As filed with the Securities and Exchange Commission on July 19, 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. 17 X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 21 X
PICTET FUNDS
(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)
X on July 21, 2000 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)
_ on [ ] pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
__ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
PICTET EUROPEAN EQUITY FUND
PICTET INTERNATIONAL EQUITY FUND
LOGO
PICTET
FUNDS
PROSPECTUS
JULY 21, 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
PICTET EUROPEAN EQUITY FUND RISK/RETURN SUMMARY
3
Investment goal
3
Principal investments and strategies
3
Principal investment risks
4
Fees and expenses
4
PICTET INTERNATIONAL EQUITY FUND RISK/RETURN SUMMARY
5
Investment goal
5
Principal investments and strategies
5
Principal investment risks
6
Fees and expenses
7
THE FUNDS INVESTMENTS
8
INVESTMENT ADVISER
10
Portfolio management
11
INVESTMENT AND ACCOUNT POLICIES
15
Calculation of net asset value
15
Purchasing fund shares
15
Exchanges between Pictet funds
18
Redeeming fund shares
18
Dividends, distributions and taxes
20
FOR MORE INFORMATION
back
cover
PICTET EUROPEAN EQUITY FUND
RISK/RETURN SUMMARY
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
and depositary receipts for
foreign stocks.
The Fund may invest in the
following European Countries:
Austria, Belgium, Czech
Republic, Denmark, Finland,
France, Germany, Greece,
Hungary, Ireland, Italy,
Luxembourg, Netherlands, Norway,
Poland, Portugal, Spain, Sweden,
Switzerland, Turkey 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.
Each stock in the investable
universe is classified into
sectors which correspond to the
sectors identified by the Index.
Stocks are also defined within
three broad categories: Economic
sensitives (where turnover is
closely related to the level of
GDP in the markets in which it
operates), Organic Growth (where
turnover grows at rates above
GDP and is less dependent upon
it). Finally interest rate
sensitives, where performance is
impacted by the direction of
interest rate movements and
level of interest rates.
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,
defined as gross cash flow (net
profit and depreciation) minus
capex, minus the change in
working capital.
Country weights, monitored as a
means of risk control, are
defined as the level of exposure
of the portfolio to a country
and are controlled through the
use of defined ranges around a
neutral benchmark position. A
portfolio with a neutral
position would have the same
country weighting as the
index.
PICTET EUROPEAN EQUITY FUND
RISK/RETURN SUMMARY - 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.
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.
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%
1 Please see Redeeming Fund Shares on page 18.
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. 3
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
$375
$1,140
3 The example is calculated using gross expenses. Using the net expense
calculation, your costs for 1 and 3 years in the example would be $102 and $318,
respectively.
PICTET INTERNATIONAL EQUITY FUND
RISK/RETURN SUMMARY
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,
Australasia 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, principally
measured by reference to the
yield on its long term
government debt (i.e. earnings
yield/bond yield, cashflow
yield/bond yield), is an
important but subsidiary factor-
with liquidity the primary
factor in the analysis.
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 including, for example,
economic statistics produced
each month, aggregate forecasts
for corporate earnings etc and
the re-organization of these
into major factors in order
that they can be scored in an
objective manner. Major factors
range from specific individual
factors classified as important
in measuring liquidity or
valuation (e.g. the movement in
short term interest rates in a
particular country) to broad
factors such as overall economic
liquidity which may derive from
a number of underlying economic
variables such as money supply
growth, inflation and industrial
production. The scores derived
form the central tool in the
advisers top down asset
allocation decision making
process.
PICTET INTERNATIONAL EQUITY FUND
RISK/RETURN SUMMARY - CONTINUED
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 (i.e.
under/overweights relative to
the benchmark) 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, defined
as gross cash flow (net profit
and depreciation) minus capex,
minus the change in working
capital.
The adviser focuses on large
capitalization stocks which
constitute approximately 70% to
80% of the portfolio.
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
region, country or sector
allocations or the
attractiveness, value or
potential appreciation of a
particular stock proves to be
incorrect.
PICTET INTERNATIONAL EQUITY FUND
RISK/RETURN SUMMARY - 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
5.55%
Total annual fund operating expenses
6.30%
1 Please see Redeeming Fund Shares on page 18.
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. 3
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
$626
$1,853
3 The example is calculated using gross expenses. Using the net expense
calculation, your costs for 1 and 3 years in the example would be $102 and $318,
respectively.
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 and
Global Depositary Receipts.
CONVERTIB
LE
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.
WARRANTS
AND
SUBSCRIPTION
RIGHTS
Warrants and subscription rights entitle the
holder to acquire the stock of a company at a set
price.
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.
THE FUNDS INVESTMENTS - CONTINUED
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,
a UK based insurance company. 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
Pension Account
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 1-877-470-0103 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. 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
INVESTMENT AND ACCOUNT POLICIES - continued
Purchasing
shares by
wire
If you are opening a new account, call the
funds at 1-877-470-0103 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.
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 1-877-470-0103, 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.
INVESTMENT AND ACCOUNT POLICIES - continued
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.
You may be subject to a redemption fee if
you exchange shares after holding them less than
six months. Please see Redeeming Fund
Shares below.
REDEEMING
FUND SHARES
If you exchange or redeem
shares after holding them six
months or less (other than
shares acquired through
reinvestment of dividends or
other distributions), a fee of
1% of the current net asset
value of the shares being
exchanged or redeemed will be
assessed and retained by the
Fund for the benefit of the
remaining shareholders. This
fee is intended to encourage
long-term investment, to avoid
transaction and other expenses
caused by early redemptions, and
to facilitate portfolio
management. The fee is
currently waived for pension
funds, endowments and other
similar institutional funds due
to certain economies associated
with these accounts. The
redemption fee may be modified
or discontinued at any time or
from time to time. This fee is
not a deferred sales charge, is
not a commission paid to Pictet
and does not benefit Pictet in
any way. The fee applies to
redemptions from a Fund and
exchanges into any of the other
no-load mutual funds which are
also advised by Pictet and
distributed by Provident
Distributors, Inc. The first-
in, first-out method will be
used to determine your holding
period. Under this method, the
date of redemption or exchange
will be compared with the
earliest purchase date of shares
held in your account. If your
holding period is less than six
months, the redemption/exchange
fee will be assessed on the
current net asset value of those
shares.
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 1-877-470-
0103 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.
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.
INVESTMENT AND ACCOUNT POLICIES - continued
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.
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: 1-877-470-0103
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 21, 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 July 21, 2000 (the "Prospectus"). To
obtain the Prospectus, please call the Trust at 1-877-470-0103.
Capitalized terms used in this Statement of Additional Information and not
otherwise defined have the same meanings given to them in the Prospectus.
Table of Contents Page
Investment Objective and Policies 2
Purchase of Shares 13
Redemption of Shares 13
Portfolio Turnover 13
Investment Limitations 13
Management of the Fund 15
Code of Ethics 17
Investment Advisory and Other Services 17
Portfolio Transactions 17
Additional Information Concerning Taxes 18
Performance Calculations 21
General Information 22
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.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt
securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. In general, bond prices rise when interest
rates fall, and vice versa. Debt securities have varying degrees of quality
and
varying levels of sensitivity to changes in interest rates. Longer-term bonds
are generally more sensitive to interest rate changes than short-term bonds.
Privatizations. The Fund may invest in privatizations. The Fund believes that
foreign government programs of selling interests in government-owned or
controlled enterprises ("privatizations") may represent opportunities for
significant capital appreciation. The ability of U.S. entities, such as the
Fund, to participate in privatizations may be limited by local law, or the
terms
for participation may be less advantageous than for local investors. There can
be no assurance that privatization programs will be available or successful.
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 invest in the following European
Countries: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland,
Portugal, Spain, Sweden, Switzerland, Turkey and the United Kingdom. These
international investments are subject to a variety of risks of loss beyond the
risks ordinarily associated with investing in the U.S. and other mature
securities markets. The discussion of risks set forth below refers to the
better understood risks of investing in less developed markets but is not
intended, and should not be assumed, to be a complete list of all possible
risks. Although the Board of Trustees, the Adviser, and the Custodian and sub-
custodians each review and attempt to minimize the risks of which they are
aware, and even if neither the Trustees nor any service provider to the Fund
has
failed to fulfill its duties to the Fund, it is entirely possible that the Fund
may lose some or all of its investment in one or more securities in an emerging
or politically unstable market. An example of such a loss may involve a fraud
in a foreign market not reasonably preventable by the service providers,
notwithstanding oversight by the Trustees and procedures of each service
provider generally considered to be adequate to prevent such a fraud. In any
such case, it is likely that the Fund would not be reimbursed for its loss.
Investing in foreign companies involves certain special 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.
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;
(3) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements and money market instruments, such
as bankers acceptances and commercial paper, and selling securities on a when
issued, delayed settlement or forward delivery basis) which are publicly or
privately distributed, (ii) by entering into repurchase agreements and (iii)
through the lending of its portfolio securities;
(4) purchase on margin or sell short except as permitted by the 1940 Act;
(5) with respect to 75% of its total assets, at the time of purchase invest
more than 5% of its total assets or purchase more than 10% of the outstanding
voting securities of the securities of any single issuer (other than
obligations
issued or guaranteed by the U.S. Government, its agencies, enterprises or
instrumentalities);
(6) 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 since 1998;
CEO of Pictet (Canada) & Co. Ltd. From
1994-1997.
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, Information Management
Associates, Inc., Sky Mall, Inc. and
iGo Corporation.
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. Provident Distributors, Inc. (PDI) is the principal underwriter and
distributor of shares of the Fund pursuant to a distribution agreement with the
Trust. PDI is located at 3200 Horizon Drive, King of Prussia, Pennsylvania
19406.
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 21, 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 July 21, 2000 (the "Prospectus").
To obtain the Prospectus, please call the Trust at 1-877-470-0103.
Capitalized terms used in this Statement of Additional Information and not
otherwise defined have the same meanings given to them in the Prospectus.
Table of Contents Page
Investment Objective and Policies 2
Purchase of Shares 13
Redemption of Shares 13
Portfolio Turnover 13
Investment Limitations 13
Management of the Fund 15
Code of Ethics 17
Investment Advisory and Other Services 17
Portfolio Transactions 17
Additional Information Concerning Taxes 18
Performance Calculations 21
General Information 22
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.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt
securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. In general, bond prices rise when interest
rates fall, and vice versa. Debt securities have varying degrees of quality
and
varying levels of sensitivity to changes in interest rates. Longer-term bonds
are generally more sensitive to interest rate changes than short-term bonds.
Privatizations. The Fund may invest in privatizations. The Fund believes that
foreign government programs of selling interests in government-owned or
controlled enterprises ("privatizations") may represent opportunities for
significant capital appreciation. The ability of U.S. entities, such as the
Fund, to participate in privatizations may be limited by local law, or the
terms
for participation may be less advantageous than for local investors. There can
be no assurance that privatization programs will be available or successful.
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.
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;
(3) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements and money market instruments, such
as bankers acceptances and commercial paper, and selling securities on a when
issued, delayed settlement or forward delivery basis) which are publicly or
privately distributed, (ii) by entering into repurchase agreements and (iii)
through the lending of its portfolio securities;
(4) purchase on margin or sell short except as permitted by the 1940 Act;
(5) with respect to 75% of its total assets, at the time of purchase invest
more than 5% of its total assets or purchase more than 10% of the outstanding
voting securities of the securities of any single issuer (other than
obligations
issued or guaranteed by the U.S. Government, its agencies, enterprises or
instrumentalities);
(6) 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 since 1998;
CEO of Pictet (Canada) & Co. Ltd. From
1994-1997.
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, Information Management
Associates, Inc., Sky Mall, Inc. and
iGo Corporation.
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. Provident Distributors, Inc. (PDI) is the principal underwriter and
distributor of shares of the Fund pursuant to a distribution agreement with the
Trust. PDI is located at 3200 Horizon Drive, King of Prussia, Pennsylvania
19406.
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.
a(7) Amendment to the Declaration of Trust dated May 11, 2000 is
incorporated by reference to Post-Effective Amendment No. 16.
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 filed herein as Exhibit d(4).
d(5) Supplement to the Investment Advisory Agreement with respect to
Pictet International Equity Fund is filed herein as Exhibit d(5).
e(1) 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.
e(2) Supplement to the Distribution Agreement with respect to Pictet
International Equity Fund is filed herein as Exhibit e(2).
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.
g(6) Amendment to Custodian Agreement with respect to Pictet
International Equity Fund is filed herein as Exhibit g(6).
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) Supplement to the Transfer Agency and Services Agreement with
respect to Pictet International Equity Fund is filed herein as Exhibit h(5).
h(6) 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(7) Amendment dated September 24, 1999 to the Administration Agreement dated
October 3, 1995 is incorporated by reference to Post-Effective Amendment
No. 13.
h(8) 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(9) 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(10) Supplement to the Administration Agreement with respect to Pictet
European
Equity Fund is incorporated by reference to Post-Effective Amendment No. 10.
h(11) Supplement to the Administration Agreement with respect to Pictet
International Equity Fund is filed herein as Exhibit h(11).
i Not Applicable.
j(1) Power of Attorney is incorporated by reference to Post- Effective
Amendment No. 13.
j(2) Not Applicable.
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.
l(4) Form of Purchase Agreement with respect to Pictet European
Equity Fund is filed herein as Exhibit l(4).
l(5) Form of Purchase Agreement with respect to Pictet
International Equity Fund is filed herein as Exhibit l(5).
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 incorporated
by reference to Post-Effective Amendment No. 14.
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 Pictet Funds, Provident Distributors, Inc. (the
"Distributor") acts as principal underwriter for the following investment
companies as of 6/30/00: International Dollar Reserve Fund I, Ltd., Provident
Institutional Funds 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 Research Trust, Warburg
Pincus Trust, ABN AMRO Funds, Alleghany Funds, Deutsche Asset Management VIT
Funds, 0First Choice Funds Trust, LKCM Funds, The Galaxy Fund, The Galaxy VIP
Fund, Galaxy Fund II, IBJ Funds Trust, Wilshire Target Funds, Inc., Undiscovered
Managers Funds, 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 3200 Horizon Drive, King of Prussia,
Pennsylvania 19406.
(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
Tower 42, Level 37
25 Old Broad Street
London, England EC2N 1HQ
(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.
3200 Horizon Drive
King of Prussia, PA 19406
(records relating to its functions as distributor)
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable
EXHIBIT INDEX
Exhibit
Number Description
d(4) Supplement to Investment Advisory Agreement
d(5) Supplement to Investment Advisory Agreement
e(2) Supplement to Distribution Agreement
g(6) Amendment to Custodian Agreement
h(5) Supplement to Transfer Agency and Services Agreement
h(11) Supplement to Administration Agreement
l(4) Form of Purchase Agreement
l(5) Form of Purchase Agreement
o(1) Code of Ethics of Trust
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, Pictet Funds certifies that it
meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933, and the Registrant
has
duly caused this Post-Effective Amendment No. 17 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 19th day of July 2000.
PICTET FUNDS
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. 17 to the Registration Statement of Pictet Funds
has been signed by the following persons in the capacities and on the dates
indicated:
Signature Title Date
* Chairman, President July 19, 2000
(Jean G. Pilloud) and Trustee
(principal executive officer)
* Treasurer July 19, 2000
(William J. Baltrus) (principal financial and
accounting officer)
* Trustee July 19, 2000
(Jean-Franois Demole)
* Trustee July 19,
2000
(Jeffrey P. Somers, Esq.)
* Trustee July 19,
2000
(Bruce W. Schnitzer)
* Trustee July 19, 2000
(David J. Callard)
* By:
/s/Andrew M. Goldberg
Andrew M. Goldberg
as Attorney-in-Fact
