GLOBAL ASSET MANAGEMENT
GAM FUNDS, INC.
GAM Funds, Inc. (the "Company") is a diversified open-end management investment
company which offers investors the opportunity to invest in several different
portfolios investing primarily in equity securities--GAM Global Fund, GAM
International Fund, GAM Pacific Basin Fund, GAM Japan Capital Fund, GAM Asian
Capital Fund, GAM Europe Fund, GAM North America Fund and GAMerica Capital Fund
(the "Funds").
PROSPECTUS
DATED APRIL 30, 1996
AMENDED NOVEMBER 30, 1996
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED COMMENT UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus sets forth concisely information a prospective investor should
know about each GAM Fund before investing. Investors are advised to read and
retain this Prospectus for future reference. The Company has filed a Statement
of Additional Information, dated April 30, 1996, amended November 30, 1996, with
the Securities and Exchange Commission. Such Statement is incorporated by
reference in this Prospectus, and is available without charge upon request at
the address and telephone numbers indicated below.
GAM FUNDS, INC.
135 East 57th Street, New York,, NY 10022
Tel: (800) 426-4685 Fax: (212) 407-4684
Internet: [email protected]
GAM
<PAGE>
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Table of Contents
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Summary....................................................................... 2
Financial Highlights.......................................................... 8
Investment Objectives and Policies and Risk Considerations................... 19
Purchase of Shares........................................................... 28
Redemption of Shares......................................................... 33
Exchanges.................................................................... 35
Net Asset Value, Dividends and Taxes......................................... 36
Management of the Funds...................................................... 37
Description of Shares........................................................ 41
Additional Information....................................................... 42
Purchase Application................................................. Back Cover
1
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SUMMARY
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INVESTMENT OBJECTIVE AND POLICIES
Each Fund seeks long-term capital appreciation by investing primarily in equity
securities. There is no assurance that each of the Funds will achieve its
investment objective.
GAM GLOBAL FUND--Investing primarily in securities of companies in the United
States, Europe, the Pacific Basin and Canada.
GAM INTERNATIONAL FUND--Investing primarily in securities of companies in
Europe, the Pacific Basin and Canada.
GAM PACIFIC BASIN FUND--Investing primarily in securities of companies in the
Pacific Basin, including Japan, Hong Kong, Korea, Taiwan, Singapore, Thailand,
Indonesia, Malaysia and Australia.
GAM JAPAN CAPITAL FUND--Investing primarily in securities of companies in Japan.
GAM ASIAN CAPITAL FUND--Investing primarily in securities of companies in Asia
excluding Japan.
GAM EUROPE FUND--Investing primarily in securities of companies in Europe.
GAM NORTH AMERICA FUND--Investing primarily in securities of companies in the
United States and Canada.
GAMERICA CAPITAL FUND--Investing primarily in securities of companies in the
United States.
Each Fund may invest in debt securities if it is determined that long-term
capital appreciation of debt securities may equal or exceed the return on equity
securities. Each Fund may also enter into forward foreign exchange contracts,
trade in options and futures contracts and engage in other investment practices
as described in greater detail below under "Investment Objective and Policies".
PRINCIPAL RISKS
GAM International, Europe, Pacific Basin, Asian Capital and Japan Capital Funds
will invest primarily in securities of foreign issuers, and GAM Global and North
America Funds will invest in securities of foreign issuers as well as in
securities of United States issuers. Generally, investments in securities of
foreign issuers involve greater risks than investments in United States issuers.
Securities of some foreign issuers are less liquid, and their prices more
volatile, than securities of United States issuers. In some foreign countries
there is a risk of political instability, expropriation, or other developments
which may adversely affect a Fund's investments. Investments in securities
denominated in foreign currencies may be affected favorably or unfavorably by
changes in currency exchange rates. Borrowing by the Funds, also known as
leverage, will tend to exaggerate the effect on the net asset value of the
Fund's shares of any increase or decrease in the market value of the Fund's
assets. Trading in options and futures contracts and the purchase of higher
yielding debt instruments also involves risks described below under "Risk
Considerations".
2
<PAGE>
INVESTMENT ADVISERS
GAM International Management Limited is part of the Global Asset Management
(GAM) Group of companies, an international investment advisory organization with
approximately $9.2 billion under management and offices or affiliates in
Bermuda, New York, London, Zurich, Hong Kong, Singapore, Edinburgh, Dublin and
the Isle of Man.
GAM International Management Limited Tel: 011-44-(171) 493-9990
12 St James's Place Fax: 011-44-(171) 493-0715
London SW1A 1NX
Fayez Sarofim & Co., which acts as co-investment adviser for GAM North America
Fund, is based in Houston, Texas and manages aggregate assets of approximately
$30 billion.
Fayez Sarofim & Co. Tel: (713) 654-4484
Suite 2907, Two Houston Center Fax: (713) 654-8184
Houston, TX 77010
TRANSFER AGENT
Chase Global Funds Services Company Tel: (617) 557-8000 x6610
73 Tremont Street (800) 356-5740 (toll free)
Boston, Massachusetts 02108 Fax: (617) 557-8698
CUSTODIAN AND ADMINISTRATOR
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
AUDITORS
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
ATTORNEYS
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes annually all of its net investment income and net realized
capital gains. Dividends and distributions may be reinvested automatically
without a sales load.
EXCHANGE PRIVILEGE
Shares of each Fund may be exchanged without a sales load for shares of any
other Fund.
MINIMUM INVESTMENT
$10,000 ($2,000 for IRA accounts)
3
<PAGE>
SUBSEQUENT INVESTMENTS
$1,000 ($500 for IRA accounts)
OTHER FEATURES
Statement of Intention
Right of Accumulation
Redemptions or exchanges by telephone or facsimile
Automatic investment and systematic withdrawal plans
Information about how to purchase and redeem shares appears under "Purchase of
Shares" and "Redemption of Shares." Purchases of shares may be subject to a
sales load of up to 5% of the purchase price.
4
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EXPENSES
<TABLE>
<CAPTION>
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INTERNATIONAL GLOBAL PACIFIC EUROPE
BASIN
Cl. A Cl. D Cl. A Cl. D Cl. A Cl. D Cl. A Cl. D
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)1 5% 3.5% 5% 3.5% 5% 3.5% 5% 3.5%
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management Fees (after expense reimbursement) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Fees 3,5 0.30% 0.40% 0.30% 0.40% 0.30% 0.40% 0.30% 0.40%
- --------------
Other Expenses 4 0.57% 0.82% 1.16% 1.41% 0.98% 1.23% 1.12% 1.37%
Total Fund Operating Expenses 5 1.87% 2.22% 2.46% 2.81% 2.28% 2.63% 2.42% 2.77%
==== ==== ==== ==== ==== ==== ==== ====
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</TABLE>
<TABLE>
<CAPTION>
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North Japan GAMerica Asian
America Capital Capital Capital
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cl. A Cl. D Cl. A Cl. D Cl. A Cl. D Cl. A Cl. D
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)1 5% 3.5% 5% 3.5% 5% 3.5% 5% 3.5%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees
(after expense reimbursement)2 0.71% 0.71% 0% 0% 0% 0% 0.16% 0.16%
12b-1 Fees 3,5 0.30% 0.40% 0.30% 0.40% 0.30% 0.40% 0.30% 0.40%
- --------------
Other Expenses 4 2.27% 2.52% 3.61% 3.86% 3.73% 3.98% 2.95% 3.20%
Total Fund Operating Expenses 5 3.28% 3.63% 3.91% 4.26% 4.03% 4.38% 3.41% 3.76%
==== ==== ==== ==== ==== ==== ==== ====
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</TABLE>
Class D shares are currently available only for GAM International Fund, GAM
Global Fund and GAM Pacific Basin Fund. Class D shares may become available for
other Funds in the future. Expenses for the Class D shares not yet offered are
estimated.
5
<PAGE>
EXAMPLE (5)
<TABLE>
<CAPTION>
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INTERNATIONAL GLOBAL PACIFIC EUROPE
BASIN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cl. A Cl. D Cl. A Cl. D Cl. A Cl. D Cl. A Cl. D
You would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and
(2) redemption at the end of the
period:
1 Year $ 68 $ 57 $ 74 $ 62 $ 72 $ 61 $ 73 $ 62
3 Year $106 $102 $123 $119 $118 $114 $122 $118
5 Year $146 $150 $174 $178 $166 $170 $173 $176
10 Year $258 $281 $316 $338 $298 $321 $312 $334
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</TABLE>
<TABLE>
<CAPTION>
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North Japan GAMerica Asian
America Capital Capital Capital
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Cl. A Cl. D Cl. A Cl. D Cl. A Cl. D Cl. A Cl. D
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of the
period:
1 Year $ 81 $ 70 $ 87 $ 76 $ 88 $ 77 $ 83 $ 72
3 Year $146 $142 $163 $160 $167 $163 $150 $146
5 Year $213 $216 $241 $243 $246 $249 $219 $222
10 Year $390 $410 $442 $455 $452 $460 $401 $414
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</TABLE>
The preceding table is included to help investors understand the various costs
and expenses that will be incurred either directly by investors or indirectly by
each Fund. The information provided assumes reinvestment of dividends and that
the percentage amounts listed under "Total Fund Operating Expenses" remain the
same each year. The table and the example should not be considered a
representation of past or future expenses since actual expenses may be more or
less than those shown and the size of each Fund may vary.
NOTES TO TABLE
1 The sales load will be reduced for investments of $100,000 or more and may be
waived for certain investors, as described below under "Purchase of
Shares--Offering Price". Purchases of $1 million or more are not subject to an
initial sales charge; however, a contingent deferred sales charge of up to 1%
will be imposed on such investments at the time of redemption, if the redemption
occurs within two years after the date of purchase.
2 In the absence of the expense reimbursement, the management fee for GAM North
America Fund, GAM Japan Capital Fund, GAMerica Capital Fund, and GAM Asian
Capital Fund would be 1.0%, resulting in total expenses of 3.57% and 3.92% for
GAM North America Class A and D shares, respectively; 4.91% and 4.26% for GAM
Japan Capital Class A and D shares, respectively; 5.03% and 5.38% for GAMerica
Capital Class A and D shares, respectively; and 4.25% and 4.60% for GAM Asian
Capital Fund Class A and D shares, respectively.
6
<PAGE>
3 12b-1 fees for Class D shares were introduced in 1995. Series offering Class D
shares may pay up to 0.50% annually pursuant to the 12b-1 Plan. GAM
Services Inc., the Fund's Distributor, has agreed to collect only 0.40% through
December 31, 1996. 12b-1 fees for Class A shares were introduced effective
October 9, 1996. Total expenses for Class A shares have been restated to reflect
adoption of the Class A 12b-1 Plan.
4. Other expenses include custodian, transfer agent, administrative, legal and
accounting fees and expenses. Certain administrative expenses were introduced in
1995. The Funds' expense ratios may be higher than those of most registered
investment companies since the cost of maintaining custody of foreign securities
is higher than those for most domestic funds and the rate of the advisory fee
paid by each Fund exceeds that of most registered investment companies. These
expenses are estimated for the Class D shares of all funds other than GAM
International, GAM Global and GAM Pacific Basin Funds which have not yet
commenced operations.
5. 12b-1 Fees, Total Fund Operating Expenses and the Example for Class A shares
have been restated to reflect adoption by the Funds, effective October 9, 1996,
of a 12b-1 Plan of Distribution for Class A shares, providing for payments of
0.30% annually of the average daily net assets represented by Class A shares of
each Fund.
7
<PAGE>
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FINANCIAL HIGHLIGHTS
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The following tables containing selected financial information for the Funds
have been audited by McGladrey & Pullen, LLP, certified public accountants, for
the periods indicated in their report, which is incorporated by reference, and
which appears in the 1995 Annual Report to Shareholders of the Funds. Class D
shares were offered commencing September 5, 1995. Copies of the Annual Report
will be provided at no charge upon request.
<TABLE>
<CAPTION>
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GAM INTERNATIONAL FUND
FOR THE PERIODS
01-Jan-95 05-Sep-95+ 01-Jan-94 01-Jan-93 01-Jan-92 01-Jan-91
to to to to to to
31-Dec-95 31-Dec-95 31-Dec-94 31-Dec-93 31-Dec-92 31-Dec-91
Class A Class D Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the
period)***
Net asset value
Beginning of period $17.21 $20.46 $23.90 $14.56 $14.86 $12.87
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.52 0.10 0.34 0.25 0.71 0.36
Net realized and unrealized
gain/(loss) on investments 4.64 1.78 (2.58) 10.38 (0.28) 1.64
------ ------ ------ ----- ------ -----
Total from investment operations 5.16 1.88 (2.24) 10.63 0.43 2.00
------ ------ ------ ----- ------ -----
Less distributions
Dividends from net investment
income (0.47) (0.46) (0.66) (0.34) (0.43) (0.01)
Distributions from net realized
gain (0.53) (0.53) (3.79) (0.95) (0.30) --
------ ------ ------ ------ ------ --
Total distributions (1.00) (0.99) (4.45) (1.29) (0.73) (0.01)
------ ------ ------ ------ ------ ------
Net asset value
End of period $21.37 $21.35 $17.21 $23.90 $14.56 $14.86
====== ====== ====== ====== ====== ======
TOTAL RETURN
(without deduction of sales load) 30.09% **9.26% (10.23%) 79.96% 3.08% 15.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000
omitted) $560,234 $8,714 $158,336 $80,776 $41,032 $40,355
Ratios to average net assets:
Expenses 1.57% *2.22% 1.60% 1.99% 2.03% 2.11%
Net investment income 3.89% *1.90% 2.74% 2.28% 4.85% 3.25%
Portfolio turnover rate 34.97% 34.97% 110.48% 98.45% 109.16% 160.67%
BANK LOANS
Amount outstanding at end of
period (000 omitted)
-- -- -- $9,557 $2,743 --
Average amount of bank loans
outstanding during the period
(000 omitted) -- -- -- $2,042 $901 --
Average number of shares
outstanding during the period
(monthly average) (000 omitted) -- -- -- 270 279 --
Average amount of debt per share
during the period -- -- -- $7.56 $3.23 --
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
**Not annualized
8
<PAGE>
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<TABLE>
<CAPTION>
FOR THE PERIODS
01-Jan-90 01-Jan-89 01-Jan-88 01-Jan-87 01-Jan-86
to to to to to
31-Dec-90 31-Dec-89 31-Dec-88 31-Dec-87 31-Dec-86
Class A Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)***
Net asset value Beginning of period $17.02 $14.81 $13.29 $21.91 $15.92
------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.17 0.03 0.04 0.11 0.13
Net realized and unrealized
gain/(loss) on investments (1.41) 3.21 2.72 2.38 7.10
------ ------ ------ ------ ----
Total from investment operations (1.24) 3.24 2.76 2.49 7.23
------ ------ ------ ------ ----
Less distributions
Dividends from net investment income -- -- (0.06) (0.23) --
Distributions from net realized gains (2.91) (1.03) (1.18) (10.88) (1.24)
------ ------ ------ ------ ------
Total distributions (2.91) (1.03) (1.24) (11.11) (1.24)
------ ------ ------ ------ ------
Net asset value End of period $12.87 $17.02 $14.81 $13.29 $21.91
===== ====== ====== ====== ======
TOTAL RETURN
(without deduction of sales load) (7.30%) 22.46% 21.51% 12.05% 47.51%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $23,450 $20,537 $19,638 $21,167 $24,987
Ratios to average net assets:
Expenses 2.30% 2.74% 2.76% 2.23% 1.81%
Net investment income 1.32% 0.19% 0.27% 0.38% 0.66%
Portfolio turnover rate 253.89% 32.52% 22.86% 79.58% 81.50%
BANK LOANS
Amount outstanding at end of period (000 omitted) -- -- -- -- --
Average amount of bank loans outstanding during the
period (000 omitted) -- -- -- -- --
Average number of shares outstanding during the period
(monthly average) (000 omitted) -- -- -- -- --
Average amount of debt per share during the period -- -- -- -- --
</TABLE>
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*** Per share amounts for years ended prior to December 31, 1995 have been
restated to reflect a 10-for-1 stock split effective December 19, 1995
+ Commencement of offering
9
<PAGE>
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<TABLE>
<CAPTION>
FOR THE PERIODS
GAM GLOBAL FUND 01-Jan-95 05-Sep-95+ 01-Jan-94 01-Jan-93 01-Jan-92 01-Jan 91
to to to to to to
31-Dec-95 31-Dec-95 31-Dec-94 31-Dec-93 31-Dec-92 31-Dec-91
Class A Class D Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)***
Net asset value
Beginning of period $10.60 $13.46 $17.92 $10.33 $11.37 $10.28
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.35 -- 0.19 0.24 0.64 0.28
Net realized and unrealized
gain/(loss) on investments
3.48 0.92 (2.94) 7.46 (1.15) 0.81
------ ------ ------ ------ ------ ------
Total from investment operations 3.83 0.92 (2.75) 7.70 (0.51) 1.09
------ ------ ------ ------ ------ ------
Dividends from net investment income (0.30) (0.28) (0.49) (0.11) (0.28) --
Distributions from net realized gains (0.62) (0.62) (4.08) -- (0.25) --
------ ------ ------ ------ ------ ------
Total distributions (0.92) (0.90) (4.57) (0.11) (0.53) --
------ ------ ------ ------ ------ ------
Net asset value End of period $ 13.51 $13.48 $10.60 $17.92 $10.33 $11.37
===== ====== ====== ====== ====== ======
TOTAL RETURN
(without deduction of sales load) 36.25% **6.97% (16.15%) 75.30% (4.65%) 10.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $26,161 $295 $19,940 $33,416 $19,763 $23,990
Ratios to average net assets:
Expenses 2.16% *2.81% 2.29% 2.68% 2.37% 2.33%
Net investment income/(loss) 2.96% *(0.09%) 0.91% 1.88% 5.25% 2.20%
Portfolio turnover rate 60.18% 60.18% 123.33% 106.73% 118.41% 180.52%
BANK LOANS
Amount outstanding at end of period (000 omitted) -- -- -- $2,165 $9,010 --
Average amount of bank loans outstanding during the
period (000 omitted) -- -- -- $2,600 $1,401 --
Average number of shares outstanding during the period
(monthly average) (000 omitted) -- -- -- 178 213 --
Average amount of debt per share during the period -- -- -- $14.77 $6.59 --
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
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FOR THE PERIODS
01-Jan-90 01-Jan-89 01-Jan-88 01-Jan-87 ++28-May-86
to to to to to
31-Dec-90 31-Dec-89 31-Dec-88 31-Dec-87 31-Dec-86
Class A Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(FOR A SHARE OUTSTANDING
throughout the period)***
Net asset value Beginning of period $13.14 $11.08 $9.26 $10.47 $10.00
------ ------ ----- ------ ------
Income from investment operations
Net investment income 0.06 0.04 (0.01) 0.12 (0.01)
Net realized and unrealized
gain/(loss) on investments (1.54) 2.56 2.25 (0.38) 0.48
------ ------ ----- ------ -----
Total from investment operations (1.48) 2.60 2.24 (0.26) 0.47
------ ------ ----- ------ -----
Dividends from net investment income -- (0.03) -- (0.12) --
Distributions from net realized gains (1.38) (0.51) (0.42) (0.83) --
------ ------ ----- ------ ------
Total distributions (1.38) (0.54) (0.42) (0.95) --
------ ------ ----- ------ --
Net asset value End of period $10.28 $13.14 $11.08 $9.26 $10.47
====== ====== ====== ====== ======
Total return
(without deduction of sales load) (11.26%) 24.20% 25.04% (2.47%) **4.69%
Ratios/supplemental data:
Net assets, end of period (000 omitted) $23,577 $22,794 $17,805 $18,229 $15,727
Ratios to average net assets:
Expenses 2.45% 2.68% 2.94% 2.09% *2.72%
Net investment income(loss) 0.58% 0.36% (0.05%) 0.90% *(0.19%)
Portfolio turnover rate 250.46% 31.28% 34.09% 67.35% 0.00%
Bank Loans $0.72
Amount outstanding at end of
period (000 omitted) -- -- -- $1,900 --
Average amount of bank loans
outstanding during the
period (000 omitted -- -- -- $158 --
Average number of shares Outstanding
during the period
(monthly average) (000 omitted) -- -- -- 220 --
Average amount of debt per share during
the period -- -- -- $0.72 --
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not annualized
*** Per share amounts for periods ended prior to December 31, 1995 have been
restated to reflect a 10-for-1 stock split effective December 19, 1995
+ Commencement of offering
++ Commencement of operations
11
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GAM PACIFIC BASIN FUND
For the Periods
01-Jan-95 05-Sep-95+ 01-Jan-94 01-Jan-93 01-Jan-92
to to to to to
31-Dec-95 31-Dec-95 31-Dec-94 31-Dec-93 31-Dec-92
Class A Class D Class A Class A Class A
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)***
Net asset value
Beginning of period $17.62 $17.36 $19.20 $13.14 $13.77
------ ------ ------ ------ ------
Income from investment operations
Net investment
income/(loss) -- (0.02) (0.05) (0.03) 0.01
Net realized and unrealized gain/(loss)
on investments 0.61 0.26 1.36 6.57 (0.06)
------ ------ ------ ------ ------
Total from investment operations 0.61 0.24 1.31 6.54 (0.05)
------ ------ ------ ------ ------
Less distributions
Dividends from net
investment income -- -- -- (0.04) (0.09)
Distributions from net realized gains (1.26) (0.64) (2.89) (0.44) (0.49)
------ ------ ------ ------ ------
Total distributions (1.26) (0.64) (2.89) (0.48) (0.58)
------ ------ ------ ------ ------
Net asset value
End of period $16.97 $16.96 $17.62 $19.20 $13.14
====== ====== ====== ====== ======
TOTAL RETURN
(without deduction of sales load) 4.50% **2.35% 7.41% 51.52% (0.37%)
RATIOS/SUPPLEMENTAL DATA:
Net assets,
end of period
(000 omitted) $53,944 $1,547 $48,527 $40,719 $28,206
Ratios to average net assets:
Expenses 1.98% *2.63% 1.78% 1.93% 2.03%
Net investment
income/(loss) (0.07%) *(1.49%) (0.35%) (0.29%) 0.09%
Portfolio turnover rate 64.01% 64.01% 29.11% 91.07% 74.78%
- --------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Periods
01-Jan-91 01-Jan-90 01-Jan-89 01-Jan-88 ++06-May-87
to to to to to
31-Dec-91 31-Dec-90 31-Dec-89 31-Dec-88 31-Dec-87
Class A Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)***
Net asset value
Beginning of period $11.93 $14.21 $10.16 $8.25 $10.00
------ ------ ------ ------ ------
Income from investment operations
Net investment
income/(loss) 0.17 (0.04) (0.22) (0.41) (0.19)
Net realized and unrealized gain/(loss)
on investments 1.81 (1.11) 4.61 2.32 (1.56)
------ ------ ------ ------ ------
Total from investment operations 1.98 (1.15) 4.39 1.91 (1.75)
------ ------ ------ ------ ------
Less distributions
Dividends from net
investment income -- -- -- -- --
Distributions from net realized gains (0.14) (1.13) (0.34) -- --
------ ------ ------ ------ ------
Total distributions (0.14) (1.13) (0.34) -- --
------ ------ ------ ------ ------
Net asset value
End of period $13.77 $11.93 $14.21 $10.16 $8.25
====== ====== ====== ====== ======
TOTAL RETURN
(without deduction of sales load) 16.71% (8.21%) 43.34% 23.21% **(17.55%)
RATIOS/SUPPLEMENTAL DATA:
Net assets,
end of period
(000 omitted) $35,849 $20,811 $7,490 $4,341 $3,689
Ratios to average net assets:
Expenses 2.29% 3.74% 5.93% 5.92% *6.80%
Net investment
income/(loss) 0.78% (0.31%) (3.39%) (3.29%) *(4.47%)
Portfolio turnover rate 78.80% 103.05% 152.89% 147.87% 83.53%
- -------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
*** Per share amounts for periods ended prior to December 31, 1995 have been
restated to reflect a 10-for-1 stock split effective December 19, 1995
+ Commencement of offering
++ Commencement of operations
13
<PAGE>
- --------------------------------------------------------------------------------
GAM EUROPE FUND
<TABLE>
<CAPTION>
For the Periods
01-Jan 95 01-Jan-94 01-Jan-93 01-Jan-92 01-Jan-91 +01-Jan-90
to to to to to to
31-Dec-95 31-Dec-94 31-Dec-93 31-Dec-92 31-Dec-91 31-Dec-90
Class A Class A Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)**
Net asset value
Beginning of period $8.66 $8.93 $7.34 $8.33 $8.39 $10.00
----- ------ ----- ----- ----- -----
Income from investment operations
Net investment income 0.07 - 0.24 0.40 0.22 (0.02)
Net realized and unrealized
gain/(loss) on investments 1.38 (0.27) 1.41 (0.78) (0.28) (1.59)
----- ------ ----- ----- ----- -----
Total from investment operations 1.45 (0.27) 1.65 (0.38) (0.06) (1.61)
----- ------ ----- ----- ----- -----
Less distributions
Dividends from net
investment income (0.06) - (0.06) (0.22) - -
Distributions from net realized gains (0.01) - - (0.39) - -
----- ------ ----- ----- ----- -----
Total distributions (0.07) - (0.06) (0.61) - -
----- ------ ----- ----- ----- -----
Net asset value
End of period $10.04 $8.66 $8.93 $7.34 $8.33 $8.39
===== ====== ===== ===== ===== =====
Total return
(without deduction of sales load) 16.77% (3.11%) 22.68% (4.91%) (0.70%) (16.07%)
Ratios/supplemental data:
Net assets, end of period
(000 omitted) $22,961 $32,233 $14,398 $17,264 $13,558 $9,186
Ratios to average net assets:
Expenses 2.12% 2.35% 2.64% 2.47% 2.76% 3.57%
Net investment income 0.75% 0.06% 1.05% 5.06% 2.17% (0.22%)
Portfolio turnover rate 145.16% 74.96% 181.51% 72.20% 232.55% 325.62%
Bank Loans
Amount outstanding at end of period
(000 omitted) - - $1,860 $1,177 - -
Average amount of bank loans
outstanding during the period
(000 omitted) $123 - 521 347 - -
Average number of shares
outstanding during the period
(monthly average) (000 omitted) 390 - 168 240 - -
Average amount of debt per share
during the period $0.32 - $3.10 $1.44 - -
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Per share amounts for periods ended prior to December 31, 1995 have been
restated to reflect a 10-for-1 stock split effective December 19, 1995
+ Commencement of operations
14
<PAGE>
- --------------------------------------------------------------------------------
GAM NORTH AMERICA FUND
<TABLE>
<CAPTION>
For the Periods
01-Jan 95 01-Jan-94 01-Jan-93 01-Jan-92 01-Jan-91 +01-Jan-90
to to to to to to
31-Dec-95 31-Dec-94 31-Dec-93 31-Dec-92 31-Dec-91 31-Dec-90
Class A Class A Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)**
Net asset value
Beginning of period $9.14 $12.80 $13.63 $13.35 $10.21 $10.00
----- ------ ----- ----- ----- -----
Income from investment operations
Net investment income - 0.04 0.19 0.07 0.06 (0.22)
Net realized and unrealized
gain/(loss) on investments 2.83 0.23 (0.46) 0.25 3.08 0.43
----- ------ ----- ----- ----- -----
Total from investment operations 2.83 0.27 (0.27) 0.32 3.14 0.21
----- ------ ----- ----- ----- -----
Less distributions
Dividends from net
investment income - (0.23) (0.07) (0.03) - -
Distributions from net realized gains (0.04) (3.70) (0.49) (0.01) - -
----- ------ ----- ----- ----- -----
Total distributions (0.04) (3.93) (0.56) (0.04) - -
----- ------ ----- ----- ----- -----
Net asset value
End of period $11.93 $9.14 $12.80 $13.63 $13.35 $10.21
===== ====== ===== ===== ===== =====
Total return
(without deduction of sales load) 30.90% 2.97% (2.09)% 2.42% 30.69% 2.14%
Ratios/supplemental data:
Net assets, end of period
(000 omitted) $5,981 $1,887 $3,289 $11,781 $12,290 $1,862
Ratios to average net assets:
Expenses, net of reimbursement ***2.98% ***2.54% 2.10% 2.43% 2.96% ***11.52%
Net investment income/(loss) 0.01% 0.37% 0.69% 0.47% 0.45% (5.49%)
Portfolio turnover rate 8.57% 3.00% 3.42% 20.38% 3.44% 0.00%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Per share amounts for years ended prior to December 31, 1995 have been
restated to reflect a 10-for-1 stock split effective December 19, 1995
*** In the absence of the expense reimbursement, expenses on an annualized
basis would have represented 3.27%, 5.81% and 14.31% of the average net
assets, respectively, for the years ended December 31, 1995, 1994 and 1990.
Fayez Sarofim & Co. was appointed co-investment adviser of GAM North
America Fund effective June 20, 1990.
+ Commencement of operations
15
<PAGE>
- --------------------------------------------------------------------------------
GAM JAPAN CAPITAL FUND
01-Jan-95 +01-Jul-94
to to
31-Dec-95 31-Dec-94
Class A Class A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)***
Net asset value
Beginning of period $9.62 $10.00
----- ------
Income from investment operations
Net investment income/(loss) (0.07) 0.02
Net realized and unrealized
gain/(loss) on investments 0.69 (0.40)
----- ------
Total from investment operations 0.62 (0.38)
----- ------
Less distributions
Dividends from net investment
income (0.05) -
Distributions from net realized gains (0.03) -
----- ------
Total distributions (0.08) -
----- ------
Net asset value
End of period $10.16 $9.62
===== ======
Total return
(without deduction of sales load) 6.45% **(3.77%)
Ratios/supplemental data:
Net assets, end of period (000 omitted) $13,600 $9,406
Ratios to average net assets:
Expenses, net of reimbursement ++ 3.61% *2.19%
Net investment income/(loss) (2.35%) *0.70%
Portfolio turnover rate 122.38% 7.02%
- --------------------------------------------------------------------------------
* Annualized
** Not annualized
*** Per share amounts for periods ended prior to December 31, 1995 have been
restated to reflect a 10-for-1 stock split effective December 19, 1995
+ Commencement of operations
++ In the absence of the expense reimbursement, for the period ended December
31, 1995, expenses on an annualized basis would have represented 4.61% of
the average net assets.
16
<PAGE>
- --------------------------------------------------------------------------------
GAMERICA CAPITAL FUND
+12-May-95
to
31-Dec-95
Class A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value
Beginning of period $10.00
-----
Income from investment operations
Net investment income/(loss) 0.07
Net realized and unrealized
gain/(loss) on investments 0.07
-----
Total from investment operations 0.14
-----
Less distributions
Dividends from net investment
income (0.07)
Distributions from net realized gains (0.04)
-----
Total distributions (0.11)
-----
Net asset value
End of period $10.03
=====
TOTAL RETURN
(without deduction of sales load) **1.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $3,029
Ratios to average net assets:
Expenses, net of reimbursement ++*3.73%
Net investment income/(loss) *1.36
Portfolio turnover rate 10.90%
- --------------------------------------------------------------------------------
* Annualized
** Not annualized
+ Commencement of operations
++ In the absence of the expense reimbursement, for the period ended December
31, 1995, expenses on an annualized basis would have represented 4.73% of
the average net assets.
17
<PAGE>
- --------------------------------------------------------------------------------
GAM ASIAN CAPITAL FUND
+12-May-95
to
31-Dec-95
Class A
Per share operating performance
(for a share outstanding
throughout the period)
Net asset value
Beginning of period $10.00
-----
Income from investment operations
Net investment income/(loss) (0.01)
Net realized and unrealized
gain/(loss) on investments (0.42)
-----
Total from investment operations (0.43)
-----
Less distributions
Dividends from net investment
income -
Distributions from net realized gains (0.04)
-----
Total distributions (0.04)
-----
Net asset value
End of period $9.53
=====
Total return
(without deduction of sales load) **(4.25%)
Ratios/supplemental data:
Net assets, end of period (000 omitted) $5,560
Ratios to average net assets:
Expenses, net of reimbursement ++*3.11%
Net investment income/(loss) *(0.17%)
Portfolio turnover rate 17.01%
- --------------------------------------------------------------------------------
* Annualized
** Not annualized
+ Commencement of operations
++ In the absence of the expense reimbursement, for the period ended December
31, 1995, expenses on an annualized basis would have represented 3.95% of
the average net assets.
PERFORMANCE INFORMATION
The Funds may advertise performance information representing each Fund's
total retrn for the periods indicated. Total return includes changes in the net
asset value of each Fund's shares and assumes reinvestment of all dividends and
capital gains distributions. Total return therefore reflects the expenses of
each Fund, but does not reflect any taxes due on dividends or distributions paid
to shareholders. The Funds may advertise total return both before and after
deduction of the sales load.
Past results may not be indicative of future performance. he nvestment
return and principal value of shares of each Fund will fluctuate so that your
shares, when redeemed, may be worth more or less than their original cost.
18
<PAGE>
Comparative performance information may be used from time to time in
advertising each Fund's shares. The performance of GAM Global Fund may be
compared to the Morgan Stanley Capital International (MSCI) World Index. The
performance of GAM International Fund may be compared to the MSCI Europe,
Australia, Far East (EAFE) Index. The performance of GAM Pacific Basin Fund may
be compared to the MSCI Pacific Index. The performance of GAM Asian Capital Fund
may be compared to the MSCI Combined Far East Index ex Japan. The performance of
GAM Japan Capital Fund may be compared to the Tokyo Stock Exchange Index. The
performance of GAM North America Fund and GAMerica Capital Fund may be compared
to the Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average. The performance of GAM Europe Fund may be compared to the
MSCI Europe and Financial Times Actuaries World Indices--Europe. Each stock
index is an unmanaged index of common stock prices, converted into U.S. dollars
where appropriate. Any index selected by a Fund may not compute total return in
the same manner as the Funds and may exclude, for example, dividends paid on
stocks included in the index and brokerage or other fees. Additional information
about the performance of each Fund is contained in its annual report to
shareholders, which may be obtained without charge.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES AND RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
Each Fund's investment objective is to seek long-term capital appreciation,
although the Funds may also engage in short-term trading based upon changes
affecting a particular company, industry, country or region or changes in
general market, economic or political conditions. Generally, each Fund expects
to achieve its objective by investing in equity securities (common and preferred
stocks and warrants). However, if it is determined that the long-term capital
appreciation of debt securities may equal or exceed the return on equity
securities, then a Fund may be substantially invested in debt securities of
companies or governments and their agencies and instrumentalities. Such
determination may be based on various circumstances, including, among others,
anticipated changes in interest rates and bond ratings and the availability of
discount bonds. In view of their investment objective, each Fund is not required
to maintain any particular proportion of equity or debt securities in its
portfolio. Any dividend or interest income realized by a Fund on its investments
will be incidental to its goal of long-term capital appreciation.
Each Fund has adopted a different investment policy relating to the
geographic areas in which it will invest:
GAM GLOBAL FUND may invest in securities issued by issuers in any country
of the world, including the United States, and will normally invest in
securities issued by companies in the United States, Canada, the United Kingdom,
Continental Europe and the Pacific Basin, including Japan, Singapore, Malaysia,
Hong Kong and Australia. Under normal market conditions, GAM Global Fund will
invest in securities of companies in at least three different countries.
GAM INTERNATIONAL FUND may invest in securities issued by companies in any
country other than the United States and will normally invest in securities
issued by companies in Canada, the United Kingdom, Continental Europe and the
Pacific Basin, including Japan, Singapore, Malaysia, Hong Kong and Australia.
Under normal market conditions, GAM International Fund will invest in securities
of companies in at least three foreign countries. For temporary defensive
purposes GAM International Fund may invest in debt securities of United States
companies and the United States government and its agencies and
instrumentalities.
GAM PACIFIC BASIN FUND may invest primarily in securities of companies in
the Pacific Basin, including Japan, Hong Kong, Singapore, Malaysia, Thailand,
Vietnam, Indonesia, the Philippines, Korea, China, Taiwan, India, Australia and
New Zealand. Under normal market conditions, at least 65% of the total assets of
GAM Pacific Basin Fund will be invested in securities issued by companies in the
Pacific Basin or by governments in
19
<PAGE>
the Pacific Basin and their agencies and instrumentalities. The remainder, up to
35% of the Fund's total assets, may be invested in securities of United States
and other issuers located outside the Pacific Basin.
GAM JAPAN CAPITAL FUND may invest primarily in securities of companies in
Japan. Under normal market conditions, at least 65% of the total assets of GAM
Japan Capital Fund will be invested in securities issued by companies in Japan
or by the Japanese government and its agencies and instrumentalities. The
remainder, up to 35% of the Fund's total assets, may be invested in securities
of United States and other issuers located outside Japan.
GAM ASIAN CAPITAL FUND may invest primarily in securities issued by
companies in Asia other than Japan. Countries in Asia include Hong Kong,
Singapore, Malaysia, Thailand, Vietnam, Indonesia, the Philippines, Korea,
China, Taiwan, India, Myanmar, Pakistan, Bangladesh and Sri Lanka. Under normal
market conditions, at least 65% of the total assets of GAM Asian Capital Fund
will be invested in securities issued by companies in Asia other than Japan or
by governments in Asia or their agencies or instrumentalities other than Japan.
The remainder, up to 35% of the Fund's total assets, may be invested in
securities of United States and other issuers outside Asia.
GAM EUROPE FUND may invest primarily in securities issued by companies in
Europe, including the United Kingdom, Ireland, France, Germany, Denmark, Norway,
Sweden, Finland, Iceland, Switzerland, Austria, Belgium, Spain, Portugal, Italy,
Greece, Hungary, Poland, the Czech Republic and Slovakia. Under normal market
conditions, at least 65% of the total assets of GAM Europe Fund will be invested
in securities issued by companies in Europe or by European governments and their
agencies and instrumentalities. The remainder, up to 35% of the Fund's total
assets, may be invested in securities of United States and other issuers located
outside Europe.
GAM NORTH AMERICA FUND may invest primarily in securities issued by
companies in the United States and Canada. Under normal market conditions, at
least 65% of the total assets of GAM North America Fund will be invested in
securities issued by companies in the United States and Canada or by the United
States and Canadian governments and their agencies and instrumentalities.
GAMERICA CAPITAL FUND may invest primarily in securities of companies in
the United States. Under normal market conditions, at least 65% of the total
assets of GAMerica Capital Fund will be invested in securities issued by
companies in the United States or by the United States government and its
agencies and instrumentalities.
A company will be considered to be in or from a particular country for
purposes of the preceding paragraphs if (a) at least 50% of the company's assets
are located in the country or at least 50% of its total revenues are derived
from goods or services produced in the country or sales made in the country; (b)
the principal trading market for the company's securities is in the country; or
(c) the company is incorporated under the laws of the country.
Each Fund will seek investment opportunities in all types of companies,
including smaller companies in the earlier stages of development. In making
investment decisions, each Fund will rely on the advice of its Investment
Advisers and its own judgment rather than on any specific objective criteria.
The debt securities in which the Fund may invest will be rated C or better
by Moody's Investors Service, Inc. ("Moody's") or D or better by Standard &
Poor's Corporation ("S&P"), or, if unrated, be comparable in quality as
determined pursuant to guidelines established by the Funds' Board of Directors.
Debt securities with such ratings include securities of companies in default of
interest or principal payment obligations. Debt securities of non-United States
companies or foreign governments are not generally rated by Moody's or S&P. None
of the Funds may invest more than 5% of its assets in debt securities which are
rated lower than "investment grade" by a rating service. Debt securities rated
in the lowest "investment grade" by a rating service (e.g., bonds rated BBB by
S&P) or lower have speculative characteristics, and changes in economic or other
circumstances are more
20
<PAGE>
likely to lead to a weakened capacity of the issuers of such securities to make
principal or interest payments than issuers of higher grade securities. A
decrease in the rating of debt securities held by a Fund may cause the Fund to
have more than 5% of its assets invested in debt securities which are not
"investment grade". In such a case, the Fund will not be required to sell debt
securities.
Each Fund may, for temporary defensive purposes, invest in debt securities
of foreign and United States companies, foreign governments and the United
States government, its agencies and instrumentalities, as well as in money
market instruments denominated in United States dollars or a foreign currency.
These money market instruments include, but are not limited to, negotiable or
short-term deposits with domestic or foreign banks with total assets of at least
$50 million; high quality commercial paper; and repurchase agreements maturing
within seven days with domestic or foreign dealers, banks and other financial
institutions deemed to be creditworthy under guidelines approved by the Board of
Directors. The commercial paper in which the Funds may invest will be rated
Prime-1 or better by Moody's or A-1 or better by S&P, when purchased, or if not
rated, will be of comparable high quality as determined pursuant to guidelines
established by the Board of Directors.
In order to have funds available for redemption and investment
opportunities, each Fund may hold a portion of its portfolio in cash or United
States and foreign money market instruments. At no point in time will more than
35% of each Fund's portfolio be so invested (except when the Fund is in a
temporary defensive posture) and/or held in cash.
It is contemplated that the Funds' portfolio securities will generally be
purchased on stock exchanges and in over-the-counter markets in the countries in
which the principal offices of the issuers of such securities are located. The
Funds may also invest in American Depositary Receipts ("ADRs") or European
Depositary Receipts ("EDRs") representing securities of foreign companies,
including both sponsored and unsponsored ADRs. Generally, ADRs (in registered
form) are designed for use in the United States securities markets and EDRs (in
bearer form) are designed for use in European securities markets. These
securities may not necessarily be denominated in the same currency as the
securities which they represent. Debt securities of non-United States issuers in
which the Funds invest may also be denominated in United States dollars.
Unsponsored ADRs may be created without the participation of the foreign issuer.
Holders of these ADRs generally , bear all the cost of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depository of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights. The markets for ADRs and EDRs, especially
unsponsored ADRs, may be substantially more limited and less liquid than the
markets for the underlying securities.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund's investments will be diversified to the extent that, with
respect to 75% of its total assets, no more than 5% of its total assets will be
invested in any one issuer, and a Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer. Each Fund's investments will be
selected among different industries, and a Fund will not concentrate more than
25% of its total assets in any one industry. The preceding limitations will not
apply to securities of the United States government, its agencies or
instrumentalities. A Fund will not invest more than 15% of its net assets in
securities for which market quotations are not readily available or in other
"illiquid" securities (including non-negotiable deposits with banks, repurchase
agreements of a duration of more than seven days, options traded in
over-the-counter markets and securities underlying such options), nor will it
invest more than 10% of its total assets in securities of companies which, with
their predecessors, have a record of less than three years continuous operation.
A Fund will not acquire more than 3% of the outstanding voting stock of any
closed-end investment company, or invest more than 5% of the total assets of a
Fund in any closed-end investment company, or invest more than 10% of its total
assets in the aggregate in closed-end investment
21
<PAGE>
companies. (Assets of a Fund invested in closed-end investment companies will be
subject to the management, advisory and distribution fees and expenses of such
investment companies in addition to those of the Fund. Shares of closed-end
investment companies typically trade at a discount from their net asset value.)
Each Fund may borrow money from banks for temporary emergency purposes in an
amount not to exceed one-third of its total assets. Borrowing by a Fund will
cause it to incur interest and other expenses. Borrowing by a Fund, also known
as leverage, will also tend to exaggerate the effect on the net asset value of
the Fund's shares of any increase or decrease in the market value of the Fund's
assets.
The percentage restrictions stated in the preceding paragraph are
fundamental policies which may not be changed by a Fund without the approval of
a majority of the Fund's shareholders, as defined in the Investment Company Act
of 1940, as amended (the "Act"). The investment objectives and policies
discussed elsewhere in this Prospectus may be changed by the Board of Directors
upon written notice to the shareholders of the Fund and supplementing its then
current Prospectus and Statement of Additional Information. Each Fund is subject
to other investment restrictions and limitations which are set forth in the
Statement of Additional Information. All restrictions except restrictions on
borrowing shall apply at the time an investment is made, and a subsequent change
in the value of an investment or of a Fund's assets shall not result in a
violation.
In light of each Fund's investment objective and anticipated portfolio,
each Fund should be considered as a vehicle for diversification and not as a
balanced investment program. Of course, there is no assurance that each Fund
will achieve its investment objective.
The Funds will also utilize certain sophisticated investment techniques
described below, some of which involve substantial risks. Additional information
about some of the investment techniques described below and the related risks is
contained in the Statement of Additional Information.
OPTIONS AND WARRANTS
Each Fund may invest up to 5% of its net assets in options on equity or
debt securities or securities indices and up to 10% of its net assets in
warrants, including options and warrants traded in over-the-counter markets. In
general, an option on a security gives the owner the right to acquire ("call
option") or dispose of ("put option") the underlying security at a fixed price
(the "strike price") on or before a specified date in the future. A warrant is
equivalent to a call option written by the issuer of the underlying security. An
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the securities
index upon which the option is based is greater than, in the case of a call
option, or less than, in the case of a put option, the strike price of the
option.
Trading in options and warrants is highly leveraged, since the purchaser of
an option or warrant must put up only a small amount relative to the value of
the underlying security in order to buy an option or warrant.
Each Fund may write covered call options on securities in an amount equal
to not more than 100% of its net assets and secured put options in an amount
equal to not more than 50% of its net assets. A call option written by a Fund is
"covered" if the Fund owns the underlying securities subject to the option or if
the Fund holds a call at the same exercise price, for the same period and on the
same securities as the call written. A put option will be considered "secured"
if a Fund segregates liquid assets having a value equal to or greater than the
exercise price of the option, or if the Fund holds a put at the same exercise
price, for the same period and on the same securities as the put written.
22
<PAGE>
FUTURES CONTRACTS
Each Fund may invest up to 5% of its net assets in initial margin or
premiums for futures contracts and options on futures contracts, including stock
index futures and financial futures. In general, a commodity futures contract
obligates one party to deliver and the other party to purchase a specific
quantity of a commodity at a fixed price at a specified future date, time and
place. In the case of a financial future, the underlying commodity is a
financial instrument, such as a U.S. Treasury Bond, Treasury Note or Treasury
Bill. In the case of a stock index future, the seller of the futures contract is
obligated to deliver, and the purchaser obligated to take, an amount of cash
equal to a specific dollar amount multiplied by the difference between the value
of a specific stock index at the close of the last trading day of the contract
and the price at which the agreement is made. No physical delivery of the
underlying stocks in the index is made.
No consideration will be paid or received by a Fund upon the purchase or
sale of a futures contract. Initially, a Fund will be required to deposit with
the broker an amount of cash or cash equivalents equal to approximately 5% of
the contract amount. Subsequent payments to and from the broker, known as
"variation margin", will be made daily as the price of the index or securities
underlying the futures contract fluctuates, a process known as
"marking-to-market".
An option on a commodity futures contract, as contrasted with a direct
investment in the futures contract, gives the purchaser the right, in exchange
for the payment of a premium, to assume a position as a purchaser or a seller in
a futures contract at a specified exercise price at any time prior to the
expiration date of the option.
The Funds will trade in commodity futures and options thereon for bona fide
hedging purposes and otherwise in accordance with rules of the Commodity Futures
Trading Commission. Each Fund will segregate liquid assets with its custodian
when required to do so by Securities and Exchange Commission ("SEC") guidelines
in order to cover its obligations in connection with futures and options
transactions.
FORWARD FOREIGN EXCHANGE CONTRACTS
Since the Funds may invest in securities denominated in currencies other
than the United States dollar, changes in foreign currency exchange rates may
affect the values of portfolio securities. The rate of exchange between the
United States dollar and other currencies is determined by forces of supply and
demand in the foreign exchange markets. These forces are affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors. The Funds may enter into
forward foreign exchange contracts for the purchase or sale of foreign currency
to "lock in" the United States dollar price of the securities denominated in a
foreign currency or the United States dollar equivalent of interest and
dividends to be paid on such securities, or to hedge against the possibility
that the currency of a foreign country in which a Fund has investments may
suffer a decline against the United States dollar. The Funds may also enter into
forward foreign exchange contracts for speculative purposes, subject to the
limitations on issuing senior securities as described in the Statement of
Additional Information. A forward foreign currency exchange contract obligates
one party to purchase and the other party to sell an agreed amount of a foreign
currency on an agreed date and at an agreed price. Each Fund will segregate
liquid assets with its custodian when required to do so by SEC guidelines in
connection with such forward contracts.
The Funds may purchase put and call options on foreign currencies for the
same purposes as they may enter into forward foreign exchange contracts. Put
options convey the right to sell the underlying currency at a price which is
anticipated to be higher than the spot prices of the currency at the time the
option expires. Call options convey the right to buy the underlying currency at
the time the option expires. Each Fund may also write covered
23
<PAGE>
call options in an amount not to exceed the value of the Fund's portfolio
securities or other assets denominated in the relevant currency and secured put
options in an amount equal to 50% of its net assets.
RESTRICTED SECURITIES
The Fund may purchase securities that are not registered for sale to the
general public in the United States. The Investment Advisers will determine
whether restricted securities constitute illiquid securities under guidelines
established by the Board of Directors. Provided that a dealer or institutional
trading market in such securities exists, either within or outside the United
States, these restricted securities will not be treated as illiquid securities
for purposes of the Funds' investment restrictions. The Funds may also purchase
privately placed restricted securities for which no institutional market exists.
The absence of a trading market may adversely affect the ability of the Funds to
sell such illiquid securities promptly and at an acceptable price, and may also
make it more difficult to ascertain a market value for illiquid securities held
by the Funds.
LENDING PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to domestic and foreign
brokers, dealers and financial institutions when secured by collateral
maintained in an amount equal to at least 100% of the market value, determined
daily, of the loaned securities. A Fund may at any time call the loan and obtain
the return of the securities loaned. No such loan will be made which would cause
the aggregate market value of all securities lent by a Fund to exceed 15% of the
value of the Fund's total assets. Lending portfolio securities will result in
income to a Fund, but could also involve certain risks in the event of the
delay, default or insolvency of the borrower.
ADJUSTABLE RATE INDEX NOTES
Each Fund may invest in adjustable rate index notes (ARINs) or similar
instruments. An ARIN is a form of promissory note issued by a brokerage firm or
other counterparty which provides that the amount of principal or interest paid
will vary inversely in proportion to changes in the value of a specified
security. Under such an instrument, the Fund will make a profit if the value of
the specified security decreases and will suffer a loss if the value of the
specified security increases. The effect of such an instrument is equivalent to
a short sale of the specified security, except that the potential loss to the
Fund is limited to the amount invested in the ARIN, whereas in the case of a
short sale the short seller is potentially subject to unlimited risk of loss.
The Funds could suffer losses in the event of a default or insolvency of the
brokerage firm or other counterparty issuing the ARIN.
OTHER INVESTMENT ACTIVITIES
It is likely that new investment products will continue to develop which
will combine elements of options, futures contracts or debt securities with
other types of derivative financial products, such as swaps, caps and floors, or
which will otherwise tie payments to be made or received to the value of
specific securities or to existing or new indices. Swaps involve the exchange by
two parties of their respective obligations to pay or receive a stream of
payments. For example, a Fund might exchange floating interest payments for
fixed interest payments, or a series of payments in one currency for a series of
payments in another currency. The purchase of a cap or floor entitles the
purchaser to receive payment on an agreed principal amount from the seller if a
specified index exceeds (in the case of a cap) or falls below (in the case of a
floor) a predetermined interest or exchange rate.
The Funds may invest and trade in derivative financial products to the
extent permitted by applicable regulations. Derivative products are traded on
over-the-counter markets and will therefore be subject to the restriction that
not more than 15% of the net assets of each Fund may be invested in illiquid
securities. Each Fund will segregate liquid assets with its custodian to the
extent required under SEC guidelines to cover its obligations relating to
derivative products. The Funds will purchase or sell derivative products for
hedging purposes only, unless
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<PAGE>
otherwise permitted by applicable regulations. A Fund will not enter into swaps,
caps or floors if on a net basis the aggregate notional principal amount of such
agreements exceeds the net assets of the Fund.
RISK CONSIDERATIONS
INVESTING IN FOREIGN SECURITIES
GAM International, Europe, Pacific Basin, Asian Capital and Japan Capital
Funds will invest primarily in securities of foreign issuers, and GAM Global and
North America Funds will invest in securities of foreign issuers as well as in
securities of United States issuers. Investors should carefully consider the
risks involved in investments in securities of foreign companies and
governments, which add to the usual risks inherent in domestic investments. Such
special risks include fluctuations in foreign exchange rates, political or
economic instability in the country of issue, and the possible imposition of
exchange controls or other laws or restrictions. In addition, securities prices
in foreign markets are generally subject to different economic, financial,
political and social factors than are the prices of securities in United States
markets. These factors may result in either a larger gain or a larger loss than
an investment in comparable United States securities.
Securities of foreign issuers generally will not be registered with the SEC
nor will the issuers thereof generally be subject to the reporting requirements
of such agency. Accordingly, there is likely to be less publicly available
information concerning certain of the issuers of securities held by the Funds
than is available concerning United States companies. In addition, foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to United States companies. There may also be less government
supervision and regulation of foreign broker-dealers, financial institutions and
listed companies than exists in the United States.
Although the value of all equity securities traded outside the United
States is greater than the value of all equity securities traded in the United
States, foreign securities exchanges generally have substantially less volume
than the New York Stock Exchange and may be subject to less government
supervision and regulation than those in the United States. Accordingly,
securities of foreign companies may be less liquid and more volatile than
securities of comparable United States companies. Similarly, volume and
liquidity in most foreign bond markets is less than in the United States and, at
times, price volatility can be greater than in the United States.
Foreign brokerage commissions and custodial fees are generally higher than
those in the United States, and the settlement period for securities
transactions may be longer, in some countries up to 30 days. Dividend and
interest income from foreign securities may also be subject to withholding
taxes.
GAM Europe, Pacific Basin, Japan Capital, Asian Capital, North America and
GAMerica Capital Funds will invest primarily in specific geographic areas. An
investment in one of these Funds will tend to be affected by developments in the
relevant geographic area to a greater extent than investments in the other
Funds. GAM Pacific Basin and Asian Capital Funds and, to a lesser extent, GAM
Europe, International and Global Funds may invest a portion of their assets in
securities of issuers in developing countries, which generally involve greater
potential for gain or loss. In comparison to the United States and other
developed countries, developing countries may have relatively unstable
governments, economies based on only a few industries and securities markets
that trade a smaller number of securities.
GAM Europe Fund will invest primarily in securities issued by companies in
Europe, and under normal market conditions, at least 65% of the total assets of
the Fund will be invested in securities issued by such companies or in the
securities of European governments and their agencies and instrumentalities. The
value and liquidity of securities of European issuers may be affected favorably
or unfavorably by political, economic, fiscal, regulatory or
25
<PAGE>
other developments in Europe or neighboring regions. Such developments may
include changes caused by the efforts to unify or integrate certain European
countries as a market and trading block under the rubric of the European
Community. Also, political and economic changes in Eastern Europe may favorably
or unfavorably affect the value and liquidity of securities of Western European
issuers, and may ultimately result in the development of new markets for
securities. Investments in the securities of issuers in Eastern Europe typically
would involve greater potential for gain or loss than investments in securities
of issuers in Western European countries.
GAM Pacific Basin Fund and GAM Asian Capital Fund will invest primarily in
securities of companies in the Pacific Basin, and under normal market
conditions, at least 65% of the total assets of each Fund will be invested in
securities issued by such companies or in securities issued by governments in
the Pacific Basin and their agencies and instrumentalities. The value and
liquidity of securities of Pacific Basin issuers may be affected favorably or
unfavorably by political, economic, fiscal, regulatory or other developments in
the Pacific Basin or neighboring regions. The extent of economic development,
political stability and market depth of different countries in the Pacific Basin
varies widely. Certain countries in the Pacific Basin are either comparatively
underdeveloped or are in the process of becoming developed, and investments in
the securities of issuers in such countries typically would involve greater
potential for gain or loss than investments in securities of issuers in
developed countries.
GAM Japan Capital Fund will invest primarily in securities of companies in
Japan. Under normal market conditions, at least 65% of the total assets of each
Fund will be invested in securities issued by Japanese companies or the Japanese
government and its agencies and instrumentalities. The value of its investment
portfolio will, therefore, be highly dependent upon developments in Japan.
Ongoing changes in the Japanese economic and political systems may increase the
risks involved in investing in the Fund. A large part of the Japanese economy is
dependent on international trade, so that modifications in international trade
barriers and fluctuations in trade flows may indirectly affect the value of the
Fund's shares. Japan is currently in a recession and its stock market has
declined in the past several years. In recent years, Japanese securities markets
have also experienced relatively high levels of volatility.
GAM North America, International and Global Funds may invest a portion of
their assets in securities of Canadian issuers. The value of securities of
Canadian issuers may be affected by political or economic events affecting
Canada but not the United States. Although Canada is generally considered to be
a developed country, the Canadian economy is generally more dependent on the
production and processing of raw materials, such as metals, timber, paper,
agricultural products and energy, than the United States economy.
As discussed above, a portfolio containing foreign securities may be
favorably or unfavorably affected by fluctuations in the relative rates of
exchange between the currencies of different nations and by exchange control
regulations. The Funds may enter into forward foreign exchange contracts in an
attempt to hedge against such adverse circumstances. However, this method of
attempting to hedge the value of a Fund's portfolio securities against a decline
in the value of a currency does not eliminate fluctuations in the underlying
prices of the securities. Moreover, there can be no assurance that such hedging
attempts will be successful.
INVESTING IN SMALLER COMPANIES
The Funds may invest in all types of companies, including companies in the
earlier stages of their development. Investing in smaller, newer issuers
generally involves greater risk and potentially greater reward than investing in
larger, more established issuers. Smaller, newer companies often have limited
product lines, markets or financial resources, and they may be dependent upon
one or a few key persons for management. The securities of such companies may be
subject to more abrupt or erratic market movements than securities of larger,
more established companies or the market averages in general.
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<PAGE>
The Funds may also purchase debt securities issued by smaller or
financially distressed companies, including securities of companies which may
have defaulted on interest or principal payment obligations. Such debt
securities may have very low ratings or no ratings, may be considered
speculative investments, and involve greater risk of loss of interest and
principal.
OPTIONS, FUTURES AND OTHER DERIVATIVES
Trading in options, futures and other forms of derivatives involves
substantial risks. The low margin and premiums normally required in such trading
provide a large amount of leverage. A relatively small change in the price of a
security or index underlying a derivative can produce a disproportionately
larger profit or loss, and a Fund may gain or lose more than its initial
investment. Also, there is no assurance that a liquid secondary market will
exist for options, futures or derivatives purchased or sold, and a Fund may be
required to maintain a position until exercise or expiration, which could result
in losses.
There can be no assurance that the Funds' hedging transactions will be
successful, since their success depends upon the ability of the Investment
Advisers to predict future changes in market conditions, interest rates and
prices of specific securities. There may also be a lack of correlation between
the index or instrument underlying an option or futures contract and the
securities or other assets being hedged. If the Investment Advisers predict
incorrectly, the effect on the value of a Fund's investments may be less
favorable than if the Fund had not engaged in such options and futures trading.
Certain investment activities of the Funds, such as foreign currency
forward contracts, repurchase agreements, ARINS, and certain other types of
futures, options and derivatives, will be entered into directly between the
Funds and banks, brokerage firms and other investors in over-the-counter markets
rather than through the facilities of any exchange. Although the Funds will only
enter into such transactions with parties believed to be creditworthy, a Fund
may experience losses or delays in the event of a default or bankruptcy of a
bank, broker-dealer or other investor with which the Fund entered into such an
agreement. Some derivatives may constitute illiquid securities which cannot
readily be resold.
The Fund will invest in fixed income securities which will involve some
degree of interest rate risk. The value of bonds generally fluctuates inversely
with changes in interest rates. As interest rates rise, bond values generally
fall, and as interest rates fall, bond values generally rise.
For more complete information regarding risks which investors should
consider before making an investment in a Fund, see "Investment Objective and
Policies--Risk Considerations" in the Statement of Additional Information.
PORTFOLIO TURNOVER
While it is the policy of each Fund to seek long-term appreciation of
capital, and to engage to a lesser extent in trading for short-term gains, each
Fund will effect portfolio transactions without regard to its holding period if,
in the Fund's judgment, such transactions are advisable in light of a change in
circumstances of a particular company or within a particular industry, or in
general market, economic or political conditions. For the fiscal years ended
December 31, 1995 and 1994, the portfolio turnover rate was 34.97% and 110.48%,
respectively, for GAM International Fund, 60.18% and 123.33% for GAM Global
Fund, 64.01% and 29.11% for GAM Pacific Basin Fund, 145.16% and 74.96% for GAM
Europe Fund, 8.57% and 3.00% for GAM North America Fund and 122.38% and 7.02%
for GAM Japan Capital Fund. For the fiscal year ended December 31, 1995, the
annual portfolio turnover rate for GAM Asian Capital Fund was 17.01% and for
GAMerica Capital Fund, it was 10.90%. Portfolio turnover rate is calculated by
dividing the lesser of a Fund's sales or purchases of portfolio securities for
the fiscal year
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<PAGE>
(exclusive of purchases or sales of all securities whose maturities or
expiration dates at the time of acquisition were one year or less) by the
monthly average value of the securities in a Fund's portfolio during the fiscal
year. A portfolio turnover rate in excess of 100% is considered to be high. A
high portfolio turnover rate may result in higher short-term capital gains to
shareholders for tax purposes and increased brokerage commissions and other
transaction costs borne by the Fund.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
The minimum initial investment in each Fund is $10,000 and subsequent
investments must be at least $1,000, except that for IRAs, the minimum initial
investment is $2,000 and the minimum subsequent investment is $500. Shares of
the Funds may be purchased by mail or wire transfer directly from the Funds'
transfer agent, Chase Global Funds Services Company ("CGFSC"), or through
authorized brokers which have entered into agreements with the Fund's
distributor, GAM Services Inc. ("GAM Services").
This Prospectus offers investors two classes of shares, Class A shares and
Class D shares, for certain Funds (currently GAM International Fund, GAM Global
Fund and GAM Pacific Basin Fund) which bear sales charges in different forms and
amounts and which bear different levels of expenses. As described below under
"Offering Price" and "Distribution Plans", Class D shares bear a lower sales
load than Class A shares, but Class D shares bear a higher 12b-1 fee than the
12b-1 fee paid by Class A shares.
The decision as to which class of shares provides the most suitable
investment for you depends upon a number of factors, including the amount and
intended length of your investment. For more information about these sales
arrangements, please consult your investment dealer or GAM Services. Sales
personnel may receive different compensation depending on which class of shares
they sell. Shares may only be exchanged for shares of the same class of another
Fund.
PURCHASES BY MAIL
Please complete the application form at the back of this Prospectus and
send it together with your check payable to "GAM Funds Inc." to:
Chase Global Funds Services Company
P.O. Box 2798
Boston, Massachusetts 02208
For overnight mail, please use the following address:
Chase Global Funds Services Company
73 Tremont Street
Boston, Massachusetts 02108
Checks must be in United States currency and drawn on a United States bank.
Checks over $1,000,000 must be certified or issued by a United States bank.
PURCHASES BY WIRE
In order to purchase shares of the Funds, by bank wire transfer, you must
call CGFSC at (800) 356-5740 or (617) 557-8000 x6610 to receive a wire number
and to notify CGFSC of your incoming bank wire transfer. A
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<PAGE>
properly completed application form must also be sent to CGFSC. Instruct your
bank (which may impose a charge for their service) to wire the desired amount
(via the Federal Reserve Bank) to:
Chase Manhattan Bank, N.A.
ABA # 021000021
For account of:
GAM [ ] Fund (e.g. International)
Subscription DDA # 910-2-733186
For credit to:
(Shareholder's Name)
Account No. (Shareholder Account No.)
Wire No. (from CGFSC)
In the case of subscriptions to more than one Fund, or more than one class
of shares of one or more Funds, you should ensure that separate wire references
are provided showing the amount invested in each Fund and/or each class of
shares. A bank wired investment is considered received when CGFSC has been
notified that the bank wire transfer has been credited to the Funds' account.
PURCHASES THROUGH BROKERS
Brokers who do not have dealer agreements with GAM Services may charge
investors a service fee as determined by the broker. That fee will be in
addition to the sales load payable by the investor and may be avoided if shares
are purchased through a broker which has a dealer agreement with GAM Services or
through CGFSC.
ADDITIONAL INVESTMENTS
You may purchase additional shares at any time by mailing or wiring funds
in the manner described above. Please include your account number on your check
or as part of your wire transfer instructions and indicate the amount to be
invested in each Fund and/or each class of shares.
AUTOMATIC INVESTMENT PROGRAM
You may also purchase additional shares of a Fund in incremental amounts of
$500 or more through an automatic investment program. Under this program,
monthly or quarterly investments are debited automatically from your account at
a bank, savings and loan association or credit union into your Fund account. By
enrolling in this program, you authorize the relevant Fund and its agents either
to draw checks or initiate Automated Clearing House debits against your
designated account at a bank or other financial institution. This privilege may
be selected by completing the appropriate section on the application form or by
contacting CGFSC for appropriate forms. You may terminate your participation in
this program by sending written notice to CGFSC. Termination will become
effective within 30 days after CGFSC has received your request. A Fund may
immediately terminate your participation in this program in the event that any
item is unpaid by your financial institution. The Funds may terminate or modify
this privilege at any time.
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<PAGE>
OFFERING PRICE
All purchase orders will be filled at the net asset value of each Fund's
shares next computed after the order has been received in proper form by CGFSC
or an authorized dealer, less a variable sales load as follows:
CLASS A SHARES
SALES LOAD SALES LOAD USUAL BROKER
AS PERCENTAGE AS PERCENTAGE REALLOWANCE AS
AMOUNT OF OF OFFERING OF NET AMOUNT PERCENTAGE OF
PURCHASE PRICE INVESTED OFFERING PRICE
Less than
$100,000 5.0% 5.26% 4.0%
$100,000 but
less than
$300,000 4.0% 4.17% 3.0%
$300,000 but
less than
$600,000 3.0% 3.09% 2.0%
$600,000 but
less than
$1,000,000 2.0% 2.04% 1.0%
$1,000,000
or more* 0% 0% 0%
- ------------------ -- -- ---
* GAM Services, Inc. intends to pay investment dealers or financial service
firms a commission from its own resources of up to 1% of the amount invested for
amounts from $1 million to $3 million, 0.70% on amounts of $3 million to $5
million, 0.50% on amounts of $5 million to $50 million, and 0.25% on amounts of
$50 million and above. Those purchases for which GAM Services, Inc. pays such a
commission are subject to a 1% contingent deferred sales charge for redemptions
occurring within one year of purchase, declining to 0.50% for redemptions
occurring in the second year and declining thereafter to zero.
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<PAGE>
CLASS D SHARES
SALES LOAD SALES LOAD USUAL BROKER
AS PERCENTAGE AS PERCENTAGE REALLOWANCE AS
AMOUNT OF OF OFFERING OF NET AMOUNT PERCENTAGE OF
PURCHASE PRICE INVESTED OFFERING PRICE
Less than
$100,000 3.5% 3.63% 2.5%
$100,000 but
less than
$300,000 2.5% 2.56% 1.5%
$300,000 but
less than
$600,000 2.0% 2.04% 1.0%
$600,000 but
less than
$1,000,000 1.5% 1.52% 1.0%
$1,000,000
or more 0% 0% 0%
The following purchases may be aggregated for the purpose of determining
the "Amount of Purchase" in the preceding table and will be deemed owned by the
same person for purposes of the following paragraphs: purchases by you, your
spouse or children under the age of 21 years, and any trust or employee benefit
plan for the benefit of you or any such individuals or of which you are a
trustee.
You may purchase shares at a reduced sales load through a right of
accumulation. The applicable sales load will be based on the total of (i) the
total dollar amount of your current purchase, plus (ii) the current net asset
value of all shares of the Funds held by you. To obtain the reduced sales load,
you must provide CGFSC or your broker with sufficient information to verify that
you have such a right.
You may also purchase shares at reduced sales loads by signing a Statement
of Intention expressing your intention to invest at least $100,000 in shares of
the Funds over a 13-month period. Each purchase of shares under a Statement of
Intention will be subject to a sales load based on a single transaction in the
total dollar amount indicated in the Statement of Intention.
If you sign a Statement of Intention, you will not be bound to purchase the
full amount indicated. However, the minimum initial investment under a Statement
of Intention is 5% of the total amount indicated in the Statement of Intention,
and the shares purchased with the first 5% of such amount will be held in escrow
(while remaining registered in your name) to ensure payment of the higher sales
load applicable to the shares actually purchased if the full amount indicated is
not purchased. Such escrowed shares will be involuntarily redeemed to pay the
additional sales load, if necessary. When the full amount indicated has been
purchased, the escrowed shares will be released. If you purchase more than the
dollar amount indicated in the Statement of Intention and qualify for a further
reduced sales load, the sales load will be adjusted for the entire amount
purchased at the end of the 13-month period. Any resulting credit will be used
to purchase additional shares at the then current net asset value, or refunded
to you in cash if you so specify.
The Funds may waive the minimum required investment or sell shares at net
asset value without imposition of a sales load to the following categories of
investors, subject in each case to such further conditions as may be
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<PAGE>
established by GAM Services from time to time: directors, officers and employees
(including retired directors, officers or employees) of the Funds, GAM Services
or any of its affiliates, or any broker-dealers with currently effective
distribution agreements with GAM Services, and spouses, children, siblings or
parents of such persons or trusts or employee benefit plans for the benefit of
such persons; companies exchanging shares with or selling assets to a Fund
pursuant to a merger, acquisition or exchange offer; persons investing the
proceeds of a redemption of shares of any other investment company managed or
sponsored by an affiliate of GAM Services; accounts managed by an affiliate of
GAM Services; registered investment advisors and accounts over which they have
discretionary authority; organizations providing administrative services with
respect to persons in the preceding category; registered investment advisers and
other financial services firms that purchase shares for the benefit of their
clients participating in a "wrap account" or similar program under which clients
pay a fee to the investment adviser or other firm; organizations described in
Section 501(c)(3) of the Internal Revenue Code of 1986; and trust companies,
bank trust departments, and trustees of employee benefit plans for funds over
which they exercise investment authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. You must indicate that you are
entitled to the waiver of the sales load at the time the investment is made.
OTHER INFORMATION ABOUT PURCHASES
If you do not send a completed application form to CGFSC at the time of
your initial investment in a Fund, you will not be able to redeem shares, and
dividends and distributions to you will be subject to backup withholding tax.
All purchase orders are subject to acceptance by the Funds and are not
binding until so accepted, and all purchase orders are accepted subject to
collection of payment at full face value in United States dollars. Each Fund
reserves the right to reject any purchase order in whole or in part, in its
discretion.
The Funds do not generally issue certificates for shares purchased. CGFSC
will instead credit your account with the number of shares purchased. You should
promptly check the confirmation advice that is mailed after each purchase (or
redemption) in order to ensure that the purchase (or redemption) of shares
reported has been accurately recorded in your account. Statements of your
account will be mailed to you annually, showing transactions during the year.
DISTRIBUTION PLANS
The Funds have adopted a Distribution Plan for Class A and Class D shares,
respectively, pursuant to Rule 12b-1 under the Act providing for payments by
each Fund to GAM Services at the annual rate of up to 0.30% in the case of Class
A shares and 0.50% in the case of Class D shares of each Fund's average net
assets attributable to the respective Class.
Payments under the Plans are intended to compensate GAM Services for
distribution and shareholder services and to cover expenses incurred by it as
principal underwriter of the Funds' shares. GAM Services expects to reallow most
of its fee to investment dealers, banks and financial services firms that
provide distribution and shareholder services to potential investors and
shareholders in the Funds. GAM Services may voluntarily waive from time to time
all or any portion of its fee and is free to make additional payments out of its
own assets to promote the sale of Fund shares. The Funds and GAM Services will
provide to the Directors quarterly a written report of amounts expended pursuant
to the Distribution Plans and the purposes for which such expenditures were
made.
In addition to the fees paid pursuant to the Plans of Distribution, the
Funds pay administrative, transfer agency and custody fees, and may pay
administrative service fees to organizations who are eligible to purchase
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<PAGE>
shares on behalf of their clients at net asset value ("Shareholder Servicing
Agents") to compensate such agents for provision of administrative and transfer
agency services provided on behalf of a Fund and/or one or more of its servicing
agents. See "Shareholder Servicing Agents".
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REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
You may redeem shares of each Fund, without charge, either directly through
CGFSC or through brokers who have dealer agreements with GAM Services. If shares
are held in the broker's "street name", the redemption must be made through the
broker.
REDEMPTION BY MAIL
You may redeem shares by mail by submitting a written request for
redemption, which complies with the requirements listed below, to Chase Global
Funds Services Company, P.O. Box 2798, Boston, Massachusetts 02208.
1. The request must be signed by the redeeming shareholder(s) exactly in
the same manner as the shares are registered, and must specify from which Fund
and which class of shares the shares are to be redeemed and either the number of
shares, or the dollar amount, to be redeemed.
2. The signature of the redeeming shareholder(s) must be guaranteed. A
signature guarantee is a widely accepted way to protect you and the Funds by
verifying the signature on your request; it may not be provided by a notary
public. Signature guarantees will be accepted from banks, brokers, dealers,
municipal securities brokers, government securities dealers and brokers, credit
unions (if authorized under state law), national securities exchanges,
registered securities associations, clearing agencies and savings associations.
The signature guarantee must not be dated and must be in a form acceptable to
CGFSC. Where the shares are registered in more than one name, the signature of
each of the redeeming shareholders must be guaranteed separately in the same
manner.
3. If certificates have been issued for the shares being redeemed, the
request must be accompanied by such certificates endorsed for transfer (or
accompanied by an endorsed stock power).
4. If the shares being redeemed are registered in the name of an estate,
trust, custodian, guardian, employee benefit plan or the like, or in the name of
a corporation or partnership, documents must also be included which, in the
judgment of CGFSC, are sufficient to establish the authority of the person(s)
signing the request, and/or as may be required by applicable laws or
regulations.
REDEMPTION BY TELEPHONE OR FACSIMILE
You may redeem shares by telephone or facsimile if you have previously
elected this option, either by checking the appropriate box on the application
form or by completing a form which may be requested from CGFSC. The form must be
returned to CGFSC, signed by the shareholder(s), with signatures guaranteed as
described above, before telephone or facsimile redemption instructions will be
honored by CGFSC. Redemption instructions must specify from which Fund the
shares are to be redeemed, the class of shares to be redeemed and either the
number of shares, or the dollar amount, to be redeemed. Proceeds of redemptions
by telephone or facsimile will only be sent by mail to your registered address
or by wire transfer to an account designated in advance as described below.
REDEMPTION THROUGH BROKER
Shareholders with accounts at brokers who have dealer agreements with GAM
Services may submit redemption requests to their brokers. The broker may honor a
redemption request either by repurchasing the shares
33
<PAGE>
at their net asset value next computed after the broker receives the request or
by forwarding the request to CGFSC. Brokers may impose a service charge for
handling redemptions and may impose other requirements. You should contact your
broker for more details.
SYSTEMATIC WITHDRAWAL PLAN
If you own $25,000 or more of a Fund's shares at the current offering price
(net asset value plus sales charge), you can arrange for any requested dollar
amount to be paid from your account to you or a designated payee monthly,
quarterly, semiannually or annually. The $25,000 minimum account size is not
applicable to IRAs. The minimum periodic payment is $500. Shares are redeemed so
that you will receive payment approximately the first of the month. Any income
and capital gain dividends will be automatically reinvested at net asset value.
A sufficient number of full and fractional shares will be redeemed to make the
designated payment. Depending upon the size of the payments requested and
fluctuations in the net asset value of the shares redeemed, redemptions for the
purpose of making such payment may reduce or even exhaust your account.
The purchase of shares while participating in a systematic withdrawal plan
will ordinarily be disadvantageous to you, because you will be paying a sales
charge on the purchase of shares at the same time that you are redeeming shares
upon which a sales charge may have already been paid. Therefore, a Fund will not
knowingly permit additional investments of less than $5,000 if you are at the
same time making systematic withdrawals. The right is reserved to amend the
systematic withdrawal plan on 30 days' notice. The plan may be terminated at any
time by you or the Funds.
OTHER INFORMATION ABOUT REDEMPTIONS
The Funds reserve the right to refuse any requests for redemption by
telephone or facsimile if it is believed advisable to do so. The Funds will not
honor redemption requests which are not in proper form as determined by CGFSC,
which are subject to any special conditions, or which specify an effective date
other than as provided herein.
The redemption price will be the net asset value of the shares next
computed after the redemption request in proper order is received by CGFSC or an
authorized dealer. Payment of the redemption price will be made within seven
days after receipt of the redemption request in proper order as described above;
however, payment of the redemption price for shares purchased by checks which
were not certified or bank checks may be delayed until the check used to make
such purchase has cleared, which may take up to 15 days. Remittance will be made
by check, mailed to the shareholder's registered address (or as otherwise
directed), or by wire, except that wire transfers will only be made to
shareholders who have elected this option, either by checking the appropriate
box on the application form and designating the account to which the proceeds
should be sent or by completing a form which may be requested from CGFSC. The
form must be returned to CGFSC, signed by the shareholder(s) and with signatures
guaranteed as described above, before requests for wire transfers will be
honored by CGFSC. The same form must be completed and returned in the same
manner in order to change the account to which proceeds will be sent.
The Funds may suspend the right of redemption or postpone the date of
payment for more than seven days when the Board of Directors declares a
suspension of the determination of net asset value in the circumstances
described under the heading "Net Asset Value, Dividends and Taxes" in the
Statement of Additional Information.
Each Fund reserves the right to liquidate involuntarily any shareholder's
account (other than IRA accounts) if the net asset value of the shares held in
the account is reduced to less than $10,000 due to redemptions by the
shareholder. With respect to IRA accounts, each Fund reserves the right to
liquidate involuntarily any investment on behalf of an IRA account if the net
asset value of the shares held in the account is reduced to less than $1,000
34
<PAGE>
due to redemptions by the shareholder. Should a Fund elect to exercise such
right, you would receive prior written notice and would be permitted at least 30
days to bring the account up to the minimum to avoid automatic redemption at the
net asset value as of the close of business on the proposed redemption date. A
check for the proceeds will be mailed to your registered address.
The value of a Fund's shares realized on redemption may be more or less
than your cost, depending on the net asset value of the Fund's shares at the
time of redemption. The redemption of shares may be a taxable event to you.
- --------------------------------------------------------------------------------
EXCHANGES
- --------------------------------------------------------------------------------
You may exchange shares of any Fund without charge for shares of the same
class of any other Fund. Not all Funds currently offer both classes of shares.
The exchange privilege is only available in those states where the shares being
acquired are properly registered. You may also exchange shares of any Fund
without charge for shares of The Reserve Funds--Primary Fund, an open end
management investment company commonly known as a money market fund (the "GAM
Money Market Account"), which is not a portfolio of the Company but is available
by purchase or exchange through GAM Services. GAM Services is compensated by
Resrv Partners, Inc., principal underwriter for shares of The Reserve Funds,
pursuant to distribution and service arrangements related to the offering and
sale of shares of The Reserve Funds. Investors purchasing the GAM Money Market
Account directly will be required to pay the appropriate sales charge upon
exchange from the GAM Money Market Account into Class A or Class D shares of a
Fund.
EXCHANGES BY MAIL
In order to make an exchange, you must send a written request to CGFSC,
signed by the shareholders together with a completed application form indicating
the Fund in which you wish to invest.
EXCHANGES BY TELEPHONE OR FACSIMILE
Exchanges may also be made by telephone or facsimile if you have previously
elected this option, either by checking the appropriate box in the application
form or by completing a form which may be requested from CGFSC. The form must be
returned to CGFSC, signed by the shareholder(s), with signatures guaranteed as
described above, before telephone or facsimile exchange instructions will be
honored by CGFSC.
OTHER INFORMATION ABOUT EXCHANGES
Exchange requests should specify clearly the amount or number of shares of
each Fund to be redeemed, the class of such shares and the Fund in which the
proceeds should be invested. Exchange orders received in proper form will be
treated as a sale of shares of the Fund in which you were previously invested
and a purchase of shares of the Fund in which the proceeds are invested as of
the date the exchange order is received in proper form by CGFSC. The exchange
may result in a gain or loss for tax purposes.
Each Fund may terminate or amend the right to exchange shares of the Fund
for shares of any other Fund. Each Fund will give shareholders 60 days' prior
notice of any material change. You should contact CGFSC if you have any
questions regarding the procedure for making exchanges or if you encounter
problems in making exchanges.
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- --------------------------------------------------------------------------------
NET ASSET VALUE, DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
NET ASSET VALUE
The net asset value of the shares of each Fund (other than GAM Japan
Capital Fund) is calculated as of the close of trading on the New York Stock
Exchange (currently 4:00 p.m. New York City time), Monday through Friday
(excluding holidays on which the New York Stock Exchange is closed). The net
asset value of shares of GAM Japan Capital Fund is calculated as of the close of
trading on the Tokyo Stock Exchange, which is at 3:00 p.m. Tokyo time (2:00 a.m.
New York time during Daylight Savings Time; 1:00 a.m. New York time at all other
times) Monday through Friday and 11:00 a.m. Tokyo time (10:00 p.m. New York time
during Daylight Savings Time; 9:00 p.m. New York time at all other times) on
Saturday.
Net asset value per share of each Fund is determined by dividing the value
of the Fund's securities, cash and other assets (including accrued interest),
less all liabilities (including accrued expenses), by the number of the Fund's
shares outstanding. Securities traded on foreign exchanges will ordinarily be
valued at the last quoted sale price available before the close of the New York
Stock Exchange (except as described above with respect to securities held by GAM
Japan Capital Fund). If a security is traded on more than one United States or
foreign exchange, the last quoted sales price on the exchange which represents
the primary market for the security will be used. Because some of the Funds'
portfolio securities may be traded on certain weekend days and on days that are
holidays in the United States but not in other countries where trading occurs,
the net asset value of a Fund's portfolio may be significantly affected at times
when a shareholder has no ability to purchase or redeem shares of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends annually to pay a dividend representing its entire net
investment income and to distribute all its realized net capital gains.
Dividends and/or any capital gain distributions paid by a Fund on its shares
will be reinvested automatically in whole or fractional shares of the same class
of the Fund at net asset value as of the ex-dividend date without imposition of
a sales load unless you make a written request to CGFSC for payment in cash
prior to the payment date. The payment date shall be not more than five business
days after the ex-dividend date. No certificates for shares issued on payment of
such dividends and distributions will generally be delivered, but your ownership
of such shares will be registered in your account.
Checks issued pursuant to a shareholder's request for payment of dividends
and capital gain distributions in cash will be forwarded by first class mail to
the shareholder's registered address. The proceeds of any such checks which are
not accepted by the addressee and are returned to a Fund will not be reinvested
in the Fund.
TAX CONSEQUENCES
Each Fund expects to qualify for the special tax treatment afforded to
regulated investment companies under the Internal Revenue Code of 1986, as
amended (the "Code"). If it qualifies, each Fund will pay no United States
Federal income tax on net income and net capital gains timely distributed to
shareholders of the Fund. Each Fund also intends to take all actions necessary
to avoid the imposition of any excise taxes on the Fund.
One of the requirements of the Code applicable to regulated investment
companies is that each Fund derive less than 30% of its gross income from the
sale or other disposition of securities (including certain options and futures
contracts) held for less than three months. This requirement may limit the
extent to which each Fund may engage in options and futures transactions.
36
<PAGE>
For Federal income tax purposes, distributions from net ordinary income or
net short-term capital gains will be treated as ordinary income to shareholders
and distributions from net long-term capital gains will be treated as long-term
capital gains to shareholders, regardless of whether such distributions are paid
in cash or reinvested in additional shares of a Fund. Each Fund will inform you
each year of the amount and nature of any income or gain distributed to you.
Your tax liabilities with respect to such distributions will depend on your
particular tax situation.
Distributions of net ordinary income or net short-term capital gains
received by a non-resident alien individual or foreign corporation which is not
engaged in a trade or business in the United States generally will be subject to
Federal withholding tax at the rate of 30%, unless such rate is reduced by an
applicable income tax treaty to which the United States is a party. However,
gains from the sale by such shareholders of shares of the Funds and
distributions to such shareholders from long-term capital gains generally will
not be subject to the Federal withholding tax.
For a description of certain other tax consequences to shareholders, see
"Net Asset Value, Dividends and Taxes--Tax Status" in the Statement of
Additional Information.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
The business of the Funds is managed by the Board of Directors, which may
exercise all powers as are not required by statute, the Articles of
Incorporation or the By-Laws to be exercised by the shareholders. When
appropriate, the Board of Directors will consider separately matters relating to
each Fund.
INVESTMENT ADVISERS
GAM International Management Limited ("GAM"), a corporation organized in
1984 under the laws of the United Kingdom, is the investment adviser of GAM
Global, International, Pacific Basin, Japan Capital, Asian Capital, GAMerica
Capital and Europe Funds and co-investment adviser of GAM North America Fund.
Fayez Sarofim & Co. ("Sarofim"), a Texas corporation organized in 1958, also
serves as co-investment adviser to GAM North America Fund. The individuals
primarily responsible for the day-to-day management of each Fund's portfolio are
as follows:
GAM GLOBAL AND GAM INTERNATIONAL FUNDS
John R. Horseman joined GAM in 1987, initially as a member of the firm's
Asian team based in Hong Kong. In 1990, he moved to GAM's London office to
assume responsibility for a number of GAM's global and international funds.
He commenced management of GAM Global and GAM International Funds on April
1, 1990. Prior to joining GAM, he worked for BA Investment Management
International Ltd , and was responsible for certain of the Bank of
America's global equity funds. Mr. Horseman was educated at the University
of Birmingham.
GAM PACIFIC BASIN FUND
Michael S. Bunker has overall responsibility for Asian investment policy.
He has over 20 years' investment experience, primarily in Asian markets. He
joined GAM in 1985 to create its Asian investment team. He commenced
management of GAM Pacific Basin Fund on May 6, 1987. From 1984 to 1987, Mr.
Bunker lived in Hong Kong and he is now based in London.
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<PAGE>
GAM JAPAN CAPITAL FUND
Paul S. Kirkby is responsible for investment in the Japanese market. He
joined GAM in 1985 as a Senior Fund Manager in Hong Kongand previously was
an investment analyst with New Japan Securities Co. Ltd in Tokyo. He
commenced management of GAM Japan Capital Fund on July 1, 1994. Mr. Kirkby
is now based in London having lived in Hong Kong for seven years.
GAM ASIAN CAPITAL FUND
Adrian L. Cantwell is responsible for Asia ex Japan portfolios including
GAM Asian Capital Fund. He became portfolio manager of GAM Asian Capital
Fund at its inception on May 12, 1995. He also manages GAM ASEAN Fund Inc.,
an offshore investment fund with similar objectives. Prior to joining GAM
in 1990 he was a Director of Gartmore Limited, Hong Kong, responsible for
South East Asian investment. He was educated at the University of Cardiff.
Mr. Cantwell has lived in Hong Kong since 1985.
GAM EUROPE FUND
John Bennett is Investment Director responsible for European markets. He
commenced management of GAM Europe Fund on January 1, 1993. Prior to
joining GAM in 1993, he was a Senior Fund Manager at Ivory & Sime
responsible for Continental European equity portfolios. He qualified as an
Associate of the Institute of Bankers (Scotland) in 1986. Mr. Bennett is
based in GAM's Edinburgh office.
GAM NORTH AMERICA FUND
Fayez Sarofim commenced management of GAM North America Fund on June 29,
1990. From 1951 to 1958, Mr. Sarofim worked for Anderson, Clayton & Co. and
his last assignment with the company was as assistant to the President. Mr.
Sarofim founded Fayez Sarofim & Co. in 1958 and is the President and
Chairman of the Board. He is also a director of Teledyne Inc., Argonaut
Group, Unitrin, Inc., MESA Inc., Imperial Holly Corp. and EXOR Group.
GAMERICA CAPITAL FUND
Gordon Grender has been associated with the GAM group since 1983 and became
portfolio manager of GAMerica Capital Fund at its inception on May 12,
1995. He also manages GAMerica Inc., an offshore investment fund with
similar objectives, and has been actively involved in fund management in
North American stock markets since 1974. Mr. Grender is a director of GAM.
GAM and Sarofim (the "Investment Advisers") are each registered as an
investment adviser under the Investment Advisers Act of 1940, as amended. The
principal executive office of GAM is located at 12 St. James's Place, London
SW1A INX, England. The principal executive office of Sarofim is located at Suite
2907, Two Houston Center, Houston, Texas 77010.
GAM is an indirect subsidiary of Global Asset Management Ltd., which itself
is ultimately controlled, as to approximately 70%, by Lorelock, S.A., which
itself is controlled by a discretionary trust of which Mr. de Botton, President
and Director of the Company, may be a potential beneficiary and, as to
approximately 30%, by St. James's Place Capital plc (a financial services
company organized under the laws of and based in the United Kingdom). Global
Asset Management Ltd., directly or indirectly through its subsidiaries, manages
foreign mutual funds with aggregate assets of approximately $9.2 billion.
38
<PAGE>
As of December 31, 1995, Sarofim managed on a discretionary basis accounts
with aggregate assets of approximately $30 billion. The majority shareholder of
Sarofim is Mr. Fayez Sarofim.
Subject to the direction and supervision of the Board of Directors, GAM
furnishes the Funds with investment research and advice and makes
recommendations with respect to the Funds' purchases and sales of portfolio
securities and brokerage allocation, and both GAM and Sarofim provide such
services with respect to GAM North America Fund. GAM makes all decisions
regarding purchases and sales of investments and brokerage allocation for GAM
Global, International, Pacific Basin, Japan Capital, Asian Capital, GAMerica
Capital and Europe Funds. Sarofim makes all decisions regarding purchases and
sales of investments and brokerage allocation for GAM North America Fund. As
compensation for such services, GAM Global, International, Pacific Basin, Japan
Capital, Asian Capital, GAMerica Capital and Europe Funds each pays GAM a fee
equivalent to 1.0% per annum of the Fund's average daily net assets. GAM North
America Fund pays a fee equal to 0.50% of its average daily net assets to each
of GAM and Sarofim, representing an aggregate fee equal to 1.0% of its average
daily net assets.
The Funds' expense ratios may be higher than those of most registered
investment companies since the cost of maintaining custody of foreign securities
is higher than those for most domestic funds and the rate of the advisory fee
paid by each Fund exceeds that of most registered investment companies. Also,
unlike arrangements between most other investment companies and their advisers,
the Investment Advisers are not required to furnish any overhead facilities for
the Funds. Each Fund pays for all expenses of its operation, including office
space and equipment, trading desk facilities, employee compensation, fees and
expenses of directors, interest, taxes, fees and commissions of every kind,
expenses of issue, repurchase or redemption of shares, registering or qualifying
shares for sale, insurance, association membership dues, all charges of
custodians (including fees as custodian and for maintaining books, performing
portfolio valuations and rendering other services to the Funds), transfer
agents, registrars, auditors and legal counsel, expenses of preparing, printing
and distributing prospectuses and all proxy materials, reports and notices to
shareholders and all other costs incident to the Company's existence as a
corporation. Included in the expenses of registering or qualifying shares for
sale, which each Fund bears, are the printing costs, legal fees and other
expenses relating to the preparation and filing with the SEC and other relevant
authorities of the Company's registration statement, and the production and
filing of the definitive Prospectus and Statement of Additional Information.
Each Fund will bear its attributable share of such expenses.
Each Investment Adviser has undertaken that its fee will be reduced, or
that the Investment Adviser will reimburse each Fund (up to the amount of its
fee), by an amount necessary to prevent the total expenses of each Fund
(including the Investment Advisers' fees and excluding taxes, interest,
brokerage commissions, distribution expenses and, under certain circumstances,
extraordinary expenses) from exceeding limits applicable to the Fund in any
state in which its shares are then qualified for sale. GAM has undertaken to
reimburse Sarofim for any portion of the advisory fee otherwise payable to
Sarofim which is reduced pursuant to the preceding sentence. For the year ended
December 31, 1995, the fee actually paid to the Investment Advisers by GAM
International Fund, GAM Global Fund, GAM Pacific Basin Fund, and GAM Europe Fund
was 1.0% of each Fund's average daily net assets and the fee actually paid by
GAM North America Fund was 0.71% of average daily net assets and by GAM Asian
Capital Fund was 0.16% of average daily net assets. No fee was paid by GAMerica
Capital Fund or GAM Japan Capital Fund. The ratio of total expenses to average
net assets of each Fund was 1.57% for GAM International Fund Class A Shares and
2.22% for Class D Shares, 2.16% for GAM Global Fund Class A Shares and 2.81% for
Class D Shares, 1.98% for GAM Pacific Basin Fund Class A Shares and 2.63% for
Class D Shares, 2.12% for GAM Europe Fund Class A Shares, 2.98% for GAM North
America Fund Class A Shares, 3.61% for GAM Japan Capital Fund Class A Shares,
3.11% for GAM Asian Capital Fund Class A Shares and 3.73% for GAMerica Capital
Fund Class A Shares.
39
<PAGE>
SHAREHOLDER SERVICING AGENTS
The Funds may also contract with banks, trust companies, broker-dealers or
other financial organizations to act as shareholder servicing agents to provide
administrative services for the Funds, such as processing purchase and
redemption transactions, transmitting and receiving funds for the purchase and
sale of shares in the Funds, answering routine inquiries regarding the Funds,
furnishing monthly and year-end statements and confirmations of purchases and
sales of shares, transmitting periodic reports, updated prospectuses, proxy
statements and other communications to shareholders, and providing other
services as agreed from time to time. For these services, each Fund pays fees to
shareholder servicing agents which may vary depending upon the services
provided, but do not exceed an annual rate of 0.25% of the daily net asset value
of the shares of a Fund owned by shareholders with whom the shareholder
servicing agent has a servicing relationship.
Some shareholder servicing agents may impose additional or different
conditions on their clients, such as requiring their clients to invest more than
the minimum initial or subsequent investments specified by the Funds or charging
a fee to the client for servicing. Shareholders using shareholder servicing
agents should consult them regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws prohibit banks from
engaging in the business of underwriting, selling or distributing securities.
Although banks are currently permitted to perform administrative and shareholder
servicing functions, changes in the law or its interpretation could prevent a
bank from continuing to perform such services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
such change.
DISTRIBUTOR
GAM Services Inc., 135 East 57th Street, New York, New York 10022, acts as
the distributor, or principal underwriter, of the Funds' shares. Like GAM, GAM
Services is indirectly controlled by Global Asset Management Ltd. and Lorelock
S.A. and may be deemed to be controlled by St. James's Place Capital plc and a
trust of which Gilbert de Botton may be a potential beneficiary. As distributor,
GAM Services collects the sales load imposed on purchases of shares of the Funds
and reallows part of the sales load to brokers who have sold shares as set forth
in the table under "Purchase of Shares--Offering Price". GAM Services, as
distributor for The Reserve Funds--Primary Fund ("GSAM Money Market Fund")
collects a fee paid in part by the GSAM Money Market Fund pursuant to
distribution and shareholder service arrangements in place for The Reserve
Funds. Kevin J. Blanchfield, Vice-President and Treasurer of the Company, is
Chief Operating Officer, Treasurer and a director of GAM Services.
CUSTODIAN AND ADMINISTRATOR
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, serves as custodian of the Funds' securities and cash and as their
administrator. Brown Brothers also maintains certain records for the Funds
required by the Act and applicable Federal and state tax laws, keeps books of
account, renders reports and statements, including financial statements, and
disburses funds in payment of the Funds' bills and obligations. Brown Brothers
employs subcustodians for the purpose of providing custodial services for the
Funds' foreign assets held outside the United States.
SHAREHOLDER SERVICE AND TRANSFER AGENT
Chase Global Fund Services Company, P.O. Box 2798, Boston, Massachusetts
02208, serves as shareholder service agent, dividend-disbursing agent, transfer
agent and registrar for the Funds.
40
<PAGE>
BROKERS
The Funds may use the services of brokers which are affiliated with the
Investment Advisers, provided that the commission paid to any such broker shall
be reasonable and fair compared to the commission or other remuneration received
by other brokers in comparable transactions involving similar securities.
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Company, a Maryland corporation, was organized on May 7, 1984. On
February 18, 1986, the Company changed its name from GAM International, Inc. to
GAM Funds, Inc.
The Company has eight series of common stock outstanding, each of which may
be divided into two classes of shares, Class A shares and Class D shares. The
two classes of shares of a series represent interests in the same portfolio of
investments, have the same rights, and are generally identical in all respects,
except that each class bears its separate distribution and certain class
expenses and has exclusive voting rights with respect to any matter on which a
separate vote of any class is required by the Act or Maryland law. The net
income attributable to each class and dividends payable on the shares of each
class will be reduced by the amount of distribution fees and other expenses of
each class. Class D shares bear higher distribution fees, which will cause the
Class D shares to pay lower dividends than the Class A shares. The two classes
also have separate exchange privileges. Class D shares are currently available
only for GAM International Fund, GAM Global Fund and GAM Pacific Basin Fund. The
Company may issue other series or classes of common stock in the future.
Each share outstanding is entitled to share equally in dividends and other
distributions and in the net assets of the respective series Fund on
liquidation. Shares are fully paid and nonassessable when issued, freely
transferable, have no preemptive, subscription or conversion rights and are
redeemable and subject to redemption under certain conditions described above.
Each share outstanding entitles the holder to one vote. Regulations of the
SEC provide that if a Fund is separately affected by a matter requiring a vote,
the shareholders of each such Fund shall vote separately. The approval of an
investment advisory agreement or a distribution plan pursuant to Rule 12b-1 of
the Act is considered to have a separate effect on each Fund and shall be voted
upon separately by the shareholders of each Fund. Election of directors,
ratification of accountants, and selection and approval of a principal
underwriting agreement are not considered to have such separate effect and may
be voted upon by the Company as a whole. The shares do not have cumulative
voting rights. The Company is not required to hold annual meetings of
shareholders, although special meetings will be held for purposes such as
electing or removing directors, changing fundamental policies, or approving an
investment advisory agreement. Shareholders will be assisted in communicating
with other shareholders in connection with removing a director as if Section 16
(c) of the Act were applicable.
The Directors believe that no conflict of interest currently exists between
the Class A and Class D shares. On an ongoing basis, the Directors, in the
exercise of their fiduciary duties under the Act and Maryland law, will seek to
ensure that no such conflict arises. For this purpose, the Directors will
monitor the Funds for the existence of any material conflict among the classes
and will take such action as is reasonably necessary to eliminate any such
conflicts that may develop.
41
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- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
This Prospectus does not contain all the information included in the
Registration Statement filed with the SEC with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The Registration Statement, including the exhibits filed
therewith, may be examined at the office of the SEC in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract
or other document referred to are not necessarily complete and, in each
instance, reference should be made to the copy of such contract or other
document filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, each such statement being qualified in all respects by
such reference.
Shareholder inquiries should be directed to the Company at the telephone
number or address set forth on the cover of this Prospectus.
42
<PAGE>
GLOBAL ASSET MANAGEMENT(R)
GAM FUNDS, INC.
PROSPECTUS
AND
APPLICATION
DATED APRIL 30, 1996
AMENDED NOVEMBER 30, 1996
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus, and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Company. This Prospectus does not constitute an
offer by the Company to sell or a solicitation of any offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
GAM LOGO
<PAGE>
GAM FUNDS, INC. - NEW ACCOUNT APPLICATION
Mail to: Chase Global Funds Services Company, P. O. Box 2798, Boston, MA 02208
================================================================================
ACCOUNT REGISTRATION
================================================================================
/ / JOINT TENANT REGISTRATION will be as "joint tenants with the right of
survivorship" and not as "tenants in common" unless specified, and both
registrants should sign this application.
/ / TRUST REGISTRATIONS should specify the name of the trust, trustee(s),
beneficiary(ies), date of trust instrument, and the trustee, or other
fiduciary, should sign this application.
/ / UNIFORM GIFTS/TRANSFERS TO MINORS REGISTRATION should be in the name of
one custodian and one minor and include the state under which the
custodianship is created (using the minor's Social Security Number and the
custodian should sign this application.)
/ / INSTITUTIONAL REGISTRATIONS should be in the name of the institution, and
an officer should sign, indicating corporate or partnership office or
title, this application.
/ / For an INDIVIDUAL RETIREMENT ACCOUNT (IRA), a different application is
required. Please call (800) 426-4685 ext. 1 or your investment
representative to obtain an IRA application.
Registration Type: (Choose One) / / Individual / / Gift/Transfer to Minor
/ / Joint Tenants / / Trust
/ / Other____________________________________
Investor(s) Information Owner Joint Owner
Name _________________________ __________________________
Address _________________________ __________________________
City/State/Zip _________________________ __________________________
Taxpayer ID/Social
Security Number _________________________ __________________________
Date of Birth _________________________ __________________________
Daytime phone ( )___________________ ( )____________________
================================================================================
AMOUNT INVESTED
================================================================================
The minimum initial investment is $10,000 per fund and subsequent investments
are $1,000 per fund.
Current Investment Amount Class A Class D
GAM International Fund: $____________________________ / / / /
GAM Global Fund: $____________________________ / / / /
GAM Europe Fund: $____________________________ / / / /
GAM Pacific Basin Fund: $____________________________ / / / /
GAM Japan Capital Fund: $____________________________ / / / /
GAM Asian Capital Fund: $____________________________ / / / /
GAM North America Fund: $____________________________ / / / /
GAMerica Capital Fund: $____________________________ / / / /
GAM Money Market Account: $____________________________ / / / /
INVESTMENT ADVISOR/BROKER (IF APPLICABLE)
Representative's Name_______________________ Branch Address____________________
Representative's Number_____________________ __________________________________
Representative's Phone Number ( )_________ __________________________________
Firm Name___________________________________ Branch Number_____________________
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS
All dividends and capital gains distributions will be reinvested in additional
shares of the same class of the same Fund unless the appropriate boxes below are
checked:
/ / Pay dividends in cash / / Pay capital gains distributions in cash
================================================================================
ADDITIONAL FEATURES AVAILABLE
================================================================================
TELEPHONE PRIVILEGES
By checking any box, you authorize the Funds or their agents to honor telephone
requests from you after you have reasonably identified yourself.
/ / Telephone Exchange - Exchange shares of any Fund for shares of
any other Fund.
/ / Telephone Redemption - Redemption of shares by telephone.
WIRE TRANSFER
Please complete wiring instructions below if you wish to be able to instruct the
Funds to wire redemption proceeds. A nominal fee will be deducted from the
redemption proceeds.
Bank Name ___________________________ ABA #*_____________________________
Name on Account ___________________________ Account #__________________________
Bank Address ___________________________ ___________________________________
* The ABA # is the nine-digit number that preceeds your account number along the
bottom of your check.
**Savings and loan associations or credit unions may not be able to receive
wire redemptions.
AUTOMATIC INVESTMENT PROGRAMME (OPTIONAL)
By completing the section below you authorize the Fund's Agent to initiate
Automated Clearing House ("ACH") debits on the 25th day of each month or the
next business day. Please attach a voided check.
Fund Investment Amount Monthly or Quarterly
_______________________ $_______________________ / / / /
_______________________ $_______________________ / / / /
Bank Name_______________________________ ABA #________________________________
Name on Account_________________________ Account #____________________________
Bank Address (City, State Only)_________________________________________________
* The ABA # is the nine-digit number that preceeds your account number along the
bottom of your check.
Over, please
<PAGE>
continued
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
By completing the section below you authorize the Fund's Agent to redeem the
necessary number of shares from your account in order to make periodic payments.
The minimum is $500 per Fund.
<TABLE>
<CAPTION>
Fund Withdrawal Amount Choose One
Monthly Quarterly Semi-annually Annually
<S> <C> <C> <C> <C> <C>
________________________ $_________________ / / / / / / / /
________________________ _________________ / / / / / / / /
</TABLE>
/ / Credit to bank account as designated under Wire Transfer or
/ / Send check to name and address of account registration
* This request for Systematic Withdrawal Plan must be received by the 18th day
of the month in which you wish withdrawals to begin. Redemption of shares
will occur on the 25th day of the month prior to payment or the next business
day.
STATEMENT OF INTENTION (OPTIONAL)
/ / I/we agree to the Statement of Intention and Escrow Agreement set forth
below. Although I/we am/are not obligated to do so, I/we intend to invest in
the Funds over a 13-month period at least:
/ / $100,000 / / $300,000 / / $600,000 / / $1,000,000 / / $4,000,000
RIGHT OF ACCUMULATION (OPTIONAL)
/ / I/we qualify for the Right of Accumulation described in the Prospectus.
(Please identify in whose name shares are registered, in which Fund(s), the
shareholder's account number, and the shareholder's relationship to you):
________________________________________________________________________________
________________________________________________________________________________
NET ASSET VALUE ELIGIBILITY
/ / Check here if eligible for waiver of sales load. (See page 31)
Specify reason______________________________________________________________
AGREEMENT AND SIGNATURE(S)
1. I/we have received, read and carefully reviewed a copy of the Funds'
prospectus.
2. All share purchases are subject to acceptance and are governed by New York
law.
3. I/we authorize you to honor redemption requests by telephone or facsimile, if
so elected above.
4. I/we authorize you to accept telephone or facsimile exchange instructions, if
so elected above.
5. I/we authorize you to wire proceeds of redemptions, if so elected above.
6. I/we hereby agree that neither the Company nor Chase Global Funds Services
Company will be liable for any loss, liability or expense as a result of any
action taken upon instructions believed by it to be genuine and which were in
accordance with the procedures set forth in the prospectus.
- --------------------------------------------------------------------------------
Under penalty of perjury, I/we certify that (1) the number shown on this form is
my/our correct taxpayer identification number and (2) I/we am/are not subject to
backup withholding either because I/we have not been notified by the Internal
Revenue Service that I/we am/are subject to backup withholding as a result of
failure to report all interest and dividends, or the Internal Revenue Service
has notified me/us that I/we am/are no longer subject to backup withholding. (If
you have been notified by the Internal Revenue Service that you are currently
subject to backup wthholding, strike out phrase (2) above.) The Internal Revenue
Service does not require your consent to any provision of this document other
than the preceding certifications required to avoid backup withholding.
- --------------------------------------------------------------------------------
X_______________________________________ X_____________________________________
X_______________________________________ X_____________________________________
SIGNATURE(S) OF ALL APPLICANTS REGISTERED ABOVE - Sign exactly as name(s) of
registered owner(s) appear(s) above (including legal title if signing for
corporation, trust, custodial account, etc.).
Date_________________ 199_______
STATEMENT OF INTENTION
If you anticipate investing $100,000 or more in shares of the Funds within a
13-month period, you may obtain a reduced sales load as though the total
quantity were invested in one lump sum by filing a Statement of Intention within
90 days of the start of the purchases.
To ensure that the reduced price will be received on future purchases, you must
inform Chase Global Funds Services Company that this Statement is in effect each
time shares are purchased.
Subject to the conditions mentioned below, each purchase will be made at the
public offering price applicable to a single transaction of the dollar amount
specified on the application, as described in the prospectus. You are not
committed to purchase additional shares, but if your purchases within 13 months
plus the value of shares credited toward completion do not total the sum
specified, you will pay the increased amount of the sales load prescribed in the
Escrow Agreement.
Neither dividends nor capital gain distributions invested in additional shares
will apply toward the completion of this Statement.
This Statement is not effective until accepted by the Company.
If the total purchases under this Statement are large enough to qualify for an
even lower sales load than that applicable to the amount specified in the
Statement, then you must notify the Transfer Agent and all transactions will
then be recomputed at the expiration date of this Statement to give effect to
the lower load. Any difference in sales load as a result of these additional
purchases will be applied to the purchase of additional shares at the lower load
if specified by you or refunded to you in cash if you so specify.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the application shall be held in escrow by Chase
Global Funds Services Company in the form of shares registered in your name. All
dividends and capital gain distributions on escrowed shares will be paid to you
or to your order. When the minimum investment so specified is completed, the
escrowed shares will be released.
If the investment is not completed, the Company will redeem an appropriate
number of the escrowed shares in order to realize any difference between the
sales load on the amount specified and on the amount actually attained. Shares
remaining after any such redemption will be released from escrow.
In signing the application, you irrevocably constitute and appoint Chase Global
Funds Services Company your attorney to surrender for redemption any or all
escrowed shares with full power of substitution in the premises.
<PAGE>
GAM FUNDS, INC.
GAM FUNDS, INC. (the "Company") is a diversified open-end
management investment company which offers investors the opportunity to invest
in nine different portfolios (the "Funds"):
GAM GLOBAL FUND - investing primarily in the United States,
Europe, the Pacific Basin, and Canada.
GAM INTERNATIONAL FUND - investing primarily in Europe, the
Pacific Basin and Canada.
GAM PACIFIC BASIN FUND - investing primarily in the Pacific
Basin, including Japan, Hong Kong, Korea, Taiwan, Singapore,
Malaysia, Thailand, Indonesia and Australia.
GAM JAPAN CAPITAL FUND - investing primarily in Japan.
GAM ASIAN CAPITAL FUND - investing primarily in Asia excluding
Japan.
GAM EUROPE FUND - investing primarily in Europe.
GAM NORTH AMERICA FUND - investing primarily in the United
States and Canada.
GAMERICA CAPITAL FUND - investing primarily in the United
States.
GAM INTERNATIONAL MANAGEMENT LIMITED ("GAM") provides
investment analysis and advice regarding each Fund's portfolio. FAYEZ SAROFIM &
CO. ("Sarofim") acts as co-investment adviser to GAM North America Fund. (GAM
and Sarofim are referred to jointly as the "Investment Advisers".)
-------------------------
This Statement of Additional Information, which should be kept
for future reference, is not a prospectus. It should be read in conjunction with
the Prospectus of the Funds, dated April 30, 1996, and amended November 30,
1996, which can be obtained without cost upon request at the address or
telephone numbers indicated below.
-------------------------
The date of this Statement of Additional Information is April
30, 1996, amended November 30, 1996.
GAM FUNDS, INC.
135 East 57th Street
New York, NY 10022
Tel: (212) 407-4600
Fax: (212) 407-4684
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND POLICIES............................................ 3
Rating of Securities................................................ 3
United States Government Obligations................................ 3
Repurchase Agreements............................................... 4
Options ............................................................ 4
Stock Index Futures and Options..................................... 5
Interest Rate Futures and Options................................... 7
Foreign Currency Transactions....................................... 7
Lending Portfolio Securities........................................ 9
Warrants ........................................................... 10
Borrowing........................................................... 10
Restricted Securities............................................... 10
Future Developments................................................. 10
Investment Restrictions............................................. 11
Risk Considerations................................................. 12
PERFORMANCE INFORMATION...................................................... 14
NET ASSET VALUE, DIVIDENDS AND TAXES......................................... 15
Net Asset Value..................................................... 15
Suspension of the Determination of Net Asset Value.................. 15
Tax Status.......................................................... 16
MANAGEMENT OF THE COMPANY.................................................... 17
Compensation of Directors and Executive Officers.................... 18
Principal Holders of Securities..................................... 19
Change of Name...................................................... 22
INVESTMENT ADVISORY AND OTHER SERVICES....................................... 22
Investment Advisory Contracts....................................... 22
Advisory Fees....................................................... 23
Investment Advisers................................................. 24
Distribution of Shares.............................................. 26
Custodian and Administrator......................................... 26
Shareholder Service and Transfer Agent.............................. 27
Legal Counsel....................................................... 27
Independent Accountants............................................. 27
Reports to Shareholders............................................. 27
BROKERAGE ALLOCATION......................................................... 27
FINANCIAL STATEMENTS......................................................... 29
<PAGE>
-2-
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of each Fund are described in the
Prospectus under the heading "Investment Objective and Policies and Risk
Considerations." Set forth below is additional information with respect to the
investment objective and policies of each Fund.
RATING OF SECURITIES
Each Fund may invest a substantial portion of its assets in debt securities
issued by companies or governments and their agencies and instrumentalities if
it determines that the long-term capital appreciation of such debt securities
may equal or exceed the return on equity securities. The debt securities (bonds
and notes) in which the Funds may invest will be rated C or better by Moody's
Investors Services, Inc. ("Moody's") or D or better by Standard & Poor's
Corporation ("S&P"), which are the lowest ratings, or, if unrated, be comparable
in quality as determined pursuant to guidelines established by the Company's
Board of Directors, since debt securities of foreign companies and foreign
governments are not generally rated by Moody's or S&P. Each Fund may, for
temporary defensive purposes, invest in debt securities (with remaining
maturities of five years or less) issued by companies and governments and their
agencies and instrumentalities and in money market instruments denominated in
currency of the United States or foreign nations. The money market instruments
include commercial paper which, when purchased, is rated Prime-1 or better by
Moody's or A-1 or better by S&P or, if not rated, is issued by a company which
at the date of investment has an outstanding debt issue rated Aa or better by
Moody's or AA or better by S&P or is of equivalent investment quality as
determined by the Company pursuant to guidelines established and maintained in
good faith by the Board of Directors. A description of the Moody's and S&P
rating systems is contained in the Appendix to this Statement of Additional
Information.
None of the Funds will invest more than 5% of its assets in debt securities
which are rated lower than "investment grade" by a rating service. Debt
securities rated lower than "investment grade," also known as "junk bonds," are
those debt securities not rated in one of the four highest categories by a
rating service (e.g., bonds rated lower than BBB by S&P or lower than Baa by
Moody's). Junk bonds, and debt securities rated in the lowest "investment
grade," have speculative characteristics, and changes in economic circumstances
or other circumstances are more likely to lead to a weakened capacity on the
part of issuers of such lower rated debt securities to make principal and
interest payments than issuers of higher rated investment grade bonds.
Developments such as higher interest rates may lead to a higher incidence of
junk bond defaults, and the market in junk bonds may be more volatile and
illiquid than that in investment grade bonds.
A Fund will not invest more than 3% of its total assets in securities
(including money market instruments and repurchase agreements) issued by any
single non-United States bank, nor will a Fund acquire more than 3% of the
outstanding voting stock of any non-United States bank.
UNITED STATES GOVERNMENT OBLIGATIONS
Under the circumstances indicated under the heading "Investment Objective
and Policies" in the Prospectus, the Funds may invest in securities of the
United States government, its agencies and instrumentalities. United States
government securities include (1) United States Treasury obligations, which
differ only in their interest rates, maturities and times of issuance, and which
include United States Treasury bills (maturing in one year or less), United
States Treasury notes (maturing in one to ten years) and United States Treasury
bonds (generally maturing in more than ten years); and (2) obligations issued or
<PAGE>
-3-
guaranteed by United States government agencies and instrumentalities which are
supported by any of the following: (a) the full faith and credit of the United
States Treasury, (b) the right of the issuer to borrow an amount limited to a
specific line of credit from the United States Treasury, (c) discretionary
authority of the United States government to purchase certain obligations of the
United States government agency or instrumentality, or (d) the credit of the
agency or instrumentality. Agencies and instrumentalities include, but are not
limited to: Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Bank, Student
Loan Marketing Association, Federal National Mortgage Association and Government
National Mortgage Association.
REPURCHASE AGREEMENTS
Each Fund may, for temporary defensive purposes, invest in repurchase
agreements. In such a transaction, at the same time a Fund purchases a security,
it agrees to resell it to the seller and is obligated to redeliver the security
to the seller at a fixed price and time. This establishes a yield during the
Fund's holding period, since the resale price is in excess of the purchase price
and reflects an agreed-upon market rate. Such transactions afford an opportunity
for a Fund to invest temporarily available cash. Repurchase agreements may be
considered loans to the seller collateralized by the underlying securities. The
risk to a Fund is limited to the ability of the seller to pay the agreed-upon
sum on the delivery date; in the event of a default the repurchase agreement
provides that the Fund is entitled to sell the underlying collateral. If the
value of the collateral declines after the agreement is entered into, however,
and if the seller defaults when the value of the underlying collateral is less
than the repurchase price, a Fund could incur a loss of both principal and
interest. The collateral is marked-to-market daily and the Investment Advisers
monitor the value of the collateral in an effort to determine that the value of
the collateral always equals or exceeds the agreed-upon sum to be paid to a
Fund. If the seller were to be subject to a United States bankruptcy proceeding,
the ability of a Fund to liquidate the collateral could be delayed or impaired
because of certain provisions in the bankruptcy law. Each Fund may only enter
into repurchase agreements with domestic or foreign securities dealers, banks
and other financial institutions deemed to be creditworthy under guidelines
approved by the Board of Directors.
OPTIONS
The principal reason for writing covered call options is to realize,
through the receipt of premiums, a greater return than would be realized on a
Fund's portfolio securities alone. In return for a premium, the writer of a
covered call option forfeits the right to any appreciation in the value of the
underlying security above the strike price for the life of the option (or until
a closing purchase transaction can be effected). Nevertheless, the call writer
retains the risk of a decline in the price of the underlying security.
Similarly, the principal reason for writing secured put options is to realize
income in the form of premiums. The writer of a secured put option accepts the
risk of a decline in the price of the underlying security. The size of the
premiums that a Fund may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or increase their
option-writing activities.
Options written ordinarily will have expiration dates between one and nine
months from the date written. The exercise price of the options may be below,
equal to or above the market values of the underlying securities at the times
the options are written. In the case of call options, these exercise prices are
referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. Each Fund may write (a) in-the-money call options when the Fund
expects that the price of the underlying security will remain stable or decline
moderately during the option period, (b) at-the-money call options when the Fund
expects that the price of the underlying security will remain stable or advance
moderately during the option period and (c) out-of-the-money call options when
<PAGE>
-4-
the Fund expects that the premiums received from writing the call option plus
the appreciation in market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. In these circumstances, if the market price of the underlying
security declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market price) may be utilized in
the same market environments that such call options are used in equivalent
transactions.
To close out a position when writing covered options, a Fund may make a
"closing purchase transaction," which involves purchasing an option on the same
security with the same exercise price and expiration date as the option which it
has previously written on a security. A Fund will realize a profit or loss from
a closing purchase transaction if the amount paid to purchase an option is less
or more, as the case may be, than the amount received from the sale of the
option.
Although each Fund generally will purchase or write only those options for
which it believes there is an active secondary market so as to facilitate
closing transactionsManagement , there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will exist
for any particular option or at any particular time, and for some options no
such secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In such event, it might not be possible
to effect closing transactions in particular options. If, as a covered call
option writer, a Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise.
The success of each Fund's options trading activities will depend on the
ability of the Investment Advisers to predict correctly future changes in the
prices of securities. Purchase or sale of options to hedge each Fund's existing
securities positions is also subject to the risk that the value of the option
purchased or sold may not move in perfect correlation with the price of the
underlying security.
It is a condition to the favorable tax treatment afforded to a regulated
investment company, such as the Funds, that each Fund derive less than 30% of
its gross income from the sale or disposition of securities (including certain
options and futures contracts) held for less than three months. This requirement
may limit the extent to which each Fund may engage in trading in options and
futures (discussed below), and options and futures trading may increase the risk
that a Fund may not satisfy this requirement and that it may therefore become
liable for taxes on its income and gains. The greater leverage in options and
futures trading may also tend to increase the daily fluctuations in the value of
a Fund's shares.
STOCK INDEX FUTURES AND OPTIONSSTOCK INDEX FUTURES AND OPTIONS
Each Fund may purchase and sell stock index futures contracts, and
purchase, sell and write put and call options on stock index futures contracts,
for the purpose of hedging its portfolio. A stock index fluctuates with changes
in the market value of the stocks included in the index. Some stock index
options are based on a broad market index, such as the NYSE Composite Index, or
a narrower market index, such as the Standard & Poor's 100. If the assets of a
Fund are substantially invested in equity securities, the Fund might sell a
futures contract based on a stock index which is expected to reflect changes in
prices of stocks in the Fund's portfolio in order to hedge against a possible
general decline in market prices. A Fund may similarly purchase a stock index
futures contract to hedge against a possible increase in the price of stocks
before the Fund is able to invest cash or cash equivalents in stock in an
orderly fashion.
<PAGE>
-5-
The effectiveness of trading in stock index futures and options as a
hedging technique will depend upon the extent to which price movements in a
Fund's portfolio correlate with price movements of the stock index selected.
Because the value of an index future or option depends upon movements in the
level of the index rather than the price of a particular stock, whether a Fund
will realize a gain or loss from the purchase, sale or writing of a stock index
future or option depends upon movements in the level of stock prices in the
stock market generally, or in the case of certain indexes, in an industry or
market segment, rather than movements in the price of a particular stock.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in a stock index and the portion of
the portfolio being hedged, the price of stock index futures may not correlate
perfectly with the movement in the stock index due to certain market
distortions. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which would distort the normal relationship between the index and
futures markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Due to the
possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the stock index and movements in the
price of stock index futures, a correct forecast of general market trends by the
Investment Advisers still may not result in a successful hedging transaction.
Successful use of stock index futures by the Funds also is subject to the
ability of the Investment Adviser to predict correctly movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting stocks held in its
portfolio and stock prices increase instead, the Fund will lose part or all of
the benefit of the increased value of its stocks which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Fund may have to sell securities at a time when it may be disadvantageous to
do so.
Each Fund may purchase and sell commodity futures contracts, and purchase,
sell or write options on futures contracts, for bona fide hedging purposes or
otherwise in accordance with applicable rules of the Commodity Futures Trading
Commission (the "CFTC"). CFTC rules permit an entity such as a Fund to acquire
commodity futures and options as part of its portfolio management strategy,
provided that the sum of the amount of initial margin deposits and premiums paid
for unexpired commodity futures contracts and options would not exceed 5% of the
fair market value of the assets of the Fund, after taking into account
unrealized profits and unrealized losses on such contracts it has entered into.
In the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%.
When a Fund enters into a futures contract or writes an option on a futures
contract, it will instruct its custodian to segregate cash or liquid securities
having a market value which, when added to the margin deposited with the broker
or futures commission merchant, will at all times equal the purchase price of a
long position in a futures contract, the strike price of a put option written by
the Fund, or the market value (marked-to-market daily) of the commodity
underlying a short position in a futures contract or a call option written by
the Fund, or the Fund will otherwise cover the transaction.
<PAGE>
-6-
INTEREST RATE FUTURES AND OPTIONS
Each Fund may hedge against the possibility of an increase or decrease in
interest rates adversely affecting the value of securities held in its portfolio
by purchasing or selling a futures contract on a specific debt security whose
price is expected to reflect changes in interest rates. However, if a Fund
anticipates an increase in interest rates and rates decrease instead, the Fund
will lose part or all of the benefit of the increased value of the securities
which it has hedged because it will have offsetting losses in its futures
position. In addition, in such situations, if the Fund has insufficient cash, it
may have to sell securities to meet daily variation margin requirements at a
time when it may be disadvantageous to do so. These sales of securities may, but
will not necessarily, be at increased prices which reflect the decline in
interest rates.
A Fund may purchase call options on interest rate futures contracts to
hedge against a decline in interest rates and may purchase put options on
interest rate futures contracts to hedge its portfolio securities against the
risk of rising interest rates. A Fund will sell options on interest rate futures
contracts as part of closing purchase transactions to terminate its options
positions. No assurance can be given that such closing transactions can be
effected or that there will be a correlation between price movements in the
options on interest rate futures and price movements in the portfolio securities
of the Fund which are the subject of the hedge. In addition, a Fund's purchase
of such options will be based upon predictions as to anticipated interest rate
trends, which could prove to be inaccurate. The potential loss related to the
purchase of an option on interest rate future contracts is limited to the
premium paid for the option.
Although each Fund intends to purchase or sell commodity futures contracts
only if there is an active market for each such contract, no assurance can be
given that a liquid market will exist for the contracts at any particular time.
Most futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. Futures contract prices could move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses. In such event and in the event of adverse price
movements, a Fund would be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may offset partially or completely losses on the
futures contract. However, no assurance can be given that the price of the
securities being hedged will correlate with the price movements in a futures
contract and thus provide an offset to losses on the futures contract.
FOREIGN CURRENCY TRANSACTIONS
Since investments in foreign securities will usually involve currencies of
foreign countries, and since each Fund may temporarily hold funds in foreign or
domestic bank deposits in foreign currencies during the completion of investment
programs, the value of the assets of each Fund as measured in United States
dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and the Funds may incur costs
in connection with conversions between various currencies. The Funds will
conduct their foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward contracts to purchase or sell foreign
currencies. A forward foreign exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
<PAGE>
-7-
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement and is consummated without payment of any commission.
Each Fund may enter into forward foreign exchange contracts for speculative
purposes and under the following circumstances: First, when a Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, or when a Fund anticipates the receipt in a foreign currency of
dividends or interest payments on such a security which it purchases or already
holds, it may desire to "lock-in" the United States dollar price of the security
or the United States dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for the purchase or sale,
for a fixed amount of dollars, of the amount of foreign currency involved in the
underlying security transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the United States dollar and the subject foreign currency during the
period between the date the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which payment is made
or received.
Second, if it is believed that the currency of a particular foreign country
may suffer a substantial decline against the United States dollar or another
currency, a Fund may enter into a forward contract to sell, for a fixed amount
of dollars, the amount of foreign currency approximating the value of some or
all of the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Each Fund will place cash or liquid securities in a separate
custody account of the Fund with the Company's custodian in an amount equal to
the value of the Fund's total assets committed to the consummation of the hedge
contracts or otherwise cover such transactions. The securities placed in the
separate account will be marked-to-market daily. If the value of the securities
placed in the separate account declines, additional cash or liquid securities
will be placed in the account on a daily basis so that the value of the account
will equal the amount of the Fund's uncovered commitments with respect to such
contracts.
The Funds generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Fund may either
sell the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency. A Fund may also purchase an "offsetting" contract prior to
the maturity of the underlying contract. There is no assurance that such an
"offsetting" contract will always be available to a Fund.
It is impossible to forecast with absolute precision what the market value
of portfolio securities will be at the expiration of a related forward contract.
Accordingly, it may be necessary for a Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of a security being sold is less than the amount of foreign
currency the Fund is obligated to deliver. Conversely, a Fund may sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver.
<PAGE>
-8-
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between a
Fund's entering into a forward contract for the sale of a foreign currency and
the date it enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to purchase is less than the price of the currency it has agreed
to sell. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
Each Fund's dealing in forward foreign exchange contracts will be limited
to the transactions described above. A Fund is not required to enter into such
transactions with regard to its foreign currency-denominated securities and will
not do so unless deemed appropriate by the Company. It also should be realized
that this method of hedging the value of a Fund's portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. Additionally, although such contracts tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
The Funds may purchase or sell options to buy or sell foreign currencies
and options on foreign currency futures, or write such options, as a substitute
for entering into forward foreign exchange contracts in the circumstances
described above. For example, in order to hedge against the decline in value of
portfolio securities denominated in a specific foreign currency, a Fund may
purchase an option to sell, for a specified amount of dollars, the amount of
foreign currency represented by such portfolio securities. In such case, the
Fund will pay a "premium" to acquire the option, as well as the agreed exercise
price if it exercises the option.
Although each Fund values its assets daily in terms of United States
dollars, the Funds do not intend to convert their foreign currency holdings into
United States dollars on any regular basis. A Fund may so convert from time to
time, and thereby incur certain currency conversion charges. Although foreign
exchange dealers do not generally charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
LENDING PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to brokers, dealers and
financial institutions when secured by collateral maintained on a daily
marked-to-market basis in an amount equal to at least 100% of the market value,
determined daily, of the loaned securities. A Fund may at any time call the loan
and obtain the return of the securities loaned. No such loan will be made which
would cause the aggregate market value of all securities lent by a Fund to
exceed 15% of the value of the Fund's total assets. The Fund will continue to
receive the income on loaned securities and will, at the same time, earn
interest on the loan collateral. Any cash collateral received under these loans
will be invested in short-term money market instruments. Where voting or consent
rights with respect to loaned securities pass to the borrower, each Fund will
follow the policy of calling the loan, in whole or in part as may be
appropriate, to permit the exercise of such voting or consent rights if the
matters involved will have a material effect on the Fund's investment in the
securities loaned.
<PAGE>
-9-
WARRANTS
Each Fund may purchase warrants. The holder of a warrant has the right to
purchase a given number of shares of a particular issuer at a specified price
until expiration of the warrant. Such investments can provide a greater
potential for profit or loss than an equivalent investment in the underlying
security. Each Fund may invest up to 10% of its net assets, valued at the lower
of cost or market value, in warrants (other than those that have been acquired
in units or attached to other securities), including warrants not listed on
American or foreign stock exchanges. Prices of warrants do not move in tandem
with the prices of the underlying securities, and are speculative investments.
They pay no dividends and confer no rights other than a purchase option. If a
warrant is not exercised by the date of its expiration, a Fund will lose its
entire investment in such warrant.
BORROWING
Each Fund may borrow from banks for temporary emergency purposes. Each Fund
will maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. (For this purpose, the proceeds received from a reverse repurchase
agreement will be deemed a borrowing by a Fund.) If the 300% asset coverage
should decline as a result of market fluctuations or other reasons, a Fund may
be required to sell some of its portfolio holdings within three days to reduce
the debt and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell portfolio holdings at the
time.
Borrowing money, also known as leveraging, will cause a Fund to incur
interest charges, and may increase the effect of fluctuations in the value of
the investments of the Fund on the net asset value of its shares. A Fund will
not purchase additional securities for investment while there are borrowings
outstanding representing more than 5% of the total assets of the Fund.
RESTRICTED SECURITIES
The Funds may purchase securities that are not registered for sale to the
general public in the United States, but which can be resold to institutional
investors in the United States, including securities offered pursuant to Rule
144A adopted by the United States Securities and Exchange Commission ("SEC").
Provided that a dealer or institutional trading market in such securities
exists, either within or outside the United States, these restricted securities
will not be treated as illiquid securities for purposes of the Funds' investment
restrictions. The Board of Directors will establish standards for determining
whether or not 144A securities are liquid based on the level of trading
activity, availability of reliable price information and other relevant
considerations. The Funds may also purchase privately placed restricted
securities for which no institutional market exists. The absence of a trading
market may adversely affect the ability of the Funds to sell such illiquid
securities promptly and at an acceptable price, and may also make it more
difficult to ascertain a market value for illiquid securities held by the Funds.
The purchase by the Funds of securities offered pursuant to Rule 144A may also
increase the level of illiquidity of a Fund if qualified institutional investors
cease to be interested in purchasing such restricted securities and no other
market exists.
FUTURE DEVELOPMENTS
The Funds may take advantage of opportunities in the area of options and
futures contracts and other derivative financial instruments which are developed
in the future, to the extent such opportunities are both consistent with each
<PAGE>
-10-
Fund's investment objective and permitted by applicable regulations. The Funds'
Prospectus and Statement of Additional Information will be amended or
supplemented, if appropriate in connection with any such practices.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions which cannot be
changed without approval by holders of a majority of its outstanding voting
shares. As defined in the Investment Company Act of 1940, as amended (the
"Act"), this means the lesser of (a) 67% or more of the shares of the Fund at a
meeting where more than 50% of the outstanding shares are present in person or
by proxy or (b) more than 50% of the outstanding shares of the Fund.
In accordance with these restrictions, each Fund may not:
1. With respect to 75% of its total assets, invest more than 5% of its
total assets in any one issuer (other than the United States government, its
agencies and instrumentalities) or purchase more than 10% of the voting
securities, or more than 10% of any class of securities, of any one issuer. (For
this purpose all outstanding debt securities of an issuer are considered as one
class, and all preferred stocks of an issuer are considered as one class.)
2. Invest for the purpose of exercising control or management of another
company.
3. Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions.
4. Invest in real estate (including real estate limited partnerships),
although a Fund may invest in marketable securities which are secured by real
estate and securities of companies which invest or deal in real estate.
5. Invest more than 10% of the value of its total assets in securities of
companies which, with their predecessors, have a record of less than three
years' continuous operation.
6. Purchase or retain the securities of any issuer if any of the officers
or directors of the Company or its investment adviser owns individually more
than 1/2 of 1% of the securities of such issuer and together such officers and
directors owning more than 1/2 of 1% own more than 5% of the securities of such
issuer.
7. Concentrate more than 25% of the value of its total assets in any one
industry (including securities of non-United States governments).
8. Make loans, except that this restriction shall not prohibit (1) the
purchase of publicly distributed debt securities in accordance with a Fund's
investment objectives and policies, (2) the lending of portfolio securities, and
(3) entering into repurchase agreements.
9. Borrow money, except from banks for temporary emergency purposes and, in
no event, in excess of 33 1/3% of its total assets at value or cost, whichever
is less; or pledge or mortgage its assets or transfer or assign or otherwise
encumber them in an amount exceeding the amount of the borrowing secured
thereby.
<PAGE>
-11-
10. Underwrite securities issued by others except to the extent the Company
may be deemed to be an underwriter, under the Federal securities laws, in
connection with the disposition of its portfolio securities.
11. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, reorganization or acquisition of assets
or (b) a Fund may purchase securities of closed-end investment companies up to
(i) 3% of the outstanding voting stock of any one investment company (including
for this purpose investments by any other series of the Company), (ii) 5% of the
total assets of the Fund with respect to any one investment company and (iii)
10% of the total assets of the Fund in the aggregate.
12. Invest in interests in oil, gas or other mineral exploration or
development programs (including leases), although it may invest in the
securities of companies which invest in or sponsor such programs.
13. Invest more than 15% of the Fund's net assets in securities which
cannot be readily resold to the public because of legal or contractual
restrictions or because there are no market quotations readily available or in
other "illiquid" securities (including non-negotiable deposits with banks and
repurchase agreements of a duration of more than seven days).
14. Participate on a joint or a joint and several basis in any trading
account in securities.
15. Issue senior securities (as defined in the Act), other than as set
forth in paragraph 9 above and except to the extent that foreign currency
forward contracts may be deemed to constitute a senior security.
16. Invest in commodities or commodity futures contracts, except that each
Fund may enter into forward foreign exchange contracts and may invest up to 5%
of its net assets in initial margin or premiums for futures contracts or options
on futures contracts.
If a percentage restriction (other than the restriction on borrowing in
paragraph 9) is adhered to at the time of investment, a subsequent increase or
decrease in the percentage beyond the specified limit resulting from a change in
value or net assets will not be considered a violation. Whenever any investment
policy or investment restriction states a maximum percentage of a Fund's assets
which may be invested in any security or other property, it is intended that
such maximum percentage limitation be determined immediately after and as a
result of the acquisition of such security or property.
RISK CONSIDERATIONS
Investors should carefully consider the risks involved in investments in
securities of companies and governments of foreign nations, which add to the
usual risks inherent in domestic investments. Such special risks include the
lower level of government supervision and regulation of stock exchanges,
broker-dealers and listed companies, fluctuations in foreign exchange rates,
future political and economic developments, and the possible imposition of
exchange controls or other foreign governmental laws or restrictions. In
addition, securities prices in foreign countries are generally subject to
different economic, financial, political and social factors than prices of
securities of United States issuers.
<PAGE>
-12-
The Company anticipates that the portfolio securities of foreign issuers
held by each Fund generally will not be registered with the SEC nor will the
issuers thereof be subject to the reporting requirements of such agency. In
addition, the governments under which these companies are organized may impose
less government supervision than is required in the United States. Accordingly,
there may be less publicly available information concerning certain of the
issuers of securities held by the Funds than is available concerning United
States companies. In addition, foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or to practices
and requirements comparable to those applicable to United States companies.
It is contemplated that the Funds' foreign portfolio securities generally
will be purchased on stock exchanges or in over-the-counter markets located in
the countries in which the principal offices of the issuers of the various
securities are located, if that is the best available market. Foreign stock
exchanges generally have substantially less volume than the New York Stock
Exchange and may be subject to less government supervision and regulation than
those in the United States. Accordingly, securities of foreign companies may be
less liquid and more volatile than securities of comparable United States
companies. Similarly, volume and liquidity in most foreign bond markets is less
than in the United States and, at times, price volatility can be greater than in
the United States.
Foreign broker-dealers also may be subject to less government supervision
than those in the United States. Although the Funds endeavor to achieve the most
favorable net results on their portfolio transactions, fixed commissions for
transactions on certain foreign stock exchanges may be higher than negotiated
commissions available on United States exchanges.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, and limitations on the transfer or exchange of funds or
other assets of the Funds. The Funds' ability and decisions to purchase or sell
portfolio securities may be affected by laws or regulations relating to the
convertibility and repatriation of assets. There is also the risk in certain
foreign countries of political or social instability, or diplomatic developments
which could affect United States investments as well as the prices of securities
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the United States economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
The Company will keep abreast of, and its Board of Directors will consider
at least annually the likelihood of, the imposition by any foreign government of
exchange control restrictions which would likely affect the liquidity of a
Fund's assets maintained with custodians in such countries, as well as the
degree of risk from political, social and economic events and developments to
which such assets may be exposed. Even such close consideration, however, might
not be sufficient to detect an unexpected event leading to the imposition of
exchange control restrictions. The Board of Directors will also consider the
degree of risk involved in the holding of portfolio securities in domestic and
foreign securities depositories. The Board of Directors will take such measures,
which may from time to time include the maintenance of expropriation insurance
and/or depository account insurance, to the extent that, in their good faith
judgment, they deem advisable under prevailing conditions. The Company does not
presently maintain any expropriation insurance or depository account insurance.
No assurance can be given that the appraisal of perceived risks by the Board of
Directors will always be correct or that exchange control restrictions or
activities of foreign governments which might materially adversely affect the
value of a Fund's portfolio might not occur.
<PAGE>
-13-
Because the shares of the Funds are redeemable on a daily basis in United
States dollars, each Fund intends to manage its portfolio so as to give
reasonable assurance that it will be able to obtain United States dollars to the
extent necessary to meet anticipated redemptions. The Funds do not believe that
this consideration will have any significant effects on their portfolio
strategies under present conditions.
PERFORMANCE INFORMATION
The average annual total return of each Fund for the periods ended December
31, 1995 is set forth in the table below. Average annual total return is
computed by finding the average annual compounded rates of return over the
periods indicated that would equate the initial amount invested in a Fund to the
redemption value at the end of the period. All dividends and distributions are
assumed to be reinvested. The results are shown both with and without deduction
of the sales load, since the sales load can be waived for certain investors.
Average Annual Return
---------------------------------------
After Deduction of Without Deduction
Maximum Sales Load of Sales Load
GAM International Fund (Class A)
1 year 23.58% 30.09%
5 years 18.91% 20.14%
10 years 18.41% 19.02%
From inception (1/2/85) 21.65% 22.22%
GAM International Fund (Class D)
From inception (9/5/95) 5.44% 9.26%
GAM Global Fund (Class A)
1 year 29.44% 36.25%
5 years 14.95% 16.13%
From inception (5/28/86) 11.43% 12.03%
GAM Global Fund (Class D)
From inception (9/5/95) 3.23% 6.97%
GAM Pacific Basin Fund (Class A)
1 year (0.72)% 4.50%
5 years 13.44% 14.60%
From inception (5/6/87) 11.22% 11.88%
GAM Pacific Basin Fund (Class D)
From inception (9/5/95) (1.23)% 2.35%
GAM Europe Fund
1 year 10.93% 16.77%
5 years 4.48% 5.56%
From inception (1/1/90) 0.74% 1.60%
<PAGE>
-14-
GAM North America Fund
1 year 24.35% 30.90%
5 years 10.90% 12.05%
From inception (1/1/90) 9.40% 10.34%
GAM Japan Capital Fund
1 year 1.12% 6.45%
From inception (7/1/94) (1.80)% 1.61%
GAM Asian Capital Fund
From inception (5/12/95) (9.04)% (4.25)%
GAMerica Capital Fund
From inception (5/12/95) (3.69)% 1.38%
Prospective investors should note that past results may not be indicative
of future performance. The investment return and principal value of shares of a
Fund will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
NET ASSET VALUE, DIVIDENDS AND TAXES
Reference is made to the material in the Prospectus under the heading "Net
Asset Value, Dividends and Taxes."
NET ASSET VALUE
As stated in the Prospectus, each Fund determines its net asset value each
day the New York Stock Exchange is open for trading. The New York Stock Exchange
is closed on the following holidays, in addition to Saturdays and Sundays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Portfolio securities, including ADR's, EDR's and options, which are traded
on stock exchanges or a national securities market will be valued at the last
sale price as described in the Prospectus as of the close of business on the day
the securities are being valued or, lacking any sales, at the last available bid
price. Securities traded in the over-the-counter market will be valued at the
last available bid price in the over-the-counter market prior to the time of
valuation. Money market securities will be valued at market value, except that
instruments maturing within 60 days of the valuation are valued at amortized
cost. The other securities and assets of each Fund for which market quotations
may not be readily available (including restricted securities which are subject
to limitations as to their sale) will be valued at fair value as determined in
good faith by or under the direction of the Board of Directors. Securities
quoted in foreign currencies will be converted to United States dollar
equivalents using prevailing market exchange rates.
SUSPENSION OF THE DETERMINATION OF NET ASSET VALUE
The Board of Directors may suspend the determination of net asset value for
a Fund for the whole or any part of any period during which (1) the New York
Stock Exchange is closed (other than for customary weekend and holiday
closings), (2) trading on the New York Stock Exchange is restricted, (3) an
emergency exists as a result of which disposal of securities owned by the Fund
<PAGE>
-15-
is not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (4) the Securities and
Exchange Commission may by order permit for the protection of the holders of the
Fund's shares.
TAX STATUS
Although each Fund is a series of the Company, it is treated as a separate
corporation for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to meet certain diversification-of-assets and other
requirements in order to qualify under the Code as a regulated investment
company. If it qualifies, a Fund will not be subject to United States Federal
income tax on net ordinary income and net capital gains which are distributed to
its shareholders within certain time periods specified in the Code. Each Fund
intends to distribute annually all of its net ordinary income and net capital
gains. If a Fund were to fail to distribute timely all such income and gains, it
would be subject to Federal corporate income tax and, in certain circumstances,
a 4% excise tax on its undistributed income and gains.
Distributions from net ordinary income and net short-term capital gains are
taxable to shareholders as ordinary income. The 70% deduction available to
corporations for dividends received from a Fund will apply to ordinary income
distributions only to the extent that they are attributable to a Fund's dividend
income from United States corporations. Distributions from net long-term capital
gains are taxable to a shareholder as long-term capital gains regardless of the
length of time the shares in respect of which such distributions are received
have been held by the shareholder. Dividends declared in December will be
treated as received in December as long as they are actually paid before
February 1 of the following year.
After a Fund makes a distribution to shareholders, the value of each
outstanding share of the Fund will decrease by the amount of the distribution.
If a shareholder purchases shares immediately before the record date of the
distribution, the shareholder will pay the full price for the shares and then
receive some portion of the price back as a taxable dividend or capital gain
distribution (also known as "buying a dividend").
Income from foreign securities purchased by a Fund may be reduced by a
withholding tax at the source. If as of the fiscal year-end of a Fund more than
50% of the Fund's assets are invested in securities of foreign corporations,
then the Fund may make an election which will result in the shareholders having
the option to elect either to deduct their pro rata share of the foreign taxes
paid by the Fund or to use their pro rata share of the foreign taxes paid by the
Fund in calculating the foreign tax credit to which they are entitled.
Distributions by a Fund will be treated as United States source income for
purposes other than computing the foreign tax credit limitation. As a result, a
Fund may be required to withhold Federal tax on certain distributions to foreign
shareholders.
Ordinarily, distributions and redemption proceeds earned by a United States
shareholder of a Fund are not subject to withholding of Federal income tax.
However, distributions or redemption proceeds paid by a Fund to a shareholder
may be subject to 20% backup withholding if the shareholder fails to supply the
Fund or its agent with such shareholder's taxpayer identification number or an
applicable exemption certificate.
In addition to the Federal income tax consequences described above relating
to an investment in a Fund, there may be other Federal, state or local tax
considerations that depend upon the circumstances of each particular investor.
Prospective shareholders are therefore urged to consult their tax advisors with
respect to the effect of this investment on their own specific situations.
<PAGE>
-16-
MANAGEMENT OF THE COMPANY
The name, address, principal occupation during the past five years and
other information with respect to each of the Directors and Executive Officers
of the Company are as follows:
Name and Address:
Position(s) Held Principal Occupation(s)
With the Company During Past Five Years
------------------ -----------------------
<TABLE>
<CAPTION>
<S> <C>
Gilbert de Botton*......................... Chairman, Global Asset Management Limited, investment adviser,
12 St. James's Place 1983 to present; Chairman, Global Asset (U.K.) Ltd., holding
London SW1A 1NX company, 1983 to present; Vice President, Global Asset
England Management Limited (Bermuda), investment adviser, 1989 to
Director and President present.
George W. Landau........................... President, Americas Society and the Council of the Americas,
2601 South Bayshore Drive 1985-1993; Chairman, Latin American Advisory Board of
Suite 1109 Coca-Cola International, 1988 to present.
Coconut Grove, FL 33133
Director
Therese Meier*............................. Managing Director, Global Asset Management GAM (Schweiz) A.G.,
Muhlebachstrasse 173 Zurich, 1983 to present.
8008 Zurich
Switzerland
Director
Madelon DeVoe Talley....................... Author and consultant; Commissioner, Port Authority of New
876 Park Avenue York and New Jersey; Governor of National Association of
New York, NY 10021 Securities Dealers, Inc.; Trustee, New York State Teachers
Director Retirement System, 1988 to 1993.
Roland Weiser.............................. President, Intervista, business consulting, 1984 to present.
86 Beekman Road
Summit, New Jersey 07901
Director
</TABLE>
- -------------------------
* Mr. de Botton and Mrs. Meier are Directors who are "interested persons" of
the Company within the definitions set forth in the Act.
<PAGE>
-17-
Name and Address:
Position(s) Held Principal Occupation(s)
With the Company During Past Five Years
----------------- -----------------------
<TABLE>
<CAPTION>
<S> <C>
Kevin Blanchfield.......................... Chief Operating Officer, Treasurer and Assistant Secretary,
135 East 57th Street Global Asset Management (USA) Inc., GAM Investments, Inc. and
New York, NY 10022 GAM Services Inc., 1995 to present; Vice President, Secretary
Vice President, and Treasurer, Global Asset Management (USA) Inc., GAM
Treasurer and Investments, Inc. and GAM Services Inc., 1993 to 1995; Senior
Assistant Secretary Vice President - Finance and Administration, Lazard Freres &
Co., 1991 to 1993; Senior Vice President-Finance, J&W Seligman
& Co. Inc., prior to 1991.
</TABLE>
- -----------------------------------
Each independent Director of the Company receives annual compensation from
the Company of $5,000 per year plus $500 for each regularly scheduled Board of
Directors meeting attended and is reimbursed by the Company for travel expenses
incurred in connection with attendance at Board of Directors meetings. The
officers and interested Directors of the Company do not receive any compensation
from the Company.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The name, position(s) and information related to the compensation of each
of the Directors and the three highest paid Executive Officers of the Company
are as follows:
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Total Compensation
Compensation Retirement Benefits Annual Benefits From the Company and
Name and Position(s) Held From the Accrued as Part of Upon Fund Complex
With the Company Company Company Expenses Retirement Paid to Directors
<S> <C> <C>
Gilbert de Botton $0 $0
Director and President
George W. Landau $6,500 $6,500
Director
Therese Meier $0 $0
Director
Madelon DeVoe Talley $7,000 $7,000
Director
Roland Weiser $7,000 $7,000
Director
</TABLE>
<PAGE>
-18-
PRINCIPAL HOLDERS OF SECURITIES
As of March 25, 1996, the following persons may be deemed to own
beneficially more than 5% of the outstanding shares of any Fund.
<TABLE>
<CAPTION>
INTER- INTER- NORTH JAPAN
NATIONAL NATIONAL GLOBAL GLOBAL PAC BASIN PAC BASIN EUROPE AMERICA CAPITAL
CLASS A CLASS D CLASS A CLASS D CLASS A CLASS D CLASS A CLASS A CLASS A
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alex Brown & Sons - 260,674 - - 10,167 - - - 15,313
P.O. Box 1346 - 23.01% - - 0.26% - - - 0.68%
Baltimore, MD 21203
Bear Stearns Securities Corp. - 12,315 - 4,560 - - - - -
1 Metrotech Center North - 1.09% - 9.82% - - - - -
Brooklyn, NY 11201
Gilbert de Botton* 4,108,268 - 524,534 - 1,430,949 - 2,022,462 337,537 1,135,418
12 St. Jame's Place 10.26% - 31.24% - 36.27% - 92.51% 74.40% 50.32%
London SW1A INX
England
Dekko Foundation Inc. - 72,310 - - - - - - -
P.O. Box 548 - 6.38% - - - - - - -
Kendallville, IN 46755
Donaldson, Lufkin & - - 26,694 3,260 93,754 19,068 1,483 - 5,093
Jenerette Securities - - 1.59% 7.02% 2.38% 15.89% 0.07% - 0.23%
Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
Fayez Sarofim & Co. 8,528 - 45,351 - - - - 146,129 -
Two Houston Center 0.02% - 2.70% - - - - 32.21% -
Suite 2907
Houston, TX 77010
</TABLE>
<TABLE>
<CAPTION>
ASIAN CAP. GAMERICA
CLASS A CLASS A TOTAL
------- ------- -----
<S> <C> <C> <C>
Alex Brown & Sons - - 286,154
P.O. Box 1346 - - 0.54%
Baltimore, MD 21203
Bear Stearns Securities Corp. - - 16,875
1 Metrotech Center North - - 0.03%
Brooklyn, NY 11201
Gilbert de Botton* 472,563 220,046 10,251,778
12 St. Jame's Place 67.80% 95.72% 19.42%
London SW1A INX
England
Dekko Foundation Inc. - - 72,310
P.O. Box 548 - 0.14%
Kendallville, IN 46755
Donaldson, Lufkin & 1,933 - 151,285
Jenerette Securities 0.28% - 0.29%
Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
Fayez Sarofim & Co. - - 200,008
Two Houston Center - - 0.38%
Suite 2907
Houston, TX 77010
</TABLE>
- ----------
* All shares indicated as owned beneficially by Mr. Gilbert de Botton,
President and Director of the Company, are owned of record by clients, or
custodians or nominees for clients, of GAM and its affiliates, or by employee
benefit plans for the benefit of employees of GAM and its affiliates. Entities
controlled by Global Asset Management Ltd. may be deemed to have investment or
voting power over such shares. Mr. de Botton is the Chairman of Global Asset
Management Ltd. and may be a potential beneficiary of a discretionary trust
which indirectly owns approximately 70% of the voting securities of Global Asset
Management Ltd. As a result, Mr. de Botton may be deemed to have shared voting
or investment power over such shares. Mr. de Botton disclaims beneficial
ownership of such shares.
<PAGE>
-19-
<TABLE>
<CAPTION>
INTER- INTER-
NATIONAL NATIONAL GLOBAL GLOBAL PAC BASIN
CLASS A CLASS D CLASS A CLASS D CLASS A
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Gordon P. Getty 74,668 - 133 - 120,473
Family Trust 0.19% - 0.01% - 3.05%
600 New Hampshire
Suite 953
Washington, D.C. 20037
Esmond Harnsworth 51,702 - - - 69,237
359 Beacon Street 0.13% - - - 1.76%
Boston, MA 02110
Long Island University - - - - 87,695
University Center - - - - 2.22%
Brookville, NY 11548
Resources Trust Co. - - - 2,852 -
FBO HIRA L. Kenna IRA - - - 6.14% -
P. O. Box 5900
Denver, CO 80217
S. Klein Decl. Trust 18,271 - 16,173 - 29,810
c/o Rothschild Bank AG 0.05% - 0.96% - 0.76%
Zollikerstrasse 181
8034 Zurich
Switzerland
Neil McConnell Foundation 17.239 - 31,144 - 22,403
c/o Bankers Trust Company 0.76% - 1.38% - 0.99%
130 Liberty Street - 17th Floor
New York, NY 10006
Steven Read 48,490 - - - 61,083
2000 Fifth Street 0.12% - - - 1.55%
Berkeley, CA 94710
Prudential Securities - - - 3,658 -
FBO Harvey B. Rosenberg - - - 7.87% -
IRA
516 Hupp Cross
Bloomfield, MI 48301
</TABLE>
<TABLE>
<CAPTION>
NORTH JAPAN
PAC BASIN EUROPE AMERICA CAPITAL ASIAN CAP. GAMERICA
CLASS D CLASS A CLASS A CLASS A CLASS A CLASS A TOTAL
------- ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Gordon P. Getty - 208,370 - 130,818 - - 534,462
Family Trust - 9.53% - 5.80% - - 1.01%
600 New Hampshire
Suite 953
Washington, D.C. 20037
Esmond Harnsworth - 170,798 41,185 25,073 - 17,172 375,167
359 Beacon Street - 7.81% 9.08% 1.11% - 7.47% 0.71%
Boston, MA 02110
Long Island University - 147,344 - - - - 235,039
University Center - 6.74% - - - - 0.45%
Brookville, NY 11548
Resources Trust Co. - - - - - - 2,852
FBO HIRA L. Kenna IRA - - - - - - 0.01%
P. O. Box 5900
Denver, CO 80217
S. Klein Decl. Trust - 55,540 24,048 10,328 - 17,818 171,988
c/o Rothschild Bank AG - 2.54% 5.30% 0.46% - 7.75% 0.33%
Zollikerstrasse 181
8034 Zurich
Switzerland
Neil McConnell Foundation - 46,947 15,094 10,167 - 18,236 161,230
c/o Bankers Trust Company - 2.08% 0.67% 0.45% - 7.93% 0.31%
130 Liberty Street - 17th Floor
New York, NY 10006
Steven Read - 128,745 - 28,335 - - 266,653
2000 Fifth Street - 5.89% - 1.26% - - 0.51%
Berkeley, CA 94710
Prudential Securities - - - - - - 3,658
FBO Harvey B. Rosenberg - - - - - - 0.01%
IRA
516 Hupp Cross
Bloomfield, MI 48301
</TABLE>
<PAGE>
-20-
<TABLE>
<CAPTION>
INTER- INTER-
NATIONAL NATIONAL GLOBAL GLOBAL PAC BASIN
CLASS A CLASS D CLASS A CLASS D CLASS A
------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Royal Life Insurance 2,700 538 - 17,672 -
International LTD 0.12% 0.05% - 38.04% -
Royal Court, Castletown
Isle of Man, British Isles
Richard C. and Pauline Z. - - - 3,726 -
Schultz - - - 8.02% -
21150 N. Middleton Drive
Kildeer, IL 60047
Charles Schwab & Co. 10,425,004 - 120,329 - 1,451,086
101 Montgomery Street 26.03% - 7.17% - 36.78%
San Francisco, CA 94104
Jan I. Shrem 18,452 - 24,872 - 37,217
1060 Dunaweal Lane 0.05% - 1.48% - 0.94%
Calistoga, CA 94515
Tword C. Family - 60,037 - - -
Partnership LP - 5.30% - - -
210 E. Capital, Suite 1525
Jackson, MS 39201
Key Trust Co. of Ohio, Custodian - - - - -
University Orthopedic Assoc - - - - -
Pension Plan
127 Public Square - 14th Floor
Cleveland, OH 44114
All officers and 4,108,268 - 524,534 - 1,430,949
directors* 10.26% - 31.24% - 36.27%
</TABLE>
<TABLE>
<CAPTION>
NORTH JAPAN
PAC BASIN EUROPE AMERICA CAPITAL ASIAN CAP. GAMERICA
CLASS D CLASS A CLASS A CLASS A CLASS A CLASS A TOTAL
------- ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Royal Life Insurance - - - - - - 20,910
International LTD - - - - - - 0.04%
Royal Court, Castletown
Isle of Man, British Isles
Richard C. and Pauline Z. - - - - - - 3,726
Schultz - - - - - - 0.01%
21150 N. Middleton Drive
Kildeer, IL 60047
Charles Schwab & Co. - 633,495 3,600 72,450 5,698 3,457 12,145,119
101 Montgomery Street - 2.90% 0.79% 3.21% 0.82% 1.50% 23.01%
San Francisco, CA 94104
Jan I. Shrem - 87,913 23,062 19,934 - 24,321 235,771
1060 Dunaweal Lane - 4.02% 5.08% 0.88% - 10.58% 0.45%
Calistoga, CA 94515
Tword C. Family - - - - - - 60,037
Partnership LP - - - - - - 0.11%
210 E. Capital, Suite 1525
Jackson, MS 39201
Key Trust Co. of Ohio, Custodian 89,737 - - - - - 89,737
University Orthopedic Assoc 74.80% - - - - - 0.17%
Pension Plan
127 Public Square - 14th Floor
Cleveland, OH 44114
All officers and - 2,022,462 337,537 1,135,418 472,563 220,046 10,251,778
directors* - 92.51% 74.40% 50.32% 67.80% 95.72% 19.42%
</TABLE>
- ----------
* Includes shares which may be deemed to be owned beneficially by Mr. de
Botton as described in footnoted 1 above.
<PAGE>
-21-
CHANGE OF NAME
On February 18, 1986, the Company changed its name from GAM International,
Inc. to GAM Funds, Inc.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY CONTRACTS
The Amended and Restated Investment Advisory Contract dated April 14, 1994
(the "GAM Contract") between the Company and GAM, as amended, was last approved
by the Board of Directors (including a majority of the Directors who were not
parties to the GAM Contract or interested persons of any such party) on behalf
of each Fund on October 24, 1996 and by the shareholders of each Fund (other
than GAM Japan Capital Fund, GAMerica Capital Fund and GAM Asian Capital Fund)
on April 14, 1994. The investment advisory agreement dated June 29, 1990 between
the Company and Sarofim (the "Sarofim Contract") was last approved by the Board
of Directors, including a majority of the Directors who are not parties to the
Sarofim Contract or interested persons of any such party, on October 24, 1996
and by the shareholders of GAM North America Fund on April 14, 1994. The GAM
Contract and the Sarofim Contract will each continue in effect until December
31, 1997, and from year to year thereafter if approved annually by the Board of
Directors or by the vote of a majority of the outstanding shares of each Fund
(as defined in the Act) and, in either event, by the approval of a majority of
those Directors who are not parties to the GAM Contract or the Sarofim Contract
or interested persons of any such party.
The GAM Contract requires GAM to conduct and maintain a continuous review
of each Fund's portfolio and to make all investment decisions regarding
purchases and sales of portfolio securities and brokerage allocation for each
Fund other than GAM North America Fund. The Sarofim Contract requires Sarofim to
provide the same services to GAM North America Fund. Sarofim commenced providing
investment advisory services to GAM North America Fund on June 29, 1990.
No Investment Adviser will be required to furnish any overhead facilities
for the Funds, including daily pricing facilities. Although such expenses are
paid by most investment advisers of other investment companies, these expenses
and all other operating expenses will be borne directly by the Funds. GAM will
render its services to each Fund from outside the United States.
The GAM Contract and the Sarofim Contract (the "Contracts") each provides
that the Investment Advisers will select brokers and dealers for execution of
each Fund's portfolio transactions consistent with the Company's brokerage
policy (see "Brokerage Allocation"). Although the services provided by
broker-dealers in accordance with the brokerage policy incidentally may help
reduce the expenses of or otherwise benefit the other investment advisory
clients of the Investment Advisers or their affiliates, as well as the Funds,
the value of such services is indeterminable and the Investment Advisers' fees
are not reduced by any offset arrangement by reason thereof.
<PAGE>
-22-
Each of the Contracts provides that the Investment Advisers shall have no
liability to the Company or to any shareholder of a Fund for any error of
judgment, mistake of law, or any loss arising out of any investment or other act
or omission in the performance by an Investment Adviser of its duties under such
Contracts or for any loss or damage resulting from the imposition by any
government of exchange control restrictions which might affect the liquidity of
a Fund's assets maintained with custodians or securities depositories in foreign
countries or from any political acts of any foreign governments to which such
assets might be exposed, except for liability resulting from willful
misfeasance, bad faith or gross negligence on the Investment Adviser's part or
reckless disregard of its duties under the Contract.
Each Contract will terminate automatically in the event of its assignment,
as such term is defined under the Act, and may be terminated by each Fund at any
time without payment of any penalty on 60 days' written notice, with the
approval of a majority of the Directors of the Company or by vote of a majority
of the outstanding shares of a Fund (as defined in the Act).
The Company acknowledges that it has obtained its corporate name by consent
of GAM and agrees that if (i) GAM should cease to be the Company's investment
adviser or (ii) Global Asset Management Ltd. should cease to own a majority
equity interest in GAM, the Company, upon request of GAM, shall submit to its
shareholders for their vote a proposal to delete the initials "GAM" from its
name and cease to use the name "GAM Funds, Inc." or any other name using or
derived from "GAM" or "Global Asset Management," any component thereof or any
name deceptively similar thereto, and indicate on all letterheads and other
promotional material that GAM is no longer the Company's investment adviser. If
GAM makes such request because Global Asset Management Ltd. no longer owns a
majority equity interest in GAM, the question of continuing the GAM Contract
must be submitted to a vote of the Company's shareholders. The Company has
agreed that GAM or any of its successors or assigns may use or permit the use of
the names "Global Asset Management" and "GAM" or any component or combination
thereof in connection with any entity or business, whether or not the same
directly or indirectly competes or conflicts with the Company and its business
in any manner.
ADVISORY FEES
For its services to the Funds, GAM receives a quarterly fee of 0.25% of the
average daily net assets of each of GAM International Fund, GAM Global Fund, GAM
Pacific Basin Fund, GAM Japan Capital Fund, GAM Asian Capital Fund, GAMerica
Capital Fund and GAM Europe Fund during the quarter preceding each payment; and
GAM and Sarofim each receives a quarterly fee equal to 0.125% of the average
daily net assets of GAM North America Fund. In each case the aggregate advisory
fees are equivalent to an annual fee of 1.0% of the average daily net assets of
each Fund during the year. The level of advisory fees paid by each Fund is
higher than the rate of advisory fee paid by most registered investment
companies. The actual advisory fee paid by each Fund during the fiscal years
ended December 31, 1995, 1994 and 1993 are set forth below:
<TABLE>
<CAPTION>
INTER- PACIFIC NORTH JAPAN GAMERICA ASIAN
NATIONAL GLOBAL BASIN EUROPE AMERICA CAPITAL CAPITAL CAPITAL
-------- ------ ----- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $3,085,111 $208,022 $414,221 $203,030 $38,934 $57,489 $16,082 $28,041
1994 $1,239,629 $241,333 $461,985 $237,793 $20,883 $31,606 NA NA
1993 $456,683 $223,863 $291,724 $130,608 $69,370 NA NA NA
</TABLE>
In the event that a Fund's annual expenses for all purposes (including the
investment advisory fee), except taxes, brokerage fees and commissions,
distribution expenses and (with the consent of the state
<PAGE>
-23-
securities administrators where necessary) extraordinary expenses such as
litigation, exceed the limits prescribed by any state in which the Fund's shares
are qualified for sale, the amount of the fee payable by the Fund to the
Investment Advisers will be reduced by the amount of any such excess. Currently,
the most restrictive limitation applicable to the Funds limit each Fund's
expenses (other than those referred to above, subcustodian costs, certain legal
expenses and one-half of the investment advisory fees) to 2.5% of the first
$30,000,000 of each Fund's average month-end net asset value, 2.0% of the next
$70,000,000 of each Fund's average month-end net asset value, and 1.5% of the
remainder.
Expenses incurred in connection with each Fund's organization, initial
registration and initial offering under Federal and state securities laws,
including printing, legal and registration fees, and the period over which such
expenses are amortized, are set forth below (except for the expenses of GAM
International Fund, GAM Global Fund, GAM Pacific Basin Fund, GAM Europe Fund and
GAM North American Fund, which have been fully amortized):
Japan GAMerica Asian
Capital Capital Capital
------- ------- -------
Organizational Expenses $34,166 $30,036 $30,036
Amortized over 5 years beginning 7/1/94 5/12/95 5/12/95
The expense ratio of each Fund may be higher than that of most registered
investment companies since the cost of maintaining the custody of foreign
securities is higher than that for most domestic funds and the rate of advisory
fees paid by the Funds exceeds that of most registered investment companies.
INVESTMENT ADVISERS
All of the Investment Advisers are registered under the United States
Investment Advisers Act of 1940, as amended. GAM is controlled by and under
common control with other investment advisers (as described below) which have
substantial experience managing foreign mutual funds and which have aggregate
assets under management of approximately $8.5 billion. Sarofim has aggregate
assets under management of approximately $30 billion.
The Directors of GAM and their principal occupations are as follows:
Name and
Position Held with
Investment Adviser Principal Occupation(s)
------------------ -----------------------
Gilbert de Botton.............. See "Management of the Company" above.
Director
Nicholas J. Eeley............. Director, Global Asset Management Limited.
Director
Count Ulric von Rosen......... President, Bonnier Medical Division of Bonnier
Director Medical Group, Sweden.
<PAGE>
-24-
Paul S. Kirkby................ Investment Director, Global Asset Management
Director (H.K.) Ltd.
David J. Miller............... Finance Director, Global Asset Management
Director (U.K.) Ltd.
Alan McFarlane................ Managing Director (Institutional), Global Asset
Director Management Ltd., investment adviser.
Denis G. Raeburn.............. Managing Director, Global Asset Management Ltd.
Director and Global Asset Management (U.K.) Ltd.,
holding company.
Gordon Grender ............... Investment manager.
Director
GAM is a wholly-owned subsidiary of Global Asset Management (U.K.)
Limited,* a holding company. Global Asset Management Ltd.,** an investment
adviser organized under the laws of Bermuda, controls the Investment Adviser
through its wholly-owned subsidiaries, Greenpark Management N.V. and GAMAdmin
B.V. (the latter of which is the direct parent of Global Asset Management (U.K.)
Limited). Lorelock, S.A.,*** which is controlled directly by Metrolis Anstalt, a
Lichtenstein company, and indirectly by a discretionary trust of which Mr. de
Botton, a Director and President of the Fund, may be deemed to be a beneficiary,
owns approximately 70% of the voting securities of Global Asset Management Ltd.
St. James's Place Capital plc, an international, diversified financial services
company, owns approximately 30% through its wholly-owned subsidiary J.
Rothschild Investment Management Ltd. St. James's Place Capital plc controls,
individually and collectively and directly and indirectly, a number of
subsidiaries, which provide financial services and investment management
services for various investment companies, among others, and which are involved
internationally in various financial service businesses.
The Directors and principal executive officers of Sarofim and their
principal occupations are as follows:
Fayez S. Sarofim Chairman, Director and President, Sarofim
Raye G. White Executive Vice President, Secretary-Treasurer
and Director, Sarofim
Ralph B. Thomas Senior Vice President, Sarofim
William K. McGee, Jr. Senior Vice President, Sarofim
- ----------
* Mr. de Botton, President and Director of the Company, is Chairman of Global
Asset Management (U.K.) Limited.
** Mr. de Botton, President and Director of the Company, is Vice President and
Director, and Ms. Meier, a Director of the Company, is President and
Director of Global Asset Management Ltd.
*** Ms. Meier, a Director of the Company, is a Director of Lorelock, S.A.
<PAGE>
-25-
Russell M. Frankel Senior Vice President, Sarofim
Charles E. Sheedy Senior Vice President, Sarofim
Russell B. Hawkins Senior Vice President, Sarofim
A majority of the outstanding stock of Sarofim is owned by Fayez S.
Sarofim. In addition, Mr. Sarofim is a director of Teledyne, Inc., Unitrin,
Inc., Argonaut Group, Imperial Holly Corp., EXOR Group and MESA Inc., each of
which is a publicly traded corporation with principal offices in the United
States.
DISTRIBUTION OF SHARES
The Company has entered into a distribution agreement (the "Distribution
Agreement") with GAM Services Inc. ("GAM Services"), under which GAM Services
has agreed to act as principal underwriter and to use reasonable efforts to
distribute the Fund's shares. Pursuant to the Distribution Agreement, GAM
Services receives the sales load on sales of the Funds' shares and reallows a
portion of the sales load to brokers. GAM Services also receives the
distribution fees payable pursuant to the Fund's Plan of Distribution for Class
A and Class D Shares.
GAM Services is controlled by Global Asset Management Ltd., which also
controls GAM, and may be deemed to be controlled by St. James's Place Capital
plc and a discretionary trust of which Gilbert de Botton, President and Director
of the Company, may be a beneficiary. Kevin Blanchfield, Vice President,
Assistant Secretary and Treasurer of the Company, is also Chief Operating
Officer, Treasurer and a Director of GAM Services.
The sales load will be waived in connection with sales of shares of the
Funds to the classes of investors specified in the Prospectus under "Purchase of
Shares -- Offering Price." GAM Services has waived the sales charge to such
investors because of the efficiencies involved in sales of shares to those
investors.
CUSTODIAN AND ADMINISTRATOR
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109
("Brown Brothers") serves as custodian of the Company's securities and cash and
as its administrator. Brown Brothers also maintains certain records for the
Company required by the Act and applicable Federal and state tax laws, keeps
books of account, renders reports and statements, including financial
statements, and disburses funds in payment of the Company's bills and
obligations.
Brown Brothers is reimbursed by the Company for its disbursements, expenses
and charges (including counsel fees but excluding salaries and usual overhead
expenses) incurred in connection with the foregoing services and receives a fee
from the Company based on a fee schedule in effect from time to time (which is
based on the net asset value of the Fund). The agreement provides for
termination by either party on 60 days' written notice.
Brown Brothers may from time to time enter into Subcustodian Agreements
with foreign branches of United States banks or eligible foreign custodians
pursuant to which portfolio securities and cash
<PAGE>
-26-
owned by the Company are held outside the United States in the custody of such
foreign branches or eligible foreign custodians.
SHAREHOLDER SERVICE AND TRANSFER AGENT
Chase Global Funds Service Company, P.O. Box 2798, Boston, Massachusetts
02208, serves as shareholder service agent, dividend-disbursing agent, transfer
agent and registrar for the Funds. The Funds may also engage other entities to
act as shareholder servicing agents and to perform subaccounting services as
described under "Shareholder Servicing Agents" in the Prospectus.
LEGAL COUNSEL
The law firm of Coudert Brothers, 1114 Avenue of the Americas, New York,
New York 10036, is legal counsel for the Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 1301 Avenue of the Americas, New York, New York
10019-6013, are the independent accountants for the Company for the fiscal year
ending December 31, 1996. In addition to reporting annually on the financial
statements of each Fund, the Company's accountants will review certain filings
of the Company with the Securities and Exchange Commission and will prepare the
Company's Federal and state corporation tax returns.
REPORTS TO SHAREHOLDERS
The fiscal year of the Company ends on December 31. Shareholders of each
Fund will be provided at least semi-annually with reports showing the portfolio
of the Fund and other information, including an annual report with financial
statements audited by independent accountants.
BROKERAGE ALLOCATION
The Contracts provide that the Investment Advisers shall be responsible for
the selection of members of securities exchanges, brokers and dealers (such
members, brokers and dealers being hereinafter collectively referred to as
"brokers") for the execution of the portfolio transactions of each Fund and,
when applicable, the negotiation of commissions in connection therewith. It
should be noted that in transactions on stock exchanges in the United States,
brokerage commissions are negotiated, whereas on certain foreign stock exchanges
these commissions are fixed. In the case of securities traded on the
over-the-counter markets, there is generally no stated commission, but the price
usually includes an undisclosed commission or markup.
All recommendations, decisions and placements of each Fund's brokerage
transactions shall be made in accordance with the following principles:
Purchase and sale orders will usually be placed with brokers who are
selected based on their ability to achieve "best execution" of such orders.
"Best execution" shall mean prompt and reliable execution at the most favorable
security price, taking into account the other provisions hereinafter set forth.
The determination of what may constitute best execution and price in the
execution of a securities transaction by a broker involves a number of
considerations, including, without limitation, the overall direct net economic
result to the Fund (involving both price paid or received and any commissions
and other costs paid), the
<PAGE>
-27-
efficiency with which the transaction
is effected, the ability to effect the
transaction at all where a large block is involved, the availability of the
broker to stand ready to execute possibly difficult transactions in the future,
and the financial strength and stability of the broker. Such considerations are
judgmental and are to be weighed by the Investment Advisers in determining the
overall reasonableness of brokerage commissions.
In selecting brokers for portfolio transactions, the Investment Advisers
shall take into account their past experience as to brokers qualified to achieve
"best execution," including brokers who specialize in any foreign securities
held by a Fund.
Each Investment Adviser is authorized to allocate brokerage and principal
business to brokers who have provided brokerage and research services, as such
services are defined in Section 28(e) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), for the Company and/or other accounts for which the
Investment Adviser exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions for which fixed minimum
commission rates are not applicable, to cause a Fund to pay a commission for
effecting a securities transaction in excess of the amount another broker would
have charged for effecting that transaction, if the Investment Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Adviser's overall responsibilities with respect to the Fund and the other
accounts as to which it exercises investment discretion. In reaching such
determination, the Investment Advisers will not be required to place or to
attempt to place a specific dollar value on the research or execution services
of a broker or on the portion of any commission reflecting either of said
services.
In demonstrating that such determinations were made in good faith, the
Investment Advisers shall be prepared to show that all commissions were
allocated and paid for purposes contemplated by the Company's brokerage policy;
that commissions were not allocated or paid for products or services which were
readily and customarily available and offered to the public on a commercial
basis; and that the commissions paid were within a reasonable range. The
determination that commissions were within a reasonable range shall be based on
any available information as to the level of commissions known to be charged by
other brokers on comparable transactions, but there shall be taken into account
the Company's policies: (i) that obtaining a low commission is deemed secondary
to obtaining a favorable securities price, since it is recognized that usually
it is more beneficial to a Fund to obtain a favorable price than to pay the
lowest commission; and (ii) that the quality, comprehensiveness and frequency of
research studies which are provided for the Funds and the Investment Advisers
are useful to each Investment Adviser in performing its advisory services under
its Contract with the Company.
Research services provided by brokers to the Funds or the Investment
Advisers are considered by the Investment Advisers to be in addition to, and not
in lieu of, services required to be performed by each Investment Adviser under
its Contract with the Funds. Such research consists of that which brokerage
houses customarily provide to institutional investors and includes statistical
and economic data and research reports on particular companies and industries.
Research furnished by brokers through whom the Funds effect securities
transactions may be used by each Investment Adviser for any of its accounts, and
not all such research may be used by the Investment Advisers for the Funds. When
execution of portfolio transactions is allocated to brokers outside the United
States and fixed brokerage commission rates are applicable, account may be taken
of various services provided by the broker, including quotations for daily
pricing of foreign securities held in the Funds' portfolios and trading desk
services for the Funds.
Purchases and sales of portfolio securities within the United States other
than on a securities exchange shall be executed with primary market makers
acting as principal except where, in the judgment of
<PAGE>
-28-
the Investment Advisers, better prices and execution may be obtained on a
commission basis or from other sources.
Portfolio transactions executed by brokers which may be deemed to be
affiliated with the Company will be in accordance with procedures adopted by the
Company to ascertain that the brokerage commissions paid to such brokers are
fair, reasonable, usual and customary compared to the commission, fee or other
remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold during a
comparable period of time. The Board of Directors of the Company will review
these procedures at least annually and will determine at least quarterly that
all brokerage commissions paid to such brokers during the preceding quarter were
paid in compliance with such procedures.
The amount of brokerage commissions paid by each Fund during the three
fiscal years ended December 31, 1995 are set forth below:
<TABLE>
<CAPTION>
Inter- Pacific North Japan GAMerica Asian
national Global Basin Europe America Capital Capital Capital
-------- ------ ----- ------ ------- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $706,834 $ 51,949 $268,565 $149,546 $ 3,906 $96,322 $6,336 $30,158
1994 614,271 209,240 165,154 120,013 2,304 41,233 NA NA
1993 399,236 182,755 266,125 96,567 10,062 NA NA NA
</TABLE>
FINANCIAL STATEMENTS
The audited financial statements of each Fund for the fiscal year ended
December 31, 1995 and the report of the Funds' independent auditors in
connection therewith are included in the 1995 Annual Report to Shareholders and
are incorporated by reference in this Statement of Additional Information.
<PAGE>
APPENDIX A
Description of Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Corporation ("S&P") highest commercial paper and bond ratings:
PRIME-1 AND A-1 COMMERCIAL PAPER RATING
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet obligations.
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated "A" or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position in the industry. The
reliability and quality of management are unquestioned. Relative strength or
weakness of the above factors determine whether the issuer's commercial paper is
rated A-1, A-2 or A-3.
C AND D BOND RATINGS
Bonds rated C by Moody's are the lowest rated class of bonds and are judged
by Moody's as having extremely poor prospects of ever attaining any real
investment standing. Such issues are often in default and are considered highly
speculative. Bonds rated D by S&P are issues as to which interest or principal
payments are in default or in arrears.
