PICTET EASTERN EUROPEAN FUND
One Exchange Place Boston, Massachusetts 02109
Prospectus - May 15, 1997
as supplemented January 23, 1998
Panorama Trust, a Massachusetts business trust (the
"Trust"), is a no-load, diversified, open-end management
investment company which currently offers shares of three series,
one of which is the Pictet Eastern European Fund (the "Fund").
The investment objective of the Fund is capital appreciation. The
Fund attempts to achieve this objective by investing in a
carefully selected and continuously managed diversified portfolio
consisting primarily of equity securities (including depositary
shares and receipts and securities convertible into equity
securities, such as warrants, convertible bonds, debentures or
convertible preferred stock) of companies in Eastern Europe.
Shares of the Fund are subject to investment risks, including the
possible loss of principal. Shareholders redeeming shares held
less than six months will be charged a 2% redemption fee paid to
the Fund to offset transaction costs of buying and selling
portfolio securities.
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 May
15, 1997 as supplemented January 23, 1998, 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 2%*
Exchange Fees NONE
_________________________
* Shares held six months or more are not subject to the redemption
fee.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Investment Advisory Fees (after waiver)* 1.25%
Other Expenses .75%
Total Operating Expenses (after waiver)* 2.00%
The purpose of the above table is to assist an investor in
understanding the various 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.
_________________________
* The investment adviser has undertaken voluntarily to waive its
fees or to reimburse expenses as may be necessary to limit total
operating expenses to 2.00% of the Fund's average net assets. 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.
1 Year 3 Years
$20 $63
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
The investment objective of the Fund is capital
appreciation. The Fund pursues its objective by investing in a
carefully selected and continuously managed diversified portfolio
consisting primarily of equity securities (which include
depositary shares and receipts and securities convertible into
equity securities, such as warrants, convertible bonds, debentures
or convertible preferred stock) of companies in, or which conduct
a significant amount of their business in, Eastern Europe. All
investments entail some risks but investment in the Fund may
involve more risk as compared to investments in more developed
markets and may be considered speculative (see "Risk Factors").
There is no assurance that the investment objective of the Fund
can be achieved.
INVESTMENT POLICIES
The Fund is designed for individuals and institutions who
wish to diversify their investment programs in international
equities to take advantage of opportunities in the newly
reorganized capital and securities markets of Eastern Europe. The
Fund normally will invest at least 65% of its assets in equity
securities (which include depositary shares and receipts and
securities convertible into equity securities) of companies
located in, or which conduct a significant portion of their
business in, countries which are generally considered to comprise
Eastern Europe, including, but not limited to, the member
countries of the former Warsaw Pact and the European successor
states of the former Soviet Union. These equity securities may
include shares of other investment companies that invest primarily
in Eastern European stocks. The Fund will focus on equity
securities, but may also invest in debt securities of companies in
Eastern Europe. Such securities will have ratings within the four
highest categories established by Moody's Investor Services
("Moody's"), Standard & Poor's Rating Service, a division of
McGraw-Hill Companies, Inc. ("S&P"), or a similar nationally
recognized statistical rating organizations ("NRSROs") or if not
rated, will be of comparable quality as determined by Pictet
International Management Limited (the "Adviser"). The NRSROs'
description of these bond ratings are set forth in the Appendix to
the Statement of Additional Information.
It is expected that the Fund's initial investment activities
will be focused on Hungary, the Czech Republic, Poland and Russia.
Hungary, the Czech Republic and Poland are already at a relatively
advanced stage in their transition to a market-based economy.
Russia is also moving to a market-based economy but may not be as
advanced in the transition as some other countries. Over time,
the Fund may shift its investment focus to other Eastern European
countries. As stock markets in the region develop and more
investment opportunities emerge, the Fund may broaden its
portfolio to include securities of companies located in or which
conduct a significant portion of their business in countries in
this region.
The Adviser believes that the relatively well-developed
capital and stock markets can handle transactions of a large
enough size to permit fund investment. However, the trading
volume of the stock exchanges in these markets may be
substantially lower than that in developed markets, and the
purchase and sale of portfolio securities may not always be made
at an advantageous price or in a timely manner. The Adviser
generally will decide when and how much to invest in these
developing markets based upon its assessment of their continuing
development. Securities of many issuers in these markets may be
less liquid and more volatile than securities of comparable
issuers in developed markets. In addition, the Fund may
experience difficulties in valuing certain portfolio securities
due to various factors including illiquidity, volatility and
settlement delays.
The Fund, in its portfolio, may include securities of
companies located in, or which conduct a significant portion of
their business in Eastern Europe. As noted above, investments in
equity securities issued by companies in these "developing
countries" or "emerging markets" involve exposure to economic
structures that are generally less diverse and mature, with
political systems that may have less stability than those of
"developed countries."
The Fund invests primarily in equity securities of
companies, selected for their superior potential based on a series
of macro- and micro- economic analyses, whose securities are
listed on a securities exchange, have an established over-the-
counter market or are "thinly traded." The selection of the
securities in which the Fund will invest will not be limited to
companies of any particular size, or to securities traded in any
particular marketplace, and will be based only upon the expected
contribution such securities will make to achieving the Fund's
investment objective.
Portfolio Turnover. Since the Fund seeks capital
appreciation, it will dispose of a security, regardless of the
time it has been held, to realize gains, to avoid anticipated
reductions of value, or to reduce or eliminate a position in a
security which is no longer believed to offer the potential for
suitable gains. Portfolio turnover is expected not to exceed an
annual rate of 100% under normal circumstances. A turnover rate
of more than 100% may reflect substantial short term trading with
corresponding brokerage costs to the Fund.
INVESTMENT STRATEGY
The Adviser's approach in emerging markets aims to identify
companies with strong or strengthening balance sheets, as defined
by the improvement in their net working capital over time.
Financial ratios (such as "current" ratios, "quick" ratios and net
worth) should also be strong. In particular, the Adviser looks
for companies with industrial capacity that is undervalued on an
international basis. Companies should also have the ability to
generate substantial excess cash flow which, in addition to
funding growth, may be distributed to shareholders in the form of
dividends. Valuation methods traditionally used in developed
markets are not necessarily applicable in emerging and developing
markets.
The Adviser will usually undertake extensive financial
research to compensate for the poor quality of financial and
economic information available. In addition, company visits are
normally made either by a member of the management team or by
local advisers.
In general, the Fund's investment portfolio will be chosen
using a "bottom-up" investment strategy so that country exposures
emerge as a result of an overall assessment of the best investment
opportunities. However, the Adviser will seek to avoid excessive
exposure to any one country and will take into account country
risk in its assessment of individual investment opportunities.
INVESTMENT TECHNIQUES
Equity Securities. The Fund invests in equity securities of
U.S. and foreign companies. Equity securities consist of
exchange-traded, over-the-counter ("OTC") and unlisted common and
preferred stocks, warrants, rights, convertible debt securities,
trust certificates, limited partnership interests and equity
participations. The prices of the Fund's equity investments will
change in response to stock market movements.
Warrants and Convertible Securities. Warrants acquired by
the Fund will entitle it to buy common stock from the issuer at a
specified price and time. Warrants are subject to the same market
risks as stocks, but may be more volatile in price. The Fund's
investments in warrants will not entitle it to receive dividends
or exercise voting rights and will become worthless if the
warrants cannot be profitably exercised before their expiration
dates. Convertible debt securities and preferred stock acquired
by the Fund will entitle it to acquire the issuer's stock by
exchange or purchase. Convertible securities are subject both to
the credit and interest rate risks associated with fixed income
securities and to the stock market risk associated with equity
securities.
Depositary Receipts. The Fund may purchase American
Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), and Global Depositary Shares ("GDSs") (collectively,
"Depositary Receipts"). ADRs and ADSs are typically issued by a
U.S. bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, GDSs 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 U.S. 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.
Debt Securities. Bonds and other debt instruments are used
by issuers to borrow money from investors. The issuer pays the
investor a fixed or variable rate of interest, and must repay the
amount borrowed at maturity. Some debt securities, such as zero
coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. In general, bond prices rise
when interest rates fall, and vice versa. Debt securities have
varying degrees of quality and varying levels of sensitivity to
changes in interest rates. Longer-term bonds are generally more
sensitive to interest rate changes than short-term bonds.
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. The Board of Trustees will monitor the liquidity
determinations made by the Adviser. 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 price 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.
Strategic Transactions. The Adviser does not, as a general
rule, intend to regularly enter into strategic transactions for
the purpose of reducing currency and market risk, for two reasons.
First, since financial derivatives in Eastern European markets
currently must be tailor-made to the Fund's specifications, they
are extremely costly and illiquid instruments, and as such do not
offer a cost-effective way to reduce currency and market risk.
Second, the Fund is intended for investors with a long-term
investment horizon and it is the Adviser's view that any short-
term losses due to fluctuations in local currencies or stock
market values will be compensated over the long term by the
capital appreciation of the portfolio securities. Notwithstanding
the foregoing, the Adviser may, from time to time as circumstances
dictate, engage in strategic transactions as described below.
Currency Transactions. When the Fund needs to convert
assets denominated in one currency to a different currency, it
normally conducts foreign currency exchange transactions on a spot
or cash basis at the prevailing rate in the currency exchange
market. In addition, the Fund may engage in the following
strategic currency transactions: (1) entering into privately
traded forward foreign currency exchange contracts, (2) purchasing
and selling exchange traded currency futures contracts and options
on futures and (3) purchasing and writing exchange traded and OTC
options on currency. Forward contracts and futures contracts
create an obligation (and corresponding right) to purchase or sell
a specified currency at an agreed price at a future date. Options
on currency futures give the purchaser the right to assume a
position in the underlying futures contract. Call and put options
on currency give the purchaser the right to purchase or sell a
specified currency at a designated exercise price by exercising
the option before it expires.
The Fund will enter into currency contracts for non-
speculative purposes. For example, the Fund may use currency
contracts to "lock in" the U.S. dollar price of a security that
the Fund has contracted to purchase or sell. In addition, the
Fund may use contracts involving the sale of currency to hedge
against a decline in the value of portfolio securities denominated
in that currency if the Adviser determines that there is a pattern
of correlation between the two currencies. All forward and
futures contracts involving the purchase of currency and all
options written by the Fund will be covered by maintaining cash or
liquid assets in a segregated account.
The Fund's success in using currency contracts will usually
depend on the Adviser's ability to forecast exchange rate
movements correctly. If exchange rates move in an unexpected
direction, the Fund may not achieve the intended benefits of, or
may realize losses on, a currency contract.
Options on Securities and Securities Indices. The Fund may
purchase put and call options on securities traded on U.S.
exchanges and, to the extent permitted by law, foreign exchanges.
The Fund may purchase call options on securities which it intends
to purchase in order to limit the risk of a substantial increase
in the market price of such securities. The Fund may purchase put
options on particular securities in order to protect against a
decline in the market value of the underlying security below the
exercise price less the premium paid for the option. Put options
allow the Fund to protect unrealized gain in an appreciated
security that it owns without selling that security. Prior to
expiration, most options may be sold in a closing sale
transaction. Profit or loss from the sale depends upon whether
the amount received is more or less than the premium paid plus
transactions costs.
The Fund may seek to enhance income or hedge against a
decrease in its portfolio value by writing (i.e., selling) covered
call options. A call option is "covered" if the Fund owns the
optioned securities or has the right to acquire such securities
without additional consideration, the Fund causes its custodian to
segregate assets having a value sufficient to meet its obligations
under the option, or the Fund owns an offsetting call option or
other derivative contracts.
The Fund may write covered put options in an attempt to
realize enhanced income when it is willing to purchase the
underlying security at the exercise price. A put option is
"covered" if the Fund causes its custodian to segregate assets
with a value not less than the exercise price of the option or
holds a put option on the underlying security. The Fund also may
purchase call options for the purpose of acquiring the underlying
securities for its portfolio or purchase put options for hedging
purposes. The Fund will not enter into any options on securities
or securities indices if the sum of the initial margin deposits
and premiums paid for any such option or options would exceed 5%
of its total assets, and will not enter into options with respect
to more than 25% of its total assets.
Except as specified in 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 policies without shareholder approval.
Temporary Investments. As determined by the Adviser, for
temporary defensive purposes when market conditions warrant, the
Fund may invest up to 100% of its total assets in the following:
(1) 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 U.S. or any foreign country; (2) 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; (3) finance
company and corporate commercial paper, and other short-term
corporate obligations; obligations of banks (including
certificates of deposit, time deposits and bankers' acceptances);
and (4) repurchase agreements with banks and broker-dealers with
respect to such securities.
Repurchase Agreements. The Fund may enter into repurchase
agreements. A repurchase agreement consists of the sale to the
Fund of a debt obligation together with an agreement to have the
selling counterparty repurchase the security at a specified future
date and repurchase price. If a repurchase agreement counterparty
defaults on its repurchase obligation, the Fund may, under some
circumstances, be limited or delayed in disposing of the
repurchase agreement collateral, which could result in a loss to
the Fund.
Borrowing and Reverse Repurchase Agreements. The Fund may
borrow money from banks or through reverse repurchase agreements
solely for temporary or emergency (and not for leverage) purposes.
The aggregate amount of such borrowings and reverse repurchase
agreements may not exceed one-third of the Fund's total assets.
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.
Foreign Securities. The Fund may purchase securities of
issuers located in any foreign country, consistent with its
investment objective. Investing in securities issued by companies
and governments of foreign nations involves special risks and
considerations typically not associated with investing in U.S.
companies. These risks and considerations include differences in
accounting, auditing and financial reporting standards, generally
higher, non-negotiable commission rates on foreign portfolio
transactions, longer settlement periods, 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.
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. 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. Foreign companies generally are not 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.
These risks are often heightened for investments in certain
Eastern European countries as well as other developing or emerging
markets, where the risks include the possibility that such
countries may revert to a centrally planned economy. Securities
of many issuers in emerging markets may be less liquid and more
volatile than securities of comparable issuers in developed
markets. Clearance and settlement procedures are different in
some emerging markets and at times settlements have not kept pace
with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is
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 the value of those securities, or,
if the Fund had entered into a contract to sell a security, in
possible liability to the purchaser.
Costs associated with transactions in foreign securities
generally are higher than costs associated with transactions in
U.S. securities. Such transactions also involve additional costs
for the purchase or sale of foreign currency. Developing
countries also may impose restrictions on the Fund's ability to
repatriate investment income or capital. Even where there is no
outright restriction on repatriation of investment income or
capital, the mechanics of repatriation may affect certain aspects
of the operations of the Fund.
Some of the currencies in emerging markets have experienced
devaluations relative to the U.S. dollar, and major adjustments
have been made periodically in certain of such currencies.
Devaluations in the currencies in which the Fund's portfolio
securities are denominated may have a detrimental impact on the
Fund. Some countries also may have managed currencies which are
not free floating against the U.S. dollar. In addition, there is
a risk that certain countries may restrict the free conversion of
their currencies into other currencies. Further, certain
currencies may not be traded internationally. Certain developing
countries face serious exchange constraints.
Governments of some developing countries exercise
substantial influence over many aspects of the private sector. In
some countries, the government owns or controls many companies,
including the largest in the country. As such, government actions
in the future could have a significant effect on economic
conditions in developing countries in these regions, which could
affect private sector companies, the Fund and the value of its
securities. Furthermore, certain developing countries are among
the largest debtors to commercial banks and foreign governments
and are dependent on foreign economic assistance. Trading in debt
obligations issued or guaranteed by such governments or their
agencies and instrumentalities involves a high degree of risk.
In many emerging markets, there is less government
supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the United
States. The foreign securities markets of many of the countries
in which the Fund may invest may also be smaller, less liquid and
subject to greater price volatility than those in the United
States.
Throughout the last decade many emerging markets have
experienced, and continue to experience, high rates of inflation.
In certain countries, inflation has accelerated rapidly at times
to hyper inflationary levels, creating a negative interest rate
environment and sharply eroding the value of outstanding financial
assets in those countries. Increases in inflation could have an
adverse effect on the Fund's non-dollar denominated securities.
Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rate of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position. The
securities markets, values of securities, yields and risks
associated with securities markets in different countries may
change independently of each other.
Securities traded in certain emerging securities markets may
be subject to risks due to the inexperience of financial
intermediaries, the lack of modern technology and the lack of a
sufficient capital base to expand business operations.
Furthermore, there can be no assurance that the Fund's investments
in certain developing countries would not be expropriated,
nationalized or otherwise confiscated. Finally, any change in the
leadership or policies of developing countries, or the countries
that exercise a significant influence over those countries, may
halt the expansion of or reverse the liberalization of foreign
investment policies and adversely affect existing investment
opportunities.
For more information regarding Risk Factors see Appendix.
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 (individually, the "Institution" or collectively 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
in the Fund is $100,000; the minimum subsequent investment in 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. ("Investor Services Group"), the
Fund's transfer agent, and deliver required funds to the Fund's
transfer agent, on a timely basis. Payment in cash for Fund
shares must be made in federal funds 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. Shareholders should also contact the
Adviser for information on in-kind purchases of Fund shares. See
"Purchase of Shares" in the SAI.
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, the 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
(except as described below), at the net asset value of the Fund
next determined after receipt by the transfer agent of the
redemption request in proper order. 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. It is the
responsibility of the Adviser or Institution to transmit
redemption orders promptly to the transfer agent.
If a shareholder redeems shares of the Fund (including
shares to be exchanged), which have been held for less than six
months, the Trust will deduct from the proceeds a redemption
charge of 2% of the amount of the redemption. This amount is
retained by the Fund to offset the Fund's costs of purchasing and
selling securities.
Payment of redemption proceeds ordinarily will 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 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 to redeem an account in the
Fund, upon 30 days' written notice, if the net asset value of the
account's shares falls below $100,000 due to redemptions and is
not increased subsequently to at least such amount within the 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 or Pictet International Small
Companies Fund. No sales charge or other fee is imposed in
connection with exchanges (except the redemption fee for shares of
the Fund held less than six months). 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 the applicable minimum initial
and subsequent investment requirements of the series whose shares
will be acquired. In addition, an exchange is permitted only
between accounts with identical registrations. Shares of a series
may be acquired in an exchange only if the shares are being
offered currently and are available legally for sale in the state
of the shareholder's legal 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 New Year's Day, Martin Luther
King, Jr.'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. 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 gain. 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 be reinvested automatically in additional
shares of the Fund at the net asset value next determined after
the dividend is declared unless a shareholder has requested that
the cash value of the dividend be paid in accordance with
instructions furnished by the shareholder.
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
considered carefully 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 its 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
any dividends and distributions actually received by them), and
each shareholder who is subject to U.S. tax generally will be
entitled, subject to certain limitations under the Code, (a) to
credit a proportionate amount of such taxes against U.S. Federal
income tax liabilities, or (b) to deduct such proportionate amount
from U.S. income if deductions are itemized.
Miscellaneous. Dividends declared in October, November or
December payable to shareholders of record on a specified date in
such a month will be deemed to have been received by the
shareholders 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 generally will 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 the Fund's distributions.
The Fund will be required in certain cases to withhold and
remit to the United States 31% of taxable dividends (including
capital gain distributions) or gross proceeds realized upon a
redemption, exchange or other sale of shares paid to shareholders
who are subject to "backup withholding" because they have failed
to provide a correct, certified taxpayer identification number in
the manner required, have received IRS notice of their failure to
report payments of taxable interest or dividends properly in their
tax returns or have failed to certify to the Fund that they are
not subject to backup withholding or that they are "exempt
recipients" when required to do so.
STATE AND LOCAL TAXES
Shareholders also may 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 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 1.50% of the average daily net assets of the
Fund. The Adviser has undertaken voluntarily to waive its fees or
to reimburse expenses as may be necessary to limit total operating
expenses to 2.00% of the Fund's average net assets.
The Adviser is an affiliate of Pictet & Cie (the "Bank"), a
Swiss private bank, which was founded in 1805. As of September
30, 1997, the Bank managed in excess of $53 billion for
institutional and private clients. The Bank is owned by six
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 Organization, Pictet's London
office has managed international portfolios for U.S. tax-exempt
clients since 1981 and U.K. pension funds since 1984. Pictet
currently manages approximately $5 billion for more than 50
accounts.
Yves J.B. Kuhn, who is a Senior Investment Manager of the
Adviser, is the portfolio manager of the Fund. Prior to joining
the Adviser in 1994, he spent three years in consultancy and
industry, essentially concerned with the restructuring and cost
savings programs of major utility and consumer goods companies.
In 1994, he was key in creating the First Russian Frontiers Trust,
listed on the London Stock Exchange and in 1995, he launched the
Pictet Targeted Fund-Eastern Europe, registered in Luxembourg.
ADMINISTRATIVE SERVICES
Investor Services Group serves as the Trust's administrator,
accounting agent and transfer agent and in these capacities
supervises the Trust's day-to-day operations, other than
management of the Fund's investments. Investor Services Group is
a wholly owned subsidiary of First Data Corporation. For its
services as accounting agent, Investor Services Group 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, the Investor Services Group is
entitled to receive $220,000 per annum from the Trust allocated
among the Fund and other series of the Trust based on average
daily net assets. In addition, Investor Services Group is paid
separate compensation for its services as transfer agent.
Investor Services Group is located at One Exchange Place,
Boston, Massachusetts 02109.
OTHER SERVICES
Distributor. First Data Distributors, Inc. (the
"Distributor"), formerly known as 440 Financial Distributors,
Inc., is the principal underwriter and distributor of shares of
the Fund pursuant to a distribution agreement with the Trust. The
Distributor is located at 4400 Computer Drive, Westborough,
Massachusetts 01581.
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 audits the Trust's
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 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
sub-custodians 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.
The Adviser has undertaken voluntarily not to impose its
fees or to make any other arrangements necessary to limit total
ordinary operating expenses of the Fund to 2.00% 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 with 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 with data prepared by Lipper Analytical Services,
Inc., Morningstar, Micropal 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.
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 three
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 vote together on the election of Trustees or selection of
independent accountants. Under Massachusetts law and the
Declaration of Trust, the Trust is not required and currently does
not intend to hold annual meetings of shareholders for the
election of Trustees except as required under the 1940 Act.
Meetings of shareholders for the purpose of electing Trustees
normally will not be held unless less than a majority of the
Trustees holding office has 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, the
Trust will assist shareholders who meet certain criteria 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.
APPENDIX
RISK FACTORS
Investing in securities in Eastern Europe (the "Region") involves
certain considerations not usually associated with investing in
securities of issuers in more developed capital markets including
(i) political and economic considerations, (ii) the small size of
the markets for securities in the Region and the low or non-
existent volume of trading and (iii) certain policies which may
restrict the Fund's investment opportunities. In addition,
accounting and financial reporting standards are not equivalent to
Generally Accepted Accounting Principles or International
Accounting Standards.
Political and General Economic Risks. The governments of the
countries of the Region are currently implementing reforms
directed at political and economic liberalization, including
efforts to decentralize the economic decision making process, to
move towards a more market-oriented economy and to foster a multi-
party political system. There can be no assurance that these
reforms will continue or, if continued, will achieve the goals set
by the governments in the Region. In addition, there is
uncertainty whether current political trends in the Region will
continue, thereby allowing governments to continue to liberalize
their political and economic environment. Countries in the Region
may be subject to a great amount of social, political and economic
instability resulting from, among other things:
(i) attempted or actual changes in government through extra-
constitutional means;
(ii) popular unrest associated with demands for improved
political, economic and social conditions; and
(iii) hostile relations with neighboring countries or territories.
The Region's countries have historically engaged in a significant
amount of trade with each other. Often such trade is barter-
based, utilizing products that might not be marketable in the
West.
Some of the Region's countries have a substantial external debt.
Some governments have entered into debt restructuring agreements
with foreign creditors and some are currently in negotiations
about rescheduling their debt. There can be no assurance that
such negotiations will reach a successful conclusion. Moreover,
in many cases it may be necessary to adopt economic policies to
facilitate debt service requirements, such as taking steps to
control inflation. These policies may lead to periods of lower
economic growth.
In addition to the specific risks of investing in the Region
discussed herein, the results of the Fund's activities may be
affected by general economic conditions in the Region. The
economies of the countries in the Region have been characterized
by declining real Gross Domestic Product ("GDP") (although the
trend is now improving), high inflation, rising unemployment and
declining personal income (in real terms). Countries in the
Region lack a developed infrastructure. Telecommunications
generally are poor and banks and financial systems are not well
developed. There is a limited supply of domestic savings in the
Region and businesses can experience difficulty in obtaining
working capital.
Currency Risk. Many of the Region's currencies are not fully
convertible. In addition, the currencies of some of the countries
in the Region have depreciated in value substantially against the
U.S. dollar and may depreciate further in the future. Since the
net asset value of the Fund will be calculated and reported in
U.S. dollars, further depreciation in these currencies could have
an adverse impact on the performance of the Fund.
Fiscal. Changes in local exchange control regulations, tax laws,
withholding taxes and economic or monetary policies may also
affect the value of an investment in the Fund. In particular,
certain changes may give rise to a capital gains tax liability on
certain of the Fund's investment gains.
The tax laws and regulations are often unclearly drafted and
difficult for companies to comply with, with the consequence that
a company may incur penalties (sometimes substantial) despite
using all reasonable efforts to ensure compliance. The tax laws
and regulations may be given retroactive effect. This may result
in imposition of additional tax liabilities which are not taken
into account when calculating the Fund's net asset value prior to
the date of such change.
Lack of Market Economy. Businesses in the Region do not have an
established history of operating within a market-oriented economy.
Relative to companies operating in western economies, companies in
the Region are, in general, characterized by a lack of (i)
management with the experience of operating in the free market
environment, (ii) modern technology and (iii) a sufficient capital
base with which to develop and expand their operations.
Illiquidity of Investments. The securities in which the Fund may
invest may not be listed or traded on any securities market for
the foreseeable future and, in some cases, may not be registered
for resale under the securities laws of any country. Many
jurisdictions in the Region are in the process of developing stock
exchanges and formulating rules and regulations. It is unlikely
that stock exchanges in the Region will, in the foreseeable
future, offer the liquidity available in western securities
markets. Accordingly, there may be no readily available market
for the timely liquidation of investments made by the Fund.
Possible Business Failures. The risk to the investor of potential
business failures in the Region is increased given the generally
poor level of financial information which is available relative to
standards of such information for western companies. However, the
Fund has a diversified portfolio to limit this potential risk.
Reporting Standards. Accounting standards in the Region do not
generally correspond to Generally Accepted Accounting Principles
or International Accounting Standards. In addition, auditing
requirements and standards differ from those generally accepted in
the international capital markets. Accordingly, the Adviser may
have access to less financial information on investment candidates
and the Fund's investments than would normally be the case in more
sophisticated markets.
Environmental Risks. The lack of environmental controls in the
Region has led to widespread pollution of the air, ground and
water resources. The legislative framework for environmental
liability and the extent of any exposure of businesses to the
costs of pollution clean-up have not been fully established.
Accordingly, the extent of the responsibility, if any, for
pollution-related liabilities of any business may not be
determinable at the time the Fund is considering an investment.
Environmental liability could have a significant adverse effect on
the performance of companies in which the Fund invests.
Legal Risks. The rate of legislative change in the Region has
been and is likely to continue to be rapid and the content of
proposed legislation when eventually adopted into law is difficult
or impossible to predict. It is similarly difficult to anticipate
the impact of legislative reforms on the companies in which the
Fund will invest. Although there is significant political support
for legislative change to facilitate and reinforce movement to a
market economy, it is not certain that legislation when enacted
will advance these objectives either consistently or in a coherent
manner. Moreover, it will be more difficult for the Fund to
obtain effective redress or enforcement of its rights, in certain
countries in the Region, than in western jurisdictions.
Employment and labor legislation tends to be pro-employee,
particularly in matters such as termination of employment,
maternity benefits, overtime restrictions and trade union
participation. In addition, although substantial revisions to the
commercial law of Russia have been enacted, the judicial and civil
procedure system in the Region has not been modernized to a
material extent. As a result, not only do courts lack experience
in commercial dispute resolution, but many of the procedural
remedies for enforcement and the protection of legal rights
typically found in western jurisdictions are not available in the
Region.
Company law in the countries in the Region may not contain the
same pre-emption provisions as would normally exist in more
developed countries. The companies in which the Fund invests may
issue further shares at a discount to the market value thereby
diluting the Fund's interest.
Specific risks associated with the legal systems in the Region
include (i) the untested nature of the independence of the
judiciary and its immunity from economic, political or
nationalistic influences; (ii) inconsistencies between and among
laws, statutory provisions, decrees, orders, resolutions and
regulations; (iii) the lack of well-developed judicial or
administrative guidance on interpreting the applicable rules; (iv)
a high degree of discretion on the part of governmental
authorities; (v) the lack of procedural remedies for enforcement
and protection of legal rights typically found in western
jurisdictions; (vi) legislation issued by different executive,
legislative and administrative bodies being subject to change in
status in relation to other legislation; and (vii) legislation and
decisions of state bodies being issued with retrospective effect
which annul or amend earlier legislation, procedures, decisions or
possible interpretations thereof.
The laws in the Region regulating ownership, control and corporate
governance of companies as well as protection of minority
shareholders have been adopted very recently and have virtually
never been tested in the courts. Disclosure and reporting
requirements are minimal and anti-fraud and insider trading
legislation, as it is understood in more developed markets, is
generally rudimentary. The concept of fiduciary duties on the
part of management or directors to their companies as a whole is
limited. The regulation of nominees in certain securities markets
in the Region is not well-developed and in some cases there is no
developed uniform understanding of how nominees are to be treated
in practice by market regulators, registrars of securities and the
taxation authorities. The regulatory requirements for
participants in the securities markets in the Region as well as
the structure of relevant regulatory authorities are subject to
constant change. This may result in challenges to the validity of
any license, permission, consent or registration which is required
in the context of trades in securities in the particular country
and which were originally obtained in compliance with the laws.
Issuers in certain of the countries in the Region are allowed by
law to restrict the rights of foreign investors to participate in
the subscription of securities. This may result in the
disenfranchisement of foreign investors in respect of their rights
to participate in bonus issues, rights issues or other corporate
actions. This may in turn result in dilution of holdings and loss
of voting powers.
Speculative Nature of Investments. The Fund's portfolio will be
subject to risks similar to those inherent in development or
venture capital investment. Investment in unlisted companies is
more speculative and involves a higher degree of risk than is
normally associated with equity investment on established stock
exchanges.
Settlement and Custodial Default. Prospective investors should be
aware that settlement and safe custody of securities in the Region
involves certain risks and considerations which do not normally
apply when settling transactions and providing safe custody
services in more developed countries, including:
(i) inadequate governmental supervision and regulation of the
securities markets and the participants in those markets;
(ii) inefficient clearing or settlement systems;
(iii) possible limitations to foreign ownership imposed by
governments; and
(iv) difficult access to share ownership records.
Neither the Fund nor the Adviser can guarantee that sub-custodial
and counterparty risk will be eliminated, nor will the Adviser
accept any responsibility for such risk.
Verification and perfection of legal ownership in securities
differs in the countries in the Region and is less effective than
in western jurisdictions. In certain countries, for example,
securities are only issued in bearer form. As a result, the risks
associated with safe custody are greater. In other countries, no
certificates are issued and legal ownership of shares is perfected
through registration either in the share register of the company
or at a central depository, in either case by a third party over
whom neither the Fund nor the Adviser may have control.
In certain countries in the Region, the market practice is
settlement against production of evidence of title to securities
in the form of extracts from the shareholders' register. Such
extracts do not in themselves constitute securities or constitute
definitive evidence of title or ownership rights. As such, these
extracts do not guarantee that title to the securities has in fact
passed. In addition, fraudulent or incorrect registration may
result in title being removed from the securities register of an
issuer. Access to securities registers may also be limited and
therefore be difficult to check.
Furthermore, management of certain issuers may view the securities
registration process as a manifestation of their control over the
issuers and either refuse to register transfers involving foreign
owners or delay the registration process indefinitely.
Many of the Fund's transactions are undertaken through local
brokers in the Region and the Fund is subject to the risk of
default by such brokers.
PICTET EASTERN EUROPEAN FUND
One Exchange Place
Boston, Massachusetts 02109
Prospectus
Dated May 15, 1997
as supplemented January 23, 1998
Investment Adviser Administrator and Transfer Agent
Pictet International Management Limited First Data Investor
Services Group, Inc.
Cutlers Gardens One Exchange Place
5 Devonshire Square 53 State Street
London, United Kingdom Boston, MA 02109
EC2M 4LD
Distributor
First Data Distributors, Inc.
4400 Computer Drive
Westborough, MA 01581
Table of Contents
Page Page
Expenses of the Fund 2 Exchange of Shares ..
10
Investment Objective and Policies 3 Valuation of
Shares 11
Investment Strategy........................... 4
Dividends, Capital Gain Distributions and Taxes 11
Investment Techniques 4 Management of the Fund
13
Risk Factors 7 Performance Calculations
15
Purchase of Shares 9 General Information
15
Redemptions of Shares 10 Appendix-Risk Factors
A-1
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.
PICTET EASTERN EUROPEAN FUND
STATEMENT OF ADDITIONAL INFORMATION
May 15, 1997
as supplemented January 23, 1998
This Statement of Additional Information is not a prospectus
but should be read in conjunction with Panorama Trust's (the
"Trust") Prospectus for Pictet Eastern European Fund (the "Fund")
dated May 15, 1997 as supplemented January 23, 1998 (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 10
Redemption of Shares 11
Investment Limitations 11
Management of the Fund 12
Investment Advisory and Other Services 14
Distributor 15
Portfolio Transactions 15
Additional Information Concerning Taxes 15
Performance Calculations 19
General Information 20
Appendix - Description of Ratings and U.S. Government Securities
A-1
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the investment objective
and policies set forth in the Prospectus:
Depositary Receipts. The Fund may purchase American
Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") and Global Depositary Shares ("GDSs"), (collectively,
"Depositary Receipts"). ADRs and ADSs typically are issued by a
U.S. bank or trust company to evidence ownership of underlying
securities issued by a foreign corporation. EDRs and GDRs
typically are 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 involved directly in the creation of the program.
Although regulatory requirements with respect to sponsored and
unsponsored programs generally are 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.
Convertible Securities. Convertible securities are fixed-
income securities that may be converted at either a stated price
or stated rate into underlying shares of common stock.
Convertible securities have general characteristics similar to
both fixed-income and equity securities. Although to a lesser
extent than with fixed-income securities generally, the market
value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with
fluctuations in the market value of the underlying common stocks
and, therefore, also will react to variations in the general
market for equity securities. A unique feature of convertible
securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly
on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the
market price of the underlying common stock increases, the prices
of the convertible securities tend to rise as a reflection of the
value of the underlying common stock. While no securities
investments are without risk, investments in convertible
securities generally entail less risk than investments in common
stock of the same issuer.
As fixed-income securities, convertible securities are
investments that provide for a stable stream of income with
generally higher yields than common stocks. Of course, like all
fixed-income securities, there can be no assurance of current
income because the issuers of the convertible securities may
default on their obligations. Convertible securities, however,
generally offer lower interest or dividend yields than non-
convertible securities of similar quality because of the potential
for capital appreciation. A convertible security, in addition to
providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the
holder to benefit from increases in the market price of the
underlying common stock. There can be no assurance of capital
appreciation, however, because securities prices fluctuate.
Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer,
although convertible bonds, as corporate debt obligations, enjoy
seniority in the right of payment to all equity securities, and
convertible preferred stock is senior to common stock, of the same
issuer. Because of the subordination feature, however,
convertible securities typically have lower ratings than similar
non-convertible securities.
When-Issued and Forward Commitment Transactions. The Fund
may purchase when-issued securities and enter into other forward
commitments to purchase or sell securities. The value of
securities purchased on a when-issued or forward commitment basis
may decline between the purchase date and the settlement date.
Warrants. Because a warrant does not carry with it the
right to dividends or voting rights with respect to the securities
that the warrant holder is entitled to purchase, and because it
does not represent any rights to the assets of the issuer, a
warrant may be considered more speculative than certain other
types of investments. In addition, the value of a warrant does
not necessarily change with the value of the underlying securities
and a warrant ceases to have value if it is not exercised prior to
its expiration date.
Preferred Stock. Preferred stocks, like debt obligations,
are generally fixed-income securities. Shareholders of preferred
stocks normally have the right to receive dividends at a fixed
rate when and as declared by the issuer's board of directors, but
do not participate in other amounts available for distribution by
the issuing corporation. Dividends on the preferred stock may be
cumulative, and all cumulative dividends usually must be paid
prior to common shareholders receiving any dividends. Preferred
stock dividends must be paid before common stock dividends and,
for that reason, preferred stocks generally entail less risk than
common stocks. Upon liquidation, preferred stocks are entitled to
a specified liquidation preference, which is generally the same as
the par or stated value, and are senior in right of payment to
common stock. Preferred stocks are, however, equity securities in
the sense that they do not represent a liability of the issuer
and, therefore, do not offer as great a degree of protection of
capital or assurance of continued income as investments in
corporate debt securities. In addition, preferred stocks are
subordinated in right of payment to all debt obligations and
creditors of the issuer, and convertible preferred stocks may be
subordinated to other preferred stock of the same issuer.
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 sub-custodians 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 its loss.
Investing in foreign companies involves certain special
considerations which typically are not associated with investing
in U.S. companies. Because the stocks of foreign companies
frequently are denominated in foreign currencies, and because the
Fund may hold uninvested reserves in bank deposits in foreign
currencies temporarily, 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.
Because foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards and
may have policies that are not comparable with those of domestic
companies, there may be less information available about certain
foreign companies than about domestic companies. Securities of
some foreign companies generally are less liquid and more volatile
than securities of comparable domestic companies. There generally
is 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 generally are 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
services relating to investment in foreign securities markets
generally are 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 borne exclusively by the Fund.
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 its pro rata portion, along with
other shareholders, 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 price 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 does not necessarily mean that such investments are
illiquid.
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 affect adversely 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. The Board
monitors the liquidity determinations made by the Adviser. In
addition, the value of securities for which no market quotations
are readily available (including restricted securities) is
determined by the Board after considering all relevant
information. All liquidity and valuation procedures are reviewed
periodically to ensure their continued appropriateness and
adequacy in light of changing circumstances.
Hedging and Risk Management Practices. In order to hedge
against foreign currency exchange rate risks, the Fund may enter
into forward foreign currency exchange contracts ("forward
contracts") and foreign currency futures contracts, as well as
purchase put or call options on foreign currencies, as described
below. The Fund also may conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market.
The Fund also may purchase other types of options and
futures and may, in the future, write covered options, as
described below and in the Prospectus.
Forward Contracts. The Fund may enter into 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
liquid assets 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 presently are not regulated by the Commodity Futures
Trading Commission ("CFTC"), the CFTC may regulate them in the
future, 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 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.
Futures Contracts and Options on Futures Contracts. To
hedge against movements in interest rates, securities prices or
currency exchange rates, the Fund may purchase and sell various
kinds of futures contracts and options on futures contracts. The
Fund also may enter into closing purchase and sale transactions
with respect to any such contracts and options. Futures contracts
may be based on various securities (such as U.S. Government
securities), securities indices, foreign currencies and other
financial instruments and indices.
The Fund will file a notice of eligibility for exclusion
from the definition of the term "commodity pool operator" with the
CFTC and the National Futures Association, which regulate trading
in the futures markets, before engaging in any purchases or sales
of futures contracts or options on futures contracts. Pursuant to
Section 4.5 of the regulations under the Commodity Exchange Act,
the notice of eligibility will include the representation that the
Fund would use futures contracts and related options for bona fide
hedging purposes within the meaning of the CFTC regulations,
provided that the Fund might hold positions in futures contracts
and related options that do not fall within the definition of bona
fide hedging transactions if the aggregate initial margin and
premiums required to establish such positions would exceed 5% of
the Fund's net assets (after taking into account unrealized
profits and unrealized losses on any such positions) and that in
the case of an option that is in-the-money at the time of
purchase, the in-the-money amount might be excluded from such 5%.
The Fund will attempt to determine whether the price
fluctuations in the futures contracts and options on futures used
for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or which it expects to
purchase. The Fund's futures transactions generally will be
entered into only for traditional hedging purposes, i.e., futures
contracts will be sold to protect against a decline in the price
of securities or currencies and will be purchased to protect the
Fund against an increase in the price of securities it intends to
purchase (or the currencies in which they are denominated). All
futures contracts entered into by the Fund are traded on U.S.
exchanges or boards of trade licensed and regulated by the CFTC or
on foreign exchanges.
Positions taken in the futures markets are not normally held
to maturity but are instead liquidated through offsetting or
"closing" purchase or sale transactions, which may result in a
profit or a loss. While the Fund's futures contracts on
securities or currencies will usually be liquidated in this
manner, the Fund may make or take delivery of the underlying
securities or currencies whenever it appears economically
advantageous. A clearing corporation associated with the exchange
on which futures on securities or currencies are traded guarantees
that, if still open, the sale or purchase will be performed on the
settlement date.
By using futures contracts to hedge its positions, the Fund
seeks to establish more certainty then would otherwise be possible
with respect to the effective price, rate of return or currency
exchange rate on portfolio securities or securities that the Fund
proposes to acquire. For example, when interest rates are rising
or securities prices are falling, the Fund can seek, through the
sale of futures contracts, to offset a decline in the value of its
current portfolio securities. When rates are falling or prices
are rising, the Fund, through the purchase of futures contracts,
can attempt to secure better rates or prices than might later be
available in the market with respect to anticipated purchases.
Similarly, the Fund can sell futures contracts on a specified
currency to protect against a decline in the value of such
currency and its portfolio securities which are denominated in
such currency. The Fund can purchase futures contracts on a
foreign currency to fix the price in U.S. dollars of a security
denominated in such currency that the Fund has acquired or expects
to acquire. Loss from investing in futures transactions by the
Fund is potentially unlimited.
As part of its hedging strategy, the Fund also may enter
into other types of financial futures contracts if, in the opinion
of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and such
futures contracts. Although under some circumstances prices of
securities in the Fund's portfolio may be more or less volatile
than prices of such futures contracts, the Adviser will attempt to
estimate the extent of this difference in volatility based on
historical patterns and to compensate for it by having the Fund
enter into a greater or lesser number of futures contracts or by
attempting to achieve only a partial hedge against price changes
affecting the Fund's securities portfolio. When hedging of this
character is successful, any depreciation in the value of
portfolio securities can be substantially offset by appreciation
in the value of the futures position. However, any unanticipated
appreciation in the value of the Fund's portfolio securities could
be offset substantially by a decline in the value of the futures
position.
The acquisition of put and call options on futures contracts
gives the Fund the right (but not the obligation), for a specified
price, to sell or purchase the underlying futures contract at any
time during the option period. Purchasing an option on a futures
contract gives the Fund the benefit of the futures position if
prices move in a favorable direction, and limits its risk of loss,
in the event of an unfavorable price movement, to the loss of the
premium and transaction costs.
The Fund may terminate its position in an option contract by
selling an offsetting option on the same series. There is no
guarantee that such a closing transaction can be effected. The
Fund's ability to establish and close out positions on such
options is dependent upon a liquid market.
The Fund will engage in transactions in futures contracts
and related options only to the extent such transactions are
consistent with the requirements of the Internal Revenue Code of
1986, as amended, for maintaining their qualification as a
regulated investment company for Federal income tax purposes.
Options on Securities, Securities Indices and Currencies.
The Fund may purchase put and call options on securities in which
it has invested, on foreign currencies represented in its
portfolio and on any securities index based in whole or in part on
securities in which the Fund may invest. The Fund also may enter
into closing sales transactions in order to realize gains or
minimize losses on options it has purchased.
The Fund normally will purchase call options in anticipation
of an increase in the market value of securities of the type in
which it may invest or a positive change in the currency in which
such securities are denominated. The purchase of a call option
would entitle the Fund, in return for the premium paid, to
purchase specified securities or a specified amount of a foreign
currency at a specified price during the option period.
The Fund may purchase and sell options traded on U.S. and
foreign exchanges. Although the Fund will generally purchase only
those options for which there appears to be an active secondary
market, there can be no assurance that a liquid secondary market
on an exchange will exist for any particular option or at any
particular time. For some options, no secondary market on an
exchange may exist. In such event, it might not be possible to
effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the
purchase or sale of the underlying securities.
Secondary markets on an exchange may not exist or may not be
liquid for a variety of reasons including: (i) insufficient
trading interest in certain options; (ii) restrictions on opening
transactions or closing transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances which interrupt normal
operations on an exchange; (v) inadequate facilities of an
exchange or the Options Clearing Corporation to handle current
trading volume at all times; or (vi) discontinuance in the future
by one or more exchanges for economic or other reasons, of trading
of options (or of a particular class or series of options), in
which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although
outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their
terms.
Although the Fund does not currently intend to do so, it
may, in the future, write (i.e., sell) covered put and call
options on securities, securities indices and currencies in which
it may invest. A covered call option involves the Fund's giving
another party, in return for a premium, the right to buy specified
securities owned by the Fund at a specified future date and price
set at the time of the contract. A covered call option serves as
a partial hedge against the price decline of the underlying
security. However, by writing a covered call option, the Fund
gives up the opportunity, while the option is in effect, to
realize gain from any price increase (above the option exercise
price) in the underlying security. In addition, the Fund's
ability to sell the underlying security is limited while the
option is in effect unless the Fund effects a closing purchase
transaction.
The Fund also may write covered put options that give the
holder of the option the right to sell the underlying security to
the Fund at the stated exercise price. The Fund will receive a
premium for writing a put option but will be obligated for as long
as the option is outstanding to purchase the underlying security
at a price that may be higher than the market value of that
security at the time of exercise. In order to "cover" put options
it has written, the Fund will cause its custodian to segregate
cash, cash equivalents, U.S. Government securities or other liquid
securities with at least the value of the exercise price of the
put options. In segregating such assets, the custodian either
deposits such assets in a segregated account or separately
identifies such assets and renders them unavailable for
investment. The Fund will not write put options if the aggregate
value of the obligations underlying the put options exceeds 25% of
the Fund's total assets.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain of the facilities of the Options Clearing Corporation
inadequate, and result in the institution by an exchange of
special procedures that may interfere with the timely execution of
the Fund's orders.
While transactions in forward contracts, options, futures
contracts and options on futures (i.e., "hedging positions") 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.
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). The Fund generally would 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 borrowing funds temporarily 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 an amount
equal to 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.
PURCHASE OF SHARES
The purchase price of shares of the Fund is the net asset
value next determined after receipt of the purchase order in
proper 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.
At the Fund's discretion, shares of the Fund also may be
purchased by exchanging securities acceptable to the Fund. The
Fund need not accept any security offered for exchange unless it
is consistent with the Fund's investment objective and
restrictions and is acceptable otherwise to the Fund. Securities
accepted in exchange for shares will be valued in accordance with
the Fund's usual valuation procedures. Investors interested in
making an in-kind purchase of Fund shares must first telephone the
Adviser to advise it of their intended action and obtain
instructions for an in-kind purchase.
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.
If a shareholder redeems shares of the Fund which have been
held less than six months (including shares to be exchanged), the
Fund will deduct from the proceeds a redemption charge of 2% of
the amount of the redemption. This amount is retained by the Fund
to offset the Fund's costs of purchasing and selling securities.
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
financial and currency futures contracts, options on futures
contracts, options on securities, indices and currency, forward
contracts, swaps and other financial or currency derivative
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, such as bankers acceptances and commercial
paper, and selling securities on a when issued, delayed settlement
or forward delivery basis) which are publicly or privately
distributed, (ii) by entering into repurchase agreements and (iii)
through the lending of its portfolio securities;
(4) purchase on margin or sell short except as permitted by the
1940 Act;
(5) with respect to 75% of its total assets, at the time of
purchase invest more than 5% of its total assets or purchase more
than 10% of the outstanding voting securities of the securities of
any single issuer (other than obligations issued or guaranteed by
the U.S. Government, its agencies, enterprises or
instrumentalities);
(6) 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 (7) below and may
enter into reverse repurchase agreements;
(7) 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;
(8) underwrite the securities of other issuers, except to the
extent that the purchase and subsequent disposition of securities
may be deemed underwriting;
(9) 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; other than obligations issued or guaranteed
by the U.S. Government, its agencies, enterprises or
instrumentalities.
In addition, as non-fundamental policies, the Fund will not
invest more than 15% of its net assets, at the time of purchase,
in illiquid securities, including repurchase agreements which have
maturities of more than seven days; the Fund will not make
additional investments while borrowings representing more than 5%
of the Fund's total assets are outstanding; and the Fund will not
invest for the purpose of exercising control over management of
any company.
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 7 above
must be reduced to meet such limitation within the period required
by the 1940 Act (currently three days, not including Sundays and
holidays).
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.
Name, Address and Position
Age
Principal Occupation During Past Five Years
Jean G. Pilloud*,
President
and Chairman
Pictet & Cie
29, Boulevard Georges-Favon
1204 Geneva
Switzerland
53
Senior Manager of Pictet & Cie.
Jean-Franois
Demole* , Trustee
Pictet Canada & Company Ltd.
1800 McGill College Avenue,
Suite 2900
Montreal, Quebec H3A3J6
35
Chief Executive Officer of Pictet (Canada) & Company Ltd., since March 1994;
Vice President of Pictet & Cie, December 1990 to March 1994.
Jeffrey P. Somers,* Trustee
Morse, Barnes-Brown & Pendleton
1601 Trapelo Road
Reservoir Place
Waltham, MA 02154
54
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
53
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
59
President, Wand Partners, Inc.; Director, Waverly, Inc. and Chartwell Re
Corporation.
Gail A. Hanson, Secretary
First Data Investor Services Group, Inc.
One Exchange Place
Boston, MA 02109
55
Counsel, First Data Investor Services Group, Inc. Ms. Hanson has been
employed by First Data Investor Services Group, Inc. since September 1994.
Previously, she was employed as an Associate at Bingham, Dana & Gould
prior to 1994.
Jeffrey Lewis, Treasurer
First Data Investor Services Group, Inc.
One Exchange Place
Boston, MA 02109
39
Since 1994, Vice President of Fund Accounting at First Data Investor
Services Group, Inc. From January, 1984 through July, 1994, Mr. Lewis was
an Assistant Vice President - Assistant Controller for Colonial
Management Associates, Inc. proprietary mutual funds. Prior to that
time, he was employed by Keystone Provident Life Insurance Co. and State
Street Bank & Trust.
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 and committee meeting
attended and out-of-pocket expenses incurred in attending such
meetings.
COMPENSATION TABLE
The following table sets forth the compensation paid to the
Trustees for the Trust for the fiscal year ended December 31,
1997. Compensation is not paid to any officers of the Trust by
the Fund. Further, the Trust does not provide any pension or
retirement benefits to its Trustees and officers.
NAME OF AGGREGATE COMPENSATION TOTAL
PERSON FROM THE TRUST COMPENSATION
AND FROM THE TRUST
POSITION AND COMPLEX PAID
TO TRUSTEES
David J. $10,500 $10,500
Callard
Trustee
Jean-Franois Demole 0 $0
Trustee
Jean G. Pilloud 0 $0
Trustee
Bruce W. Schnizter $8,000 $8,000
Trustee
Jeffrey P. Somers $9,500 $9,500
Trustee
INVESTMENT ADVISORY AND OTHER SERVICES
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.
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 1.50% of the Fund's average
daily net assets. Currently, the Adviser voluntarily has agreed
not to impose its fees and to reimburse expenses as may be
necessary to assure that the net operating expenses of the Fund
will not exceed 2.00% of the Fund's average daily net assets. The
Adviser, located at Cutlers Garden, 5 Devonshire Square, London,
England EC2M 4LD, is a 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 six
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. ("Investor Services Group")
pursuant to an administration agreement. See "Administrative
Services" in the Prospectus for information concerning the
substantive provisions of the administration agreement.
Brown Brothers Harriman & Co., located at 40 Water Street,
Boston, Massachusetts 02109, serves as the custodian of the
Trust's assets.
Coopers & Lybrand L.L.P., located at One Post Office Square,
Boston, Massachusetts 02109, serves as independent accountants for
the Trust and audits its financial statements annually.
DISTRIBUTOR
Shares of the Fund are distributed continuously and are
offered without a sales charge by First Data Distributors, Inc.
(the "Distributor") pursuant to a distribution agreement between
the Trust and the Distributor. The Distributor is a wholly owned
subsidiary of Investor Services Group.
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
Adviser. 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 by
regulation may exclude from qualifying income foreign currency
gains which are not related directly 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) and (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 and appropriately designated by
the Fund 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 distributions 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 redemption or other
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 distributions 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 and short-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 dividends and
distributions 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 operating
as investment companies, also may 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 actually is 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
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, absent an election that may be available in some cases,
generally is 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 relates 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 also may 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 tax 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 generally will
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 be held personally
liable as partners for its obligations under certain
circumstances. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance exists and the
Trust itself is 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.
