GLOBAL ASSET MANAGEMENT(R)
GAM FUNDS, INC.
135 EAST 57TH STREET
NEW YORK, NY 10022
TEL: (212) 407-4600/FAX: (212) 407-4684
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 2000
(amended November 6, 2000)
This Statement of Additional Information pertains to the funds listed
below, each of which is a separate series of common stock of GAM Funds, Inc.
(the "Company"), a diversified open-end management investment company. Each
series of the Company represents a separate portfolio of securities (each a
"Fund" and collectively the "Funds"). The investment objective of each Fund is
to seek long term capital appreciation through investment primarily in equity
securities. Each Fund seeks to achieve its objective by investing primarily
within a particular geographic region in accordance with its own investment
policy. There is no assurance that the Funds will achieve their objective.
The Funds are managed by GAM International Management Limited ("GIML").
Fayez Sarofim & Co. ("Sarofim") serves as co-investment adviser to the GAM North
America Fund. (GIML and Sarofim are collectively referred to as the "Investment
Advisers"). GAM Services, Inc. ("GAM Services"), an affiliate of GIML, serves as
the principal underwriter for the Funds' securities.
GAM Global Fund invests primarily in the United States, Europe, the Pacific
Basin, and Canada.
GAM International Fund invests primarily in Europe, the Pacific Basin and
Canada.
GAM Pacific Basin Fund invests primarily in the Pacific Basin, including
Japan, Hong Kong, Korea, Taiwan, Singapore, Malaysia, Thailand, Indonesia
and Australia.
GAM Japan Capital Fund invests primarily in Japan.
GAM Europe Fund invests primarily in Europe.
GAM North America Fund invests primarily in the United States and Canada.
GAMerica Capital Fund invests primarily in the United States.
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, 2000, which can be obtained without
cost upon request at the address indicated above.
The Funds' 1999 Annual Report to Shareholders is incorporated by reference
in this Statement of Additional Information.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENTS IN THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
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Table of Contents
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INVESTMENT OBJECTIVE AND STRATEGIES........................................ 3
Rating of Securities....................................................... 3
United States Government Obligations........................................ 4
Repurchase Agreements......................................................... 4
Options....................................................................... 4
Stock Index Futures and Options............................................... 5
Interest Rate Futures and Options............................................. 6
Foreign Currency Transactions................................................. 6
Lending Portfolio Securities.................................................. 7
Warrants...................................................................... 8
Borrowing..................................................................... 8
Short-Selling................................................................. 8
Restricted Securities......................................................... 9
Future Developments........................................................... 9
Fundamental Investment Restrictions........................................... 9
Non-Fundamental Investment Restrictions..................................... 10
Risk Considerations......................................................... 10
Policy of Concentration for GAM Pacific Basin Fund.......................... 11
Portfolio Turnover.......................................................... 11
MANAGEMENT OF THE COMPANY................................................... 12
Compensation of Directors and Executive Officers ........................... 13
Principal Holders of Securities............................................. 13
INVESTMENT ADVISORY AND OTHER SERVICES ..................................... 18
Investment Advisers ........................................................ 18
Investment Advisory Contracts .............................................. 19
Advisory Fees............................................................... 21
Principal Underwriter and Plans of Distribution ............................ 21
Custodian and Administrator ................................................ 24
Transfer Agent.............................................................. 24
Legal Counsel............................................................... 24
Independent Accountants .................................................... 24
Reports to Shareholders..................................................... 24
BROKERAGE ALLOCATION ....................................................... 25
Affiliated Transactions..................................................... 26
SHAREHOLDER INFORMATION .................................................... 26
Sales Charge Reductions and Waivers ........................................ 26
Waivers of Front-End Sales Charges ......................................... 26
Contingent Deferred Sales Charge Waivers.................................... 27
Conversion Feature.......................................................... 27
NET ASSET VALUE, DIVIDENDS AND TAXES........................................ 28
Net Asset Value............................................................ 28
Suspension of the Determination of Net Asset Value.......................... 28
Tax Status.................................................................. 28
PERFORMANCE INFORMATION..................................................... 29
DESCRIPTION OF SHARES....................................................... 30
FINANCIAL STATEMENTS........................................................ 31
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INVESTMENT OBJECTIVE AND STRATEGIES
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The investment objective and strategies of each Fund are described in the
Prospectus under the "Risk and Return Summary" heading. Set forth below is
additional information with respect to the investment objective and strategies
of each Fund.
Strategies. Each Fund has adopted the following investment policy relating
to the geographic areas in which it may invest. In the case of the GAM Pacific
Basin, GAM Japan Capital, GAM Europe, GAM North America and GAMerica Capital
Funds, each Fund intends to invest substantially all of its assets in the region
dictated by its investment policy and, under normal market circumstances, will
invest at least 65% of its total assets in securities of companies or
governments in the relevant geographic area.
GAM Global Fund may invest in securities issued by companies 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. 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. 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.
GAM Japan Capital Fund may invest primarily in securities of companies in
Japan.
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.
GAM North America Fund may invest primarily in securities issued by
companies in the United States and Canada.
GAMerica Capital Fund may invest primarily in securities of companies in
the United States and Canada.
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
Advisor (s) and its own judgement rather than on any specific objective
criteria.
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.
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. The debt securities (bonds and notes) in which the Funds may
invest are not required to have any rating. Each Fund may, for temporary
defensive purposes, invest in debt securities (with remaining maturities of five
years or less) issued by companies and
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governments and their agencies and instrumentalities and in money market
instruments denominated in currency of the United States or foreign nations.
None of the Funds will commit more than 5% of its assets, determined at the
time of investment, to investments 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 Standard & Poor's Corporation ("S&P") or lower than Baa
by Moody's Investors Services, Inc. ("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 decrease in the
ratings 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 such securities.
United States Government Obligations. The Funds may invest in securities of
the United States government, its agencies and instrumentalities. United States
government securities include United States Treasury obligations, which include
United States Treasury bills, United States Treasury notes and United States
Treasury bonds; and obligations issued or guaranteed by United States government
agencies and instrumentalities. Agencies and instrumentalities include the
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. 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.
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.
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.
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
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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. A Fund may invest up to 5% of its net assets in options on securities
or indices including options traded in over-the-counter markets.
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 transactions, 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. 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 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. 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. 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. 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. 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.
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.
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.
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 (option
contract on a stock whose current
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market price is above the striking price of a call option or below the striking
price of a put option), 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.
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.
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 an interest rate futures 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.
Many 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 may enter into 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 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: 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
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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.
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.
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.
A Fund is not required to enter into hedging transactions with regard to
its foreign currency-denominated securities and will not do so unless deemed
appropriate by the Investment Advisers. 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. 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 considered creditworthy 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
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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.
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. 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 bank
borrowings outstanding representing more than 5% of the total assets of the
Fund.
Short-Selling. GAM International Fund and GAM Global Fund may from time to
time engage in short selling of securities. Short selling is an investment
technique wherein the Fund sells a security it does not own anticipating a
decline in the market value of the security. To complete the transaction, the
Fund must borrow the security to make delivery to the buyer. The Fund is
obligated to replace the security borrowed by purchasing it subsequently at the
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Fund, which would
result in a loss or gain. Until the security is replaced, the Fund is required
to pay to the lender amounts equal to any dividends or interest which accrue
during the period of the loan. To borrow the security, the Fund also may be
required to pay a premium, which would increase the cost of the security sold.
The proceeds of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position is closed out.
The Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. This result is the opposite of
what one would expect from a purchase of a long position in a security. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium or amounts in lieu of dividends or interest the Fund
may be required to pay in connection with a short sale.
Short sales by the Fund involve risk. If the Fund incorrectly predicts that
the price of the borrowed security will decline, the Fund will have to replace
the securities sold short with securities with a greater value than the amount
received from the sale. As a result, losses from short sales may be unlimited,
whereas losses from long positions can equal only the total amount invested.
GAM International Fund and GAM Global Fund may also make short sales
"against the box." A short sale "against the box" is a transaction in which the
Fund enters into a short sale of a security which the Fund owns. The proceeds of
the short sale are held by a broker until the settlement date at which time the
Fund delivers the security to close the short position. The Fund receives the
net proceeds from the short sale.
Until the Fund replaces a borrowed security in connection with a short
sale, the Fund will: (a) maintain daily a segregated account, containing cash,
U.S. government securities, or certain liquid assets, at such a level that (i)
the amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii) the
amount deposited in the segregated account plus the amount deposited with the
broker as collateral will not be less than the market value of the security at
the time it was sold short; or (b) otherwise cover its short position.
8
<PAGE>
The Fund anticipates that the frequency of short sales will vary
substantially under different market conditions, and it does not intend that any
specified portion of its assets as a matter of practice will be in short sales.
As a matter of policy, the Board of Directors has determined that securities
will not be sold short if, after effect is given to any such short sale, the
total market value of all securities sold short would exceed 20% of the value of
the Fund's net assets.
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"). If 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.
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 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.
Fundamental 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) 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.
(4) Concentrate more than 25% of the value of its total assets in any one
industry (including securities of non-United States governments), except that
GAM Pacific Basin Fund will concentrate more than 25% of the value of its total
assets in the finance sector, as such sector is defined in the Morgan Stanley
Capital International ("MSCI") Indices. See "Policy of Concentration for Gam
Pacific Basin Fund" below. The finance sector is defined by the MSCI to include
the following industries: banking; financial services; insurance and real
estate.
(5) 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.
(6) 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.
9
<PAGE>
(7) 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.
(8) 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.
(9) Participate on a joint or a joint and several basis in any trading
account in securities.
(10) Issue senior securities (as defined in the Act), other than as set
forth in paragraph 6.
(11) 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.
Non-Fundamental Investment Restrictions. Each Fund has also adopted certain
investment restrictions, which are deemed non-fundamental, which cannot be
changed without a vote of the majority of the Board of Directors. In addition to
non-fundamental restrictions stated elsewhere, each Fund may not:
(1) Make short sales of securities on margin, except for such short-term
credits as are necessary for the clearance of transactions. This restriction
does not apply to GAM International Fund and GAM Global Fund. SEE
"Short-Selling" above for a further discussion. (Management may recommend to the
Board of Directors removal of this restriction for the other Funds).
(2) Invest more than 15% of the Fund's net assets in securities which
cannot be readily resold to the public because there are no market quotations
readily available 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).
If a percentage restriction (other than the restriction on borrowing in
paragraph 6) 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. Investments in the Funds are not deposits or
obligations of, or guaranteed or endorsed by, any bank, including UBS AG or any
of its affiliates and are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other government
agency. Investments in the Funds involve investment risks, including the
possible loss of principal.
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.
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
10
<PAGE>
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.
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. 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.
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 payment position.
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.
Policy of Concentration for GAM Pacific Basin Fund. Since GAM Pacific Basin
Fund has a fundamental policy to concentrate its investments in the financial
services sector, it may be subject to greater share price fluctuations than a
non-concentrated fund. There is a risk that the Fund's concentration in the
securities of financial services companies will expose the Fund to the price
movements of companies in one industry more than a more broadly diversified
mutual fund. Because GAM Pacific Basin Fund invests primarily in one sector,
there is the risk that the Fund will perform poorly during a downturn in that
sector. Also, businesses in the finance sector may be affected more
significantly by changes in government policies and regulation, interest rates,
currency exchange rates, and other factors affecting the financial markets. The
finance sector is defined by the MSCI to include the following industries:
banking; financial services; insurance and real estate.
Portfolio Turnover. Portfolio turnover rate is calculated by dividing the
lesser of a Fund's sales or purchases of portfolio securities for the fiscal
year (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.
11
<PAGE>
--------------------------------------------------------------------------------
Management of the Company
--------------------------------------------------------------------------------
The business of the Funds is supervised by the Board of Directors, who may
exercise all powers 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 or to any class
or shares of a Fund. The Board elects the officers of the Company and retains
various companies to carry out Fund operations, including the investment
advisers, custodian, administrator and transfer agent.
The name, age, 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
Dr. Burkhard Poschadel(54)* Group Chief Executive Officer, Global Asset
Chairman and Director Management Limited, March 2000 to present.
12 St. James's Place Dr. Poschadel received a Ph.D. in Economics from
London SwlA 1NX the University of Hamburg/Freiburg. He was
England appointed Chief Executive Officer of the GAM
Group in March 2000, and has been a long time
employee of UBS AG. Dr.Poschadel served as the
Head of Human Resources of UBS Private Banking
from 1998-2000 and served as the Global Head
of Research and Portfolio Management from 1994-1997.
George W. Landau (80) Senior Advisor, Latin America, The Coca Cola
Director Company, Atlanta, GA, 1988 to present.
2601 South Bayshore Drive President, Council of Advisors, Latin America,
Suite 1109 Guardian Industries, Auburn Hills, MI, 1993
Coconut Grove, FL 33133 to present. Director, Emigrant Savings Bank,
New York, NY, 1987 to present. Director,
seven Credit Suisse Asset Management
(CSAM) funds, formerly known as BEA Associates,
New York, NY, 1989 to present. Director, Fundacion
Chile, Santiago, Chile, 1992 to present. Former
President of the Council for the Americas and
Americas Society, 1985 - 1993. Former
Ambassador to Venezuela, Chile and Paraguay.
Robert J. McGuire (63) Attorney / Consultant, Morvillo, Abramowitz, Grand,
Director Iason & Silberberg,P.C., 1998 to present. Director,
1085 Park Avenue Emigrant Savings Bank, 1999 to present. Director,
New York, NY 10128 one Credit Suisse Asset Management (CSAM) fund,
formerly known as BEA Associates, New York, NY, 1998
to present. President / Chief Operating Officer,
Kroll Associates, 1989 - 1997.
Roland Weiser (70) Chairman, Intervista business consulting, 1984 to
Director 1990. Director, GAM Diversity Fund and Unimed
86 Beekman Road Pharmaceuticals, Inc., 1989 - 1999. Former Senior
Summit, NJ 07901 Vice President (International), Schering Plough
Corporation.
* Dr Poschadel is a director who is an "interested person" of the Company within
the definitions set forth in the Act.
12
<PAGE>
Name and Address:
Position(s) Held Principal Occupation(s)
With the Company During Past Five Years
Kevin J. Blanchfield (45) Chief Operating Officer and Treasurer and
Vice President and Treasurer Assistant Vice President/Treasurer
Global Asset Management (USA) Inc. Secretary, Global Asset Management (USA)
135 East 57th Street Inc., GAM Investments, Inc. and GAM
New York, NY 10022 Services Inc., 1993 to present. Senior
Vice President, Finance and
Administration, Lazard Freres & Co., 1991
to 1993.
Joseph J. Allessie (35) General Counsel and Corporate Secretary,
Secretary Global Asset Management (USA) Inc.,
Global Asset Management (USA) Inc. GAM Investments Inc., and GAM Services
135 East 57th Street Inc., 1999 to present. Regulatory Officer
New York, NY 10022 to State of New Jersey, Department of
Law and Public Safety, Bureau of
Securities, 1993 - 1999.
Compensation of Directors and Executive Officers. Each independent
Director of the Company receives annual compensation from the Company of $25,000
per year plus $1,000 for each meeting of the Board of Directors attended. Each
Director 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.
The name, position(s) and information related to the compensation of
each of the Directors in the most recent fiscal year are as follows.
Pension or Retirement
Name and Aggregate Benefits Accrued as Estimated Annual
Position(s) Held Compensation from Part of Company Benefits upon
with each Fund each Fund Expenses Retirement
------- -------- -------- ----------
Burkhard Poschadel $0 N/A N/A
Director & President
George W. Landau $31,000 N/A N/A
Director
Robert J. McGuire $31,000 N/A N/A
Director
Roland Weiser $31,000 N/A N/A
Director
Principal Holders of Securities. As of January 31, 2000, all Directors and
Officers of the Funds as a group owned beneficially or of record less than 1% of
the outstanding securities of any Fund. To the knowledge of the Funds, as of
January 31, 2000, no Shareholders owned beneficially (b) or of record (r) more
than 5% of a Fund's outstanding shares, except as set forth below. Prior to
December 17, 1999, Mr. Gilbert de Botton, the former President and Director of
the Company, may be deemed to have had shared voting or investment power over
shares owned by clients or held by custodians or nominees for clients of Global
Asset Management (USA) Inc. or other affiliates of GIML, or by employee benefit
plans for the benefit of employees of GIML and its affiliates, as a result of
the indirect ownership of interests in GIML and its affiliates by a trust of
which Mr. de Botton was a potential beneficiary. Mr. de Botton disclaims
beneficial ownership of such shares.
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL
NAME AND ADDRESS Class A Class B Class C Class D
------- ------- ------- -------
Charles Schwab & Co., Inc 15.55%(r)
FBO Customers
101 Montgomery St.
San Francisco, CA
94104
Merrill Lynch 12.63%(r) 21.93%(r) 29.68%(r) 13.42%(r)
FBO Customers of MLPF&S
4800 Deer Lake Dr. East
Jacksonville, FL
32246
Enele Co 5.03%(r)
FBO Smith Barney Accts
c/o Copper Mountain
Trust
601 SW 2nd Ave
Ste 1800
Portland, OR 97204-3154
GLOBAL
NAME AND ADDRESS Class A Class B Class C Class D
------- ------- ------- -------
Charles Schwab & Co., Inc 11.66%(r)
FBO Customers
101 Montgomery St.
San Francisco, CA
94104
Merrill Lynch 19.02%(r) 21.45%(r) 34.36%(r) 23.10%(r)
FBO Customers of
MLPF & S
4800 Deer Lake Dr. East
Jacksonville, FL
32246
14
<PAGE>
PACIFIC BASIN NORTH AMERICA
NAME AND ADDRESS Class A Class B Class C Class D Class A Class B Class C
------- ------- ------- ------- ------- ------- -------
Charles Schwab & Co., Inc 22.42%(r) 27.34%(r)
FBO Customers
101 Montgomery St.
San Francisco, CA
94104
FISERV Securities Inc. 10.37%(r)
FAO Customers
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA
19103
c/o Fiduciary Tr Company 10.64%(r)
Intl
Dengel & Co
P O Box 3199
Church Street Station
New York, NY 10008-3199
Merrill Lynch 58.44%(r) 26.63% 16.30%(r) 20.62%(r) 61.37%(r)
FBO Customers of
MLPF&S
4800 Deer Lake Dr. East
Jacksonville, FL
32246
Fayez Sarofim & Co. 13.83%(r)
PO Box 52830
Houston, TX
77052
Jan I. Shrem and 5.87%(b)
Mitsuko Shrem
C/O Rothschild Bank
Zollickstrasse 181
CH-8034 Zurich
SWITZERLAND
Donaldson Lufkin Jenrette 5.89%(r)
Securities Corporation
Inc.
PO Box 2052
Jersey City, NJ
07303
15
<PAGE>
PACIFIC BASIN NORTH AMERICA
NAME AND ADDRESS Class A Class B Class C Class D Class A Class B Class C
------- ------- ------- ------- ------- ------- -------
Salomon Smith Barney Inc
FBO Customer
333 W. 34th St. 5.53%(r)
3rd Fl
New York, NY 10001
JAPAN CAPITAL EUROPE
NAME AND ADDRESS Class A Class B Class C Class D Class A Class B Class C
------- ------- ------- ------- ------- ------- -------
Charles Schwab & Co., Inc 23.58%(r) 34.91%(r)
FBO Customers
101 Montgomery St.
San Francisco, CA
94104
Citibank Switzerland 11.10%(r)
Attn Rowena Wollard
Seestr 25
8021 Zurich Switzerland
Merrill Lynch 5.56%(r) 36.71%(r) 16.97%(r) 10.79%(r) 21.58%(r)
FBO Customer MLPF & S
4800 Deer Lake Dr. East
Jacksonville, FL
32246
FISERV Securities Inc. 7.78%(r)
One Commerce Square
2005 Market Street Ste.
1200
Philadelphia, PA
19103
Marian Peschel 12.53%(b)
Katarina Peschel
6830 Willow Lane
Minneapolis, MN
55430
16
<PAGE>
JAPAN CAPITAL EUROPE
NAME AND ADDRESS Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
Legg Mason Wood Walker 6.13%(r)
Inc
FBO Customer
P.O. Box 1476
Baltimore, MD
21202
NFSC 7.04%(r)
FBO Tien Li Chia
832 Hardwood Court
Gates Mills, OH
44040
Dain Rauscher Custodian 12.00%(r)
Barbara A. Lippke
2600 Fairview Avenue E7
Seattle, WA 98102
PaineWebber 7.37%(r)
FBO Robert Gery
The Tunix Club
Tolland, MA
01034
Smith Barney Inc. 5.14%(r) 10.52%(r)
FBO Customer
388 Greenwich St.
New York, NY 10013
Lehman Brothers 19.70%(r)
FBO 834 21861 14
PO Box 29198
Brooklyn, NY 11202
Donaldson Lufkin & 6.46%(r)
Jenrette Securities
Corporation Inc
PO Box 2052
Jersey City, NJ
07303-2052
Shahrzad Khayami 5.31%(r)
188 E. 70th St.-Apt 29B
New York, NY 10021-5170
17
<PAGE>
JAPAN CAPITAL EUROPE
NAME AND ADDRESS Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
Jan I. Shrem and 5.85%(r)
Mitsuko Shrem
C/O Rothschild Bank
Zollickstrasse 181
CH-8034 Zurich
SWITZERLAND
Post Co AC 974792 5.34%(r)
c o The Bank of NY
Mutual Fund Reorg Dept
PO Box 1066
Wall Street Station
New York, NY 10268-1066
GAMERICA
NAME AND ADDRESS Class A Class B Class C
------- ------- -------
Charles Schwab & Co., Inc 26.97%(r)
FBO Customers
101 Montgomery St.
San Francisco, CA
94104
Merrill Lynch 5.12%(r) 23.36%(r) 14.21%(r)
FBO Customers of MLPF&S
4800 Deer Lake Dr. East
Jacksonville, FL
32246
Smith Barney Inc. 5.54%(r)
FBO Customer
388 Greenwich St.
New York, NY 10013
</TABLE>
-------------------------------------------------------------------------------
Investment Advisory and Other Services
-------------------------------------------------------------------------------
Investment Advisers. All of the Investment Advisers are registered under
the United States Investment Advisers Act of 1940, as amended. GIML is
controlled by and under common control with other investment advisers (as
described below) which have substantial experience managing foreign mutual
funds.
The Directors of GIML and their principal occupations are as follows:
18
<PAGE>
Name and Position Held
with Investment Adviser Principal Occupation
Dr Burkhard Poschadel See "Management of the Company"above.
Andrew Wills, Director Investment Director, GIML
Jean-Philippe Cremers, Director. Investment Director, GIML
Gordon D. Grender, Director. Investment Director, GIML
Paul S. Kirkby, Director. Investment Director, GIML
Alan McFarlane, Director. Managing Director (Institutional),
Global Asset Management Limited
(London)
GIML 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 GIML through its wholly owned
subsidiaries, Greenpark Management N.V., Global Asset Management GAM SARL and
GAMAdmin B.V. (the latter of which is the direct parent of Global Asset
Management (U.K.) Limited). Global Asset Management Ltd. is wholly owned by UBS
AG, a banking corporation organized under the laws of Switzerland. UBS AG, with
headquarters in Switzerland, is an internationally diversified organization with
operations in many aspects of the financial services industry. UBS AG operates
in over 50 countries, has more than 48,000 employees and was formed by the
merger of Union Bank of Switzerland and Swiss Bank Corporation in June 1998. UBS
AG also maintains direct and indirect subsidiaries in the United States,
including Warburg Dillon Read LLC, an investment bank and broker-dealer; UBS
Brinson Inc. and Brinson Partners Inc., investment advisers; and Warburg Futures
Inc., a futures commission merchant and broker-dealer. Among UBS AG's direct and
indirect affiliates and related persons are various foreign broker-dealers,
investment advisers and banking organizations.
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
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 Unitrin, Inc., Argonaut
Group, and Kinder Morgan, Inc., each of which is a publicly traded corporation
with principal offices in the United States. Mr. Sarofim is a past director of
Teledyne, Inc., Allegheny Teledyne, Inc., MESA, Inc., Imperial Holly Corp., EXOR
Group, Alley Theatre, Houston Ballet Foundation and the Museum of Fine Arts
Houston.
Investment Advisory Contracts. On December 17, 1999, UBS AG acquired all
the outstanding shares of Global Asset Management Ltd. (the "Acquisition").
Global Asset Management Ltd. indirectly wholly owns GIML, an Investment Adviser
to the Funds. The Acquisition resulted in a change of control of GIML. Thus,
pursuant to the Act,
19
<PAGE>
prior to the completion of the Acquisition, the Board of Directors considered
the continuance of the then current Amended and Restated Investment Advisory
Contract dated April 14, 1994 (the "GIML Contract") with GIML as an Investment
Adviser to the Funds. The Board of Directors on September 29, 1999 (including a
majority of the Directors who were not parties to the GIML Contract or
interested persons of any such party) approved the continuance of the GIML
Contract on behalf of each Fund, which approval was further ratified by the
Board (including a majority of the Directors who were not parties to the GIML
Contract or interested persons of any such party) on behalf of each Fund on
October 27, 1999. The shareholders of each Fund approved the continuance of the
GIML Contract on October 26, 1999. As such, a new Amended and Restated
Investment Advisory Contract (hereinafter referred to as the "GIML Contract")
was executed upon completion of the Acquisition, December 17, 1999, with
identical terms and conditions as the original GIML Contract.
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 27, 1999
and by the shareholders of GAM North America Fund on April 14, 1994.
The GIML Contract and the Sarofim Contract will each continue in effect
from year to year 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 GIML Contract or the Sarofim Contract or interested persons
of any such party.
The GIML Contract requires GIML 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. GIML will render its services to each
Fund from outside the United States. The Sarofim Contract requires Sarofim to
provide the same services to GAM North America Fund subject to the supervision
and oversight of GIML. Sarofim commenced providing investment advisory services
to GAM North America Fund on June 29, 1990.
The GIML 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.
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
judgement, 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 GIML and agrees that if (i) GIML should cease to be the Company's investment
adviser or (ii) Global Asset Management Ltd. should cease to own a majority
equity interest in GIML, the Company, upon request of GIML, 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 GIML is no longer the Company's investment adviser. If
GIML makes such request because Global Asset Management Ltd. no longer owns a
majority equity interest in GIML, the question of continuing the GIML Contract
must be submitted to a vote of the Company's shareholders. The Company has
agreed that GIML or any of its successors or assigns may use or permit the use
of the
20
<PAGE>
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, GIML 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, 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, 1999,
1998 and 1997 are set forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Pacific Japan North GAMerica
Global International Basin Capital Europe America Capital
------ ------------- ----- ------- ------ ------- -------
1999 $1,207,927 $21,736,189 $314,098 $419,808 $319,451 $353,149 $389,284
1998 $1,287,387 $26,355,350 $207,532 $280,165 $513,908 $160,274 $ 84,838
1997 $ 379,486 $14,631,974 $502,073 $293,314 $366,938 $ 85,196 $ 22,409
</TABLE>
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
Capital Capital
Organizational Expenses $34,166 $30,036
Amortized over 5 years beginning 7/1/94 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. In
addition, each Fund bears its own operating expenses.
Principal Underwriter and Plans of Distribution. The Company has entered
into distribution agreements (the "Distribution Agreements") with GAM Services
under which GAM Services has agreed to act as principal underwriter and to use
reasonable efforts to distribute each Fund's Class A, Class B, Class C and Class
D shares. GAM Services is an indirect wholly owned subsidiary of Global Asset
Management Ltd., which also controls GIML. Global Asset Management Ltd. is
wholly owned by UBS AG, a banking corporation organized under the laws of
Switzerland.
Pursuant to the Distribution Agreements, GAM Services receives the sales
load on sales of each Class of the Funds' shares and reallows a portion of the
sales load to dealers/brokers. GAM Services also receives the distribution fees
payable pursuant to the Funds' Plans of Distribution for Class A, Class B, Class
C and Class D Shares described below (the "Plans"). The Distribution Agreements
may be terminated at any time upon 60 days' written notice, without payment of a
penalty, by GAM Services, by vote of a majority of the outstanding class of
voting securities of the affected Fund, or by vote of a majority of the
Directors of the Fund who are not "interested persons" of the Fund and who have
no direct or indirect financial interest in the operation of the Distribution
Agreements. The Distribution Agreements will terminate automatically in the
event of their assignment.
In addition to the amount paid to dealers pursuant to the sales charge
table in the Prospectus, GAM Services from time to time may offer assistance to
dealers and their registered representatives in the form of business and
educational or training seminars. Dealers may not use sales of any of the Funds'
shares to qualify for or participate in such programs to the extent such may be
prohibited by a dealer's internal procedures or by the laws of any state or any
self-regulatory agency, such as the National Association of Securities Dealers
Regulation, Inc. Costs associated with incentive or training programs are borne
by GAM Services and paid from its own resources or from fees collected under the
Plans. GAM Services from time to time may reallow all or a portion of the sales
charge on Class A and Class
21
<PAGE>
D shares to individual selling dealers. The aggregate dollar amount of
underwriting commissions and the amount retained by the Distributor for each of
the last three fiscal years is as follows:
1999
(000's omitted)
CLASS A CLASS D
------- -------
After After
Aggregate Reallowance Aggregate Reallowance
GAM International Fund $1,344 $462 $178 $66
GAM Global Fund 77 24 19 9
GAM Pacific Basin Fund 43 23 4 2
GAM Japan Capital Fund 40 19 N/A N/A
GAM Europe Fund 19 10 N/A N/A
GAM North America Fund 39 12 N/A N/A
GAMerica Capital Fund 106 58 N/A N/A
For the fiscal year ended December 31, 1999, GAM Services retained front-end
sales loads of $696,108 from the sale of Fund shares.
1998
(000's omitted)
CLASS A CLASS D
------- -------
After After
Aggregate Reallowance Aggregate Reallowance
GAM International Fund $ 11,229 $ 2,895 $ 2,096 $653
GAM Global Fund 1,623 406 238 77
GAM Pacific Basin Fund 74 19 21 6
GAM North America Fund 44 14 N/A N/A
GAM Europe Fund 239 62 N/A N/A
GAM Japan Capital Fund 160 40 N/A N/A
GAMerica Capital Fund 113 31 N/A N/A
For the fiscal year ended December 31, 1998, GAM Services retained front-end
sales loads of $4,221,836 from the sale of Fund shares.
1997
(000's omitted)
CLASS A CLASS D
------- -------
After After
Aggregate Reallowance Aggregate Reallowance
GAM International Fund $ 9,147 $ 2,345 $ 1,321 $463
GAM Global Fund 639 173 228 28
GAM Pacific Basin Fund 85 25 25 6
GAM North America Fund 38 11 N/A N/A
GAM Europe Fund 35 13 N/A N/A
GAM Japan Capital Fund 267 76 N/A N/A
GAMerica Capital Fund 5 4 N/A N/A
For the fiscal year ended December 31, 1997, GAM Services retained front-end
sales loads of $3,156,062 from the sale of Fund shares.
22
<PAGE>
The aggregate dollar amount of contingent deferred sales charges paid to
and retained by the Distributor for the fiscal year ended December 31, 1999 is
as follows:
1999
Class A Class C Class D
GAM International Fund $334,579 $203,978 $4,335
GAM Global Fund 4,895 15,900
GAM Pacific Basin Fund 100 449
GAM North America Fund 4 3,455
GAM Europe Fund 1,313 1,830
GAM Japan Capital Fund -- 9,002
GAMerica Capital Fund 4,272 5,984
For the fiscal year ended December 31, 1999, GAM Services received
contingent deferred sales loads of $590,096 from the redemption of Fund Shares.
Each Fund has adopted separate distribution Plans under Rule 12b-1 of the
Act for each class of its shares. The Plans permit each Fund to compensate GAM
Services in connection with activities intended to promote the sale of each
class of shares of each Fund. Pursuant to the Plan for Class A shares, each Fund
may pay GAM Services up to 0.30% of average daily net assets of the Fund's Class
A shares. Under the Plan for Class B shares, each Fund may pay GAM Services up
to 1.00% of daily net assets of the Fund's Class B shares. The Class C shares
under the Plan for Class C shares may pay GAM Services up to 1.00% of daily net
assets of the Fund's Class C shares. Under the Plan for Class D shares, each
Fund may pay GAM Services up to 0.50% of the average daily net assets
attributable to Class D shares of the Fund. Expenditures by GAM Services under
the Plans may consist of: (i) commissions to sales personnel for selling Fund
shares; including travel & entertainment expenses; (ii) compensation, sales
incentives and payments to sales, marketing and service personnel; (iii)
payments to broker-dealers and other financial institutions that have entered
into agreements with GAM Services in the form of a Dealer Agreement for GAM
Funds, Inc. for services rendered in connection with the sale and distribution
of shares of the Funds; (iv) payment of expenses incurred in sales and
promotional activities, including advertising expenditures related to the Funds;
(v) the costs of preparing and distributing promotional materials; (vi) the cost
of printing the Funds' Prospectus and SAI for distribution to potential
investors; and (vii) other activities that are reasonably calculated to result
in the sale of shares of the Funds.
A portion of the fees paid to GAM Services pursuant to the Plans not
exceeding 0.25% annually of the average daily net assets of each Fund's shares
may be paid as compensation for providing services to each Fund's shareholders,
including assistance in connection with inquiries related to shareholder
accounts (the "Service Fees"). In order to receive Service Fees under the Plans,
participants must meet such qualifications as are established in the sole
discretion of GAM Services, such as services to each Fund's shareholders;
services providing each Fund with more efficient methods of offering shares to
coherent groups of clients; members or prospects of a participant; services
permitting more efficient methods of purchasing and selling shares; or
transmission of orders for the purchase or sale of shares by computerized tape
or other electronic equipment; or other processing.
The Board of Directors have concluded that there is a reasonable likelihood
that the Plans will benefit each Fund and its shareholders and that the Plans
should result in greater sales and/or fewer redemptions of Fund shares. On a
quarterly basis, the Directors will review a report on expenditures under the
Plans and the purposes for which expenditures were made. The Directors will
conduct an additional, more extensive review annually in determining whether the
Plans should be continued. Continuation of the Plans from year to year is
contingent on annual approval by a majority of the Directors acting separately
on behalf of each Fund and class and by a majority of the Directors who are not
"interested persons" (as defined in the Act) and who have no direct or indirect
financial interest in the operation of the Plans or any related agreements (the
"Plan Directors"). The Plans provide that they may not be amended to increase
materially the costs that a Fund may bear pursuant to the applicable Plan
without approval of the shareholders of the affected class of shares of each
Fund and that other material amendments to the Plans must be approved by a
majority of the Plan Directors acting separately on behalf of each Fund, by vote
cast in person at a meeting called for the purpose of considering such
amendments. The Plans further provide that while each Plan is in effect, the
selection and nomination of Directors who are not "interested persons" shall be
committed to the discretion of the Directors who are not "interested persons." A
Plan may be terminated at any time by vote of a majority of the Fund Directors
or a majority of the outstanding shares of the Class of shares of the affected
Fund to which the Plan relates.
23
<PAGE>
Total dollar amounts paid by each of the Funds pursuant to the Plans for
the fiscal year ended December 31, 1999 are as follows
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class A Class B Class C Class D
------- ------- ------- -------
GAM International Fund $5,696,178 $679,368 $838,136 $591,404
GAM Global Fund $ 283,193 $ 98,428 $ 88,290 $ 38,331
GAM Pacific Basin Fund $ 82,314 $ 22,150 $ 5,879 $ 6,286
GAM Japan Capital Fund $ 117,877 $ 14,709 $ 13,323 N/A
GAM Europe Fund $ 88,644 $ 15,772 $ 7,314 N/A
GAM North America Fund $ 81,603 $ 29,165 $ 51,338 N/A
GAMerica Capital Fund $ 86,771 $ 42,753 $ 58,376 N/A
</TABLE>
Custodian and Administrator. The Custodian, Administrator and Fund
Accounting Agent for the Company is Brown Brothers Harriman & Co., Private
Bankers ("BBH&Co."), a New York Limited Partnership established in 1818. BBH&Co.
has offices worldwide and provides services to the Company from its offices
located at 40 Water Street, Boston, MA 02109. As Custodian, administrator and
Fund Accounting Agent, BBH&Co. is responsible for the custody of the Company's
portfolio securities and cash, maintaining the financial and accounting books
and records of the Company, computing the Company's net asset value per share
and providing the administration services required for the daily business
operations of the Company. For its services to the Company, BBH&Co. is paid a
fee based on the net asset value of each Fund and is reimbursed by the Company
for its disbursements, certain expenses and charges based on an out-of-pocket
schedule agreed upon by BBH&Co. and the Company from time to time.
For the fiscal years ended December 31, 1999, 1998 and 1997, BBH&Co. was
paid the following fees for its services as Administrator and Fund Accounting
Agent:
1999 1998 1997
---- ---- ----
GAM International Fund $1,571,000 $1,906,922 $1,463,486
GAM Global Fund 123,000 120,835 54,473
GAM Pacific Basin Fund 60,000 27,172 69,776
GAM North America Fund 55,208 23,568 9,841
GAM Japan Capital Fund 59,000 34,683 36,937
GAM Europe Fund 56,000 63,612 13,749
GAMerica Capital Fund 55,149 19,732 3,000
Transfer Agent. Boston Financial Data Services, Inc. ("Boston Financial"),
66 Brooks Drive, Braintree, Massachusetts 02184-3839, serves as shareholder
service agent, dividend-disbursing agent and transfer agent for the Funds.
Pursuant to an agreement between the Funds and State Street Bank and Trust
Company ("State Street"), State Street has delegated performance of its services
to Boston Financial. The Funds also engage other entities to act as shareholder
servicing agents and to perform subaccounting and administrative services for
the benefit of discrete groups of the Funds' shareholders.
Legal Counsel. Coudert Brothers, 1114 Avenue of the Americas, New York, New
York 10036, acts as legal counsel for the Funds and GIML.
Independent Accountants. PricewaterhouseCoopers L.L.P., 1177 Avenue of the
Americas, New York, New York 10019-6013, are the independent accountants for the
Company for the fiscal year ending December 31, 1999. 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 SEC 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.
Code Of Ethics. Pursuant to rule 17j-1 of the Act, the Investment Advisers
have each adopted a Code of Ethics which applies to the personal trading
activities of their employees. GIML's Code of Ethics applies to itself and its
affiliates, including the Company, and the Company's principal underwriter.
Sarofim adopted a Code which applies
24
<PAGE>
to itself and its affiliates. Both Codes of Ethics establish standards for
personal securities transactions by employees covered under their respective
Codes of Ethics. Under the Codes of Ethics, employees have a duty at all times
to place the interests of shareholders above their own, and never to take
inappropriate advantage of their position. As such, employees are prohibited
from engaging in, or recommending, any securities transaction which involves any
actual or potential conflict of interest, or any abuse of an employee's position
of trust and responsibility.
All employees of the Investment Advisers are prohibited from recommending
securities transactions by any Fund without disclosing his or her interest, and
are prohibited from disclosing current or anticipated portfolio transactions
with respect to any Fund to anyone unless it is properly within his or her
duties to do so. Employees who are also deemed investment personnel under the
GIML Code of Ethics or access persons under the Sarofim Code of Ethics, defined
as those persons who, in connection with his or her regular functions or duties,
makes, participates in, or obtains information regarding the purchase or sale of
a security by the Investment Adviser, or whose functions relate to the making of
any recommendations with respect to such purchases or sales, are also prohibited
from: participating in initial public offerings or private placements which
present conflicts of interest with the Funds; and engaging in any securities
transaction for their own benefit or the benefit of others, including the Funds,
while in possession of material, non-public information concerning such
securities. All portfolio managers and investment related staff of GIML are
required to notify their local compliance officer in advance of any personal
dealings in securities which they intend to carry out and are not permitted to
deal personally in securities within seven working days (either in advance or
retrospectively) of carrying out any transaction in the same security on behalf
of the Fund(s) they manage. All Sarofim employees are required to receive prior
approval of all personal securities transactions, which approval will be denied
where there appears a conflict of interest between the employee and a client
including the Fund, managed by Sarofim.
The Investment Advisers have established under their respective Codes of
Ethics compliance procedures to review the personal securities transactions of
their associated persons in an effort to ensure compliance with their respective
Codes of Ethics in accord with rule 17j-1 of the Act.
Copies of the Codes of Ethics are on file with and publicly available
from the SEC.
-------------------------------------------------------------------------------
Brokerage Allocation
-------------------------------------------------------------------------------
The Contracts provide that the Investment Advisers shall be responsible for
the selection of brokers and dealers for the execution of the portfolio
transactions of each Fund and, when applicable, the negotiation of commissions
in connection therewith.
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" means 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 the overall direct net economic result to the Fund
(involving both price paid or received and any commissions and other costs
paid), the 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 weighed by the Investment Advisers in determining the overall
reasonableness of brokerage commissions.
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
25
<PAGE>
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.
Research services provided by brokers to the Investment Advisers includes
that which brokerage houses customarily provide to institutional investors and
statistical and economic data and research reports on particular companies and
industries. Research furnished by brokers 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.
The amount of brokerage commissions paid by each Fund during the three
fiscal years ended December 31, 1999, 1998 and 1997 are set forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Pacific Japan North GAMerica
Global International Basin Capital Europe America Capital
------ ------------- ----- ------- ------ ------- -------
1999 $9,826,623 $349,742 $171,526 $226,651 $23,995 $126,241 $54,371
1998 $6,155,942 $385,674 $109,176 $407,460 $20,784 $53,902 $11,605
1997 4,380,158 151,482 238,964 137,778 4,728 159,168 346
</TABLE>
Affiliated Transactions. With effect of the Acquisition, the Company is an
indirect wholly owned subsidiary of UBS AG. UBS AG, a banking organization, with
headquarters in Switzerland, is an internationally diversified organization with
operations in many aspects of the financial services industry. Among UBS AG's
direct and indirect affiliates and related persons are various broker-dealers to
include direct and indirect subsidiaries in the United States including Warburg
Dillon Read LLC, an investment bank and broker-dealer and UBS Warburg Futures
Inc., a futures commission merchant and broker-dealer. Among UBS AG's direct and
indirect affiliates and related persons are various foreign broker-dealers to
include UBS AG London, an affiliated broker-dealer. As such, when buying or
selling securities, the Fund may pay commissions to brokers who are affiliated
with the Investment Advisers in accordance with procedures adopted by the Board
of Directors. The Fund may purchase securities in certain underwritten offerings
for which an affiliate of the Fund or the Investment Adviser may act as an
underwriter. The Fund may effect future transactions through, and pay
commissions to, futures commission merchants who are affiliated with the
Investment Advisers or the Fund in accordance with procedures adopted by the
Board of Directors.
From the date of the "Acquisition" through the fiscal year ended December
31, 1999, the Fund did not pay any brokerage commissions to any affiliated
broker-dealer.
-------------------------------------------------------------------------------
Shareholder Information
-------------------------------------------------------------------------------
The Company offers A,B,C, and D Class Shares. Each Class involves different
sales charges, features and expenses as described more fully in the Prospectus.
SALES CHARGE REDUCTIONS AND WAIVERS
Waivers of Front-End Sales Charges. Shares may be offered without the
front-end sales charge to active and retired Fund Directors and other persons
affiliated with the Fund or GAM Services or its affiliates, registered
representatives of broker-dealers having sales agreements with GAM Services, and
spouses and minor children of the foregoing persons or trusts; 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 advisors 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 advisor or other firm; organizations described in Section 501(c)(3)
of the Internal Revenue Code of 1986; trust companies, bank trust departments;
retirement, deferred compensation plans and trusts used to fund those plans;
charitable remainder trusts; certain tax qualified plans of administrators who
have entered into a service agreement with GAM Services or the Fund; and other
categories of investors, at the discretion of the Board, as disclosed in the
then current Prospectus of the Funds.
26
<PAGE>
Large Orders Purchases and Purchases by Eligible Plans. Purchase orders of
$1 million or more and all purchase orders by employee retirement plans with
more than 100 participants will not be subject to the front-end sales charge.
GAM Services may advance to dealers a commission from its own resources in
connection with these purchases based upon cumulative sales in each year or
portion thereof except when such orders are received from other registered
investment companies or investment funds. GAM Services will pay 1% of sales up
to $2 million; 0.80% on sales of $2 million up to $3 million, 0.50% on sales of
$3 million up to $5 million, and 0.25% on sales of $5 million and above. Those
purchases for which GAM Services pays a commission (and the payment of which has
not been waived by the dealer) are subject to a 1% contingent deferred sales
charge ("CDSC") on any shares sold within 18 months of purchase. In the case of
eligible retirement plans, the CDSC will apply to redemptions at the plan level
only. 12b-1 fees earned on assets representing large order purchases or
purchases by eligible plans will be retained by GAM Services for one year after
the purchase is effected in order to reimburse it for a portion of the dealer
payment.
Contingent Deferred Sales Charge Waivers. A contingent deferred sales
charge ("CDSC") will not be imposed on (i) any amount which represents an
increase in value of shares purchased within the applicable period (18 months
for Class A, 6 years for Class B, one year for Class C) preceding the
redemption; (ii) the current net asset value of shares purchased prior to the
applicable period; or (iii) the current net asset value of shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of other GAM Funds. Moreover, in determining whether a CDSC
is applicable it will be assumed that amounts described in (i), (ii) and (iii)
above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following retirement or attainment of age 591/2;
(b) required distributions from an IRA or 403(b) Custodial Account following
attainment of age 591/2; or (c) a tax-free return of an excess contribution to
an IRA;
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by an
affiliate of GAM Services ("Eligible Plan"), provided that either: (a) the plan
continues to be an Eligible Plan after the redemption; or (b) the redemption is
in connection with the complete termination of the plan involving the
distribution of all plan assets to participants;
(4) redemptions under the Systematic Withdrawal Plan, subject to a maximum
of 10% per year of the account balance, and further subject to a minimum balance
of $10,000; and
(5) in connection with exchanges for shares of the same class of another
GAM Fund.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass direct transfer of IRA, 403(b) Custodial Accounts or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
Conversion Feature. Class B Shares are sold at net asset value without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B Shares redeemed within six years after purchase as more fully
described in the Prospectus. Class B Shares will convert automatically into
Class A Shares, based on the relative net asset values of the shares of the two
Classes on the conversion date, which will be approximately eight (8) years
after the date of the original purchase. In the case of Class B Shares
previously exchanged (see "How to Exchange Shares" in the Prospectus), the
period of time the shares were held in the GAM Money Market Account is included
in the holding period for conversion.
27
<PAGE>
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A Shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B Shares
immediately prior to the conversion, and (iii) Class A Shares received on
conversion will have a holding period that includes the holding period of the
converted Class B Shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B Shares would continue
to be subject to Class B 12b-1 fees.
-------------------------------------------------------------------------------
Net Asset Value, Dividends and Taxes
-------------------------------------------------------------------------------
Net Asset Value. Each Fund (except the GAM Japan Capital 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, Martin Luther King, Jr.
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. GAM Japan Capital Fund determines its net asset value each
day the Tokyo Stock Exchange is open for trading.
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 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 and, accordingly, redemptions
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
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 substantially
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.
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
28
<PAGE>
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.
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.
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.
-------------------------------------------------------------------------------
Performance Information
-------------------------------------------------------------------------------
The average annual total return of each Fund for the periods ended December
31, 1999 are 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 TOTAL RETURN (%)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
10 yrs (or Since 5 yrs 1 yr to
inception) to Dec. to Dec. 31, Dec. 31,
31, 1999 1999 1999
------------------------------------------------------------------------------------------------------------
With Without With Without With Without
Fund sales sales sales sales sales sales
Class (Inception Date) load load load load load load
------------------------------------------------------------------------------------------------------------
GAM International Fund
Class A 1/02/85 13.52 14.10 14.78 15.96 1.64 6.99
Class B 5/26/98 (4.50) (2.04) 1.25 6.25
Class C 5/19/98 (0.61) (0.61) 5.32 6.32
Class D 9/18/95 12.94 13.88 3.08 6.82
GAM Global Fund
Class A 5/28/86 12.24 12.82 18.20 19.42 8.52 14.23
Class B 5/26/98 (0.51) 1.98 8.34 13.34
Class C 5/19/98 1.66 1.66 12.25 13.25
Class D 10/6/95 14.97 15.94 9.96 13.94
GAM Europe Fund
Class A 1/01/90 7.60 8.15 17.17 18.37 10.40 16.21
Class B 5/26/98 (0.10) 2.02 9.49 14.48
Class C 5/20/98 1.58 1.58 12.11 13.11
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (%)
-----------------------------------------------------------------------------------------------------------
10 yrs (or Since 5 yrs 1 yr to
inception) to Dec. to Dec. 31, Dec. 31,
31, 1999 1999 1999
------------------------------------------------------------------------------------------------------------
With Without With Without With Without
Fund sales sales sales sales sales sales
Class (Inception Date) load load load load load load
------------------------------------------------------------------------------------------------------------
GAM Pacific Basin Fund
Class A 5/06/87 7.26 7.81 3.06 4.12 66.16 74.91
Class B 5/26/98 35.90 37.98 62.90 67.89
Class C 6/01/98 32.89 32.89 62.15 63.15
Class D 10/18/95 2.89 3.77 67.64 73.71
GAM Japan Capital
Class A 7/01/94 10.45 11.48 12.41 13.57 77.71 87.05
Class B 5/26/98 39.37 41.41 77.18 82.18
Class C 5/19/98 40.76 40.76 82.31 83.30
GAM North America
Class A 1/01/90 14.57 15.16 23.09 24.36 3.85 9.32
Class B 5/26/98 8.92 11.06 2.82 7.82
Class C 7/07/98 5.83 5.83 7.02 8.02
GAMerica Capital Fund
Class A 5/12/95 23.23 24.60 22.52 28.97
Class B 5/26/98 17.96 20.22 22.68 27.68
Class C 5/26/98 19.80 19.80 26.94 27.95
</TABLE>
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.
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 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.
--------------------------------------------------------------------------------
Description of Shares
--------------------------------------------------------------------------------
GAM Funds, Inc., a Maryland corporation, was organized on May 7, 1984. The
Company has seven series of common stock outstanding, each of which may be
divided into four classes of shares, Class A, Class B, Class C and Class D
Shares. The four 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
30
<PAGE>
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 12b-1 fees than Class A Shares, which will cause the Class D Shares to
pay lower dividends than the Class A Shares. Class B and Class C Shares pay
higher 12b-1 fees than Class A and Class D Shares, which will cause the Class B
and Class C Shares to pay lower dividends than the Class A and Class D Shares.
The Directors, in the exercise of their fiduciary duties under the Act and
Maryland law, will seek to ensure that no conflicts arise among the classes of
shares of a Fund.
Each share outstanding is entitled to share equally in dividends and other
distributions and in the net assets of the respective series on liquidation.
Shares are fully paid and non-assessable when issued, freely transferable, have
no pre-emptive or subscription rights, and are redeemable and subject to
redemption under certain conditions described above. The Funds do not generally
issue certificates for shares purchased.
Each share outstanding entitles the holder to one vote. If a Fund is
separately affected by a matter requiring a vote, the shareholders of each such
Fund shall vote separately. 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.
--------------------------------------------------------------------------------
Financial Statements
--------------------------------------------------------------------------------
The audited financial statements of each Fund for the fiscal year ended
December 31, 1999 and the report of the Funds' independent accountants in
connection therewith are included in the 1999 Annual Report to Shareholders and
are incorporated by reference in this Statement of Additional Information.
