As filed with the Securities and Exchange Commission on April 14,
2000
Securities Act File No. 33-92712
Investment Company Act File No. 811-9050
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 14 X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 18 X
PANORAMA TRUST
(Exact Name of Registrant as Specified in Charter)
101 Federal Street, Boston, MA 02110
Registrant's Telephone Number, including Area Code: (617) 535-0525
Name and Address of Agent for Service: Copies to:
Gail A. Hanson, Esq. Pamela Wilson, Esq.
PFPC Inc. Hale and Dorr
101 Federal Street 60 State Street
BOS 610 Boston, MA 02109
Boston, Massachusetts 02110
It is proposed that the filing will become effective:
____ immediately upon filing pursuant to paragraph (b)
on [ ] pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
___ on [ ] pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
_X on July 1, 2000 pursuant to paragraph (a)(2) of Rule 485
PICTET EUROPEAN EQUITY FUND
PICTET INTERNATIONAL EQUITY FUND
LOGO
PICTET
FUNDS
PROSPECTUS
JULY 1, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a criminal offense.
TABLE OF CONTENTS
RISK/RETURN SUMMARY - EUROPEAN EQUITY FUND
X
Investment goal
X
Principal investments and strategies
X
Principal investment risks
X
Total return
X
Fees and expenses
X
Portfolio management
X
RISK/RETURN SUMMARY - INTERNATIONAL EQUITY FUND
X
Investment goal
X
Principal investments and strategies
X
Principal investment risks
X
Total return
X
Fees and expenses
X
Portfolio management
X
THE FUNDS INVESTMENTS
X
INVESTMENT ADVISER
X
INVESTMENT AND ACCOUNT POLICIES
X
Calculation of net asset value
X
Purchasing fund shares
X
Exchanges between Pictet funds
X
Redeeming fund shares
X
Dividends, distributions and taxes
X
FOR MORE INFORMATION
back
cover
RISK/RETURN SUMMARY EUROPEAN EQUITY FUND
INVESTMENT
GOAL
Long term growth of capital.
PRINCIPAL
INVESTMENTS
AND
STRATEGIES
The fund pursues its objective
by investing in a diversified
portfolio of equity securities
of
companies located in, or which
conduct a significant amount of
their business in, Europe.
European
equities
Equity securities include common
and preferred stocks, investment
company shares, convertible debt
securities, warrants,
subscription rights, interests
in government owned or
controlled enterprises and
depositary receipts for foreign
stocks.
European countries include
Austria, Belgium, Denmark,
Finland, France, Greece,
Germany, Ireland, Italy,
Luxembourg, Netherlands, Norway,
Portugal, Spain, Sweden,
Switzerland and the United
Kingdom.
How the adviser
selects the
funds
investments
The process of economic
convergence and monetary union
across Europe implies that it is
more appropriate to consider the
region as a block rather than a
collection of individual
markets. Our process therefore
focuses upon fundamental stock
selection within a strategic
sector framework.
Within the process the sectors
are defined within three broad
categories; economic sensitive,
organic growth and interest rate
sensitive.
In selecting individual stocks,
the advisers primary analysis
focuses on a distinct set of
fundamental criteria. This
includes in-depth
research into the relevant
industry to ascertain its growth
and pricing dynamics, as well as
the strength of the companys
competitive position within the
industry. The following
attributes are particularly
pertinent when assessing a
possible candidate company:
? High quality sustainable
business franchise.
? Proven management ability
to achieve cost control and
efficiency.
? The companys ability to
generate free cash flow.
Country weights are controlled
through the use of defined
ranges around a neutral
benchmark position.
PRINCIPAL
INVESTMENT
RISKS
An
investment
in the fund
is not a
bank deposit
and is not
insured or
guaranteed
by the
Federal
Deposit
Insurance
Corporation
or any other
government
agency.
Investors could lose money on
their investments in the fund or
the fund may not perform as well
as other investments if any of
the following occurs:
Foreign stock prices go down
generally.
Changes in foreign currency
rates depress the value of the
funds investments.
Negative developments in Europe
disproportionately hurt the
companies in the funds
portfolio.
An adverse event, such as an
unfavorable earnings report,
depresses the value of a
particular companys stock.
The advisers judgment about
country and industry allocations
or the attractiveness, value or
potential appreciation of a
particular stock proves to be
incorrect.
RISK/RETURN SUMMARY EUROPEAN EQUITY FUND (continued)
FEES AND
EXPENSES
This table
describes
the fees and
expenses
that you may
pay if you
buy and hold
shares of
the fund.
"Other Expenses" is based on estimated amounts for the current
fiscal year. Actual expenses may be greater or less than such
estimates.
Shareholder fees (paid directly from your
investment)
Redemption fees for shares held less than
6 months1
None
1.00%
Annual fund operating expenses (deducted
from fund assets)2
Advisory fees
0.75%
Other expenses
2.98%
Total annual fund operating expenses
3.73%
2 After expense limitation, expenses were
Advisory fees
0.00%
Other expenses
1.00%
Total annual fund operating expenses
1.00%
This example
is intended
to help you
compare the
cost of
investing in
the fund
with the
cost of
investing in
other mutual
funds.
The example assumes that:
You invest $10,000 in the fund for the
time periods indicated.
Your investment has a 5% return each year.
The funds operating expenses remain the
same.
You redeem your investment at the end of
each period.
Although your actual costs may be
higher or lower, under these
assumptions your costs would be:
1 year
3
years
$102
$318
RISK/RETURN SUMMARY INTERNATIONAL EQUITY FUND
INVESTMENT
GOAL
Long term growth of capital.
PRINCIPAL
INVESTMENTS
AND
STRATEGIES
The fund invests primarily in
equity markets listed in the
Morgan Stanley Capital
International Europe, Australia
and Far East
Index (MSCI EAFE Index) the
benchmark against which the Fund
measures its portfolio.
Equity
securities
Equity securities include common
and preferred stocks, investment
company shares, convertible debt
securities, warrants,
subscription rights,
interests in government owned or
controlled enterprises and
depositary receipts for foreign
stocks.
How the
adviser
selects the
funds
investments
The investment process consists
of three stages plus risk
controls. These are:
Regional asset allocation.
Sector based strategy within
regions.
Stock selection.
In allocating the funds assets
among regions, the adviser uses
a proprietary top-down
approach. Regional allocation is
dictated by two very strong
beliefs:
Liquidity is the prime driving
force of financial asset prices.
Valuation is an important but
subsidiary factor and is
principally assessed relative
to yields on government bonds.
The best opportunities occur in
markets where liquidity and
valuation are both positive.
Where the two are in conflict,
liquidity is almost always the
dominant factor.
The adviser carries out a
detailed assessment of liquidity
and valuation conditions in
major markets on a weekly basis.
This involves examination of
hundreds of individual data
series and the scoring of major
factors in an objective manner.
The scores derived form the
central tool in the advisers
top down asset allocation
decision making process.
In the second stage of the
process, sectors are classified
into three broad categories:
economic sensitive, organic
growth and interest rate
sensitive. The sector strategy
for each region is determined by
identifying the position of the
regional economy along the
economic cycle. Once the
position along the cycle has
been established, specific
weightings within each broad
category are targeted for each
region. Each broad category of
sectors has a tendency to
perform differently at various
stages of the economic cycle.
In selecting individual stocks,
the advisers primary analysis
focuses on a distinct set of
fundamental criteria. This
includes in-depth research into
the relevant industry to
ascertain its growth and pricing
dynamics, as well as the
strength of the companys
competitive position within the
industry. The following
attributes are particularly
significant when assessing a
possible candidate company:
High quality, sustainable
business franchise.
Proven management capability,
particularly regarding cost
control and efficiency.
The companys capacity to
generate free cash flow.
The adviser focuses on large
capitalization stocks which
constitute approximately 70% to
80% of the portfolio.
RISK/RETURN SUMMARY INTERNATIONAL EQUITY FUND (continued)
PRINCIPAL
INVESTMENT
RISKS
An
investment
in the fund
is not a
bank deposit
and is not
insured or
guaranteed
by the
Federal
Deposit
Insurance
Corporation
or any other
government
agency.
Investors could lose money on
their investments in the fund or
the fund may not perform as well
as other investments if any of
the following occurs:
Foreign stock prices go down
generally.
Changes in foreign currency
rates depress the value of the
funds investments.
An adverse event, such as an
unfavorable earnings report,
depresses the value of a
particular companys stock.
The advisers judgment about
country or sector allocations or
the attractiveness, value or
potential appreciation of a
particular stock proves to be
incorrect.
FEES AND
EXPENSES
This table
describes
the fees and
expenses
that you may
pay if you
buy and hold
shares of
the fund.
"Other Expenses" is based on estimated amounts for the current
fiscal year. Actual expenses may be greater or less than such
estimates.
Shareholder fees (paid directly from your
investment)
Redemption fees for shares held less than 6
months1
None
1.00%
Annual fund operating expenses (deducted
from fund assets)2
Advisory fees
0.75%
Other expenses
5.55%
Total annual fund operating expenses
6.30%
2 After expense limitation, expenses were
Advisory fees
0.00%
Other expenses
1.00%
Total annual fund operating expenses
1.00%
RISK/RETURN SUMMARY INTERNATIONAL EQUITY FUND (continued)
This example
is intended
to help you
compare the
cost of
investing in
the fund
with the
cost of
investing in
other mutual
funds.
The example assumes that:
You invest $10,000 in the fund for the
time periods indicated.
Your investment has a 5% return each year.
The funds operating expenses remain the
same.
You redeem your investment at the end of
each period.
Although your actual costs may be
higher or lower, under these
assumptions your costs would be:
1 year
3
years
$102
$318
THE FUNDS INVESTMENTS
DEPOSITARY
RECEIPTS
Depositary receipts are securities issued by
banks and other financial institutions that
represent interests in the stocks of foreign
companies. They include American
Depositary Receipts, European Depositary
Receipts, Global Depositary Receipts and
[Russian Depositary Certificates.]
DEBT
SECURITIES
Each fund may invest up to 35%
of its assets in investment
grade debt securities of U.S.
and foreign corporate and
governmental issuers. These may
include all types of debt
securities of any maturity.
The value of debt securities
will go down if interest rates
go up, or the issuer of the
security has its credit rating
downgraded or defaults on its
obligation to pay principal or
interest.
Securities are investment grade
if they:
Are rated in one of the top four
long-term rating categories of a
nationally recognized
statistical rating organization.
Have received a comparable
short-term or other rating.
Are unrated securities that the
adviser believes to be of
comparable quality.
A funds credit standards also
apply to counterparties to OTC
derivative contracts.
DEFENSIVE
INVESTMENTS
Each fund may depart from its principal
investment strategies in response to adverse
market conditions by taking temporary
defensive positions in all types of money
market and short-term debt securities. If a fund
takes a temporary defensive position, it may be
unable to achieve its investment goal.
DERIVATIVES
AND HEDGING
TECHNIQUES
Each fund may, but is not
required to, use derivative
contracts for any of the
following purposes:
To hedge against the economic
impact of adverse changes in the
market value of its securities,
because of changes in stock
market prices or currency
exchange rates.
As a substitute for buying or
selling securities or
currencies.
Derivative contracts include
options and futures on
securities, securities indices
or currencies; options on these
futures; forward currency
contracts; and currency swaps.
Derivative contracts are valued
on the basis of the value of the
underlying securities. A
derivative contract will
obligate or entitle a fund to
deliver or receive an asset or
cash payment based on the change
in value of one or more
securities, currencies or
indices.
Even a small investment in
derivative contracts can have a
big impact on a funds stock
market or currency exposure.
Therefore, using derivatives can
disproportionately increase
losses and reduce opportunities
for gains when stock prices or
currency rates are changing.
A fund may not fully benefit
from or may lose money on
derivatives if changes in their
value do not correspond
accurately to changes in the
value of a funds holdings. The
other parties to over-the-
counter derivative contracts
present the same types of
default risk as issuers of fixed
income securities. Derivatives
can also make a fund less liquid
and harder to value, especially
in declining markets.
[EMERGING
MARKETS]
[Each fund may invest up to 5% of its assets in
emerging market securities.]
PORTFOLIO
TURNOVER
Each fund may engage in active and frequent
trading. This may lead to the realization and
distribution to shareholders of higher capital
gains, which would increase their tax liability.
Frequent trading also increases transaction
costs, which could detract from a funds
performance.
EACH FUNDS
INVESTMENT
GOAL
Each funds goal is non-fundamental so that the
board of trustees may change the investment
goal of a fund without obtaining the
approval of the funds
shareholders. A fund might not
succeed in achieving its goal.
INVESTMENT ADVISER
EACH FUNDS
INVESTMENT
ADVISER IS
PICTET
INTERNATIONAL
MANAGEMENT
LIMITED
The adviser provides investment
advice and portfolio management
services to each fund. Under
the supervision of the board of
trustees, the adviser makes each
funds day-to-day investment
decisions, arranges for the
execution of portfolio
transactions and makes available
the research services of its
portfolio managers and security
analysts.
The adviser is entitled to
receive a fee from each fund for
its services, calculated daily
and payable monthly, at the
annual rate of 0.75% of each
funds average daily net assets.
Currently, the adviser has
agreed to cap each funds total
annual operating expenses at no
more than 1.00% of each funds
average daily net assets. These
caps do not apply to brokerage
commissions, taxes, interest and
litigation, indemnification and
other extraordinary expenses.
These expense caps can be
revoked after sufficient notice
at any time.
Established in 1980, the adviser
currently manages approximately
$10 billion of assets for more
than 150 accounts. The adviser
focuses on managing
international equity and fixed
income portfolios for U.S. and
international institutional
clients. Its address is Tower
42, Level 37, 25 Old Broad
Street, London, EC2N 1HQ, United
Kingdom. The adviser is both
registered as a U.S. investment
adviser and regulated in the
United Kingdom by the Investment
Management Regulatory
Organisation.
The adviser is an affiliate of
Pictet & Cie, a Swiss private
bank that was founded in 1805.
As of December 31, 1999, Pictet
& Cie managed over $100 billion
of assets for institutional and
private clients. Pictet & Cie
is owned by eight partners.
INVESTMENT ADVISER (CONTINUED)
EUROPEAN
EQUITY
FUNDS
PORTFOLIO
MANAGEMENT
TEAM
Names of managers
Title
(how long on fund
team)
Positions during last five years
Scott Jaffray
Director
(since inception)
Director with specific responsibility for
the European team and their investments.
Before joining Pictet International
Management Limited (Pictet) in 1996, Scott
spent six years heading the European equity
team at Norwich Union Investment Management.
Before this, he spent five years working at
Royal Insurance Asset Management where he
became portfolio manager of European
equities.
Matthew Tee
Senior Investment
Manager
(since inception)
Before joining Pictet in 1996, Matthew
worked at Norwich Union Investment
Management for eight years, first as a
currency analyst and then for over five
years with Scott Jaffray on the European
team.
Stephen Burrows
Senior Investment
Manager
(since inception)
Before joining Pictet in 1997, Stephen
worked as an investment manager on the
European equity team at Norwich Union
Investment Management for two years. Before
this, he worked for eight years at
Rothschild Asset Management as an investment
manager for European equities and a member
of the Global Asset Allocation Committee.
Alessandro Lunghi
Senior Investment
Manager
(since inception)
Before joining Pictet in 1999, Alessandro
worked at CIN Management from 1991 until
1996 where his responsibilities included
European equity fund management as well as
active quantitative techniques and risk
management. Following the takeover of CIN
Management by Goldman Sachs Asset Management
in 1996, he became a senior portfolio
manager in the GSAM pan-European equity team
and a team leader of an industry research
group.
Mike OHara
Senior Investment
Manager
(since inception)
Before joining Pictet in 1999, Mike worked
at Murray Johnstone from 1992 until 1999,
working as a member of the European team
from 1992 to 1994. In 1994, he transferred
to Murray Johnstone International in Chicago
where he worked on asset allocation models
and marketing. He returned to the UK as a
European Portfolio Manager in 1996 and was
made investment director in 1999.
Grant Cullens
Senior Investment
Manager
(since inception)
Before joining Pictet in 1998, Grant worked
as head of their UK equity sales at Salomon
Bros. desk during 1997. Before this, he
worked at TSB Investment Management where he
successfully managed many of their UK unit
trusts. Grant became head of the UK unit
trust investment team managing 4 billion of
UK assets following the merger of TSB
Investment Management with Hill Samuel and
subsequently Lloyds Investment Management.
INVESTMENT ADVISER (CONTINUED)
INTERNATIONAL
EQUITY FUNDS
PORTFOLIO
MANAGEMENT
TEAM
Names of managers
Title
(how long on fund
team)
Positions during last five years
Mark Boulton
Director
(since inception)
Director of the adviser with specific
responsibility for the international team.
Before joining the adviser in 1998, Mark was
the head of the international equities
department at Rothschild Asset Management in
London.
Richard Heelis
Senior Investment
Manager
(since inception)
Richard is responsible for the Japanese
equity market on the international team.
Before joining the adviser in 1999, he was
responsible for all Norwich Unions Japanese
equity portfolios.
Michael Collins
Senior Investment
Manager
(since inception)
Michael is responsible for country
allocation and top down strategy. Before
joining the adviser in 1999, he was
responsible for top level country allocation
and long term investment strategy for
Norwich Unions With Profits Fund.
Paul Parsons
Senior Investment
Manager
(since inception)
Senior investment manager of the adviser,
with special responsibility for Asia
equities. Before joining the adviser in
January 1995, Paul was an Asia fund
portfolio manager for Invesco MIM.
Scott Jaffray
Director
(since inception)
Director with specific responsibility for
the European team and their investments.
Before joining Pictet in 1996, Scott spent
six years heading the European equity team
at Norwich Union Investment Management.
Before this, he spent five years working at
Royal Insurance Asset Management where he
became portfolio manager of European
equities.
INVESTMENT ADVISER (CONTINUED)
TOTAL
RETURNS OF
COMPOSITE
ACCOUNT
The following performance information is the
performance of a European composite managed
by Pictet. The composite is made up of
institutional equity portfolios under Pictets
discretionary management. The portfolios of the
European composite have substantially the same
investment objectives, policies and strategies as
those of Pictet European Equity Fund. As of
December 31, 1999, Pictet managed more than
$1.4 million in Pan European equities.
The European composites
historical performance is not
indicative of the future
performance of Pictet European
Equity Fund.
The portfolio performance
returns were calculated using
Modified Dietz Methodology (the
monthly total return is
calculated by the gain or loss
on the portfolio plus income
divided by the portfolio mean).
The portfolio returns are
market capitalization weighted
to create monthly composite
returns which are geometrically
linked on a monthly basis to
create longer time periods.
1992
1993
1994
1995
1996
1997
1998
1999 European Composite -5.02% 32.65% 10.23% 25.50% 30.46% 23.20% 29.28% 16.42%
MSCI Europe Index3 -4.24% 29.79% 2.66% 22.13% 21.57% 24.20% 28.91% 16.23% Note:
In May 1996, the adviser appointed Scott Jaffray and Matthew Tee from Norwich
Union, a large UK insurance company. Scott joined as Director and head of the
European team, and Matthew as Senior Investment Manager, European team. In
February 1997, Stephen Burrows, the third member of the Norwich Union European
Team also joined the adviser. Alessandro Lunghi joined the team in June 1999
from Goldman Sachs. In November 1999 Mike O'Hara joined from Murray Johnstone.
The figures shown above represent a composite of the Continental European
performance that they achieved at Norwich Union together with Pictets own UK
equity performance to May 1996. From June 1996 to date, performance shown is for
the Pan European composite managed by this team. In compiling the above, a key
objective was to show the historical performance of the team members who are
currently managing the advisers European equities accounts.
TOTAL
RETURNS OF
PENSION
ACCOUNT
The following performance information is the
performance of a pension account managed by
Pictet which has substantially the same
investment objectives, policies and strategies as
those of Pictet International Equity Fund. As of
December 31, 1999, Pictet managed more than
$38 million in international equities.
Although similar to Pictet
International Equity Fund, the
pension account is a separate
portfolio and its historical
performance is not indicative of
the future performance of Pictet
International Equity Fund.
Share prices and investment
returns will fluctuate,
reflecting market conditions as
well as changes in company-
specific fundamentals of
portfolio securities.
1996
1997
1998
1999
International
Composite
9.42%
5.12%
24.42%
28.84%
MSCI EAFE Index4
6.36%
2.06%
20.33%
27.30%
Performance would be reduced if
advisory accounts held cash
positions or had inflows and
outflows of cash to the same
extent as the funds. In
addition, advisory accounts are
not subject to Investment
Company Act investment
restrictions nor to the
provisions of the Internal
Revenue Code relating to
regulated investment companies.
These restrictions and
provisions could have had an
adverse effect on performance.
Since the above returns were not
calculated for mutual funds,
they are not based on SEC
performance standards.
Performance calculations based
on SEC standards would have been
different.
INVESTMENT AND ACCOUNT POLICIES
CALCULATION
OF NET ASSET
VALUE
Each fund calculates its net
asset value per share (NAV) at
the close of regular trading on
the New York Stock Exchange
(NYSE) (normally 4:00 p.m.
Eastern time) on each day the
NYSE is open for business. The
NYSE is open every week, Monday
through Friday, except on
national holidays. If the New
York Stock Exchange closes
early, the time for calculating
NAV and the deadlines for share
transactions will be accelerated
to the earlier closing times.
Each fund generally values its
fund securities based on market
prices or quotations. The
funds currency translations are
done when the London Stock
Exchange closes, which is 12:00
noon Eastern time.
When market prices are not
available, or when the adviser
believes that they are
unreliable or that the value of
securities has been materially
affected by events occurring
after a foreign exchange closes,
a fund may price those
securities at fair value. Fair
value is determined in
accordance with procedures
approved by the board of
trustees. A fund that uses fair
value to price securities may
value those securities higher or
lower than another fund using
market quotations or its own
fair value determination to
price the same securities.
International markets may be
open on days when U.S. markets
are closed. The value of
foreign securities owned by a
fund could change on days when
investors cannot buy or redeem
shares.
PURCHASING
FUND SHARES
The adviser, its affiliates or
other institutions
(collectively, institutions)
may buy shares of a fund at net
asset value. Institutions are
responsible for transmitting
orders promptly to a funds
transfer agent.
Purchasing
shares
through
financial
intermediarie
s/
professionals
Purchases may also be made at
net asset value by the
following:
Investment advisers or financial
planners who place trades for
their own accounts or the
accounts of their clients and
who charge a management,
consulting or other fee for
their services; and clients of
these investment advisers or
financial planners who place
trades for their own accounts if
the accounts are linked to the
master account of the investment
adviser or financial planner on
the books and records of the
broker or agent.
Retirement and deferred
compensation plans and trusts
used to fund those plans,
including, but not limited to,
those defined in section 401(a),
403(b), or 457 of the Internal
Revenue Code and rabbi trusts.
Investors may be charged a fee
if they effect transactions in
fund shares through a broker or
agent.
Investment Minimums
Initial purchase $50,000
Additional purchases $5,000
Certain retirement accounts (e.g. IRAs, Roth
IRAs, Educational IRAs) may purchase shares
of a fund with a $2,000 initial purchase and
additional purchases of $2,000 each. Additional
purchases for those in the Automatic Investment
Plan may be as little as $500 each.
Fund officers have discretion to
waive or reduce any of the above
minimum investment requirements.
INVESTMENT AND ACCOUNT POLICIES (continued)
Purchase
orders and
payments
A purchase order will be filled
at a funds NAV next calculated
after the order has been
received in proper form by
either the funds transfer
agent, PFPC Inc., by one or more
brokers authorized to accept
purchase orders on a funds
behalf, or by a designated
intermediary authorized by a
broker to accept orders on a
funds behalf. A fund will be
deemed to have received the
order when an authorized broker
or broker authorized designee
accepts the order. Institutions
must send payment for fund
shares in federal funds to the
transfer agent by 12:00 noon
Eastern time on the next
business day.
Institutions and other investors
should contact the adviser for
information about purchasing
fund shares through in-kind
exchanges of securities.
Each fund and its distributor
reserve the right to suspend the
offering of fund shares or to
reject any purchase order.
Purchasing
shares by
telephone
Call 1-800-[XXX-XXXX] to arrange for a
telephone transaction. If you want to make
future transactions (e.g., purchase additional
shares, redeem or exchange shares) by
telephone, you will need to elect this option
either on the initial application or subsequently
in writing.
Each fund and its transfer agent
have procedures designed to
verify that telephone
instructions are genuine. If
they follow these procedures,
they will not be liable for any
losses caused by acting on
unauthorized telephone
instructions.
Purchasing
shares by
mail
Complete and sign an application. Make your
check payable to [Pictet Funds]. If you are
adding to your existing account, include your
account name and number on the check.
Mail your application and/or
check to :
PFPC Global Fund Services
Attn PICTET Funds
P.O. Box 61503
211 S. Gulph Road
King of Prussia PA 19406
Purchasing
shares by
wire
If you are opening a new account, call the funds
at 1-800-[XXX-XXXX] to arrange for a wire
transaction. Then wire federal funds to:
Boston Safe Deposit & Trust
ABA#: 011001234
Credit: (Insert name of your
fund)
Acct#: 143766
FBO: (Insert shareholder name
and account number)
Complete and sign an application and mail
immediately following the initial wire
transaction to:
PFPC Global Fund Services
Attn PICTET Funds
P.O. Box 61503
211 S. Gulph Road
King of Prussia PA 19406
If you are adding to your
existing account, you do not
need to call the funds to
arrange for a wire transaction,
but be sure to include your name
and account number.
INVESTMENT AND ACCOUNT POLICIES (continued)
Automatic
Investment
Plan
Through this option, you can have money
electronically deducted from your checking,
savings or bank money market accounts and
invested in the funds each month or quarter.
Complete the Automatic Investment Plan
Application, which is available upon request by
calling 1-800-[XXX-XXXX], and mail it to the
address indicated.
The initial $50,000 minimum
investment still applies,
however, subsequent investments
can be as little as $500.
The funds may alter or terminate
the Automatic Investment Plan at
any time.
EXCHANGES
BETWEEN
PICTET FUNDS
You may exchange shares of a fund for shares of
any other Pictet fund at the NAV of the acquired
fund next determined after receipt of your
exchange request. Both accounts must have
identical registrations. Exchanges must meet the
applicable minimum initial investment
requirements for the acquired fund. You may
exchange into another fund only if its shares
may legally be sold in your home state.
To protect other shareholders of a fund, a fund
may cancel the exchange privileges of any
person that, in the opinion of the fund, is using
market timing strategies. The funds may change
or terminate the exchange privilege on 60 days
advance notice to shareholders.
REDEEMING
FUND SHARES
The Pictet funds strongly
discourage market timers and
short-term traders from
investing in the funds. If you
redeem shares of a fund
(including shares to be
exchanged) that have been held
for less than six months, the
fund will deduct from the
proceeds a redemption fee of 1%
of the amount of the redemption.
This amount is retained by the
fund to offset the funds costs
of purchasing and selling
securities. (The redemption fee
does not apply to redemptions by
pension funds, endowments and
other similar institutional
funds. Contact the funds for
more details or additional
information.)
You may redeem shares of a fund
on any business day at the NAV
next calculated after the
transfer agent, broker
authorized to accept redemption
orders on the funds behalf, or
designated intermediary
authorized by a broker to accept
orders on the funds behalf
receives the redemption request
in proper form. The fund will
be deemed to have received the
order when an authorized broker
or broker authorized designee
accepts the order. Institutions
are responsible for promptly
transmitting redemption orders
to a funds transfer agent.
Redemption proceeds are usually
sent by wire on the business day
after the effective date of a
redemption. Under unusual
circumstances, a fund may
suspend redemptions, if allowed
by the SEC, or postpone payment
up to seven days.
Each fund may also pay
redemption proceeds in kind by
giving securities to redeeming
shareholders. You may pay
transaction costs to dispose of
these securities.
If you purchased shares through
a financial institution, a
broker authorized to accept
purchase orders on a funds
behalf, or by a designated
intermediary authorized by a
broker to accept orders on a
funds behalf, you should
contact it for more information.
Each institution, broker or
intermediary may have its own
procedures and requirements for
selling shares and may charge
fees.
INVESTMENT AND ACCOUNT POLICIES (continued)
Redeeming
shares by
telephone
If you have chosen the telephone
redemption privilege on the
initial application or
later elected the privilege in
writing, you may call 1-800-
[XXX-XXXX] to redeem up to
$100,000 worth of shares.
Redeeming
shares by
mail
Shareholders may sell shares by
making a written request to :
PFPC Global Fund Services
Attn PICTET Funds
P.O. Box 61503
211 S. Gulph Road
King of Prussia PA 19406
Include signatures of all
persons required to sign for
transactions, exactly as their
names appear on the account
application.
To protect your account from
fraud, the funds may require a
signature guarantee for certain
redemptions. We require a
signature guarantee if :
your address of record has
changed within the past 30 days
or
you are selling more than
$100,000 worth of shares
Signature guarantees are designed to verify that
major transactions or changes to your account
are in fact authorized by you. You can obtain a
signature guarantee for a nominal fee from most
banks, brokerage firms and other financial
institutions. A notary public stamp or seal
cannot be substituted for a signature guarantee.
Redeeming
shares by
wire
If you have chosen the wire
redemption privilege on the
initial application or later
elected the privilege in
writing, you may have the funds
wire your proceeds to a
predesignated bank account.
Call 1-800-[XXX-XXXX]
Wire redemption requests must be
received by the transfer agent
by 4:00 p.m. Eastern time for
money to be wired the next
business day.
Systematic
Withdrawal
Plan
If you have a minimum of
$100,000 in your account, you
may direct the transfer agent to
make payments to you (or anyone
you designate) monthly,
quarterly or semi-annually.
The amount of withdrawal
payments must be at least $500
per payment. Fund shares are
redeemed in order to make
withdrawal payments. Under the
Systematic Withdrawal Plan, you
must elect to have dividends and
distributions automatically
reinvested in additional fund
shares.
The funds may terminate any
Systematic Withdrawal Plan if
the value of the account falls
below $10,000 due to share
redemptions or an exchange of
shares for shares of another
fund.
Closing
sub-minimum
accounts
Each fund may close your account
if, for reasons other than
investment losses, the value of
shares in the account falls
below $25,000.
After a fund notifies you of its
intention to close the account,
you will have 30 days to bring
the account back to the minimum
level.
INVESTMENT AND ACCOUNT POLICIES (continued)
PERFORMANCE
The performance of a fund may be
compared in publications to the
performance of various indices
and investments for which
reliable performance data is
available. The
performance of a fund may also
be compared in publications to
averages, performance rankings,
or other information prepared by
recognized mutual fund
statistical services.
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
Redemptions and exchanges of
fund shares are taxable events
on which you may recognize a
gain or loss. Dividends and
distributions are also taxable,
as described in the chart below,
whether they are received in
additional shares or cash. Each
fund declares and pays dividends
and distributions according to
the following schedule.
Dividends
are paid in
additional
shares of
a fund.
Type of
Distribution
Declared
and Paid
Federal
Tax Status
Dividends from net investment
income
Annually
Taxable as ordinary income
Distributions of short term
capital gain
Annually
Taxable as ordinary income
Distributions of long term
capital gain
Annually
Taxable as capital gain
You should generally avoid
investing in a fund shortly
before an expected dividend or
distribution. Otherwise, you
may pay taxes on dividends or
distributions that are
economically equivalent to a
partial return of your
investment. You should consult
a tax adviser about particular
federal, state, local and other
taxes that may apply to you.
Every January, each fund will send shareholders
information about its dividends and distributions
during the previous calendar year. Most of a
funds distributions are expected to be capital
gain. If you do not provide a fund with a correct
taxpayer identification number and required
certifications, you may be subject to federal
backup withholding tax.
FOR MORE INFORMATION
For investors who want more information
about Pictet European Equity Fund and
Pictet International Equity Fund, the
following documents are available free upon
request.
Annual/Semiannual Reports Additional
information about each funds investments
will be available in the funds annual and
semiannual reports to shareholders. The
funds annual report will contain a
discussion of the market conditions and
investment strategies that significantly
affected each funds performance during its
last year.
Statement of Additional Information (SAI)
The SAI provides more detailed information
about each fund and is incorporated by
reference into this prospectus.
Investors can get free copies of reports
and SAIs, request other information and
discuss their questions about each fund by
contacting a fund at:
PFPC Global Fund Services
Attn PICTET Funds
P.O. Box 61503
211 S. Gulph Road
King of Prussia PA 19406
Telephone: 1-800-[XXX-XXXX]
Investors can review the funds reports and
SAIs at the Public Reference Room of the
Securities and Exchange Commission.
Investors can get text-only copies:
For a fee, by writing to the Public Reference Room of the
Commission, Washington, D.C. 20549-0102
Free from the Commissions Internet website at
http://www.sec.gov.
Investors can get information about the operation of the Public
Reference Room by calling 1-202-942-8090.
INVESTMENT ADVISER
Pictet International
Management Limited
TRANSFER AGENT
PFPC Inc.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
ADMINISTRATOR
PFPC Inc.
LEGAL COUNSEL
Hale and Dorr LLP
CUSTODIAN
Brown Brothers
Harriman & Co.
Investment Company Act file no. 811-9050
PICTET EUROPEAN EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
July 1, 2000
This Statement of Additional Information is not a prospectus but
should be read in conjunction with Pictet Funds (the "Trust") Prospectus for
Pictet European Equity Fund (the "Fund") dated June [ ], 2000 (the
"Prospectus"). To obtain the Prospectus, please call the Trust at 1-800-
[XXX-XXXX].
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 X
Purchase of Shares X
Redemption of Shares X
Portfolio Turnover X
Investment Limitations X
Management of the Fund X
Code of Ethics X
Investment Advisory and Other Services X
Portfolio Transactions X
Additional Information Concerning Taxes X
Performance Calculations X
General Information X
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:
Equity Securities. The Fund invests primarily in equity securities.
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.
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. The Fund may purchase 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.
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.
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. The Fund may purchase 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. The Fund may purchase preferred stocks, which, 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. The Fund may purchase international
investments, which 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 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 commission rates on
foreign portfolio transactions; the possibility of expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations; political instability which could affect U.S. investment in
foreign countries and potential restrictions on the flow of international
capital. Also, 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.
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 with those
applicable to U.S. 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.
Further, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgments in foreign courts.
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. 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.
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.
Foreign investment 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.
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.
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.
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.
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 Adviser, under the
Boards supervision, 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 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.
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 rely on the exclusion from the definition of the term
"commodity pool operator" provided by CFTC Rule 4.5. The Fund may use
futures contracts and related options for bona fide hedging purposes within
the meaning of the CFTC regulations or may enter into non-hedging
transactions if the aggregate initial margin and premiums required to
establish such positions do not exceed 5% of the Fund's net assets (after
taking into account unrealized profits and unrealized losses on any such
positions). For an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded from such 5%.
The Fund may 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. 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 would seek
to establish with more certainty then would otherwise be possible 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
could 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, could
attempt to secure better rates or prices than might later be available in the
market with respect to anticipated purchases. Similarly, the Fund could 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 could 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 may 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 would give
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 would give 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 of 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 would 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 its qualification as a regulated investment company for federal
income tax purposes.
Derivative Transactions. 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 should
be compensated over the long term by the capital appreciation of the
portfolio securities. Therefore, the Adviser does not intend to regularly
enter into derivative or strategic transactions for the purpose of reducing
currency and market risk. Since financial derivatives in 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. 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, 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 could 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 would 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.
The Fund may write (i.e., sell) covered put and call options on
securities, securities indices and currencies in which it may invest. A
covered call option would involve 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
would give 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
would be limited while the option was in effect unless the Fund effected 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 would receive a premium for writing a put option
but would be obligated for as long as the option was 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 would segregate liquid assets with at least the value
of the exercise price of the put options. The Fund would 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.
Correlation Risk. 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.
Temporary Investments. 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 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 enter into repurchase agreements only 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 also would 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 Securities and Exchange Commission (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 1% 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;
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;
purchase on margin or sell short except as permitted by the 1940 Act;
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);
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;
(7) underwrite the securities of other issuers, except to the extent that
the purchase and subsequent disposition of securities may be deemed
underwriting;
(8) 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 5 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
56
Senior Manager of Pictet & Cie.
Jean-Franois Demole* ,
Trustee
Pictet & Cie
29, Boulevard Georges-Favon
1204 Geneva
Switzerland
38
Partner of Pictet & Cie
Jeffrey P. Somers,* Trustee
Morse, Barnes-Brown &
Pendleton
1601 Trapelo Road
Reservoir Place
Waltham, MA 02154
57
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
55
Chairman of the Board of Wand
Partners, Inc.; Director, PennCorp
Financial Group, AMRESCO Inc., and
Nestor, Inc.
David J. Callard, Trustee
Wand Partners, Inc.
630 Fifth Avenue, Suite 2435
New York, NY 10111
61
President, Wand Partners, Inc.;
Director, Chartwell Re Corporation,
and Information Management Associates,
Inc.
Gail A. Hanson, Secretary
PFPC Inc.
101 Federal Street
Boston, MA 02110
58
Vice President, PFPC Inc. Ms.
Hanson has been employed by PFPC Inc.
(formerly known as First Data Investor
Services Group, Inc.) since September
1994. Previously, she was employed as
an Associate at Bingham, Dana & Gould
prior to 1994.
William J. Baltrus, Treasurer
PFPC Inc.
3200 Horizon Drive
King of Prussia, PA 19406
32
Director Client Services at PFPC
Inc. (financial services) from
September 1998 to present. Manager
Corporate & Blue Sky Compliance at
First Data Investor Services Group,
Inc., formerly FPS Services, Inc.
(financial services) from August 1994
to September 1998. Corporate
Compliance Administrator at FPS
Services, Inc. (financial services)
from April 1994 to August 1994.
Account Manager at FPS Services, Inc.
(financial services) from July 1991 to
April 1994.
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, 1999. 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 PERSON AND
POSITION
AGGREGATE
COMPENSATION
FROM THE TRUST
TOTAL
COMPENSATION
FROM THE TRUST
AND COMPLEX PAID
TO TRUSTEES
David J. Callard
Trustee
$13,250
$13,250
Jean-Franois Demole
Trustee
$0
$0
Jean G. Pilloud
Trustee
$0
$0
Bruce W. Schnizter
Trustee
$8,750
$8,750
Jeffrey P. Somers
Trustee
$12,250
$12,250
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to
Rule 17j-1 under the 1940 Act. The Funds Code of Ethics permits Fund
personnel to invest in securities for their own accounts, but requires
compliance with the Code's pre-clearance requirements (with certain
exceptions). In addition, the Funds Code of Ethics provides for trading
"blackout periods" that prohibit trading by personnel within periods of
trading by the Fund in the same security. The Funds Code of Ethics also
prohibits short term trading profits. The Code requires prior approval with
respect to purchases of securities in private placements and personal
investment in initial public offerings.
The Funds adviser, Pictet International Management Limited, has also adopted
a Code of Ethics. The Code of Ethics allows personnel to invest in
securities for their own accounts, but requires compliance with the Code's
pre-clearance requirements and other restrictions including "blackout
periods" and minimum holding periods, subject to limited exceptions. The
Code requires prior approval for purchases of securities in private
placements and personal investment in initial public offerings.
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 0.75% 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 1.00% of the Fund's average daily net assets. The
Adviser, located at Tower 42, Level 37, 25 Old Broad Street, London, EC2N
1HQ, United Kingdom, 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 eight limited partners, each of whom is also a
partner of Pictet & Cie, a Swiss private bank founded in 1805.
Prior to December 1, 1999, administrative services were provided to
the Trust by First Data Investor Services Group, Inc. ("Investor Services
Group"). Effective December 1, 1999, Investor Services Group became a
majority-owned subsidiary of PNC Bank Corp. As a result of this transaction,
Investor Services Group is now known as PFPC Inc (PFPC).
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 has elected to be treated
and intends 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.
In order to qualify as a regulated investment company, the Fund must
also diversify its holdings so that, at the close of each quarter of its
taxable year (i) at least 50% of the market value of its total (gross) assets
is comprised of cash, cash items, United States Government securities,
securities of other regulated investment companies and other securities
limited in respect of any one issuer to an amount not greater in value than
5% of the value of the Fund's total assets and to not more than 10% of the
outstanding voting securities of such issuer and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than United States Government securities and securities of other
regulated investment companies) or two or more issuers controlled by the Fund
and engaged in the same, similar or related trades or businesses.
Any distribution of the excess of net long-term capital gain over net
short-term capital loss is taxable to shareholders as a capital gain,
regardless of how long the shareholder has held the Fund's 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. Capital gain distributions may be subject to tax at different
maximum rates for individual (noncorporate) investors, depending upon each
investors tax bracket, the assets from which the Fund realized the gains,
and the Funds holding periods for those assets.
Redemptions and exchanges are taxable events for shareholders that are
subject to tax. Shareholders should consult their own tax advisers with
reference to their individual circumstances to determine whether any
particular transaction in Fund shares is properly treated as a sale for tax
purposes, as the following discussion assumes, and the character of and tax
rate applicable to any gains or losses recognized in such transactions under
the new rate structure for capital gains and losses that was added to the
Code by federal tax legislation enacted in 1997. Shareholders should note
that, upon the sale of Fund shares, if the shareholder has not held such
shares for tax purposes for more than six months, any loss on the sale of
those shares will be treated as a 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 20%. 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 is required to 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.
Provided that it qualifies as a regulated investment company, the
Fund will not be liable for Massachusetts income taxes or franchise
taxes.
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.
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 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.
Description of Shares and Voting Rights
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 existed and the Trust itself
was unable to meet its obligations. The Trust was organized as a
Massachusetts business trust on May 23, 1995. Effective April 30, 2000, the
Trusts name changed from Panorama Trust to Pictet Funds. 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 five
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 charges 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
have been elected by shareholders, at which time the Trustees then in office
will call a shareholder meeting for the election of Trustees. Any Trustee
may be removed from office upon the vote of shareholders holding at least
two-thirds of the Trust's outstanding shares at a meeting called for that
purpose. The Trustees are required to call a meeting of shareholders upon
the written request of shareholders holding at least 10% of the Trust's
outstanding shares. In addition, shareholders who meet certain criteria will
be assisted by the Trust in communicating with other shareholders in seeking
the holding of such meeting.
Shareholder inquiries should be addressed to the Trust at the address
or telephone number stated on the cover page.
Administrative and Transfer Agent Services
PFPC 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. PFPC is a majority-owned
subsidiary of PNC Bank Corp. For its services as accounting agent, PFPC 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, PFPC 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, PFPC is paid separate compensation for its services
as transfer agent.
PFPC is located at 3200 Horizon Drive, King of Prussia, Pennsylvaina
19406.
Distributor. Effective December 1, 1999, Provident Distributors, Inc.
(PDI) replaced First Data Distributors, Inc. as the Funds distributor.
PDI is the principal underwriter and distributor of shares of the Fund
pursuant to a distribution agreement with the Trust. PDI is located at Four
Falls Corporate Center, West Conshohocken, Pennsylvania 19428.
Custodian. Brown Brothers Harriman & Co., located at 40 Water Street,
Boston, Massachusetts 02109, serves as the custodian of the Trust's assets.
Independent Accountants. PricewaterhouseCoopers LLP, located at 2400
Eleven Penn Center,
Philadelphia, Pennsylvania 19103, serves as independent accountants for the
Trust and audits the Trust's financial statements annually and reviews the
Funds federal tax returns.
Counsel. Hale and Dorr LLP serves as counsel to the Trust.
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.
PICTET INTERNATIONAL EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
July 1, 2000
This Statement of Additional Information is not a prospectus but should
be read in conjunction with Pictet Funds (the "Trust") Prospectus for Pictet
International Equity Fund (the "Fund") dated June [ ], 2000 (the
"Prospectus"). To obtain the Prospectus, please call the Trust at 1-800-
[XXX-XXXX].
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 X
Purchase of Shares X
Redemption of Shares X
Portfolio Turnover X
Investment Limitations X
Management of the Fund X
Code of Ethics X
Investment Advisory and Other Services X
Portfolio Transactions X
Additional Information Concerning Taxes X
Performance Calculations X
General Information X
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:
Equity Securities. The Fund invests primarily in equity securities.
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.
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. The Fund may purchase 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.
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.
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. The Fund may purchase 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. The Fund may purchase preferred stocks, which, 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. The Fund may purchase international investments,
which 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 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 commission rates on
foreign portfolio transactions; the possibility of expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations; political instability which could affect U.S. investment in
foreign countries and potential restrictions on the flow of international
capital. Also, 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.
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 with those
applicable to U.S. 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.
Further, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgments in foreign courts.
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. 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.
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.
Foreign investment 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.
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.
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.
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.
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 Adviser, under the
Boards supervision, 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 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.
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 rely on the exclusion from the definition of the term
"commodity pool operator" provided by CFTC Rule 4.5. The Fund may use
futures contracts and related options for bona fide hedging purposes within
the meaning of the CFTC regulations or may enter into non-hedging
transactions if the aggregate initial margin and premiums required to
establish such positions do not exceed 5% of the Fund's net assets (after
taking into account unrealized profits and unrealized losses on any such
positions). For an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded from such 5%.
The Fund may 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. 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 would seek
to establish with more certainty then would otherwise be possible 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
could 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, could
attempt to secure better rates or prices than might later be available in the
market with respect to anticipated purchases. Similarly, the Fund could 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 could 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 may 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 would give
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 would give 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 of 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 would 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 its qualification as a regulated investment company for federal
income tax purposes.
Derivative Transactions. 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 should be
compensated over the long term by the capital appreciation of the portfolio
securities. Therefore, the Adviser does not intend to regularly enter into
derivative or strategic transactions for the purpose of reducing currency and
market risk. Since financial derivatives in 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. 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, 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 could 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 would 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.
The Fund may write (i.e., sell) covered put and call options on
securities, securities indices and currencies in which it may invest. A
covered call option would involve 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
would give 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
would be limited while the option was in effect unless the Fund effected 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 would receive a premium for writing a put option
but would be obligated for as long as the option was 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 would segregate liquid assets with at least the value
of the exercise price of the put options. The Fund would 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.
Correlation Risk. 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.
Temporary Investments. 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 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 enter into repurchase agreements only 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 also would 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 Securities and Exchange Commission (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 1% 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;
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;
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) 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;
(7) underwrite the securities of other issuers, except to the extent that
the purchase and subsequent disposition of securities may be deemed
underwriting;
(8) 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 5 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
56
Senior Manager of Pictet & Cie.
Jean-Franois Demole* ,
Trustee
Pictet & Cie
29, Boulevard Georges-Favon
1204 Geneva
Switzerland
38
Partner of Pictet & Cie
Jeffrey P. Somers,* Trustee
Morse, Barnes-Brown &
Pendleton
1601 Trapelo Road
Reservoir Place
Waltham, MA 02154
57
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
55
Chairman of the Board of Wand
Partners, Inc.; Director, PennCorp
Financial Group, AMRESCO Inc., and
Nestor, Inc.
David J. Callard, Trustee
Wand Partners, Inc.
630 Fifth Avenue, Suite 2435
New York, NY 10111
61
President, Wand Partners, Inc.;
Director, Chartwell Re Corporation,
and Information Management Associates,
Inc.
Gail A. Hanson, Secretary
PFPC Inc.
101 Federal Street
Boston, MA 02110
58
Vice President, PFPC Inc. Ms. Hanson
has been employed by PFPC Inc.
(formerly known as First Data Investor
Services Group, Inc.) since September
1994. Previously, she was employed as
an Associate at Bingham, Dana & Gould
prior to 1994.
William J. Baltrus, Treasurer
PFPC Inc.
3200 Horizon Drive
King of Prussia, PA 19406
32
Director Client Services at PFPC Inc.
(financial services) from September
1998 to present. Manager Corporate &
Blue Sky Compliance at First Data
Investor Services Group, Inc.,
formerly FPS Services, Inc. (financial
services) from August 1994 to
September 1998. Corporate Compliance
Administrator at FPS Services, Inc.
(financial services) from April 1994
to August 1994. Account Manager at
FPS Services, Inc. (financial
services) from July 1991 to April
1994.
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, 1999. 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 PERSON AND
POSITION
AGGREGATE
COMPENSATION
FROM THE TRUST
TOTAL
COMPENSATION
FROM THE TRUST
AND COMPLEX PAID
TO TRUSTEES
David J. Callard
Trustee
$13,250
$13,250
Jean-Franois Demole
Trustee
$0
$0
Jean G. Pilloud
Trustee
$0
$0
Bruce W. Schnizter
Trustee
$8,750
$8,750
Jeffrey P. Somers
Trustee
$12,250
$12,250
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to
Rule 17j-1 under the 1940 Act. The Funds Code of Ethics permits Fund
personnel to invest in securities for their own accounts, but requires
compliance with the Code's pre-clearance requirements (with certain
exceptions). In addition, the Funds Code of Ethics provides for trading
"blackout periods" that prohibit trading by personnel within periods of
trading by the Fund in the same security. The Funds Code of Ethics also
prohibits short term trading profits. The Code requires prior approval with
respect to purchases of securities in private placements and personal
investment in initial public offerings.
The Funds adviser, Pictet International Management Limited, has also adopted
a Code of Ethics. The Code of Ethics allows personnel to invest in
securities for their own accounts, but requires compliance with the Code's
pre-clearance requirements and other restrictions including "blackout
periods" and minimum holding periods, subject to limited exceptions. The
Code requires prior approval for purchases of securities in private
placements and personal investment in initial public offerings.
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 0.75% 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 1.00% of the Fund's average daily net assets. The
Adviser, located at Tower 42, Level 37, 25 Old Broad Street, London, EC2N
1HQ, United Kingdom, 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 eight limited partners, each of whom is also a
partner of Pictet & Cie, a Swiss private bank founded in 1805.
Prior to December 1, 1999, administrative services were provided to the
Trust by First Data Investor Services Group, Inc. ("Investor Services
Group"). Effective December 1, 1999, Investor Services Group became a
majority-owned subsidiary of PNC Bank Corp. As a result of this transaction,
Investor Services Group is now known as PFPC Inc (PFPC).
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 has elected to be treated
and intends 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.
In order to qualify as a regulated investment company, the Fund must
also diversify its holdings so that, at the close of each quarter of its
taxable year (i) at least 50% of the market value of its total (gross) assets
is comprised of cash, cash items, United States Government securities,
securities of other regulated investment companies and other securities
limited in respect of any one issuer to an amount not greater in value than
5% of the value of the Fund's total assets and to not more than 10% of the
outstanding voting securities of such issuer and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than United States Government securities and securities of other
regulated investment companies) or two or more issuers controlled by the Fund
and engaged in the same, similar or related trades or businesses.
Any distribution of the excess of net long-term capital gain over net
short-term capital loss is taxable to shareholders as a capital gain,
regardless of how long the shareholder has held the Fund's 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. Capital gain distributions may be subject to tax at different
maximum rates for individual (noncorporate) investors, depending upon each
investors tax bracket, the assets from which the Fund realized the gains,
and the Funds holding periods for those assets.
Redemptions and exchanges are taxable events for shareholders that are
subject to tax. Shareholders should consult their own tax advisers with
reference to their individual circumstances to determine whether any
particular transaction in Fund shares is properly treated as a sale for tax
purposes, as the following discussion assumes, and the character of and tax
rate applicable to any gains or losses recognized in such transactions under
the new rate structure for capital gains and losses that was added to the
Code by federal tax legislation enacted in 1997. Shareholders should note
that, upon the sale of Fund shares, if the shareholder has not held such
shares for tax purposes for more than six months, any loss on the sale of
those shares will be treated as a 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 20%. 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 is required to 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.
Provided that it qualifies as a regulated investment company, the Fund
will not be liable for Massachusetts income taxes or franchise taxes.
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.
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 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.
Description of Shares and Voting Rights
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 existed and the Trust itself
was unable to meet its obligations. The Trust was organized as a
Massachusetts business trust on May 23, 1995. Effective April 30, 2000, the
Trusts name changed from Panorama Trust to Pictet Funds. 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 five
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 charges 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
have been elected by shareholders, at which time the Trustees then in office
will call a shareholder meeting for the election of Trustees. Any Trustee
may be removed from office upon the vote of shareholders holding at least
two-thirds of the Trust's outstanding shares at a meeting called for that
purpose. The Trustees are required to call a meeting of shareholders upon
the written request of shareholders holding at least 10% of the Trust's
outstanding shares. In addition, shareholders who meet certain criteria will
be assisted by the Trust in communicating with other shareholders in seeking
the holding of such meeting.
Shareholder inquiries should be addressed to the Trust at the address
or telephone number stated on the cover page.
Administrative and Transfer Agent Services
PFPC 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. PFPC is a majority-owned
subsidiary of PNC Bank Corp. For its services as accounting agent, PFPC 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, PFPC 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, PFPC is paid separate compensation for its services
as transfer agent.
PFPC is located at 3200 Horizon Drive, King of Prussia, Pennsylvaina
19406.
Distributor. Effective December 1, 1999, Provident Distributors, Inc.
(PDI) replaced First Data Distributors, Inc. as the Funds distributor.
PDI is the principal underwriter and distributor of shares of the Fund
pursuant to a distribution agreement with the Trust. PDI is located at Four
Falls Corporate Center, West Conshohocken, Pennsylvania 19428.
Custodian. Brown Brothers Harriman & Co., located at 40 Water Street,
Boston, Massachusetts 02109, serves as the custodian of the Trust's assets.
Independent Accountants. PricewaterhouseCoopers LLP, located at 2400
Eleven Penn Center,
Philadelphia, Pennsylvania 19103, serves as independent accountants for the
Trust and audits the Trust's financial statements annually and reviews the
Funds federal tax returns.
Counsel. Hale and Dorr LLP serves as counsel to the Trust.
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.
C: OTHER INFORMATION
Item 23. Exhibits
Exhibits:
a(1) Declaration of Trust dated May 23, 1995 is incorporated by reference to
Post-Effective No. 3 as filed with the Securities and Exchange Commission
January 2, 1996 ("Post-Effective Amendment No. 3").
a(2) Amendment to the Declaration of Trust dated June 8, 1995 is
incorporated by reference to Post-Effective Amendment No. 3.
a(3) Amendment to the Declaration of Trust dated December 28, 1995 is
incorporated by reference to Post-Effective Amendment No. 3.
a(4) Amendment to the Declaration of Trust dated March 1, 1996 is
incorporated by reference to Post-Effective Amendment No. 4 as filed with the
Securities and Exchange Commission April 1, 1996 ("Post-Effective Amendment
No. 4").
a(5) Amendment to the Declaration of Trust dated April 17, 1997 is
incorporated by reference to Post-Effective Amendment No. 8 as filed with the
Securities and Exchange Commission April 30, 1998 (Post-Effective Amendment
No. 8).
a(6) Amendment to the Declaration of Trust dated April 13, 1999 is
incorporated by reference to Post-Effective Amendment No. 12.
b By-Laws dated May 23, 1995 is incorporated by reference to Post-
Effective Amendment No. 3.
c Not Applicable.
d(1) Investment Advisory Agreement between Registrant and Pictet
International Management Limited dated October 3, 1995 with respect to Pictet
Global Emerging Markets Fund is incorporated by reference to Post-Effective
Amendment No. 3
d(2) Supplement dated January 2, 1996 to the Investment Advisory Agreement
with respect to Pictet International Small Companies Fund is incorporated by
reference to Post-Effective Amendment No. 4.
d(3) Supplement dated March 12, 1997 to the Investment Advisory Agreement
with respect to Pictet Eastern European Fund is incorporated by reference to
Post-Effective Amendment No. 8.
d(4) Supplement to the Investment Advisory Agreement with respect to Pictet
European Equity Fund is incorporated by reference to Post-Effective Amendment
No. 10.
e Distribution Agreement between Registrant and Provident Distributors,
Inc. dated September 24, 1999 with respect to Pictet Global Emerging Markets
Fund, Pictet International Small Companies Fund, Pictet Eastern European Fund
and Pictet European Equity Fund is incorporated by reference to Post-
Effective Amendment No. 13.
f Not Applicable.
g(1) Custodian Agreement between Registrant and Brown Brothers Harriman &
Co. dated September 15, 1995 with respect to Pictet Global Emerging Markets
Fund is incorporated by reference to Post-Effective Amendment No. 3.
g(2) Amendment to Custodian Agreement dated January 10, 1996 with respect
to Pictet International Small Companies Fund is incorporated by reference to
Post-Effective Amendment No. 4
g(3) Amendment to Custodian Agreement dated September 13, 1996 is
incorporated by reference to Post-Effective Amendment No. 6 filed with the
Securities and Exchange Commission February 17, 1997.
g(4) Amendment to Custodian Agreement dated September 16, 1997 with respect
to Pictet Eastern European Fund is incorporated by reference to Post-
Effective Amendment No. 8.
g(5) Amendment to Custodian Agreement with respect to Pictet European Equity
Fund is incorporated by reference to Post-Effective Amendment No. 10.
h(1) Transfer Agency and Services Agreement between Registrant and The
Shareholder Services Group, Inc. (now known as PFPC Inc.) dated October 3,
1995 with respect to Pictet Global Emerging Markets Fund is incorporated by
reference to Post-Effective Amendment No. 3.
h(2) Supplement dated January 2, 1996 to the Transfer Agency and Services
Agreement with respect to Pictet International Small Companies Fund is
incorporated by reference to Post-Effective Amendment No. 4.
h(3) Supplement dated March 12, 1997 to the Transfer Agency and Services
Agreement with respect to Pictet Eastern European Fund is incorporated by
reference to Post-Effective Amendment No. 8.
h(4) Supplement to the Transfer Agency and Services Agreement with respect
to Pictet European Equity Fund is incorporated by reference to Post-Effective
Amendment No. 10.
h(5) Administration Agreement dated October 3, 1995 between Registrant and
The Shareholder Services Group, Inc. (now known as PFPC Inc.) with respect to
Pictet Global Emerging Markets Fund is incorporated by reference to Post-
Effective Amendment No. 3.
h(6) Amendment dated September 24, 1999 to the Administration
Agreement dated October 3, 1995 is incorporated by reference to Post-
Effective Amendment No. 13.
h(7) Supplement dated January 2, 1996 to the Administration Agreement dated
October 3, 1995 with respect to Pictet International Small Companies Fund is
incorporated by reference to Post-Effective Amendment No. 4.
h(8) Supplement dated March 12, 1997 to the Administration Agreement with
respect to Pictet Eastern European Fund is incorporated by reference to Post-
Effective Amendment No. 8.
h(9) Supplement to the Administration Agreement with respect to Pictet
European Equity Fund is incorporated by reference to Post-Effective Amendment
No. 10.
i Not Applicable.
j Power of Attorney is incorporated by reference to Post- Effective
Amendment No. 13.
k Not Applicable.
l(1) Purchase Agreement dated October 2, 1995 with respect to Pictet Global
Emerging Markets Fund is incorporated by reference to Post-Effective
Amendment No. 3.
l(2) Purchase Agreement dated February 1, 1996 with respect to Pictet
International Small Companies is incorporated by reference to Post-Effective
Amendment No. 4.
l(3) Purchase Agreement dated March 12, 1997 with respect to Pictet
Eastern European Fund is incorporated by reference to Post-Effective
Amendment No. 8.
m Not Applicable.
n Not Applicable.
o(1) Code of Ethics for the Trust is filed herein as Exhibit o(1).
o(2) Code of Ethics for Pictet International Management Limited is
filed herein as Exhibit o(2).
Item 24. Persons Controlled by or Under Common Control with Registrant
Registrant is not controlled by or under common control with any person.
Item 25. Indemnification
Under Section 4.3 of Registrant's Declaration of Trust, any past or present
Trustee or officer of Registrant (hereinafter referred to as a "Covered
Person") is indemnified to the fullest extent permitted by law against all
liability and all expenses reasonably incurred by him or her in connection
with any claim, action, suit, or proceeding to which he or she may be a party
or otherwise involved by reason of his or her being or having been a Covered
Person. This provision does not authorize indemnification when it is
determined, in the manner specified in the Declaration of Trust, as amended,
that such Covered Person has not acted in good faith in the reasonable belief
that his or her actions were in or not opposed to the best interests of
Registrant. Moreover, this provision does not authorize indemnification when
it is determined, in the manner specified in the Declaration of Trust, as
amended, that such Covered Person would otherwise be liable to Registrant or
its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his or her duties. Expenses may be paid
by Registrant in advance of the final disposition of any claim, action, suit
or proceeding upon receipt of an undertaking by or on behalf of such Covered
Person to repay such expenses to Registrant in the event that it is
ultimately determined that indemnification of such expenses is not authorized
under the Declaration of Trust, as amended, and the Covered Person either
provides security for such undertaking or insures Registrant against losses
from such advances or the disinterested Trustees or independent legal counsel
determines, in the manner specified in the Declaration of Trust, as amended,
that there is reason to believe the Covered Person will be found to be
entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to Trustees,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and therefore, is
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a Trustee, officer, or controlling person of the Registrant in
connection with the successful defense of any claim, action, suit or
proceeding) is asserted against the Registrant by such Trustee, officer, or
controlling person in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
Pictet International Management Limited (the "Adviser") is an affiliate of
Pictet & Cie (the "Bank"), a Swiss private bank which was founded in 1805.
The Bank manages the accounts for institutional and private clients and is
owned by eight partners. The Adviser, established in 1980, manages the
investment needs of clients seeking to invest in the international fixed
revenue and equity markets.
The list required by this Item 26 of officers and directors of Pictet
International Management Limited, together with the information as to any
other business, profession, vocation, or employment of substantial nature
engaged in by such officers and directors during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by Pictet
International Management Limited pursuant to the Investment Advisers Act of
1940, as amended (SEC File No. 801-15143).
Item 27. Principal Underwriters
(a) In addition to Panorama Trust, Provident Distributors, Inc. (the
"Distributor") act as principal underwriter for the following investment
companies as of 2/1/00: International Dollar Reserve Fund I, Ltd., Provident
Institutional Funds Trust, Pacific Innovations Trust, Columbia Common Stock
Fund, Inc., Columbia Growth Fund, Inc., Columbia International Stock Fund,
Inc., Columbia Special Fund, Inc., Columbia Small Cap Fund, Inc., Columbia
Real Estate Equity Fund, Inc., Columbia Balanced Fund, Inc., Columbia Daily
Income Company, Columbia U.S. Government Securities Fund, Inc., Columbia
Fixed Income Securities Fund, Inc., Columbia Municipal Bond Fund, Inc.,
Columbia High Yield Fund, Inc., Columbia National Municipal Bond Fund, Inc.,
GAMNA Series Funds, Inc., WT Investment Trust, Kalmar Pooled Investment
Trust, The RBB Fund, Inc., Robertson Stephens Investment Trust, HT Insight
Funds, Inc., Harris Insight Funds Trust, Hilliard-Lyons Government Fund,
Inc., Hilliard-Lyons Growth Fund, Inc., Hilliard-Lyons Research Trust,
Senbanc Fund, Warburg Pincus Trust, ABN AMRO Funds, BT Insurance Funds Trust,
Alleghany Funds, First Choice Funds Trust, LKCM Funds, The Galaxy Fund, The
Galaxy VIP Fund, Galaxy Fund II, IBJ Funds Trust, Wilshire Target Funds,
Inc., Undiscovered Managers Fund, New Covenant Funds, Forward Funds, Inc.,
Light Index Funds, Inc. Weiss Peck & Greer Funds Trust, Weiss Peck & Greer
International Fund, WPG Growth Fund, WPG Growth & Income Fund, WPG Tudor
Fund, RWB/WPG U..S. Large Stock Fund, Tomorrow Funds Retirement Trust, The
Govett Funds, Inc., IAA Trust Growth Fund, Inc., IAA Trust Asset Allocation
Fund, Inc., IAA Trust Tax Exempt Bond Fund, Inc., IAA Trust Taxable Fixed
Income Series Fund, Inc., Matthews International Funds, MCM Funds,
Metropolitan West Funds, Smith Breeden Series Fund, Smith Breeden Trust,
Stratton Growth Fund, Inc., Stratton Monthly Dividend REIT Shares, Inc., The
Stratton Funds, Inc., Trainer, Wortham First Mutual Funds and The BlackRock
Funds, Inc. (Distributed by BlackRock Distributors, Inc. a wholly owned
subsidiary of Provident Distributors, Inc.), Northern Funds Trust and
Northern Institutional Funds Trust (Distributed by Northern Funds
Distributors, LLC. a wholly owned subsidiary of Provident Distributors, Inc.)
The Offit Variable Insurance Fund, Inc. (Distributed by Offit Funds
Distributor, Inc. a wholly owned subsidiary of Provident Distributors, Inc.,
and The Offit Investment Fund, Inc. (Distributed by Offit Funds Distributor,
Inc. a wholly owned subsidiary of Provident Distributors, Inc.). Provident
Distributors, Inc. is registered with the Securities and Exchange Commission
as a broker-dealer and is a member of the National Association of Securities
Dealers. Provident Distributors, Inc. is located at Four Falls Corporate
Center, Suite 600, West Conshohocken, Pennsylvania 19428-2961.
(b) The information required by this Item 27(b) with respect to each
director, officer or partner of Provident Distributors, Inc. ("PDI") is
incorporated by reference to Schedule A of Form BD filed by PDI with the SEC
pursuant to the Securities Act of 1934 (File No. 8-46564). No director,
officer, or partner of PDI holds a position or office with the
Registrant.
(c) Not Applicable.
Item 28. Location of Accounts and Records
All accounts books and other documents required to be maintained by
Registrant by Section 31(a) of the Investment Company Act of 1940, as
amended, and the rules thereunder will be maintained at the offices of:
Pictet International Management Limited
Cutlers Gardens
5 Devonshire Square
London, England EC2M 4LD
(records relating to its functions as investment adviser)
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
(records relating to its functions as custodian)
PFPC Inc.
101 Federal Street
BOS 610
Boston, Massachusetts 02110
(records relating to its functions as administrator)
PFPC Inc.
4400 Computer Drive
Westboro, Massachusetts 01581-5120
(records relating to its functions as transfer agent)
Provident Distributors, Inc.
Four Falls Corporate Center
West Conshohocken, Pennsylvania 19428
(records relating to its functions as distributor)
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable
EXHIBIT INDEX
Exhibit
Number Description
o(1) Code of Ethics of Trust
o(2) Code of Ethics of Pictet International Management Limited
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Panorama Trust has duly
caused this Post-Effective Amendment No. 14 to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston, and Commonwealth of Massachusetts, on the 14th day of April,
2000.
PANORAMA TRUST
By *
Jean G. Pilloud
Chairman, President and Trustee
* By:
/s/Andrew M. Goldberg
Andrew M. Goldberg
as Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 14 to the Registration Statement of Panorama
Trust has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
* Chairman, President April
14, 2000
(Jean G. Pilloud) and Trustee
(principal executive officer)
* Treasurer April 14,
2000
(William J. Baltrus) (principal financial and
accounting officer)
* Trustee April
14, 2000
(Jean-Franois Demole)
* Trustee
April 14, 2000
(Jeffrey P. Somers, Esq.)
* Trustee April
14, 2000
(Bruce W. Schnitzer)
* Trustee April 14,
2000
(David J. Callard)
* By:
/s/Andrew M. Goldberg
Andrew M. Goldberg
as Attorney-in-Fact
Exhibit o(1)
PANORAMA TRUST (the "Trust")
PICTET GLOBAL EMERGING MARKETS FUND
PICTET INTERNATIONAL SMALL COMPANIES FUND
PICTET EASTERN EUROPEAN FUND
(together with other series of the Trust that may be created,
each a "Fund")
CODE OF ETHICS
I. Introduction
A. General Principles
This Code of Ethics (the "Code") establishes rules of conduct
for "Covered Persons" (as defined herein) of the Trust and is
designed to govern the personal securities activities of Covered
Persons. In general, in connection with personal securities
transactions, Covered Persons should (1) always place the
interests of a Fund's shareholders first; (2) ensure that all
personal securities transactions are conducted consistent with
this Code and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of a Covered
Person's position of trust and responsibility; and (3) not take
inappropriate advantage of their positions.
B. Legal Requirement
Rule 17j-1(a) under the Investment Company Act of 1940 (the
"Act") makes it unlawful for any Covered Person, in connection
with the purchase or sale by such person of a security "held or
to be acquired" by a Fund:
1. To employ any device, scheme or artifice to defraud
the Trust;
2. To make to the Trust any untrue statement of a material
fact or omit to state to the Trust a material fact necessary in
order to make the statements made, in light of the circumstances
under which they are made, not misleading;
3. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon the Trust;
or
4. To engage in any manipulative practice with respect to
the Trust.
A security is "held or to be acquired" if within the most recent
15 days it (i) is or has been held by a Fund, or (ii) is being
or has been considered by the Trust or the investment adviser
for purchase by a Fund. A purchase or sale includes the
purchase or sale of an option to purchase or sell.
C. Applicability
For purposes of this Code, "Covered Person" shall mean:
1. Any officer or employee of the Trust or of any company in a
control relationship to the Trust who, in connection with his or
her regular functions or duties, makes, participates in or
obtains information regarding the purchase or sale of securities
by a Fund or whose functions relate to the making of any
recommendation to a Fund regarding the purchase or sale of
securities (an "Advisory Person"), including the person or
persons with the direct responsibility and authority to make
investment decisions affecting a Fund (the "Portfolio Manager");
and
2. Any natural person in a control relationship to the Trust
who obtains information concerning recommendations made to a
Fund with regard to the purchase or sale of a security; and
3. Any Trustee of the Trust.
For purposes of this Code, a person who normally assists in the
preparation of public reports or who receives public reports but
who receives no information about current recommendations or
trading or who obtains knowledge of current recommendations or
trading activity once or infrequently or inadvertently shall not
be deemed to be either an Advisory Person or a Covered Person.
II. Restrictions on Activities
A. Prohibited Purchases and Sales
No Covered Person shall purchase or sell, directly or
indirectly, any security (or related security) in which he or
she has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership (as defined in Attachment A to
this Code) and which he or she knows or should have known at the
time of such purchase or sale:
1. is being considered for purchase or sale by a Fund; or
2. is being purchased or sold by a Fund.
B. Blackout Periods
1. No Covered Person shall purchase or sell, directly or
indirectly, any security in which he or she has, or by reason of
such transaction acquires, any direct or indirect beneficial
ownership (as defined in Attachment A to this Code) on a day
during which any Fund has a pending "buy" or "sell" order in
that same security until that order is executed or withdrawn.
The foregoing shall not apply to a person who is a Covered
Person with respect to the Trust by virtue of being a Trustee of
the Trust, but who is not an "interested person" (as defined in
the Act) of the Trust (a "Disinterested Trustee").
2. No Portfolio Manager shall purchase or sell, directly or
indirectly, any security in which he or she has, or by reason of
such transaction acquires, any direct or indirect beneficial
ownership (as defined in Attachment A to this Code) within seven
(7) calendar days before or after any Fund trades in that
security.
C. Interested Transactions
No Covered Person shall recommend any securities transactions by
a Fund without having disclosed his or her interest, if any, in
such securities or the issuer thereof, including without
limitation:
1. any direct or indirect beneficial ownership (as defined in
Attachment A to this Code) of any securities of such issuer;
2. any contemplated transaction by such person in such
securities;
3. any position with such issuer or its affiliates; and
4. any present or proposed business relationship between such
issuer or its affiliates and such person or any party in which
such person has a significant interest.
D. Initial Public Offerings
No Advisory Person shall acquire any securities in an
initial public offering for his or her personal account without
the prior approval of the Designated Supervisory Person (as
hereinafter defined).
E. Private Placements
No Advisory Person shall acquire, directly or indirectly,
beneficial ownership of any securities in a private placement
without the prior approval of the Designated Supervisory Person
(as hereinafter defined) who has been provided by such Advisory
Person with full details of the proposed transaction (including
written certification that the investment opportunity did not
arise by virtue of the Advisory Person's activities on behalf of
a Fund) and has concluded after consultation with other
investment advisory personnel of the Trust that the Funds have
no foreseeable interest in purchasing such securities.
F. Short-Term Trading Profits
No Advisory Person shall profit from the purchase and sale,
or sale and purchase, of the same (or equivalent) securities of
which such Advisory Person has beneficial ownership within three
business days. Any profit so realized shall, unless the Trust's
Board approves otherwise, be paid over to the Trust or to a
charitable organization of the Advisory Person's choosing.
G. Service as a Director
No Advisory Persons shall serve on the board of directors
of any publicly traded company without prior authorization from
the Designated Supervisory Person based upon a determination
that such board service would be consistent with the interests
of the Trust and Fund shareholders.
III. Exempt Transactions
A. For purposes of this Code, the term "security" shall not
include the following:
1. securities issued or guaranteed as to principal or interest
by the Government of the United States or its instrumentalities;
2. bankers' acceptances;
3. bank certificates of deposit;
4. commercial paper; and
5. shares of registered open-end investment companies.
B. The prohibitions described in paragraph (B) and (F) of
Article II shall not apply to:
1. Purchases or sales effected in any account over which the
Covered Person has no direct or indirect influence or control;
2. Purchases or sales that are non-volitional on the part of
the Covered Person;
3. Purchases that are part of an automatic dividend
reinvestment plan;
4. Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from the issuer, and sales
of such rights so acquired; or
5. Subject to the advance approval of the Designated
Supervisory Person (as defined below), purchases or sales which
are only remotely potentially harmful to a Fund because such
purchases or sales would be unlikely to affect a highly
institutional market, or because such purchases or sales are
clearly not related economically to the securities held,
purchased or sold by a Fund.
IV. Compliance Procedures
A. Preclearance
A Covered Person may directly or indirectly, acquire or
dispose of beneficial ownership of a security only if (1) such
purchase or sale has been approved by a supervisory person
designated by the Trust (the "Designated Supervisory Person"),
(2) the approved transaction is completed by the close of
business on the next business day after approval is received and
(3) the Designated Supervisory Person has not rescinded such
approval prior to execution of the transaction.
B. Reporting
Every Covered Person must report certain information about each
transaction by which the Covered Person acquires any direct or
indirect beneficial ownership (as defined in Attachment A to
this Code) of a security, provided, however, that a Covered
Person shall not be required to make a report with respect to
any transaction effected for any account over which such person
does not have any direct or indirect influence or control or
which would duplicate information recorded pursuant to Rules
204-2(a)(12) or 204-2(a)(13) under the Investment Advisers Act
of 1940, as amended; and
A Covered Person must submit the report required by this Article
IV to the Designated Supervisory Person no later than 10 days
after the end of the calendar quarter in which the transaction
to which the report relates was effected. A report must contain
the following information:
1. The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
2. The nature of the transaction (i.e., purchase, sale or
other acquisition or disposition);
3. The price at which the transaction was effected; and
4. The name of the broker, dealer or bank with or through whom
the transaction was effected.
Any report submitted to comply with the requirements of this
Article IV may contain a statement that the report shall not be
construed as an admission by the person making such report that
he/she has any direct or indirect beneficial ownership (as
defined in Attachment A to this Code) in the securities to which
the report relates.
A Covered Person will be deemed to have complied with the
requirements of this Article IV by causing duplicate monthly
brokerage statements on which all transactions required to be
reported hereunder are described to be sent to the Designated
Supervisory Person.
C. Disclosure of Personal Holdings
The Designated Supervisory Person shall be aware of the
personal securities holdings of each Advisory Person.
D. Non-Interested Trustees
A Disinterested Trustee shall be required to comply with
paragraphs (A) and (B) of this Article IV with respect to a
transaction only if such person, at the time of that
transaction, knew, or in the ordinary course of fulfilling his
or her official duties as a Trustee of the Trust should have
known, that during the 15-day period immediately preceding the
date of the transaction by such person, the security such person
purchased or sold is or was purchased or sold by a Fund or was
being considered for purchase or sale by a Fund or its
investment adviser.
E. Certification of Compliance
Each Covered Person is required to certify annually that he
or she has read and understood the Code and recognizes that he
or she is subject to such Code. Further, each Covered Person is
required to certify annually that he or she has complied with
all the requirements of the Code and that he or she has
disclosed or reported all personal securities transactions
required to be disclosed or reported pursuant to the
requirements of the Code.
F. Review by the Board of Trustees
At least annually, the Designated Supervisory Person shall
report to the Board of Trustees:
1. All existing procedures concerning Covered Persons'
personal trading activities and any procedural changes made
during the past year;
2. Any recommended changes to the Code or procedures; and
3. A summary of any violations which occurred during the past
year with respect to which significant remedial action was taken
and which had not previously been reported to the Board of
Trustees.
V. Sanctions
Upon discovering that a Covered Person has not complied with the
requirements of this Code, the Designated Supervisory Person or
its management personnel may impose on that person appropriate
remedial action, including, in addition to actions specifically
delineated in other sections of this Code, censure, suspension
or termination of employment.
VI. Confidentiality
All information obtained from any Covered Person hereunder shall
be kept in strict confidence, except that reports of securities
transactions hereunder may be made available to the Securities
and Exchange Commission or any other regulatory or self-
regulatory organization, and may otherwise be disclosed to the
extent required by law or regulation.
VII. Other Laws, Rules, and Statements of Policy
Nothing contained in this Code shall be interpreted as relieving
any Covered Person from acting in accordance with the provision
of any applicable law, rule, or regulation or any other
statement of policy or procedures governing the conduct of such
person adopted by the Trust.
VIII. Further Information
If any person has any questions with regard to the applicability
of the provisions of this Code generally or with regard to any
securities transaction or transactions he or she should consult
the Designated Supervisory Person.
Dated: July 19, 1995
Attachment A
"Beneficial ownership", for purposes of this Code, shall be
determined in accordance with the definition of "beneficial owner"
set forth in Rule 16a-(a)(2) under the Securities Exchange Act of
1934, as amended, i.e., a person must have a "direct or indirect
pecuniary interest" to have "beneficial ownership". Although the
following list is not intended to be exhaustive, pursuant to the
rule, a person is generally regarded as the beneficial owner of
the following securities:
(i) securities held in the person's own name;
(ii) securities held with another in joint tenancy, community
property or other joint ownership;
(iii) securities held by a bank or broker as nominee or
custodian on such person's behalf of securities pledged as
collateral for a loan;
(iv) securities held by members of the person's immediate family
sharing the same household ("immediate family" means any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-
law, brother-in-law, or sister-in-law, including adoptive
relationships);
(v) securities held by a relative not residing in the person's
home if the person is a custodian, guardian or otherwise has
controlling influence over the purchase, sale or voting of such
securities;
(vi) securities held by a trust in which the person is a
beneficiary and has or shares the power to make purchase or sales
decisions;
(vii) securities held by a trust for which the person serves
as a trustee and in which the person has a pecuniary interest
(including pecuniary interests by virtue of performance fees and
by virtue of holdings by the person's immediate family);
(viii) securities held by a general partnership or limited
partnership in which the person is a general partner;
(ix) securities owned by a corporation in which the person has a control
position or in which the person has or shares investment control over the
portfolio securities (other than a registered investment company);
(x) securities in a portfolio giving the person certain
performance related fees; and
(xi) securities held by another person or entity pursuant to any
agreement, understanding, relationship or other arrangement giving
the person any direct or indirect pecuniary interest.
Exhibit o(2)
Pictet International Management Limited
CODE OF ETHICS
US Investment Companies
1. Introduction
A. General Principles
This Code of Ethics (the "Code") establishes rules of
conduct for "Covered Persons" (as defined herein) of the
Investment Company (the "Trust") and is designed to govern the
personal securities activities of Covered Persons. In general, in
connection with personal securities transactions, Covered Persons
should (1) always place the interests of a Trust's shareholders
first; (2) ensure that all personal securities transactions are
conducted consistent with this Code and in such a manner as to
avoid any actual or potential conflict of interest or any abuse of
a Covered Person's position of trust and responsibility; and (3)
not take inappropriate advantage of their positions.
B. Legal Requirement
Rule 17j-1(a) under the Investment Company Act of 1940
(the "Act") makes it unlawful for any Covered Person, in
connection with the purchase or sale by such person of a security
"held or to be acquired" by a Fund:
1. To employ any device, scheme or artifice to defraud the
Trust;
2. To make to the Trust any untrue statement of a material
fact or omit to state to the Trust a material fact necessary in
order to make the statements made, in light of the circumstances
under which they are made not misleading;
3. To engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit upon the
Trust; or
4. To engage in any manipulative practice with respect to
the Trust.
A security is "held or to be acquired" is within the
most recent 15 days it (i) is or has been held by a Fund, or (ii)
is being held or has been considered by the Trust or the
investment adviser for purchase by a Fund. A purchase or sale
includes the purchase or sale of an option to purchase or sell.
C. Applicability
For purposes of this Code, "Covered Person" shall mean:
1. Any officer or employee of the Trust or of any company
in a control relationship to the Trust who, in connection with his
or her regular functions or duties, makes, participates in or
obtains information regarding the purchase or sale of securities
by a Fund or whose functions relate to the making of any
recommendation to a Fund regarding the purchase or sale of
securities (an "Advisory Person"), including the person or persons
with the direct responsibility and authority to make investment
decisions affecting a Fund (the "Portfolio Manager"); and
2. Executive directors of Pictet International Management
Limited; and
3. Any natural person in a control relationship to the
Trust who obtains information concerning recommendations made to a
Fund with regard to the purchase or sale of a security; and
4. Any Trustee of the Trust:
For purpose of this Code, a person who normally assists
in the preparation of public reports or who receives no
information about current recommendations or trading or who
obtains knowledge of current recommendations or trading activity
once or infrequently or inadvertently shall not be deemed to be
either an Advisory Person or a Covered Person..
II. Restrictions on Activities
A. Prohibited Purchases and Sales
No Covered Person shall purchase or sell, directly or
indirectly, any security (or related security) in which he or she
has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership (as defined in Attachment A to this
Code) and which he or she knows or should have known at the time
of such purchase or sale:
1. is being considered for purchase or sale by a Fund:
or
2. is being purchased or sold by a Fund.
B. Blackout Periods
1. No covered Person shall purchase or sell, directly or
indirectly, any security in which he or she has, or by reason of
such transaction acquires, any direct or indirect beneficial
ownership (as defined in Attachment A to this Code) on a day
during which any Fund has a pending "buy" or "sell" order in that
same security until that order is executed or withdrawn. The
foregoing shall not apply to a person who is a Covered Person with
respect to the Trust by virtue of being a Trustee of the Trust,
but who is not an "interested person" (as defined in the Act) of
the Trust (a "Disinterested Trustee").
2. No portfolio Manager shall purchase or sell, directly or
indirectly, any security in which he or she has, or by reason of
such transaction acquires, any direct or indirect beneficial
ownership (as defined in Attachment A to this Code) within seven
(7) calendar days before or after any Fund trades in that
security.
C. Interested Transactions
No covered Person shall recommend any securities transactions
by a Fund without having disclosed his or her interest, if any, in
such securities or the issuer thereof, including without
limitation:
1. any direct or indirect beneficial ownership (as defined
in Attachment A to this Code) of any securities of such issuer;
2. any contemplated transaction by such person in such
securities;
3. any position with such issuer or its affiliated; and
4. any present or proposed business relationship between
such issuer or its affiliates and such person or any party in
which such person has a significant interest.
D. Initial Public Offerings
No Advisory Person shall acquire any securities in an initial
public offering for his or her personal account without the prior
approval of the Designated Supervisory Person (as hereinafter
defined).
E. Private Placements
No Advisory person shall acquire, directly or indirectly,
beneficial ownership of any securities in a private placement
without the prior approval of the Designated Supervisory Person
(as hereinafter defined) who has been provided by such Advisory
Person with full details of the proposed transaction (including
written certification that the investment opportunity did not
arise by virtue of the Advisory Person's activities on behalf of
a Fund) and has concluded after consultation with other investment
advisory personnel of the Trust that the Funds have no foreseeable
interest in purchasing such securities.
F. Short-Term Trading Profits
No Advisory person shall profit from the purchase and sale,
or sale and purchase, of the same (or equivalent) securities of
which such Advisory Person has beneficial ownership within three
business days. Any profit so realised shall, unless the Trust's
Board approves otherwise, be paid over to the Trust or to a
charitable organisation of the Advisory Person's choosing.
G. Service as a Director
No Advisory Persons shall serve on the board of directors of
any publicly traded company without prior authorisation from the
Designated Supervisory Person based upon a determination that such
board service would be consistent with the interest of the Trust
and Fund shareholders.
III. Exempt Transactions
A. For purposes of this Code, the term "security" shall not
include the following:
1. securities issued or guaranteed as to principal or
interest by the Government of the United States or its
instrumentality's;
2. bankers' acceptances;
3. bank certificates of deposit;
4. commercial paper; and
5. shares of registered open-end investment companies
B. The prohibitions described in paragraph (B) and (F) of
Article II shall not apply to:
1. Purchases or sales effected in any account over which
the Covered Person has no direct or indirect influence or control;
2. Purchases or sales that are non-volitional on the part
of the Covered Person;
3. Purchases that are not part of an automatic dividend
reinvestment plan;
4. Purchases effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from the issuer, and sales of
such rights so acquired; or
5. Subject to the advance approval of the Designated
Supervisory Person (as defined below), purchases or sales which
are only remotely potentially harmful to a Fund because such
purchases or sales would be unlikely to affect a highly
institutional market, or because such purchases or sales are
clearly not related economically to the securities held, purchased
or sold by a Fund.
IV. Compliance Procedures
A. Pre clearance
A Covered Person may directly or indirectly, acquire or
dispose of beneficial ownership of a security only if (1) such
purchase or sale has been approved by a supervisory person
designated by the Trust (the "Designated Supervisory Person"), (2)
the approved transaction is completed by the close of business on
the next business day after approval is received and (3) the
Designated Supervisory Person has not rescinded such approval
prior to execution of the transaction.
B. Reporting
Every Covered Person must report certain information
about each transaction by which the Covered Person acquires any
direct or indirect beneficial ownership (as defined in Attachment
A to this Code) of a security, provided, however, that a Covered
Person shall not be required to make a report with respect to any
transaction effected for any account over which such person does
not have any direct or indirect influence or control or which
would duplicate information recorded pursuant to Rules 204-
2(a)(12) or 204-2(a)(13) under the Investment Advisers Act of
1940, as amended; and
A Covered Person must submit the report required by this
Article IV to the Designated Supervisory Person no later than 10
days after the end of the calendar quarter in which the
transaction to which the report relates was effected. A report
must contain the following information.
1. The date of the transaction, the title and the number of
shares, and the principal amount of each security involved:
2. The nature of the transaction (i.e. purchase, sale or
other acquisition or disposition):
3. The price at which the transaction was effected: and
4. The name of the broker, dealer or bank with or through
whom the transaction was effected.
Any report submitted to comply with the requirements of
this Article IV may contain a statement that the report shall not
be constructed as an admission by the person making such report
that he/she has any direct or indirect beneficial ownership (as
defined in Attachment A to this Code) in the securities to which
the report relates.
A Covered Person will be deemed to have complied with
the requirements of this Article IV by causing duplicate monthly
brokerage statements on which all transactions required to be
reported thereunder are described to be sent to the Designated
Supervisory Person.
C. Disclosure of Personal Holdings
The Designated Supervisory Person shall be aware of the
personal securities holdings of each Advisory Person.
D. Non-Interested Trustees
A Disinterested Trustee shall be required to comply with
paragraphs (A) and (B) of this Article IV with respect to a
transaction only if such person, at the Time of that transaction,
knew, or in the ordinary course of fulfilling his or her official
duties as a Trustee of the Trust should have known, that during
the 15-day period immediately preceding the date of the
transaction by such person, the security such person purchased or
sold is or was purchased or sold by a Fund or was being considered
for purchase or sale by a Fund or its investment adviser.
E. Certification of Compliance
Each Covered Person is required to certify annually that
he or she has read and understood the Code and recognises that he
or she is subject to such Code. Further, each Covered Person is
required to certify annually that he or she has complied with all
the requirements of the Code and that he or she has disclosed or
reported all personal securities transactions required to be
disclosed or reported pursuant to the requirements of the Code.
F. Review by the Board of Trustees
At least annually, the Designated Supervisory Person
shall report to the Board of Trustees:
1. All existing procedures concerning Covered Persons'
personal trading activities and any procedural changes made during
the past year;
2. Any recommended changes to the Code or procedures; and
3. A summary of any violations which occurred during the
past year with respect to which significant remedial action was
taken and which had not previously been reported to the Board of
Trustees.
V. Sanctions
Upon discovering that a Covered Person has not complied with
the requirements of this Code, the Designated Supervisory Person
or its management personnel may impose on that person appropriate
remedial action, including, in addition to actions specifically
delineated in other sections of this Code, censure, suspension or
termination of employment.
All violations of this Code will be reported to the Board of
Directors of Pictet International Management Limited.
VI. Confidentiality
All information obtained from any Covered Person hereunder
shall be kept in strict confidence, except that reports of
securities transactions hereunder may be made available to the
Securities and Exchange Commission or any other regulatory or
self-regulatory organisation, and may otherwise be disclosed to
the extent required by law or regulation.
VII. Other Laws, Rules, and Statements of Policy
Nothing contained in this Code shall be interpreted as
relieving any Covered Person from acting in accordance with the
provision of any applicable law, rule, or any other statement of
policy or procedures governing the conduct of such person adopted
by the Trust.
VIII. Further Information
If any person has any questions with regard to the
applicability of the provisions of this Code generally or with
regard to any securities transaction or transactions he or she
should consult the Designated Supervisory Person.
Attachment A
"Beneficial ownership", for purposes of this Code, shall be
determined in accordance with the definition of "beneficial owner
" set forth in Rule 16a-(a)(") under the Securities Exchange Act
of 1934, as amended, i.e. a person must have a "direct or indirect
pecuniary interest" to have "beneficial ownership". Although the
following list is not intended to be exhaustive, pursuant to the
rule, a person is generally regarded as the beneficial owner of
the following securities.
(i) securities held in the person's own name;
(ii) securities held with another in joint tenancy, community
property or other joint ownership;
(iii) securities held by a bank or broker as nominee or
custodian on such person's behalf of securities pledged as
collateral for a loan;
(iv) securities held by members of the person's immediate family
sharing the same household ("immediate family" means any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-
law, brother-in-law, or sister-in-law, including adoptive
relationships);
(v) securities held by a relative not residing in the person's
home if the person is a custodian, guardian or otherwise has
controlling influence over the purchase, sale or voting of such
securities;
(vi) securities held by a trust in which the person is a
beneficiary and has or shares the power to make purchase or sales
decisions;
(vii) securities held by a trust for which the person serves
as a trustee and in which the person has a pecuniary interest
(including pecuniary interests by virtue of performance fees and
by virtue of holdings by the person's immediate family);
(viii) securities held by a general partnership or limited
partnership in which the person is a general partner;
(ix) securities owned by a corporation in which the person has a
control position or in which the person has or shares investment
control over the portfolio securities (other than a registered
investment company)
(x) securities in a portfolio giving the person certain
performance related fees; and
(xi) securities held by another person or entity pursuant to any
agreement, understanding, relationship or other arrangement giving
the person any direct or indirect pecuniary interest.
