as set
forth in the Prospectus.
Massachusetts Business Trust
The Trust is an entity of the type commonly known as a
"Massachusetts business trust". Under Massachusetts law,
shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
APPENDIX -- DESCRIPTION OF RATINGS AND U.S. GOVERNMENT SECURITIES
I. Description of Commercial Paper Ratings
Description of Moody's highest commercial paper rating:
Prime-1 ("P-1") --judged to be of the best quality. Issuers rated
P-1 (or related supporting institutions) are considered to have a
superior capacity for repayment of short-term promissory
obligations.
Description of S&P highest commercial papers ratings: A-1+
- -- this designation indicates the degree of safety regarding
timely payment is overwhelming. A-1 -- this designation indicates
the degree of safety regarding timely payment is either
overwhelming or very strong.
Description of Bond Ratings
The following summarizes the ratings used by S&P for
corporate and municipal debt:
AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the highest rated
issues only in a small degree.
A - Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits 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 debt in
this category than in higher rated categories.
Plus (+) or Minus (-): The ratings from AA to BBB may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
The following summarizes the ratings used by Moody's for
corporate and municipal long-term debt:
Aaa - Bonds that are rated Aaa are judged to be of 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 that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Bonds that are rated A possess many favorable
investment attributes and are to be considered 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 that are rated Baa are considered 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.
Moody's applies numerical modifiers (1, 2 and 3) with
respect to corporate bonds rated Aa, A and Baa. The modifier 1
indicates that the bond being rated 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 bond ranks in the
lower end of its generic rating category. Those bonds in the Aa,
A and Baa categories which Moody's believes possess the strongest
investment attributes, within those categories are designated by
the symbols Aa1, A1 and Baa1, respectively.
II. Description of U.S. Government Securities and Certain Other
Securities
The term "U.S. Government securities" refers to a variety of
securities which are issued or guaranteed by the United States
Government, and by various instrumentalities which have been
established or sponsored by the United States Government.
U.S. Treasury securities are backed by the "full faith and
credit" of the United States Government. Securities issued or
guaranteed by Federal agencies and U.S. Government sponsored
enterprises or instrumentalities may or may not be backed by the
full faith and credit of the United States. In the case of
securities not backed by the full faith and credit of the United
States, an investor must look principally to the agency,
enterprise or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a
claim against the United States itself in the event the agency,
enterprise or instrumentality does not meet its commitment.
Agencies which are backed by the full faith and credit of the
United States include the Export Import Bank, Farmers Home
Administration, Federal Financing Bank and others. Certain
agencies, enterprises and instrumentalities, such as the
Government National Mortgage Association are, in effect, backed by
the full faith and credit of the United States through provisions
in their charters that they may make "indefinite and unlimited"
drawings on the Treasury, if needed to service its debt. Debt
from certain other agencies, enterprises and instrumentalities,
including the Federal Home Loan Bank and Federal National Mortgage
Association, are not guaranteed by the United States, but those
institutions are protected by the discretionary authority for the
U.S. Treasury to purchase certain amounts of their securities to
assist the institution in meeting its debt obligations. Finally,
other agencies, enterprises and instrumentalities, such as the
Farm Credit System and the Federal Home Loan Mortgage Corporation,
are federally chartered institutions under Government supervision,
but their debt securities are backed only by the creditworthiness
of those institutions, not the U.S. Government.
Some of the U.S. Government agencies that issue or guarantee
securities include the Export-Import Bank of the United States,
Farmers Home Administration, Federal Housing Administration,
Maritime Administration, Small Business Administration and The
Tennessee Valley Authority.
An instrumentality of the U.S. Government is a Government
agency organized under Federal charter with Government
supervision. Instrumentalities issuing or guaranteeing securities
include, among others, Overseas Private Investment Corporation,
Federal Home Loan Banks, the Federal Land Banks, Central Bank for
Cooperatives, Federal Intermediate Credit Banks and the Federal
National Mortgage Association.
* Board Members Pilloud, Demole and Somers are "interested
persons" of the Trust as defined in the 1940 Act.
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