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VAN ECK FUNDS (the "Trust")
VAN ECK GLOBAL FUNDS
VAN ECK GOLD and MONEY FUNDS
99 Park Avenue, New York, N.Y. 10016
Shareholder Services: Toll Free (800) 544-4653
Van Eck Funds is a mutual fund consisting of eight separate series:
Global Balanced Fund (Class A and B), Asia Dynasty Fund (Class A and B),
Emerging Markets Growth Fund (Class A, B and C), International Investors Gold
Fund (Class A), Gold/Resources Fund (Class A), Global Income Fund (Class A),
Global Hard Assets Fund (Class A, B and C) and U.S. Government Money Fund (the
"Funds"). The Emerging Markets Growth Fund (Class A, B and C) is a new addition
to Van Eck Funds which has been approved, with all associated agreements, by the
Trustees at the December 1996 Board of Trustees meeting. As the Emerging Markets
Growth Fund is a newly created series of the Van Eck Global Funds, it has no
operating history.
TABLE OF CONTENTS Page
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GENERAL INFORMATION......................................2
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS..........2
INVESTING IN FOREIGN SECURITIES..........................6
FOREIGN CURRENCY TRANSACTIONS............................8
FUTURES AND OPTIONS TRANSACTIONS.........................9
MORTGAGE-BACKED SECURITIES..............................10
REAL ESTATE SECURITIES..................................10
COMMERCIAL PAPER........................................11
DEBT SECURITIES.........................................11
SHORT SALES.............................................12
DIRECT INVESTMENTS......................................12
REPURCHASE AGREEMENTS...................................13
RULE 144A SECURITIES....................................13
INVESTMENT RESTRICTIONS.................................14
INVESTMENT ADVISORY SERVICES............................19
THE DISTRIBUTOR.........................................21
PORTFOLIO TRANSACTIONS AND BROKERAGE....................23
TRUSTEES AND OFFICERS...................................26
VALUATION OF SHARES.....................................32
EXCHANGE PRIVILEGE......................................34
TAX-SHELTERED RETIREMENT PLANS..........................34
INVESTMENT PROGRAMS.....................................37
TAXES...................................................38
REDEMPTIONS IN KIND.....................................41
PERFORMANCE.............................................41
ADDITIONAL INFORMATION..................................43
FINANCIAL STATEMENTS....................................44
APPENDIX................................................45
MARKET INDEX DESCRIPTIONS...............................51
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Funds' current Prospectuses, dated April 30,
1997 (the "Prospectuses"), except for the Emerging Markets Growth Fund
Prospectus, dated December 30, 1996, which is available at no charge upon
written or telephone request to the Trust at the address or telephone number at
the top of this page. Shareholders are advised to read and retain this Statement
of Additional Information for future reference.
STATEMENT OF ADDITIONAL INFORMATION - April 30, 1997
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GENERAL INFORMATION
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Van Eck Funds (the "Trust") is an open-end management investment
company organized as a "business trust" under the laws of The Commonwealth of
Massachusetts on April 3, 1985. The Board of Trustees has authority to create
additional series or funds, each of which may issue a separate class of shares.
There are currently eight series of Van Eck Funds: Global Balanced Fund (Class A
and B), Asia Dynasty Fund (Class A and B), International Investors Gold Fund
(Class A and C), Gold/Resources Fund (Class A), Global Income Fund (Class A),
Global Hard Assets Fund (Class A, B and C) and U.S. Government Money Fund, each
of which commenced operations as a series of Van Eck Funds. The Emerging Markets
Growth Fund (Class A, B and C) is a new addition to the Trust, the eighth fund,
began operations on December 30, 1996.
The Global Balanced Fund (Class A and B), Asia Dynasty Fund (Class A
and B), Global Income Fund (Class A), Emerging Markets Growth Fund (Class A, B
and C) and Global Hard Assets Fund (Class A, B and C) are referred to as the Van
Eck Global Funds. International Investors Gold Fund (Class A), Gold/Resources
Fund (Class A) and U.S. Government Money Fund are referred to as the Van Eck
Gold and Money Funds.
International Investors Gold Fund was formerly a mutual fund
incorporated under the laws of the state of Delaware under the name of
International Investors Incorporated. International Investors Incorporated was
reorganized as a series of the Trust on April 30, 1991. International Investors
Incorporated had been in continuous existence since 1955, and had been
concentrating in gold mining shares since 1968.
Each series of the Trust, other than the Global Income Fund, Global
Balanced Fund and Global Hard Assets Fund are classified as a diversified fund
under the 1940 Act.
Van Eck Associates Corporation (the "Adviser") serves as investment
adviser to the Funds (except for Asia Dynasty Fund). Van Eck Global Asset
Management (Asia) Limited ("Van Eck--Hong Kong") serves as the investment
adviser to Asia Dynasty Fund. Peregrine Asset Management serves as sub-
investment adviser to Emerging Markets Growth Fund and Fiduciary International,
Inc. ("FII") serves as sub -investment adviser to the Global Balanced Fund.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
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International Investors Gold Fund
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The Fund's primary objective is long-term capital appreciation, while
retaining freedom to take current income into consideration in selecting
investments. The Fund's fundamental policy is to concentrate its investments in
common stocks of gold mining companies. It may invest in that industry up to
100% of the value of its assets. In some future period or periods, due to
adverse conditions in that industry, the Fund may for temporary defensive
purposes have less than 25% of the value of its assets invested in that
industry, however, under normal circumstances the Fund will have at least 65% of
its total assets invested in that industry.
The Fund's policy is to invest primarily in securities of companies,
wherever organized, whose properties, products or services are international in
scope or substantially in countries outside the United States, of foreign
governments, and in United States Treasury securities.
Gold/Resources Fund
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Gold/Resources Fund may invest in debt and equity securities of
companies engaged in the exploration, development and production of gold and
other natural resources. Gold, other precious metals and natural resources
securities are at times volatile and there may be sharp fluctuations in prices
even during periods of rising prices.
The Fund may invest in any type of security including, but not limited
to, common stocks and equivalents (such as convertible debt securities and
warrants), preferred stocks and bonds and debt obligations of domestic and
foreign companies, governments (including their political subdivisions) and
international organizations. The Fund may purchase and sell financial and
commodity futures contracts and options on financial futures and commodity
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futures contracts and may also write, purchase or sell put or call options on
securities, foreign currencies, commodities and commodity indices.
Global Hard Assets Fund
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Global Hard Assets Fund will, under normal market conditions, invest at
least 65% of its total assets in "Hard Asset Securities." Hard Asset Securities
include equity securities of "Hard Asset Companies" and securities, including
structured notes, whose value is linked to the price of a commodity or a
commodity index. The term "Hard Asset Companies" includes companies that are
directly or indirectly (whether through supplier relationships, servicing
agreements or otherwise) engaged to a significant extent in the exploration,
development, production or distribution of one or more of the following: (i)
precious metals, (ii) ferrous and non-ferrous metals, (iii) gas, petroleum,
petrochemicals or other hydrocarbons, (iv) forest products, (v) real estate and
(vi) other basic non-agricultural commodities which, historically, have been
produced and marketed profitably during periods of significant inflation. Under
normal market conditions, the Fund will invest at least 5% of its assets in each
of the first five sectors listed above. The Fund has a fundamental policy of
concentrating in such industries and up to 50% of the Fund's assets may be
invested in any one of the above sectors. Precious metal and natural resource
securities are at times volatile and there may be sharp fluctuations in prices
even during periods of rising prices.
The Fund may invest in equity securities. Equity securities include
common and preferred stocks; equity and equity index swap agreements; direct
equity interests in trusts, partnerships, joint ventures and other
unincorporated entities or enterprises; special classes of shares available only
to foreign persons in such markets that restrict the ownership of certain
classes of equity to nationals or residents of the country; convertible
preferred stocks and convertible debt instruments. The Fund may also invest in
fixed-income securities which include obligations issued or guaranteed by a
government or any of its political subdivisions, agencies, instrumentalities, or
by a supranational organization such as the World Bank or European Economic
Community (or other organizations which are chartered to promote economic
development and are supported by various governments and government entities),
adjustable-rate preferred stock, interest rate swaps, corporate bonds,
debentures, notes, commercial paper, certificates of deposit, time deposits,
repurchase agreements, and debt obligations which may have a call on a common
stock or commodity by means of a conversion privilege or attached warrants. The
Fund may invest in debt instruments of the U.S.
government and its agencies having varied maturities.
The Fund may purchase securities, including structured notes, whose
value is linked to the price of a commodity or a commodity index. The Fund may
purchase and sell financial and commodity futures contracts and options on
financial futures and commodity futures contracts and may also write, purchase
or sell put or call options on securities, foreign currencies, commodities and
commodity indices. The Fund may invest in asset-backed securities such as
collateralized mortgage obligations and other mortgage and non-mortgage
asset-backed securities. The Fund may also lend its portfolio securities and
borrow money for investment purposes (i.e. leverage its portfolio).
Global Balanced Fund
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Global Balanced Fund may invest in equity securities. Equity securities
include common and preferred stocks; equity and equity index swap agreements;
direct equity interests in trusts, partnerships, joint ventures and other
unincorporated entities or enterprises; special classes of shares available only
to foreign persons in such markets that restrict the ownership of certain
classes of equity to nationals or residents of the country; convertible
preferred stocks and convertible debt instruments; financial futures contracts
and options on financial futures contracts; forward currency contracts and put
and call options on securities, securities indices and foreign currencies and
foreign currency swaps.
The Fund may also invest in fixed-income securities which include
obligations issued or guaranteed by a government or any of its political
subdivisions, agencies, instrumentalities, or by a supranational organization
such as the World Bank or European Economic Community (or other organizations
which are chartered to promote
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economic development and are supported by various governments and government
entities), adjustable-rate preferred stock, interest rate swaps, corporate
bonds, debentures, notes, commercial paper, certificates of deposit, time
deposits, repurchase agreements, and debt obligations which may have a call on a
common stock or commodity by means of a conversion privilege or attached
warrants. The Fund may invest in debt instruments of the U.S. government and its
agencies having varied maturities. The Fund may invest in asset-backed
securities such as collateralized mortgage obligations and other mortgage and
non-mortgage asset-backed securities. The Fund may also lend its portfolio
securities and borrow money for investment purposes (i.e. leverage its
portfolio).
Emerging Markets Growth Fund
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The Emerging Markets Growth Fund seeks long-term capital appreciation
by investing primarily in equity securities in emerging markets around the
world.
Under normal conditions, at least 65% of the Fund's total assets will
be invested in Emerging Country and emerging market equity securities. An
"emerging market" or "Emerging Country" is any country that the World Bank, the
International Finance Corporation or the United Nations or its authorities has
determined to have a low or middle income economy. Emerging Countries can be
found in regions such as Asia, Latin America, Africa and Eastern Europe. The
countries that will not be considered Emerging Countries include the United
States, Australia, Canada, Japan, New Zealand and most countries located in
Western Europe such as Austria, Belgium, Denmark, Finland, France, Germany,
Great Britain, Ireland, Italy, the Netherlands, Norway, Spain, Sweden and
Switzerland.
The Fund considers emerging market securities to include securities
which are (i) principally traded in the capital markets of an emerging market
country; (ii) securities of companies that derive at least 50% of their total
revenues from either goods produced or services performed in Emerging Countries
or from sales made in Emerging Countries, regardless of where the securities of
such companies are principally traded; (iii) securities of companies organized
under the laws of, and with a principal office in an Emerging Country; (iv)
securities of investment companies (such as country funds) that principally
invest in emerging market securities; and (v) American Depositary Receipts
(ADRs), American Depositary Shares (ADSs), European Depositary Receipts (EDRs)
and Global Depositary Receipts (GDRs) with respect to the securities of such
companies.
Equity securities in which the Fund may invest include common stocks;
preferred stocks (either convertible or non-convertible); rights; warrants;
direct equity interests in trusts, partnerships, joint ventures and other
unincorporated entities or enterprises; convertible debt instruments; and
special classes of shares available only to foreign persons in those markets
that restrict ownership of certain classes of equity to nationals or residents
of that country. These securities may be listed on securities exchanges or
traded over-the-counter. Direct investments are generally considered illiquid
and will be aggregated with other illiquid investments for purposes of the
limitation on illiquid investments. See "Risk Factors - Emerging Market
Securities."
The Adviser and the Sub-Adviser expect that the Fund will normally
invest in at least three different countries. The Fund emphasizes equity
securities, but may also invest in other types of instruments, including debt
securities of any quality (other than commercial paper as described herein).
Debt securities may include fixed or floating rate bonds, notes, debentures,
commercial paper, loans, convertible securities and other debt securities issued
or guaranteed by governments, agencies or instrumentalities, central banks or
private issuers.
The Fund may, for temporary defensive purposes, invest more than 35% of
its total assets in securities which are not emerging market securities, such as
high grade, liquid debt securities of foreign and United States companies,
foreign governments and the U.S. Government, and their respective agencies,
instrumentalities, political subdivisions and authorities, as well as in money
market instruments denominated in U.S. dollars or a foreign currency. These
money market instruments include, but are not limited to, negotiable or
short-term deposits with domestic or foreign banks with total surplus and
undivided profits of at least $50 million; high quality commercial paper; and
repurchase agreements maturing within seven days with domestic or foreign
dealers, banks and other financial institutions deemed
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to be creditworthy under guidelines approved by the Board of Trustees of the
Fund. The commercial paper in which the Fund may invest will, at the time of
purchase, be rated P-1 or better by Moody's Investors Service, Inc. ("Moody's");
A-1 or better by Standard & Poor's Corporation ("S&P"); Fitch-1 by Fitch; Duff-1
by Duff & Phelps ("D&P"), or if unrated, will be of comparable high qualify as
determined by the Adviser
Asia Dynasty Fund
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Asia Dynasty Fund may invest in equity securities, warrants and equity
options of companies located in, or expected to benefit from the developmental
growth of the economies of countries located in the Asia region ("Asia Growth
Companies"). These countries include Burma, Peoples Republic of China ("China"),
Cambodia, Hong Kong, India, Indonesia, Korea, Laos, Malaysia, Pakistan, the
Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam and, when the
Fund is in a defensive posture, Australia, Japan and New Zealand. Equity
securities include common and preferred stocks, direct equity interests in
trusts, partnerships, joint ventures and other unincorporated entities or
enterprises, special classes of shares available only to foreign persons in
those markets that restrict ownership of certain classes of equity to nationals
or residents of that country, convertible preferred stocks and convertible debt
instruments. The Fund may buy and sell financial futures contracts and options
on financial futures contracts, forward currency contracts and put or call
options on securities, securities indices and foreign currencies and foreign
currency swaps. The Fund may also lend its portfolio securities and borrow money
for investment purposes (i.e. leverage its portfolio).
Global Income Fund
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Global Income Fund may invest in any type of security including, but
not limited to, common stocks and equivalents (such as convertible debt
securities and warrants), preferred stocks and bonds and debt obligations of
domestic and foreign companies, governments (including their political
subdivisions) and international organizations. The Fund may buy and sell
financial futures contracts and options on financial futures contracts, which
may include bond and stock index futures contracts and foreign currency futures
contracts. The Fund may write, purchase or sell put or call options on
securities and foreign currencies. In addition, the Fund may lend its portfolio
securities and borrow money for investment purposes (i.e. leverage its
portfolio).
Certain Policies Applicable to Global Balanced Fund, Global Hard Assets
Fund, Asia Dynasty Fund, Emerging Markets Growth Fund, International Investors
Gold Fund, Global Income Fund and Gold/Resources Fund.
The above Funds may invest in "when issued" securities and "partly
paid" securities. Additionally, Global Balanced Fund, Global Hard Assets Fund,
Asia Dynasty Fund and Global Income Fund may invest in collateralized mortgage
obligations. The Appendix to this Statement of Additional Information contains
an explanation of the rating categories of Moody's Investors Service and
Standard & Poor's Corporation relating to the fixed-income securities and
preferred stocks in which the Funds may invest, including a description of the
risks associated with each category.
U.S. Government Money Fund
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U.S. Government Money Fund seeks safety of principal, daily liquidity
and current income through investments in short-term U.S. Treasury securities
and other securities carrying the "full faith and credit" guarantee of the U.S.
Government. The Fund invests in U.S. Treasury bills, notes, and bonds and other
obligations guaranteed by the full faith and credit of the U.S. Government and
repurchase agreements collateralized by such obligations (at least 80% of its
assets will be so invested). All securities mature within thirteen months from
the date of purchase, although repurchase agreements may be collateralized by
securities maturing in more than one year.
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Direct obligations issued by the U.S. Treasury include bills, notes and
bonds which differ from each other only in interest rates, maturities and times
of issuance: Treasury bills have maturities of thirteen months or less, Treasury
notes have maturities of one to ten years and Treasury bonds generally have
maturities of greater than ten years. Securities guaranteed by the U.S.
Government include such obligations as securities issued by the General Services
Administration and the Small Business Administration.
U.S. Government Money Fund may also invest in other short-term
instruments (up to 20% of its assets), in all cases subject to the credit
quality requirements of the 1940 Act, including commercial paper, banker's
acceptances, and certificates of deposit. Commercial paper consists of
short-term, unsecured promissory notes issued principally by banks and
corporations to finance short-term credit needs. The commercial paper purchased
by the Fund will consist only of direct obligations of the issuer. Banker's
acceptances are drafts or bills of exchange that have been guaranteed as to
payment by a bank or trust company. Banker's acceptances are used to effect
payment of merchandise sold in import-export transactions, and are backed by the
credit strength of the bank which assumes the obligation. Time deposits are
credit instruments evidencing the obligation of a bank to repay funds deposited
with it for a specified period of time. Certificates of deposit are certificates
evidencing the obligation of a bank to repay funds deposited with it for a
specific period of time.
Gold/Resources Fund and U.S. Government Money Fund, as a fundamental
investment policy, may not invest in securities of South African issuers; Global
Balanced Fund, Asia Dynasty Fund, International Investors Gold Fund, Global Hard
Assets Fund, Emerging Markets Growth Fund and Global Income Fund are not so
restricted by their fundamental investment policies.
RISK FACTORS
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INVESTING IN FOREIGN SECURITIES
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Global Balanced Fund, Global Hard Assets Fund, Asia Dynasty Fund,
Emerging Markets Growth Fund, Global Income Fund, International Investors Gold
Fund and Gold/Resources Fund.
Investors should recognize that investing in foreign securities
involves certain special considerations which are not typically associated with
investing in United States securities. Since investments in foreign companies
will frequently involve currencies of foreign countries, and since the above
Funds may hold securities and funds in foreign currencies, these Funds may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, if any, and may incur costs in connection with conversions
between various currencies. Most foreign stock markets, while growing in volume
of trading activity, have less volume than the New York Stock Exchange, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. Similarly, volume and liquidity in
most foreign bond markets are less than in the United States, and at times
volatility of price can be greater than in the United States. Fixed commissions
on foreign securities exchanges are generally higher than negotiated commissions
on United States exchanges, although these Funds endeavor to achieve most
favorable net results on their portfolio transactions. There is generally less
government supervision and regulation of securities exchanges, brokers and
listed companies in foreign countries than in the United States. In addition,
with respect to certain foreign countries, there is the possibility of exchange
control restrictions, expropriation or confiscatory taxation, political,
economic or social instability, which could affect investments in those
countries. Foreign securities such as those purchased by these Funds may be
subject to foreign government taxes, higher custodian fees and dividend
collection fees which could reduce the yield on such securities.
Investments may be made from time to time by Global Balanced Fund,
Global Hard Assets Fund, Asia Dynasty Fund and Emerging Markets Growth Fund in
companies in developing countries as well as in developed countries. Asia
Dynasty Fund, Emerging Markets Growth Fund and Global Hard Assets Fund may have
a substantial portion of their assets in developing countries. Although there is
no universally accepted definition, a developing country is generally considered
by the Adviser to be a country which is in the initial stages of
industrialization.
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Shareholders should be aware that investing in the equity and fixed income
markets of developing countries involves exposure to unstable governments,
economies based on only a few industries, and securities markets which trade a
small number of securities. Securities markets of developing countries tend to
be more volatile than the markets of developed countries; however, such markets
have in the past provided the opportunity for higher rates of return to
investors.
Since the Emerging Markets Growth Fund will invest at least 65% of its
total assets in emerging market countries and the Asia Dynasty Fund will invest
at least 65% of its total assets in Asia Region investments, its investment
performance will be especially affected by events affecting emerging market
countries and Asia Region companies. The value and liquidity of emerging market
countries and Asia Region investments may be affected favorably or unfavorably
by political, economic, fiscal, regulatory or other developments in the emerging
market countries and Asia Region or their neighboring regions. The extent of
economic development, political stability and market depth of different
countries in the emerging market countries and Asia Region varies widely.
Certain countries in the Asia Region, including Cambodia, China, Laos,
Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are either
comparatively underdeveloped or are in the process of becoming developed.
Investments typically involve greater potential for gain or loss than
investments in securities of issuers in developed countries. Given the Fund's
investments, the Fund will likely be particularly sensitive to changes in
China's economy as the result of a reversal of economic liberalization,
political unrest or changes in China's trading status.
The securities markets in the emerging market countries and Asia Region
are substantially smaller, less liquid and more volatile than the major
securities markets in the United States. A high proportion of the shares of many
issuers may be held by a limited number of persons and financial institutions,
which may limit the number of shares available for investment by the portfolio.
Similarly, volume and liquidity in the bond markets in the emerging market
countries and Asia Region are less than in the United States and, at times,
price volatility can be greater than in the United States. A limited number of
issuers in emerging market countries and the Asia Region securities markets may
represent a disproportionately large percentage of market capitalization and
trading value. The limited liquidity of securities markets in the emerging
market countries and Asia Region may also affect the Fund's ability to acquire
or dispose of securities at the price and time it wishes to do so. Accordingly,
during periods of rising securities prices in the more illiquid emerging market
countries and Asia Region securities markets, the Fund's ability to participate
fully in such price increases may be limited by its investment policy of
investing not more than 15% of its net assets in illiquid securities.
Conversely, the Fund's inability to dispose fully and promptly of positions in
declining markets will cause the Fund's net asset value to decline as the value
of the unsold positions is marked to lower prices. In addition, emerging market
countries and Asia Region securities markets are susceptible to being influenced
by large investors trading significant blocks of securities.
The Chinese, Hong Kong and Taiwanese stock markets are undergoing a
period of growth and change which may result in trading volatility and
difficulties in the settlement and recording of transactions, and in
interpreting and applying the relevant law and regulations. In particular, the
securities industry in China is not well developed. China has no securities laws
of nationwide applicability. The municipal securities regulations adopted by
Shanghai and Shenzhen municipalities are very new, as are their respective
securities exchanges and other self-regulatory organizations. In addition,
Chinese stockbrokers and other intermediaries may not perform as well as their
counterparts in the United States and other more developed securities markets.
The prices at which the Funds may acquire investments may be affected by trading
by persons with material non-public information and by securities transactions
by brokers in anticipation of transactions by the Funds in particular
securities. The securities markets in Cambodia, Laos and Vietnam are currently
non-existent.
Asia Dynasty Fund will invest in Asia Region countries with emerging
economies or securities markets, and the Emerging Markets Growth Fund will
invest world-wide in countries with emerging economies or securities markets.
Political and economic structures in many of such countries may be undergoing
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristic of the United States.
Certain of such countries have in the past failed to recognize private property
rights and have at times
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nationalized or expropriated the assets of private companies. As a result, the
risks described above, including the risks of nationalization or expropriation
of assets, may be heightened. In addition, unanticipated political or social
developments may affect the value of the Funds' investments in those countries
and the availability to the Funds of additional investments in those countries.
Economies in the emerging market countries and the Asia Region may
differ favorably or unfavorably from the United States economy in such respects
as rate of growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. As
export-driven economies, the economies of the emerging market countries and Asia
Region are affected by developments in the economies of their principal trading
partners. Revocation by the United States of China's "Most Favored Nation"
trading status, which the United States President and Congress reconsider
annually, would adversely affect the trade and economic development of China and
Hong Kong. Hong Kong, Japan and Taiwan have limited natural resources, resulting
in dependence on foreign sources for certain raw materials and economic
vulnerability to global fluctuations of price and supply.
China governmental actions can have a significant effect on the
economic conditions in the Asia Region, which could adversely affect the value
and liquidity of the Fund's investments. Although the Chinese Government has
recently begun to institute economic reform policies, there can be no assurances
that it will continue to pursue such policies or, if it does, that such policies
will succeed.
China and certain of the other emerging market countries and Asia
Region countries do not have comprehensive systems of laws, although substantial
changes have occurred in China in this regard in recent years. The corporate
form of organization has only recently been permitted in China and national
regulations governing corporations were introduced only in May 1992. Prior to
the introduction of such regulations Shanghai had adopted a set of corporate
regulations applicable to corporations located or listed in Shanghai, and the
relationship between the two sets of regulations is not clear. Consequently,
until a firmer legal basis is provided, even such fundamental corporate law
tenets as the limited liability status of Chinese issuers and their authority to
issue shares remain open to question. Laws regarding fiduciary duties of
officers and directors and the protection of shareholders are not well
developed. China's judiciary is relatively inexperienced in enforcing the laws
that exist, leading to a higher than usual degree of uncertainty as to the
outcome of litigation. Even where adequate law exists in China, it may be
impossible to obtain swift and equitable enforcement of such law, or to obtain
enforcement of the judgment by a court of another jurisdiction. The bankruptcy
laws pertaining to state enterprises have rarely been used and are untried in
regard to an enterprise with foreign shareholders, and there can be no assurance
that such shareholders, including the Funds, would be able to realize the value
of the assets of the enterprise or receive payment in convertible currency. As
the changes to the Chinese legal system develop, the promulgation of new laws,
existing laws and the preemption of local laws by national laws may adversely
affect foreign investors, including the Funds. The uncertainties faced by
foreign investors in China are exacerbated by the fact that many laws,
regulations and decrees of China are not publicly available, but merely
circulated internally. Similar risks exist in other emerging market countries
and Asia Region countries.
Trading in futures contracts traded on foreign commodity exchanges may
be subject to the same or similar risks as trading in foreign securities.
FOREIGN CURRENCY TRANSACTIONS
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Global Balanced Fund, Global Hard Assets Fund, Asia Dynasty Fund,
Emerging Markets Growth Fund, Global Income Fund, International Investors Gold
Fund and Gold/Resources Fund.
Under normal circumstances, consideration of the prospects for currency
exchange rates will be incorporated into the long-term investment decisions made
for the above Funds with regard to overall diversification strategies. Although
the Funds value their assets daily in terms of U.S. Dollars, they do not intend
physically to convert their holdings of foreign currencies into U.S. dollars on
a daily basis. The Funds will do so from time to time, and
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investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not 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 the Funds at one rate, while offering a lesser rate of
exchange should the Funds desire to resell that currency to the dealer. The
Funds will use forward contracts, along with futures contracts, foreign exchange
swaps (Global Hard Assets Fund, Global Balanced Fund, Asia Dynasty Fund and
Emerging Markets Growth Fund only) and put and call options (all types of
derivatives), to "lock in" the U.S. Dollar price of a security bought or sold
and as part of their overall hedging strategy. The Funds will conduct their
foreign currency exchange transactions, either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
purchasing put and call options on, or entering into futures contracts or
forward contracts to purchase or sell foreign currencies. See "Futures and
Options Transactions."
A forward foreign currency contract, like a futures contract, involves
an obligation to purchase or sell a specific amount of 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. Unlike foreign
currency futures contracts which are standardized exchange-traded contracts,
forward currency contracts are usually 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 no
commissions are charged at any stage for such trades.
The Adviser will not commit any Fund to deliver under forward contracts
an amount of foreign currency in excess of the value of the Fund's portfolio
securities or other assets or obligations denominated in that currency. The
Funds' Custodian will place the securities being hedged, cash or U.S. government
securities or debt or equity securities into a segregated account of the Fund in
an amount equal to the value of the Fund's total assets committed to the
consummation of forward foreign currency contracts to ensure that the Fund is
not leveraged beyond applicable limits. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the
amount of the Funds' commitments with respect to such contracts. At the maturity
of a forward contract, the Funds may either sell the portfolio security and make
delivery of the foreign currency, or they may retain the security and terminate
their contractual obligation to deliver the foreign currency prior to maturity
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. There can be no assurance, however, that the Funds will be able to
effect such a closing purchase transaction.
It is impossible to forecast the market value of a particular portfolio
security at the expiration of the contract. Accordingly, if a decision is made
to sell the security and make delivery of the foreign currency 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 the security is
less than the amount of foreign currency that a Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
FUTURES AND OPTIONS TRANSACTIONS
--------------------------------
Global Balanced Fund, Global Hard Assets Fund, Asia Dynasty Fund,
Emerging Markets Growth Fund, Gold/Resources Fund and Global Income Fund. These
Funds may invest in options on futures contracts. Compared to the purchase or
sale of futures contracts, the purchase and sale of options on futures contracts
involves less potential risk to the Funds because the maximum exposure is the
amount of the premiums paid for the options. Futures contracts and options
thereon are both types of derivatives.
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The use of financial futures contracts and commodity futures contracts,
options on such futures contracts and commodities (Gold/Resources Fund, Global
Hard Assets Fund and International Investors Gold Fund), may reduce a Fund's
exposure to fluctuations in the prices of portfolio securities and may prevent
losses if the prices of such securities decline. Similarly, such investments may
protect a Fund against fluctuation in the value of securities in which a Fund is
about to invest. Because the financial markets in the Asia Region countries and
other developing countries are not as developed as in the United States these
financial investments may not be available to the Funds and the Funds may be
unable to hedge certain risks.
The use of financial futures and commodity futures contracts and
options on such futures contracts and commodities (Gold/Resources Fund, Global
Hard Assets Fund and International Investors Gold Fund) as hedging instruments
involves several risks. First, there can be no assurance that the prices of the
futures contracts or options and the hedged security or the cash market position
will move as anticipated. If prices do not move as anticipated, a Fund may incur
a loss on its investment, may not achieve the hedging protection anticipated
and/or incur a loss greater than if it had entered into a cash market position.
Second, investments in options, futures contracts and options on futures
contracts may reduce the gains which would otherwise be realized from the sale
of the underlying securities or assets which are being hedged. Third, positions
in futures contracts and options can be closed out only on an exchange that
provides a market for those instruments. There can be no assurances that such a
market will exist for a particular futures contract or option. If a Fund cannot
close out an exchange traded futures contract or option which it holds, it would
have to perform its contractual obligation or exercise its option to realize any
profit and would incur transaction costs on the sale of the underlying assets.
It is the policy of each of the Funds to meet the requirements of the
Internal Revenue Code of 1986, as amended (the "Code") to qualify as a regulated
investment company to prevent double taxation of the Funds and their
shareholders. One of these requirements is that less than 30% of a Fund's gross
income must be derived from gains from the sale or other disposition of
securities held for less than three months. Another test requires that at least
90% of a Fund's gross income be derived from dividends, interest, payment with
respect to securities loans and gains from the sale or other disposition of
stocks or other securities. Gains from commodity futures contracts do not
currently qualify as income for purposes of the 90% test. The extent to which
the Funds may engage in options and futures contract transactions may be
materially limited by these tests.
MORTGAGE-BACKED SECURITIES
--------------------------
The Funds may invest in mortgage-backed securities. A mortgage-backed
security may be an obligation of the issuer backed by a mortgage or pool of
mortgages or a direct interest in an underlying pool of mortgages. The value of
mortgage-backed securities may change due to shifts in the market's perception
of issuers. In addition, regulatory or tax changes may adversely affect the
mortgage securities market as a whole. Stripped mortgage-backed securities are
created when a U.S. governmental agency or a financial institution separates the
interest and principal components of a mortgage-backed security and sells them
as individual securities. The holder of the "principal-only" security ("PO")
receives the principal payments made by the underlying mortgage-backed security,
while the holder of the "interest-only" security ("IO") receives interest
payments from the same underlying security. The prices of stripped
mortgage-backed securities may be particularly affected by change in interest
rates. As interest rates fall, prepayment rates tend to increase, which tends to
reduce the price of IOs and increase prices of POs. Rising interest rates can
have the opposite effect. Changes in interest rates may also affect the
liquidity of IOs and POs.
REAL ESTATE SECURITIES
----------------------
Although Gold/Resources Fund and Global Hard Assets Fund will not
invest in real estate directly, each of these Funds may invest a percentage of
its assets in equity securities of REITs and other real estate industry
companies or companies with substantial real estate investments. Hard Assets
Fund may invest up to 50% of its assets in such securities. Gold/Resources Fund
and Global Hard Assets Fund are therefore subject to certain risks associated
with direct ownership of real estate and with the real estate industry in
general. These risks include, among others: possible
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<PAGE>
declines in the value of real estate; possible lack of availability of mortgage
funds; extended vacancies of properties; risks related to general and local
economic conditions; overbuilding; increases in competition, property taxes and
operating expenses; changes in zoning laws; costs resulting from the clean-up
of, and liability to third parties for damages resulting from, environmental
problems; casualty or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and variations in rents;
and changes in interest rates.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
the Internal Revenue Code of 1986, as amended (the "Code").
Investing in REITs involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, and
are subject to the risks of financing projects. REITs are subject to heavy cash
flow dependency, default by borrowers, self-liquidation and the possibilities of
failing to qualify for the exemption from tax for distributed income under the
Code. REITs (especially mortgage REITs) are also subject to interest rate risk
(i.e., as interest rates rise, the value of the REIT may decline).
COMMERCIAL PAPER
----------------
Emerging Markets Growth Fund, Global Balanced Fund, Global Hard Assets
Fund and Global Income Fund may invest in commercial paper which is indexed to
certain specific foreign currency exchange rates. The terms of such commercial
paper provide that its principal amount is adjusted upwards or downwards (but
not below zero) at maturity to reflect changes in the exchange rate between two
currencies while the obligation is outstanding. The Funds will purchase such
commercial paper with the currency in which it is denominated and, at maturity,
will receive interest and principal payments thereon in that currency, but the
amount or principal payable by the issuer at maturity will change in proportion
to the change (if any) in the exchange rate between two specified currencies
between the date the instrument is issued and the date the instrument matures.
While such commercial paper entails the risk of loss of principal, the potential
for realizing gains as a result of changes in foreign currency exchange rate
enables the Funds to hedge or cross-hedge against a decline in the U.S. dollar
value of investments denominated in foreign currencies while providing an
attractive money market rate of return. The Funds will purchase such commercial
paper for hedging purposes only, not for speculation. The staff of the
Securities and Exchange Commission is currently considering whether the purchase
of this type of commercial paper would result in the issuance of a "senior
security" within the meaning of the 1940 Act. The Funds believe that such
investments do not involve the creation of such a senior security, but
nevertheless will establish a segregated account with respect to its investments
in this type of commercial paper and to maintain in such account cash not
available for investment or U.S. Government securities or other liquid high
quality debt securities having a value equal to the aggregate principal amount
of outstanding commercial paper of this type.
DEBT SECURITIES
---------------
The Funds may invest in debt securities. The market value of debt
securities generally varies in response to changes in interest rates and the
financial condition of each issuer. During periods of declining interest rates,
the value of debt securities generally increases. Conversely, during periods of
rising interest rates, the value of such securities generally declines. These
changes in market value will be reflected in the Fund's net asset value. Debt
securities with similar maturities may have different yields, depending upon
several factors, including the relative financial condition of the issuers. For
example, higher yields are generally available from securities in the lower
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<PAGE>
rating categories of S&P or Moody's. However, the values of lower-rated
securities generally fluctuate more than those of high grade securities. Many
securities of foreign issuers are not rated by these services. Therefore the
selection of such issuers depends to a large extent on the credit analysis
performed by the Adviser.
New issues of certain debt securities are often offered on a when-
issued basis, that is, the payment obligation and the interest rate are fixed at
the time the buyer enters into the commitment, but delivery and payment for the
securities normally take place after the date of the commitment to purchase. The
value of when-issued securities may vary prior to and after delivery depending
on market conditions and changes in interest rate levels. However, the Funds do
not accrue any income on these securities prior to delivery. The Funds will
maintain in a segregated account with their Custodian an amount of cash or high
quality debt securities equal (on a daily marked-to-market basis) to the amount
of its commitment to purchase the when-issued securities.
SHORT SALES
-----------
Currently, Global Hard Assets Fund is the only Fund that can engage in
short sales. The Fund will establish a segregated account with respect to its
short sales and maintain in the account cash not available for investment or US
Government securities or other liquid, high-quality securities having a value
equal to the difference between (i) the market value of the securities sold
short at the time they were sold short and (ii) any cash, US Government
Securities or other liquid, high-quality securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated account will be marked to market
daily, so that (i) the amount in the segregated account plus the amount
deposited with the broker as collateral equals the current market value of the
securities sold short and (ii) in no event will the amount in the segregated
account plus the amount deposited with the broker as collateral fall below the
original value of the securities at the time they were sold short. The total
value of the assets deposited as collateral with the broker and deposited in the
segregated account will not exceed 50% of the Fund's net assets. In order to
comply with certain securities laws of a state in which shares of the Fund are
currently sold, the Fund has undertaken to (i) limit the value of its assets
deposited as collateral and deposited in the segregated account to 25% of the
securities of any class of any one issuer and (ii) limit short sales to liquid
securities, as determined by the Adviser and ratified at least quarterly by the
Board of Trustees. The Fund will comply with the undertaking so long as the
Fund's shares are sold in such state for such state restrictions remain in
effect. The Fund's ability to engage in short sales may be further limited by
the requirements of current US tax law that the Fund derive less then 30% of its
gross income from the sale or other disposition of securities held less than
three months. Securities sold short and then repurchased, regardless of the
actual time between the tow transactions, are considered to have been held for
less than three months.
DIRECT INVESTMENTS
------------------
Emerging Markets Growth Fund, Global Hard Assets Fund and Global
Balanced Fund may invest up to 10% of their total assets in direct investments.
Direct investments include (i) the private purchase from an enterprise of an
equity interest in the enterprise in the form of shares of common stock or
equity interests in trusts, partnerships, joint ventures or similar enterprises,
and (ii) the purchase of such an equity interest in an enterprise from a
principal investor in the enterprise. In each case the Funds will, at the time
of making the investment, enter into a shareholder or similar agreement with the
enterprise and one or more other holders of equity interests in the enterprise.
The Sub-Adviser anticipates that these agreements will, in appropriate
circumstances, provide the Funds with the ability to appoint a representative to
the board of directors or similar body of the enterprise and for eventual
disposition of the Funds' investment in the enterprise. Such a representative of
the Funds will be expected to provide the Funds with the ability to monitor its
investment and protect its rights in the investment and will not be appointed
for the purpose of exercising management or control of the enterprise.
Certain of the Funds' direct investments will include investments in
smaller, less seasoned companies. These companies may have limited product
lines, markets or financial resources, or they may be dependent on a limited
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<PAGE>
management group. The Funds do not anticipate making direct investments in
start-up operations, although it is expected that in some cases the Funds'
direct investments will fund new operations for an enterprise which itself is
engaged in similar operations or is affiliated with an organization that is
engaged in similar operations.
Direct investments may involve a high degree of business and financial
risk that can result in substantial losses. Because of the absence of any public
trading market for these investments, the Funds may take longer to liquidate
these positions than would be the case for publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
on these sales could be less than those originally paid by the Funds.
Furthermore, issuers whose securities are not publicly traded may not be subject
to public disclosure and other investor protection requirements applicable to
publicly traded securities. If such securities are required to be registered
under the securities laws of one or more jurisdictions before being resold, the
Funds may be required to bear the expense of the registration. In addition, in
the event the Funds sell unlisted foreign securities, any capital gains realized
on such transactions may be subject to higher rates of taxation than taxes
payable on the sale of listed securities. Direct investments are generally
considered illiquid and will be aggregated with other illiquid investments for
purposes of the limitation on illiquid investments
REPURCHASE AGREEMENTS
---------------------
None of the Funds will enter into a repurchase agreement with a
maturity of more than seven business days if, as a result, more than 10% of the
value of a Fund's total assets would then be invested in such repurchase
agreements and other illiquid securities (except that Global Income Fund may
invest no more than 15% of its assets in such repurchase agreements and other
money market instruments and Global Balanced Fund, Global Hard Assets Fund, Asia
Dynasty Fund and Emerging Markets Growth Fund may invest no more than 15% of
their total assets in illiquid securities). A Fund will only enter into a
repurchase agreement where (i) the underlying securities are of the type which
the Fund's investment policies would allow it to purchase directly, (ii) the
market value of the underlying security, including accrued interest, will be at
all times equal to or exceed the value of the repurchase agreement, and (iii)
payment for the underlying securities is made only upon physical delivery or
evidence of book-entry transfer to the account of the custodian or a bank acting
as agent.
RULE 144A SECURITIES AND
SECTION 4(2) COMMERCIAL PAPER
-----------------------------
The Securities and Exchange Commission adopted Rule 144A which allows a
broader institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A establishes a "safe
harbor" from the registration requirements of the Securities Act of 1933 of
resales of certain securities to qualified institutional buyers. The Adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this new
regulation and the development of an automated system for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers.
The Adviser will monitor the liquidity of restricted securities in the
Funds' holdings under the supervision of the Board of Trustees. In reaching
liquidity decisions, the Adviser will consider, among other things, the
following factors: (1) the frequency of trades and quotes for the security; (2)
the number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security and (4) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanisms of the transfer).
In addition, commercial paper may be issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Such commercial paper is restricted as to disposition
under the federal securities laws and, therefore, any resale of such securities
must be effected in a transaction exempt from registration under the Securities
Act of 1933. Such commercial paper is normally resold to
13
<PAGE>
other investors through or with the assistance of the issuer or investment
dealers who make a market in such securities, thus providing liquidity.
Securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 and commercial paper issued in reliance on the Section
4(2) exemption under the Act may be determined to be liquid in accordance with
guidelines established by the Board of Trustees for purposes of complying with
investment restrictions applicable to investments by the Funds (except the U.S.
Government Money Fund) in illiquid securities.
INVESTMENT RESTRICTIONS
-----------------------
The following investment restrictions are in addition to those
described in the Prospectus. Policies that are identified as fundamental may be
changed with respect to a Fund only with the approval of the holders of a
majority of the Fund's outstanding shares. Such majority is defined as the vote
of the lesser of (i) 67% or more of the outstanding shares present at a meeting,
if the holders of more than 50% of a Fund's outstanding shares are present in
person or by proxy, or (ii) more than 50% of a Fund's outstanding shares. As to
any of the following policies, if a percentage restriction is adhered to at the
time of investment, a later increase or decrease in percentage resulting from a
change in value of portfolio securities or amount of net assets will not be
considered a violation of the policy.
Global Balanced Fund, Global Hard Assets Fund, Asia Dynasty Fund,
Emerging Markets Growth Fund, Gold/Resources Fund, Global Income Fund and U.S.
Government Money Fund.
With respect to Gold/Resources Fund and U.S. Government Money Fund, all
of the following restrictions are fundamental policies except restriction 21,
unless otherwise indicated. With respect to Global Income Fund, restrictions 1,
7, 10, 15 and 21 are not fundamental. With respect to Global Balanced Fund,
Global Hard Assets Fund, Asia Dynasty Fund and Emerging Markets Growth Fund
restrictions 1, 4, 6, 7, 10, 12, 13, 17, 18, 19 and 20, are not fundamental,
unless otherwise provided for by applicable federal or state law.
The Global Balanced Fund, Global Hard Assets Fund, Emerging Markets
Growth Fund, Asia Dynasty Fund, Gold/Resources Fund, Global Income Fund and U.S.
Government Money Fund may not:
1. Invest in securities which (i) with respect to Gold/Resources
Fund, Global Income Fund and U.S. Government Money Fund, are
subject to legal or contractual restrictions on resale
("restricted securities") or for which there is no readily
available market quotation or engage in a repurchase agreement
maturing in more than seven days with respect to any security
if the result is that more than 10% of a Fund's net assets
would be invested in such securities, and (ii) with respect to
Global Balanced Fund, Global Hard Assets Fund, Asia Dynasty
Fund and Emerging Markets Growth Fund and are "illiquid"
securities, including repurchase agreements maturing in more
than 7 days and options traded over-the-counter if the result
is that more than 15% of Global Balanced Fund's, Global Hard
Assets Fund's, Asia Dynasty Fund's or Emerging Markets Growth
Fund net assets would be invested in such securities, except
that Global Income Fund may invest an additional 5% of its net
assets in short term money market investments, such as
repurchase agreements and time deposits maturing in more than
seven days.
2. Purchase or sell real estate, although the Global Balanced
Fund, Global Hard Assets Fund, Asia Dynasty Fund,
Gold/Resources Fund, Emerging Markets Growth Fund and Global
Income Fund may purchase securities of companies which deal in
real estate, including securities of real estate investment
trusts, and may purchase securities which are collateralized
by interests in real estate.
3. Purchase or sell commodities (non-Hard Asset commodities with
respect to Global Hard Assets) or commodity futures contracts
(for the purpose of this restriction, forward foreign exchange
contracts are not deemed to be a commodity or commodity
contract) except that Emerging Markets Growth
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<PAGE>
Fund may for hedging and other purposes, Gold/Resources Fund
may, for hedging purposes, buy and sell financial futures
contracts which may include stock and bond index futures
contracts and foreign currency futures contracts and
Gold/Resources Fund may, for hedging purposes only, buy and
sell commodity futures contracts on gold and other natural
resources or on an index thereon. The Fund may not commit more
than 5% of its total assets to initial margin deposits on
futures contracts, (however, the Emerging Markets Growth Fund
is excluded from the 5% limitation for margin deposit for
futures position entered into for bona fide hedging purposes).
In addition, Gold/Resources Fund, International Investors Gold
Fund and Global Hard Assets Fund may invest in gold bullion
and coins.
4. Exclusive of the Global Balanced Fund, Global Hard Assets
Fund, Asia Dynasty Fund and Emerging Markets Growth Fund
purchase securities of other open-end investment companies
except as part of a merger, consolidation, reorganization or
acquisition of assets; Asia Dynasty Fund, Emerging Markets
Growth Fund, Global Balanced Fund, Global Hard Assets Fund,
Gold/Resources Fund or Global Income Fund may not purchase
more than 3% of the total outstanding voting stock of any
closed-end investment company if more than 5% of any of these
Funds' total assets would be invested in securities of any
closed-end investment company, or more than 10% of such value
in closed-end investment companies in general. In addition,
Global Balanced Fund, Global Hard Assets Fund, Asia Dynasty
Fund, Gold/Resources Fund or Global Income Fund may not invest
in the securities of closed-end investment companies, except
by purchase in the open market involving only customary
broker's commissions.
5. Make loans, except by (i) purchase of marketable bonds,
debentures, commercial paper and similar marketable evidences
of indebtedness and (ii) repurchase agreements. Global
Balanced Fund, Global Hard Assets Fund, Asia Dynasty Fund,
Emerging Markets Growth Fund and Global Income Fund may lend
to broker-dealers portfolio securities with an aggregate
market value up to one-third of its total assets.
6. As to 75% of the total assets of each of the Asia Dynasty
Fund, Emerging Markets Growth Fund, Gold/Resources Fund,
International Investors Gold Fund and U.S. Government Money
Fund, purchase securities of any issuer, if immediately
thereafter (i) more than 5% of a Fund's total assets (taken at
market value) would be invested in the securities of such
issuer, or (ii) more than 10% of the outstanding securities of
any class of such issuer would be held by a Fund (provided
that these limitations do not apply to obligations of the
United States Government, its agencies or instrumentalities).
This limitation does not apply to the Global Income Fund,
Global Balanced Fund or Global Hard Assets Fund.
7. Invest more than 5 percent of the value of its total assets in
securities of companies having, together with their
predecessors, a record of less than three years of continuous
operation. This restriction does not apply to Global Balanced
Fund, Global Hard Assets Fund, Emerging Markets Growth Fund or
Asia Dynasty Fund.
8. Underwrite any issue of securities (except to the extent that
a Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in the disposition of restricted
securities).
9. Borrow money, except that each of the Gold/Resources Fund and
U.S. Government Money Fund may borrow up to 10% of its total
assets valued at cost for temporary or emergency purposes.
These Funds will not purchase securities for investment while
borrowings equaling 5% or more of their total assets are
outstanding. In addition, Global Balanced Fund, Global Hard
Assets Fund,
15
<PAGE>
Emerging Markets Growth Fund, Asia Dynasty Fund and Global
Income Fund may borrow up to 30% of the value of their
respective net assets to increase their holdings of portfolio
securities.
10. Mortgage, pledge or otherwise encumber its assets except to
secure borrowing effected within the limitations set forth in
restriction (9).
11. Issue senior securities except insofar as a Fund may be deemed
to have issued a senior security by reason of (i) borrowing
money in accordance with restrictions described above; (ii)
entering into forward foreign currency contracts (Global
Balanced Fund, Global Hard Assets Fund, Emerging Markets
Growth Fund, Asia Dynasty Fund, Gold/Resources Fund and Global
Income Fund); (iii) financial futures contracts purchased on
margin (Global Balanced Fund, Global Hard Assets Fund,
Emerging Markets Growth Fund, Asia Dynasty Fund,
Gold/Resources Funds and Global Income Fund), (iv) commodity
futures contracts purchased on margin (Gold/Resources Fund,
Global Hard Assets Fund); (v) foreign currency swaps (Global
Balanced Fund, Global Hard Assets Fund, Asia Dynasty Fund and
Emerging Markets Growth Fund); and (vi) issuing multiple
classes of shares (Global Balanced Fund, Global Hard Assets
Fund, Emerging Markets Growth Fund and Asia Dynasty Fund).
12. Except for Emerging Markets Growth Fund and Global Hard Assets
Fund, make short sales of securities, except that Global
Balanced Fund, Emerging Markets Growth Fund, Asia Dynasty
Fund, Gold/Resources Fund and Global Income Fund may engage in
the transactions specified in restrictions (2), (3) and (14).
13. Purchase any security on margin, except that it may obtain
such short-term credits as are necessary for clearance of
securities transactions and, with respect to Global Balanced
Fund, Global Hard Assets Fund, Emerging Markets Growth Fund,
Asia Dynasty Fund, Gold/Resources Fund and Global Income Fund,
may make initial or maintenance margin payments in connections
with options and futures contracts and related options and
borrowing effected within the limitations set forth in
restriction (9).
14. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except that Global Balanced Fund, Global
Hard Assets Fund, Emerging Markets Growth Fund, Asia Dynasty
Fund, Gold/Resources Fund and Global Income Fund may purchase
or sell puts and calls on foreign currencies and on securities
described under "Options Transactions" herein and in the
Prospectus and that Global Balanced Fund, Global Hard Assets
Fund, Emerging Markets Growth Fund, Asia Dynasty Fund,
Gold/Resources Fund and Global Income Fund may write, purchase
or sell put and call options on financial futures contracts,
which include bond and stock index futures contracts and
Gold/Resources Fund may write, purchase, or sell put and call
options on gold or other natural resources or an index thereon
and on commodity futures contracts on gold or other natural
resources or an index thereon.
15. Make investments for the purpose of exercising control or
management.
16. Invest more than 25 percent of the value of a Fund's total
assets in the securities of issuers having their principal
business activities in the same industry, except the
Gold/Resources Fund, Global Hard Assets Fund and Emerging
Markets Growth Fund and as otherwise stated in any Fund's
fundamental investment objective, and provided that this
limitation does not apply to obligations issued or guaranteed
by the United States Government, its agencies or
instrumentalities.
16
<PAGE>
17. Participate on a joint or joint and several basis in any
trading account in securities, although transactions for the
Funds and any other account under common or affiliated
management may be combined or allocated between the Funds and
such account.
18. Purchase participations or other interests (other than equity
stock interests in the case of the Global Balanced Fund,
Global Hard Assets Fund, Emerging Markets Growth Fund, Asia
Dynasty Fund, Gold/Resources Fund and Global Income Fund) in
oil, gas or other mineral exploration or development programs.
19. Invest more than 5% of its total assets in warrants, whether
or not the warrants are listed on the New York or American
Stock Exchanges, or more than 2% of the value of the assets of
a Fund (except Global Balanced Fund, Global Hard Assets Fund,
Emerging Markets Growth Fund and Asia Dynasty Fund) in
warrants which are not listed on those exchanges. Warrants
acquired in units or attached to securities or received as
dividends are not included in this restriction. The U.S.
Government Money Fund will not invest in warrants.
20. Purchase or retain a security of any issuer if any of the
officers, directors or Trustees of a Fund or its investment
adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer, or if such persons taken together
own more than 5% of the securities of such issuer (except
Emerging Markets Growth Fund).
21. Invest in real estate limited partnerships or in oil, gas or
other mineral leases.
With respect to restriction 3, forward foreign exchange contracts are
not deemed to be a commodity or commodity contract. The following are not
considered fundamental policies. Asia Dynasty Fund, Global Balanced Fund, Global
Hard Assets Fund, Global Income Fund and Emerging Markets Growth Fund may, for
hedging purposes, buy and sell financial futures contracts which may include
stock and bond index futures contracts and foreign currency futures contracts. A
Fund may not commit more than 5% of its total assets to initial margin deposits
on futures contracts. Emerging Markets Growth Fund, Asia Dynasty Fund, Global
Balanced Fund and Global Hard Assets Fund may not commit more than 5% of their
total assets to initial margin deposits on futures contracts not used for
hedging purposes.
With respect to restriction 16, companies in different geographical
locations will not be deemed to be in the same industry if the investment risks
associated with the securities of such companies are substantially different.
For example, although generally considered to be "interest rate sensitive,"
investing in banking institutions in different countries is generally dependent
upon substantially different risk factors, such as the condition and prospects
of the economy in a particular country and in particular industries, and
political conditions.
In order to comply with certain securities laws of a state in which
shares of the Funds are currently sold, the Funds have undertaken with respect
to investment restriction number 1, not to invest more than 10% of their assets
in "restricted securities." To the extent the above restriction has been adopted
to comply with state securities laws, it shall not apply to the Funds once such
laws are no longer in effect.
In order to comply with certain securities laws of a state in which
shares of the Funds are currently sold, the Funds have undertaken with respect
to investment restriction number 7, not to invest more than 5% of their assets
in securities of unseasoned issuers. To the extent the above restriction has
been adopted to comply with state securities laws, it shall not apply to the
Funds once such laws are no longer in effect.
17
<PAGE>
International Investors Gold Fund
- ---------------------------------
Restrictions 1 through 9 are fundamental policies of International
Investors Gold Fund and may not be changed without shareholder approval.
Restrictions 10 through 16 are not fundamental policies and may be changed
without shareholder approval.
International Investors Gold Fund may not:
1. Underwrite securities of other issuers.
2. Invest in real estate, commodity contracts or commodities
(except that, subject to applicable state laws, the Fund may
invest up to 12.5% of the value of its total assets as of the
date of investment in gold and silver coins which are legal
tender in the country of issue and gold and silver bullion).
3. Make loans to other persons, except through repurchase
agreements or the purchase of publicly distributed bonds,
debentures and other debt securities.
4. Purchase securities on margin or make short sales.
5. Purchase or retain a security of any issuer if any of the
officers or directors of the Company or its investment adviser
own beneficially as much as 1/2 of 1%, or if such persons
taken together own over 5%, of the issuer's securities.
6. Lend its funds or assets, except through the purchase of
securities the Fund would otherwise be authorized to purchase.
7. Mortgage, pledge or hypothecate more than 15% of the Company's
total assets, taken at cost.
8. Purchase any restricted securities which may not be sold to
the public without registration under the Securities Act of
1933, if by reason of such purchase the value of the Company's
aggregate holdings in all such securities would exceed 10% of
total assets.
9. Issue senior securities. The Fund may (i) borrow money in
accordance with restrictions described above, (ii) enter into
forward contracts, (iii) purchase futures contracts on margin,
(iv) issue multiple classes of securities, and (v) enter into
swap agreement or purchase or sell structured notes or similar
instruments.
10. Invest in interests (other than equity stock interests) in
oil, gas or other mineral exploration or development programs
or in oil, gas or other mineral leases.
11. Invest in real estate limited partnerships.
12. Make short sales of foreign currencies.
13. Seek short-term trading profits.
14. Make investments in companies for the purpose of exercising
control or management.
15. Invest more than 10% of its assets in repurchase agreements
having maturities of greater than seven days or in a
combination of such agreements together with restricted
securities and securities for which market quotations are not
readily available.
18
<PAGE>
16. Purchase securities for investment while borrowings equal to
5% or more of the Fund's assets are outstanding.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of net assets will not be considered a violation
of any of the foregoing restrictions.
INVESTMENT ADVISORY SERVICES
----------------------------
The investment adviser and manager of the Funds (except for the Asia
Dynasty Fund) is Van Eck Associates Corporation (the "Adviser"), a Delaware
corporation, pursuant to an Advisory Agreement with the Trust dated as of July
30, 1985, as amended. The Adviser furnishes an investment program for the Funds
and determines, subject to the overall supervision and review of the Board of
Trustees, what investments should be purchased, sold and held. The Adviser is
currently the oldest and largest gold manager investing in gold mining shares.
The Adviser's team of gold managers and analysts average over 25 years of
experience.
The investment adviser and manager of the Asia Dynasty Fund is Van Eck
Global Asset Management (Asia) Limited (Van Eck-Hong Kong), which is a
wholly-owned subsidiary of the Adviser located at 2 Pacific Place, Hong Kong.
Van Eck-Hong Kong has served in this capacity since October 8, 1996. Between
August 1 and October 8 1996, the Adviser acted as investment manager and adviser
to the Asia Dynasty Fund.
Peregrine Asset Management (Hong Kong) Limited ("PAM"), a Hong Kong
Corporation, is a sub-adviser to the Emerging Markets Fund pursuant to a
Sub-Investment Advisory Agreement approved by the Trustees on December 10, 1996.
Fiduciary International, Inc. ("FII"), a New York Corporation, is sub-adviser to
the Global Balanced Fund pursuant to a Sub-Investment Advisory Agreement dated
October 30, 1993.
The Adviser or Van Eck-Hong Kong (or Sub-Adviser) provides the Funds
with office space, facilities and simple business equipment and provides the
services of consultants, executive and clerical personnel for administering
their affairs. The Adviser or Van Eck-Hong Kong (or Sub-Adviser) compensates all
executive and clerical personnel and Trustees of the Trust if such persons are
employees or affiliates of the Adviser, Sub-Adviser, or its affiliates. The
Advisory fee is computed daily and paid monthly at the following annual rates:
International Investors Gold Fund, Global Income Fund and Gold/Resources Fund
pay a fee equal to .75 of 1% of the first $500 million of average daily net
assets, .65 of 1% of the next $250 million of average daily net assets and .50
of 1% of the average daily net assets in excess of $750 million. Global Balanced
Fund pays the Adviser a fee of .75 of 1% of average daily net assets. From this
fee the Adviser pays the Sub-Adviser a fee of .50 of 1% of average daily net
assets. Asia Dynasty Fund pays Van Eck-Hong Kong a fee of .75 of 1% of average
daily net assets. Emerging Markets Growth Fund and Global Hard Assets Fund each
pay the Adviser 1% of average daily net assets. From the fee paid by the
Emerging Markets Growth Fund, the Adviser pays the Sub-Adviser a fee of .50 of
1% of average daily net assets. The U.S. Government Money Fund pays a monthly
fee at the annual rate of .50 of 1% for the first $500 million of average daily
net assets, .40 of 1% on the next $250 million of average daily net assets, and
.375 of 1% of the average daily net assets in excess of $750 million.
The Adviser also performs administrative services for Global Balanced
Fund, Asia Dynasty Fund, Gold/Resources Fund and International Investors Gold
Fund pursuant to a written agreement. The Adviser is also responsible for
providing accounting services to these Funds. For these accounting and
administrative services, Asia Dynasty Fund and Global Balanced Fund each pays
.25 of 1% of its respective average daily net assets. Gold/Resources Fund and
International Investors Gold Fund pay an annual rate of .25 of 1% of the first
$750 million of their respective average daily net assets and .20 of 1% of their
respective average daily net assets in excess of $750 million.
19
<PAGE>
The net assets of the Funds at December 31, 1996, 1995 and 1994 were
approximately: International Investors Gold Fund (Class A) - $409,330,944,
$519,795,000 and $634,808,000 respectively; Gold/Resources Fund (Class A) -
$132,298,375, $155,974,000 and $186,091,000 respectively; U.S. Government Money
Fund -$107,697,508, $70,130,000 and $47,078,000 respectively; Global Income Fund
(Class A) - $75,814,422, $112,375,000 and $137,242,000, respectively; Asia
Dynasty Fund (Class A) - $44,351,438, $64,275,000 and $83,787,000, respectively;
Asia Dynasty Fund (Class B) - $20,296,022, $27,234,000 and $35,024,000
respectively; Global Balanced Fund (Class A) - $24,399,362 $30,632,000 and
$13,986,000 respectively; Global Balanced Fund (Class B) - $4,931,669,
$6,151,000 and $5,628,000 respectively; International Investors Gold Fund (Class
C) -$1,710,121, $720,000 and $430,000 respectively; Global Hard Assets Fund
(Class A) - $27,226,101, $3,820,000 and $1,419,000 respectively; and Global Hard
Assets Fund (Class C) - $1,934,906, $181,000 and $8,000 respectively; Global
Hard Assets Fund (Class B) - $62,429, $1,805,589 and $498,020, respectively.
In 1996, 1995 and 1994 the aggregate remuneration received by the
Adviser from International Investors Gold Fund was $4,087,710, $4,256,866 and
$4,792,990, respectively; from Gold/Resources Fund was $1,198,836, $1,317,580
and $1,569,404, respectively; from U.S. Government Money Fund was $382,786,
$286,736 and $316,603 respectively; from Global Income Fund was $685,015,
$984,254 and $1,312,169, respectively;; from Global Balanced Fund was $242,447,
$141,393 and $127,782, respectively; from Global Hard Assets Fund was $121,846,
$29,887 and $1,893, respectively; from Asia Dynasty Fund was $621,605, $818,148
and $1,011,806 respectively.
The expenses borne by each of the Funds include: all the charges and
expenses of the transfer and dividend disbursing agent, custodian fees and
expenses, legal, auditors' and accountants' fees and expenses, brokerage
commissions for portfolio transactions, taxes, if any, the advisory fee (and
accounting and administrative services fees, if any), extraordinary expenses (as
determined by the Trustees of the Trust), expenses of shareholders' and
Trustees' meetings, and of preparing, printing and mailing proxy statements,
reports and other communications to shareholders, expenses of preparing and
setting in type prospectuses and periodic reports and expenses of mailing them
to current shareholders, legal and accounting expenses and expenses of
registering and qualifying shares for sale (including compensation of the
Adviser's employees in relation to the time spent on such matters), expenses
relating to the Plan of Distribution (Rule 12b-1 Plan) exclusive of
International Investors Gold Fund, fees of Trustees who are not "interested
persons" of the Adviser (or Sub-Adviser), membership dues of the Investment
Company Institute, fidelity bond and errors and omissions insurance premiums,
cost of maintaining the books and records of each Fund, and any other charges
and fees not specifically enumerated as an obligation of the Distributor or
Adviser or Sub-Adviser.
The Advisory Agreement with respect to Global Hard Assets Fund was
approved at a meeting of the Board of Trustees held on October 18, 1994. The
Advisory Agreement and Sub-Advisory Agreements provide that the Adviser and
Sub-Adviser shall reimburse the Trust for expenses of the Trust in excess of
certain expense limitations required by state regulation unless the Trust has
obtained an appropriate waiver of such expense limitations or expense items from
a particular state authority. Under the Advisory Agreement and Sub-Advisory
Agreement, the maximum annual expenses which the Trust may be required to bear,
inclusive of the advisory fee (from which the Adviser pays the Sub-Adviser its
fee) but exclusive of interest, taxes, brokerage fees, Rule 12b-1 Plan
distribution payments and extraordinary items, may not exceed the lowest expense
limitation imposed by any state in which the Funds are registered. The amount of
the advisory fee to be paid to the Adviser each month will be reduced by the
amount, if any, by which the annualized expenses of the Funds for that month
exceed the such limitations. At the end of the fiscal year, if the aggregate
annual expenses of the Funds exceed the amount permissible under the foregoing
limitations, then the Adviser and/or Sub-Adviser will be required promptly to
reimburse the Funds for the total amount by which expenses exceed the amount of
the limitations, not limited (with respect to the Adviser only) to the amount of
the fees paid. If aggregate annual expenses are within the limitations, however,
any excess amount previously withheld will be paid to the Adviser and/or
Sub-Adviser.
The Advisory Agreement and Sub-Advisory Agreement with respect to
Global Balanced Fund were approved at a meeting of the Board of Trustees held on
October 12, 1993. The Advisory and Sub-Advisory Agreement with
20
<PAGE>
respect Emerging Markets Growth Fund were approved at a meeting of the Board of
Trustees held on December 10, 1996. The Advisory Agreement with respect to
Gold/Resources Fund and International Investors Gold Fund was approved at a
meeting of the Board of Trustees held on May 24, 1994. Advisory Agreements for
all the Funds except Emerging Markets Growth Fund were reapproved by the Board
of Trustees of the Trust, including a majority of the Trustees who are not
parties to such Agreements or interested persons of any such party at a meeting
held on April 22, 1997. The Advisory Agreement was approved by shareholders of
the U.S. Government Money Fund on January 23, 1987; Global Income Fund on April
12, 1988; and Gold/Resources Fund and International Investors Gold Fund on July
25, 1994. The Advisory Agreements and Sub-Investment Advisory Agreements were
approved by shareholders of Global Balanced Fund on December 17, 1993. The
Advisory Agreement and Sub-Advisory Agreement provide that they shall continue
in effect from year to year with respect to a Fund as long as it is approved at
least annually both (i) by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the Act) or by the Trustees of the Trust,
and (ii) in either event by a vote of a majority of the Trustees who are not
parties to the Advisory Agreement or "interested persons" of any party thereto,
cast in person at a meeting called for the purpose of voting on such approval.
The Agreements may be terminated on 60 days written notice by either party and
will terminate automatically in the event of an assignment within the meaning of
the Act.
Mr. John C. van Eck is Chairman of the Board of Directors of the
Adviser as well as President and Trustee of the Trust. Mr. Van Eck offered the
first global mutual fund to U.S. investors in 1955 and offered the first gold
fund to U.S. investors in 1968. John C. van Eck, Chairman and President of Van
Eck Funds and Van Eck Worldwide Insurance Trust, and members of his immediate
family own 100% of the voting stock of the Adviser.
THE DISTRIBUTOR
---------------
Shares of the Funds are offered on a continuous basis and are
distributed through Van Eck Securities Corporation, 99 Park Avenue, New York,
New York (the "Distributor"), a wholly-owned subsidiary of Van Eck Associates
Corporation. The Trustees of the Trusts have approved a Distribution Agreement
appointing the Distributor as distributor of shares of the Funds. The
Distribution Agreement with respect to all Funds was reapproved by the action of
the Trustees on April 22, 1997.
The Distribution Agreement provides that the Distributor will pay all
fees and expenses in connection with printing and distributing prospectuses and
reports for use in offering and selling shares of the Funds and preparing,
printing and distributing advertising or promotional materials. The Funds will
pay all fees and expenses in connection with registering and qualifying their
shares under federal and state securities laws.
Van Eck Securities Corporation retained distributing commissions on
sales of shares of the Funds for the following fiscal years ended December 31
(except as noted) after reallowance to dealers as follows:
Van Eck
Securities Reallowance to
Corporation Dealers
----------- ---------------
International 1996 $160,019 $917,169
Investors Gold Fund 1995 161,888 650,766
1994 423,706 1,665,173
Gold/Resources Fund 1996 $33,278 $231,559
1995 64,047 274,644
1994 286,592 1,117,992
21
<PAGE>
Van Eck
Securities Reallowance to
Corporation Dealers
----------- -------
Global Income Fund 1996 $9,869 $51,145
1995 19,771 98,774
1994 33,396 136,949
Asia Dynasty 1996 $22,269 $109,025
Fund 1995 25,162 119,247
1994 236,565 1,181,535
Global Balanced 1996 $2,382 $11,231
Fund 1995 1,982 8,982
1994 19,768 308,987
Global Hard 1996 $53,056 $273,203
Assets Fund 1995 8,060 44,788
11/2/94-12/31/94 64 16,554
As the Emerging Markets Growth Fund is a newly created series of the
Van Eck Global Funds, the Emerging Markets Growth Fund has no operating history
and therefore is not listed on the above chart.
To compensate the Distributor for the services it provides and for the
expenses it bears under the Distribution Agreement, each of Gold/Resources Fund
(Class A), Global Income Fund (Class A), and U.S. Government Money Fund has
adopted a Plan of Distribution pursuant to Rule 12b-1 (the "Plan") under the
Act. Fees paid by the Funds under the Plan will be used for servicing and/or
distribution expenses incurred only during the applicable year. Additionally,
Global Balanced Fund (Class A and B), Asia Dynasty Fund (Class A and B)
and Global Hard Assets Fund (Class A, B and C) have also adopted a Plan which
provides for the compensation of brokers and dealers who sell shares of these
Funds or provide servicing. The Plan for Asia Dynasty Fund (Class A) is a
reimbursement type plan and provides for the payment of carry-over expenses to
the Distributor, incurred in one year but payable in a subsequent year(s), up to
the maximum for the Fund in any given year. Global Balanced Fund (Class A and
Class B), Asia Dynasty Fund (Class B) and Global Hard Assets Fund (Class A, B
and C) Plans are compensation type plans with a carry-forward provision which
provides that the Distributor recoup distribution expenses in the event the Plan
is terminated. For the periods prior to April 30, 1998, the Distributor has
agreed with respect to Plans with a carry-forward provision, notwithstanding
anything to the contrary in the Plan, to waive its right to reimbursement of
carry-forward amounts in the event the Plan is terminated unless the Board of
Trustees has determined that reimbursement of such carryforward amounts is
appropriate. Pursuant to the Plans, the Distributor provides the Funds at least
quarterly with a written report of the amounts expended under the Plans and the
purpose for which such expenditures were made. The Trustees review such reports
on a quarterly basis.
The Plans were reapproved for all Funds, by the Trustees of the Trust,
including a majority of the Trustees who are not "interested persons" of the
Funds and who have no direct or indirect financial interest in the operation of
the Plan, cast in person at a meeting called for the purpose of voting on each
such Plan on April 23, 1996. The Plan was approved with respect to Global Hard
Assets Fund by the Trustees of the Trust on October 18, 1994. The Plan was
approved by shareholders of the Gold/Resources Fund (Class A) and U.S.
Government Money Fund on January 23, 1987; Global Income Fund on April 12, 1988;
Asia Dynasty Fund (Class B) on August 31, 1993; Global Balanced Fund (Class A
and B) on December 17, 1993; Asia Dynasty Fund (Class A) on July 25, 1994. A
Plan shall continue in effect as to each Fund, provided such continuance is
approved annually by a vote of the Trustees in accordance with the Act. A Plan
may
22
<PAGE>
not be amended to increase materially the amount to be spent for the services
described therein without approval of the shareholders of the Funds, and all
material amendments to the Plan must also be approved by the Trustees in the
manner described above. A Plan may be terminated at any time, without payment of
any penalty, by vote of a majority of the Trustees who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Plan, or by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the Act) on written notice to any other
party to the Plan. A Plan will automatically terminate in the event of its
assignment (as defined in the Act). So long as the Plan is in effect, the
election and nomination of Trustees who are not "interested persons" of the
Trust shall be committed to the discretion of the Trustees who are not
"interested persons." The Trustees have determined that, in their judgment,
there is a reasonable likelihood that the Plan will benefit the Funds and their
shareholders. The Funds will preserve copies of the Plan and any agreement or
report made pursuant to Rule 12b-1 under the Act, for a period of not less than
six years from the date of the Plan or such agreement or report, the first two
years in an easily accessible place. For additional information regarding the
Plans, see the Prospectus.
PORTFOLIO TRANSACTIONS AND BROKERAGE
------------------------------------
The Adviser, Van Eck-Hong Kong or the Sub-Adviser is responsible for
decisions to buy and sell securities and other investments for the Funds, the
selection of brokers and dealers to effect the transactions and the negotiation
of brokerage commissions, if any. In transactions on stock and commodity
exchanges in the United States, these commissions are negotiated, whereas on
foreign stock and commodity exchanges these commissions are generally fixed and
are generally higher than brokerage commissions in the United States. In the
case of securities traded on the over-the-counter markets, there is generally no
stated commission, but the price usually includes an undisclosed commission or
markup. In underwritten offerings, the price includes a disclosed fixed
commission or discount. Most obligations in which the U.S. Government Money Fund
invests are normally traded on a "principal" rather than agency basis. This may
be done through a dealer (e.g. securities firm or bank) who buys or sells for
its own account rather than as an agent for another client, or directly with the
issuer. A dealer's profit, if any, is the difference, or spread, between the
dealer's purchase and sale price for the obligation.
In purchasing and selling the Funds' portfolio investments, it is the
Adviser's, Van Eck-Hong Kong's or Sub-Adviser's policy to obtain quality
execution at the most favorable prices through responsible broker-dealers. In
selecting broker-dealers, the Adviser, Van Eck-Hong Kong or the Sub-Adviser will
consider various relevant factors, including, but not limited to, the size and
type of the transaction; the nature and character of the markets for the
security or asset to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer's firm; the broker-
dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions.
In addition, the Adviser, Van Eck-Hong Kong or the Sub-Adviser may
allocate brokerage transactions to broker-dealers who have entered into
arrangements with the Adviser, Van Eck-Hong Kong or the Sub-Adviser under which
the broker-dealer allocates a portion of the commissions paid by a Fund toward
payment of the Fund's expenses such as transfer agency, printing or other
expenses. The services of the broker-dealer must be comparable to those of other
qualified broker-dealers.
The Adviser, Van Eck-Hong Kong or the Sub-Adviser may cause the Funds
to pay a broker-dealer who furnishes brokerage and/or research services a
commission that is in excess of the commission another broker-dealer would have
received for executing the transaction if it is determined that such commission
is reasonable in relation to the value of the brokerage and/or research services
as defined in Section 28(e) of the Securities Exchange Act of 1934 which have
been provided. Such research services may include, among other things, analyses
and reports concerning issuers, industries, securities, economic factors and
trends, and portfolio strategy. Any such research and other information provided
by brokers to the Adviser, Van Eck-Hong Kong or the Sub-Adviser are considered
to be in addition to and not in lieu of services required to be performed by the
Adviser, Van Eck-Hong Kong or the Sub-Adviser under the relevant Advisory
Agreement or Sub-Advisory Agreement with the Trust. The research services
provided by broker-dealers can be useful to the Adviser and Sub-Adviser in
serving its other clients or clients of the Adviser, Sub-Adviser or their
affiliates.
23
<PAGE>
For the fiscal year ended December 31, 1996, the Global Hard Assets
Fund paid $6,155 and the International Investors Gold Fund paid $900 in
commissions to broker dealers providing research and other services to the
Adviser or its affiliates representing 5.58% and 0.2%, respectively, of the
total commissions paid by such Funds; such payments involved $3,562,413, in the
case of Global Hard Assets Fund, and $741,900, in the case of International
Investors Gold Fund, in portfolio securities purchased and sold on behalf of the
relevant Fund.
The table below shows the commissions paid on purchases and sales of
portfolio securities by each Fund during its respective fiscal year, and the
percentages of such amounts paid to brokers or dealers which furnished daily
quotations to the Funds for the purpose of calculating daily per share net asset
value and to brokers and dealers which sold shares of the Funds. The U.S.
Government Money Fund did not pay brokerage commissions.
<TABLE>
<CAPTION>
Fund (fiscal year end) 1996
% Daily
Commissions Quotations %Fund Sales
<S> <C> <C> <C>
International Investors Gold Fund (Class A and C) (12/31) $347,781 17.63% 12.94%
Gold/Resources Fund (Class A) (12/31) $271,356 0.00% 3.87%
Global Income Fund (Class A) (12/31) $0 0.00% 0.00%
Asia Dynasty Fund (Class A and B) (12/31) $643,451 13.99% 3.39%
Global Balanced Fund (Class A and B) (12/31) $96,428 0.44% 1.45%
Global Hard Assets Fund (Class A and C) (12/31) $110,278 9.31% 11.99%
Fund (fiscal year end) 1995
% Daily
Commissions Quotations %Fund Sales
International Investors Gold Fund (Class A and C) (12/31) $212,002 1.86% 18.63%
Gold/Resources Fund (Class A) (12/31) $235,161 0.00% 17.59%
Global Income Fund (Class A) (12/31) $31,325 0.00%0.00%
Asia Dynasty Fund (Class A and B) (12/31) $900,977 0.00% 3.10%
Global Balanced Fund (Class A and B) (12/31) $89,406 3.50%1.92%
Global Hard Assets Fund (Class A and C) (12/31) $28,075 2.07%25.86%
Fund (fiscal year end) 1994
% Daily
Commissions Quotations %Fund Sales
International Investors Gold Fund (Class A and C) (12/31) $403,616 30.92% 15.24%
Gold/Resources Fund (12/31) $199,613 2.74% 8.75%
Global Income Fund (12/31) $40,340 78.09% -0-
Asia Dynasty Fund (Class A and B) (12/31) $1,011,934 2.36% 2.36%
Global Balanced Fund (Class A and B) (12/31) $65,744 10.32% 1.28%
Global Hard Assets Fund (Class A and C) (12/31) $2,687 78.75% 32.04%
</TABLE>
As the Emerging Markets Growth Fund will be a newly created series of
the Van Eck Global Funds, the Emerging Market Growth Fund has no operating
history and therefore is not listed on the above chart.
The Trustees periodically review the Adviser's and Sub-Adviser's
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of the Funds and review the commissions paid by
the Funds over representative periods of time to determine if they are
reasonable in relation to the benefits to the Funds.
24
<PAGE>
Investment decisions for the Funds are made independently from those of
the other investment accounts managed by the Adviser, Sub-Adviser or affiliated
companies. Occasions may arise, however, when the same investment decision is
made for more than one client's account. It is the practice of the Adviser and
Sub-Adviser to allocate such purchases or sales insofar as feasible among its
several clients or the clients of its affiliates in a manner it deems equitable.
The principal factors which the Adviser and Sub-Adviser considers in making such
allocations are the relative investment objectives of the clients, the relative
size of the portfolio holdings of the same or comparable securities and the then
availability in the particular account of funds for investment. Portfolio
securities held by one client of the Adviser or Sub-Adviser may also be held by
one or more of its other clients or by clients of its affiliates. When two or
more of its clients or clients of its affiliates are engaged in the simultaneous
sale or purchase of securities, transactions are allocated as to amount in
accordance with formulae deemed to be equitable as to each client. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, the
Adviser or Sub-Adviser may consider sales of shares of the Funds as a factor in
the selection of broker-dealers to execute portfolio transactions for the Funds.
While it is the policy of the Funds generally not to engage in trading
for short-term gains, the Funds will effect portfolio transactions without
regard to the holding period if, in the judgment of the Adviser or Sub-Adviser
such transactions are advisable in light of a change in circumstances of a
particular company, within a particular industry or country, or in general
market, economic or political conditions. The Global Hard Assets Fund, Emerging
Markets Growth Fund, Asia Dynasty Fund and Gold/Resources Fund anticipate that
their annual portfolio turnover rates will not exceed 100%.
The annual portfolio turnover rate of the Global Balanced Fund and
Global Income Fund may exceed 100%. Due to the high rate of turnover the Funds
may pay a greater amount in brokerage commissions than a similar size fund with
a lower turnover rate. The portfolio turnover rates of all Funds may vary
greatly from year to year. In addition, since the Funds may have a high rate of
portfolio turnover, the Funds may realize capital gains or losses. Capital gains
will be distributed annually to the shareholders. Capital losses cannot be
distributed to shareholders but may be used to offset capital gains at the Fund
level. See "Taxes" in the Prospectus and the Statement of Additional
Information.
The Adviser and related persons, may from time to time, buy and sell
for their own accounts securities recommended to clients for purchase or sale.
The Adviser recognizes that this practice may result in conflicts of interest.
However, to minimize or eliminate such conflicts a Code of Ethics has been
adopted by the Adviser which requires that all trading in securities suitable
for purchase by client accounts must be approved in advance by a person familiar
with purchase and sell orders or recommendations. Approval will be granted if
the security has not been purchased or sold or recommended for purchase or sale
on behalf of a client account within seven days; or if the security has been
purchased or sold or recommended for purchase or sale by a client account, it is
determined that the trading activity will not have a negative or appreciable
impact on the price or market of the security or the activity is of such a
nature that it does not present the dangers or potential for abuses or likely to
result in harm or detriment to a client account. At the end of each calendar
quarter, all related personnel of the Adviser are required to file a report of
all transactions entered into during the quarter. These reports are reviewed by
a senior officer of the Adviser.
25
<PAGE>
TRUSTEES AND OFFICERS
---------------------
The Trustees and Officers of the Van Eck Funds, their address,
position with the Trust and principal occupations during the past five years
are set forth below.
Trustees of Van Eck Funds:
@* JOHN C. van ECK, C.F.A. (81) - Chairman of the Board
- --------------------------
270 River Road, Briarcliff Manor, New York; Chairman of the Board and
President of another investment company advised by the Adviser;
Chairman, Van Eck Associates Corporation (investment adviser) and Van
Eck Securities Corporation (broker-dealer); Director, Eclipse Financial
Asset Trust (mutual fund); Former President of the Adviser and its
affiliated companies; Former Director (1992-1995), Abex Inc.
(aerospace); Former Director (1983-1986), The Signal Companies, Inc.
(high technology and engineering); Former Director (1982-1984), Pullman
Transportation Co., Inc. (transportation equipment); Former Director
(1986-1992) The Henley Group, Inc. (technology and health).
@ # + JEREMY H. BIGGS (61) - Trustee
- ---------------------
1220 Park Avenue, New York, NY 10128; Trustee of another investment
company advised by the Adviser; Vice Chairman, Director and Chief
Investment Officer, Fiduciary Trust Company International (investment
manager), parent company of Fiduciary International, Inc., which has
entered into sub-advisory agreements with Van Eck Funds and Van Eck
Worldwide Insurance Trust as to the Global Balanced Fund and the
Worldwide Balanced Fund series, respectively; Chairman of the Board to
all funds of Davis Funds Group (mutual fund management company); Former
Director, International Investors Incorporated (1990-1991).
# + RICHARD C. COWELL (69) - Trustee
- ---------------------
240 El Vedado Way, Palm Beach, Florida 33480; Trustee of another
investment company advised by the Adviser; Private Investor; Director,
West Indies & Caribbean Development Ltd. (real estate); Former
Director, Compo Industries, Inc. (machinery manufacturer); Former
Director, International Investors Incorporated (1957-1991); Former
Director (1978-1981), American Eagle Petroleums, Ltd. (oil and gas
exploration); Former President and Director (1968-1976), Minerals and
Industries, Inc. (petroleum products); Former Director (1978-1983)
Duncan Gold Resources, Inc. (oil exploration and gold mining); Former
Director (1981-1984), Crested Butte Silver Mining Co.; Former Chairman
and Member of Executive Committee (1974-1981), Allerton Resources, Inc.
(oil and gas exploration); Former Director (1976-1982), Western World
Insurance Co.
@ PHILIP D. DEFEO (51) - Trustee
- --------------
99 Park Avenue, New York, NY 10016; Trustee of another investment
company advised by the Adviser; President, Chief Executive Officer and
Director of Van Eck Associates Corporation (investment adviser) and Van
Eck Securities Corporation (broker-dealer) since September 1996; Former
Executive Vice President and Director of Marketing and Customer
Services (June 1994 - August 1996), Cedel International (finance and
settlements); Former Managing Director (July 1992 - April 1994), Lehman
Brothers (investment bank and broker-dealer); Former Senior Vice
President, Fidelity Investments and Former President, Fidelity Services
Company (financial services) (1987-1992).
# + WESLEY G. McCAIN (54) - Trustee
- --------------------
144 East 30th Street, New York, New York 10016; Trustee of other
affiliated investment companies advised by the Adviser; Chairman and
Owner, Towneley Capital Management, Inc., (investment adviser);
Chairman, Eclipse Financial Asset Trust (mutual fund); Chairman and
Owner, Eclipse Financial Services, Inc.; General Partner, Pharaoh
Partners, L.P.; Principal, Pharaoh Partners (Cayman) LDC; President,
Millbrook Associates, Inc. (investment adviser); Trustee, Libre Group
Trust; Former Director, International Investors Incorporated; Former
Chairman and Owner, Finacor, Inc. (financial services).
26
<PAGE>
# DAVID J. OLDERMAN (61) - Trustee
- -------------------
40 East 52nd Street, New York, New York 10022; Trustee of another
investment company advised by the Adviser; Chairman of the Board, Chief
Executive Officer and Owner, Carret & Company, Inc. (since 1988);
Chairman of the Board, American Copy Equipment Co. (1991-present);
Chairman of the Board, Brighton Partners, Inc. (1993-present);
Principal, Olderman & Raborn, Inc., (investment advisers-1984-1988);
Chairman of the Board, Railoc, Inc., (farm equipment manufacturing-
1979-1984); Head of Corporate Finance, Halsey Stuart (investment
banking-1974-1975); Vice Chairman of the Board, Stone and Webster
Securities Corp. (investment banking, retail sales and investment
advisory divisions-1964 to 1974).
# * RALPH F. PETERS (68) - Trustee
- -------------------
66 Strimples Mill Road, Stockton, New Jersey 08559-1703; Trustee of
another investment company advised by the Adviser; Former Chairman of
the Board, Former Chairman of the Executive Committee and Chief
Executive Officer of Discount Corporation of New York (dealer in U.S.
Treasury and Federal Agency Securities) (1981-1988); Director, Sun Life
Insurance and Annuity Company of New York; Director, U.S. Life Income
Fund, Inc., New York; Former Director, International Investors
Incorporated.
# RICHARD D. STAMBERGER (37) - Trustee
- -----------------------
888 17th Street, N.W., Washington, D.C. 20006; Trustee of two other
investment companies advised or administered by the Adviser; Principal,
National Strategies, Inc., a public policy firm in Washington, D.C.;
Partner and Co-founder, Quest Partners, L.L.C. (management consulting
firm/since 1988); Executive Vice President, Chief Operating Officer,
and a Director of NuCable Resources Corporation (technology firm/since
1988); associated with Anderson Benjamin & Reed, a regulatory
consulting firm based in Washington, D.C. (1985-1986); White House
Fellow-Office of Vice President (1984-1985); Director of Special
Projects, National Cable Television Association (1983-1984).
@ ** FRED M. van ECK, C.F.A. (78) - Trustee
- ----------------------------
99 Park Avenue, New York, New York 10016; Trustee of another investment
company advised by the Adviser; Private Investor; Director, Van Eck
Associates Corporation; Director, Van Eck Securities Corporation;
Former General Partner (1950-1976), J. H. Whitney & Co. (venture
capital).
Officers of the Trust:
HENRY J. BINGHAM (66) - Executive Vice President
- ----------------
99 Park Avenue, New York, New York 10016; Executive Vice President of
another investment company advised by the Adviser; Executive Managing
Director of Van Eck Associates Corporation and Executive Vice President
of Van Eck Securities Corporation.
LUCILLE PALERMO (50) - Executive Vice President
- ---------------
99 Park Avenue, New York, New York 10016; Executive Vice President of
another investment company advised by the Adviser; Associate Director,
Mining Research of the Adviser; Investment Strategist and Analyst with
Drexel Burnham Lambert (1979-1989).
MADIS SENNER (43) - Executive Vice President
- ------------
99 Park Avenue, New York, New York 10016; President of the Global
Income Fund series of Van Eck Funds and the Worldwide Bond Fund series
of Van Eck Worldwide Insurance Trust; Executive Vice President of
another investment company advised by the Adviser; Director, Global
Fixed Income of Van Eck Associates Corporation;
27
<PAGE>
Former Global Bond Manager, Chase Manhattan Private Bank (1992-1994);
Former President and founder, Sunray Securities, Inc. (1989-1992).
DEREK van ECK (32) - Executive Vice President
- -------------
99 Park Avenue, New York, New York 10016; President of the Global Hard
Assets Fund series of Van Eck Funds and the Worldwide Hard Assets Fund
series of Van Eck Worldwide Insurance Trust; Vice President of the
Global Balanced Fund series of Van Eck Funds; Executive Vice President,
Director, Global Investments and Director of Van Eck Associates
Corporation and Executive Vice President and Director of Van Eck
Securities Corporation and other affiliated companies.
BRUCE J. SMITH (42) - Vice President and Treasurer
- --------------
99 Park Avenue, New York, New York 10016; Officer of two other
investment companies advised or administered by the Adviser; Senior
Managing Director, Portfolio Accounting of Van Eck Associates
Corporation and Senior Managing Director of Van Eck Securities
Corporation.
THADDEUS M. LESZCZYNSKI (50) - Vice President and Secretary
- -----------------------
99 Park Avenue, New York, New York 10016; Officer of three other
investment companies advised or administered by the Adviser; Vice
President, Secretary and General Counsel of Van Eck Associates
Corporation, Van Eck Securities Corporation and other affiliated
companies.
JOSEPH P. DiMAGGIO (40) - Controller
- ------------------
99 Park Avenue, New York, New York 10016; Controller of another
investment company advised by the Adviser; Director of Portfolio
Accounting of Van Eck Associates Corporation (since 1993); Former
Accounting Manager, Alliance Capital Management (1985-1993).
CHARLES CAMERON (37) - Vice President
- ---------------
99 Park Avenue, New York, New York 10016; Vice President of another
investment company advised by the Adviser; Director of Trading of Van
Eck Securities Corporation.
MICHAEL G. DOORLEY (41) - Vice President
- ------------------
99 Park Avenue, New York, New York 10016; Vice President of another
investment company advised by the Adviser; Senior Vice President and
Chief Financial Officer of Van Eck Associates Corporation, Van Eck
Securities Corporation, Senior Vice President and Chief Financial
Officer of other affiliated investment companies advised by the
Adviser.
SUSAN C. LASHLEY (42) - Vice President
- ----------------
99 Park Avenue, New York, New York 10016; Vice President of another
investment company advised by the Adviser; Managing Director, Mutual
Fund Operations of Van Eck Securities Corporation.
WILLIAM A. TREBILCOCK (60) - Vice President
- ---------------------
99 Park Avenue, New York, New York 10016; Vice President of another
investment company advised by the Adviser; Director, Mining Research of
Van Eck Associates Corporation.
28
<PAGE>
BARBARA J. ALLEN (40) - Assistant Secretary
- ----------------
99 Park Avenue, New York, New York 10016; Assistant Secretary of
another investment company advised by the Adviser; Compliance Officer
of Van Eck Associates Corporation and Van Eck Securities Corporation;
Former Senior Counsel, Arizona Corporation Commission, Securities
Division (1990-1994).
@ An "interested person" as defined in the 1940 Act.
* Member of Executive Committee -exercises general powers of Board of
Trustees between meetings of the Board.
** Brother of Mr. John C. van Eck.
# Member of the Nominating Committee.
+ Member of the Audit Committee -reviews fees, services, procedures,
conclusions and recommendations of independent auditors.
As of April 30, 1997, all Officers and Trustees as a group owned the
number of shares indicated of each Fund: 21,298.441 shares of Global Balanced
Fund-A, equal to approximately 1% of shares outstanding; 1,129,272.09 shares of
the U.S. Government Money Fund, equal to approximately 1.18% of the shares
outstanding; 32,018.511 shares of Global Hard Assets Fund-A, equal to
approximately 1.08% of shares outstanding; 16,278.506 of Emerging Markets Growth
Fund-A, equal to approximately 8.97% of shares outstanding . As of April, 30,
1997, all Officers and Trustees as a group owned less than 1% of shares
outstanding of each of the other Funds and Classes.
As of April 30, 1997, the following persons owned 5% or more of the
shares of the Fund(s) indicated below:
<TABLE>
<S> <C>
International Investors Gold Fund (Class A shares) Asia Dynasty Fund (Class B shares)
- -------------------------------------------------- ----------------------------------
MLPF&S for the sole benefit 6.17% MLPF&S for the sole benefit 49.38%
of its customers of its customers
4800 Deer Lake Drive East 4800 Deer Lake Drive East
3rd Floor 3rd Floor
Jacksonville, FL 32246-6484 Jacksonville, FL 32246-6484
U.S. Government Money Fund Global Balanced Fund (Class B shares)
- -------------------------- ------------------------------------
J.C. Bradford & Co. Cust. FBO 12.73% MLPF&S for the sole benefit 19.22%
RCIP Limited Partners I of its customers
330 Commerce St. 4800 Deer Lake Drive East
Nashville, TN 37201-1805 3rd Floor
Jacksonville, FL 32246-6484
Merrill Lynch FBO 6.21%
Confidential A/C #626-07A23 M. Club Foundation 6.31%
141 W. Jackson Blvd. University of Maryland Inc
Room 290 P.O. Box 273
Chicago, IL 60604-2904 College Park, MD 20741-0273
LLT Limited 5.20% Global Hard Assets Fund (Class A shares)
Washington Mall I Reid St. ---------------------------------------
4th Floor
Hamilton HM 11 Bermuda Charles Schwab & Co. Inc. 21.45%
Special Custody Acct. FEBO
Gold/Resources Fund (Class A shares) Customers Instl. Onesource
- ------------------------------------ 101 Montgomery St.
San Francisco, CA 94104-4122
MLPF&S for the sole benefit 7.58%
of its customers Schretlen & Co. NV 7.48%
4800 Deer Lake Drive East Apollolaan 15
3rd Floor 1077 AB Amsterdam
Jacksonville, FL 32246-6484 Netherlands
Asia Dynasty Fund (Class A shares) MLPF&S for the sole benefit 7.35%
- ---------------------------------- of its customers
4800 Deer Lake Drive East
MLPF&S for the sole benefit 14.89% 3rd Floor
of its customers Jacksonville, FL 32246-6484
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246-6484 Global Hard Assets Fund (Class B shares)
----------------------------------------
Harpo Inc. 6.97% MLPF&S for the sole benefit 17.28%
110 N. Carpenter St. of its customers
Chicago, IL 60607-2145 4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246-6484
American National Bank 5.90%
& Trust Co. as Trustee for Bear Stearns Securities Corp. 6.12%
Emerald Investment Limited 1 Metrotech Center North
Partnership Brooklyn, NY 11201-3857
707 Lake Cook Rd.
Deerfield, IL 60015-4933
Emerging Markets Growth Fund (Class A shares) Emerging Markets Growth Fund (Class C shares)
- --------------------------------------------- ---------------------------------------------
Van Eck Associates Corp. 27.81% First Trust Corp. as trustee 36.62%
99 Park Avenue U/A 4-18-96
8th Floor FBO Abraham Michael Bernstein IRA
New York, NY 10016-1501 P.O. Box 173301
Denver, CO 80217-3301
Emerging Markets Growth Fund (Class B shares)
- --------------------------------------------- Van Eck Associates Corp. 19.26%
99 Park Avenue
Merrill Lynch Pierce 36.34% 8th Floor
Fenner & Smith Inc. New York, NY 10016-1501
Mutual Fund Operations
P.O. Box 45286 Donald Lufkin Jenrette 18.01%
Jacksonville, FL 32232-5286 Securities Corporation Inc.
P.O. Box 2052
Francisco Bestard & 20.50% Jersey City, NJ 07303-2052
Monserrat Navarro-Rubio JTWROS
9345 SW 77th Ave. Jerrat K. Morel 5.58%
Miami, FL 33156-7927 1561 Rubenstein Ave.
Cardiff, CA 92007-2401
Inv. Fiduciary Trust Co. 17.08%
Custodian IRA A/C Linda K. Brown
132 Saxton St.
Patchogue, NY 11772-1826
Van Eck Associates Corp. 10.61%
99 Park Avenue
8th Floor
New York, NY 10016-1501
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
COMPENSATION TABLE
------------------
Van Eck Funds Van Eck Funds Total Fund Complex
(Current Trustees Fees) (Deferred Compensation) Compensation(a)
<S> <C> <C> <C>
John C. van Eck $0 $0 $0
Jeremy H. Biggs $22,108 $8,929 $40,000
Richard C. Cowell $57,884 $0 $66,500
Philip D. DeFeo $0 $0 $0
Wesley G. McCain $0 $34,684 $44,000
David J. Olderman $0 $27,521 $35,000
Ralph F. Peters $24,408 $0 $31,000
Richard D. Stamberger $15,158 $16,808 $40,875
Fred M. van Eck $0 $0 $0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The term "fund complex" refers to the Funds of the Trust and the series of
the Van Eck Worldwide Insurance Trust, which are also managed by the Adviser.
The Trustees are paid a fee for their services to the Trust. No other
compensation, including pension or other retirement benefits, is paid to the
Trustees by the fund complex.
VALUATION OF SHARES
-------------------
The net asset value per share of each of the Funds is computed by
dividing the value of all of a Fund's securities plus cash and other assets,
less liabilities, by the number of shares outstanding. The net asset value per
share is computed as of the close of the New York Stock Exchange, Monday through
Friday, exclusive of national business holidays. The Funds will be closed on the
following national business holidays: New Years Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas. The net asset values need not be computed on a day in which no orders
to purchase, sell or redeem shares of the Funds have been received.
29
<PAGE>
Dividends paid by a Fund with respect to Class A, Class B and Class C
shares will be calculated in the same manner, at the same time and on the same
day and will be in the same amount, except that the higher distribution services
fee and any incremental transfer agency costs relating to Class B or Class C
shares will be borne exclusively by that Class. The Trustees have determined
that currently no conflict of interest exists between the Class A and Class B
shares or Class A and Class C shares. On an ongoing basis, the Board of
Trustees, pursuant to their fiduciary duties under the 1940 Act and state laws,
will seek to ensure that no such conflict arises.
Shares of International Investors Gold Fund-A, Global Income Fund-A,
Gold/Resources Fund-A, Global Hard Assets Fund-A, Asia Dynasty Fund-A and Global
Balanced Fund-A are sold at the public offering price which is determined once
each day the Funds are open for business and is the net asset value per share
plus a sales charge in accordance with the schedule set forth in the Prospectus.
Shares of the U.S. Government Money Fund are sold without a sales charge. Shares
of Asia Dynasty Fund-B, Global Balanced Fund-B, Emerging Markets Growth FundA,
Emerging Markets Growth Fund-B, Global Emerging Markets-C and Global Hard Assets
Fund-B are sold with a contingent deferred sales charge. Shares of Emerging
Markets Growth Fund and Global Hard Assets Fund-C are sold with a redemption
fee.
Set forth below is an example of the computation of the public offering
price for shares of the Global Income Fund-A, International Investors Gold
Fund-A, Gold/Resources Fund-A, Asia Dynasty Fund-A, Global Hard Assets Fund-A
and Global Balanced Fund-A on December 31, 1996 under the then-current maximum
sales charge:
<TABLE>
<CAPTION>
Gold/ Global Global InternationalAsia Global
ResourcesHard Income Investors Dynasty Balanced
Fund-A Assets Fund-A Gold Fund-A Fund-A
Fund-A
<S> <C> <C> <C> <C> <C> <C>
Net asset value and repurchase $5.72 $14.42 $8.78 $11.90 $13.21 $10.37
price per share on $.001 par
value capital shares
outstanding
Maximum sales charge (as .35 .72 .44 .73 .66 .52
described in the Prospectus)
Maximum offering price per share $6.07 $15.14 $9.22 $12.63 $13.87 $10.89
</TABLE>
As the Emerging Markets Growth Fund will be a newly created series of
the Van Eck Global Funds, the Emerging Markets Growth Fund has no operating
history, therefore, it does not appear on the above chart.
In determining whether a contingent deferred sales charge is applicable
to a redemption of Class B shares or a redemption charge is applicable to Class
C shares, the calculation will be determined in the manner that results in the
lowest possible rate being charged. Therefore, it will be assumed that the
redemption is first of any Class A shares in the shareholder's Fund account
(unless a specific request is made to redeem a specific class of shares), second
of Class B shares held for over six years, Class C shares held for over one
year, shares attributable to appreciation or shares acquired pursuant to
reinvestment, and third of any Class C shares or Class B held longest during the
applicable period.
To provide two examples, assume an investor purchased 100 Class B
shares of Global Hard Assets Fund at $10 per share (at a cost of $1,000) and in
the second year after purchase, the net asset value per share is $12 and, during
such time, the investor has acquired 10 additional shares upon dividend
reinvestment. If at such time the investor makes his first redemption of 50
shares (proceeds $600), 10 shares or $120 will not be subject to charge because
of dividend reinvestment. With respect to the remaining 40 shares, the charge is
not applied to the $80 attributable to appreciation but is applied only to the
original cost of $10 per share and not to the increase in net asset value of $2
per share. Therefore, $200 of the $600 redemption proceeds will be charged at a
rate of 4% (the
30
<PAGE>
applicable rate in the second year after purchase). Instead, assume an investor
purchased 100 Class C shares of Global Hard Assets Fund at $10 per share (at a
cost of $1,000) and six months after purchase, the net asset value per share is
$12 and, during such time, the investor has acquired 10 additional shares upon
dividend reinvestment. If at such time the investor makes his first redemption
of 50 shares (proceeds $600), 10 shares or $120 will not be subject to charge
because of dividend reinvestment. With respect to the remaining 40 shares, the
charge is not applied to the $80 attributable to appreciation but is applied
only to the original cost of $10 per share and not to the increase in net asset
value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 1%.
The value of a financial futures or commodity futures contract equals
the unrealized gain or loss on the contract that is determined by marking it to
the current settlement price for a like contract acquired on the day on which
the commodity futures contract is being valued. A settlement price may not be
used if the market makes a limit move with respect to a particular commodity.
Securities or futures contracts for which market quotations are readily
available are valued at market value, which is currently determined using the
last reported sale price. If no sales are reported as in the case of most
securities traded over-the-counter, securities are valued at the mean of their
bid and asked prices at the close of trading on the New York Stock Exchange (the
"Exchange"). In cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the authority of
the Board of Trustees as the primary market. Short-term investments having a
maturity of 60 days or less are valued at amortized cost, which approximates
market. Options are valued at the last sales price unless the last sales price
does not fall within the bid and ask prices at the close of the market, in which
case the mean of the bid and ask prices is used. All other securities are valued
at their fair value as determined in good faith by the Trustees. Foreign
securities or futures contracts quoted in foreign currencies are valued at
appropriately translated foreign market closing prices or as the Board of
Trustees may prescribe.
Generally, trading in foreign securities and futures contracts, as well
as corporate bonds, United States government securities and money market
instruments, is substantially completed each day at various times prior to the
close of the Exchange. The values of such securities used in determining the net
asset value of the shares of the Funds may be computed as of such times. Foreign
currency exchange rates are also generally determined prior to the close of the
Exchange. Occasionally, events affecting the value of such securities and such
exchange rates may occur between such times and the close of the Exchange which
will not be reflected in the computation of the Fund's net asset values. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by the Trustees.
U.S. Government Money Fund
- --------------------------
It is the policy of the U.S. Government Money Fund to use its best
efforts to maintain a constant per share price equal to $1.00.
The portfolio instruments of the U.S. Government Money Fund are valued
on the basis of amortized cost. This involves valuing an instrument at its cost
initially and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which the value, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the instrument.
The valuation of the Fund's portfolio instruments based upon their
amortized cost and simultaneous maintenance of the Fund's per share net asset
value at $1.00 are permitted by a rule adopted by the Securities and Exchange
Commission. Under this rule, the Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less, and invest only in securities
determined by the Trustees to be of high quality with minimal credit risks. In
accordance with the rule, the Trustees have established procedures designed to
stabilize, to the extent reasonably practicable, the Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. Such procedures
include review of the Fund's portfolio holdings by the Trustees, at such
intervals as they may deem appropriate, to determine whether the
31
<PAGE>
net asset value of the Fund calculated by using available market quotations or
market equivalents deviates from $1.00 per share based on amortized cost. The
rule also provides that the extent of any deviation between the Fund's net asset
value based upon available market quotations or market equivalents and $1.00 per
share net asset value based on amortized cost must be examined by the Trustees.
In the event the Trustees determine that a deviation exists which may result in
material dilution or is otherwise unfair to investors or existing shareholders,
they must cause the Fund to take such corrective action as they regard as
necessary and appropriate, including: selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends or paying distributions from capital or capital
gains; redeeming shares in kind; or establishing a net asset value per share by
using available market quotations.
EXCHANGE PRIVILEGE
------------------
Class A, Class B and Class C shareholders of a Fund may exchange their
shares for shares of the same class of other of the funds in the Van Eck Group
of Funds. The Exchange Privilege will not be available if the proceeds from a
redemption of shares of a Fund whose shares qualify are paid directly to the
shareholder. The Exchange Privilege is not available for shares which are not on
deposit with DST or Investors Fiduciary Trust Company ("IFTC"), or shares which
are held in escrow pursuant to a Letter of Intent. If certificates representing
shares of a Fund accompany a written exchange request, such shares will be
deposited into an account with the same registration as the certificates upon
receipt by DST.
The Funds each reserve the right to (i) charge a fee of not more than
$5.00 per exchange payable to a Fund or charge a fee reasonably intended to
cover the costs incurred in connection with the exchange; (ii) establish a limit
on the number and amount of exchanges made pursuant to the Exchange Privilege
and (iii) terminate the Exchange Privilege without written notice. In the event
of such termination, shareholders who have acquired their shares pursuant to the
Exchange Privilege will be afforded the opportunity to re-exchange such shares
for shares of the Fund originally purchased without sales charge, for a period
of not less than three (3) months.
By exercising the Exchange Privilege each shareholder whose shares are
subject to the Exchange Privilege will be deemed to have agreed to indemnify and
hold harmless the Trust and each of its series, their investment adviser,
sub-investment adviser (if any), distributor, transfer agent, IFTC and the
officers, directors, employees and agents thereof against any liability, damage,
claim or loss, including reasonable costs and attorneys' fees, resulting from
acceptance of, or acting or failure to act upon, or acceptance of unauthorized
instructions or non-authentic telephone instructions given in connection with,
the Exchange Privilege, so long as reasonable procedures are employed to confirm
the authenticity of such communications. (For more information on the Exchange
Privilege, see the Prospectuses).
TAX-SHELTERED RETIREMENT PLANS
------------------------------
The Trust offers several prototype tax-sheltered retirement plans
through which shares of a Fund may be purchased. These plans are more fully
described below. IFTC, P.O. Box 418407, Kansas City, Missouri acts as the
trustee and/or custodian (the "Trustee") under the retirement plans offered by
the Trusts. Persons who wish to establish a tax-sheltered retirement plan should
consult their own tax advisers or attorneys regarding their eligibility to do so
and the laws applicable thereto, such as the fiduciary responsibility provisions
and diversification requirements and the reporting and disclosure obligations
under the Employee Retirement Income Security Act of 1974. The Trusts are not
responsible for compliance with such laws. Further information regarding the
retirement plans, including applications and fee schedules, may be obtained upon
request to the Funds.
Individual Retirement Account and Spousal Individual Retirement
---------------------------------------------------------------
Account. The IRA is available to all individuals, including self-employed
- -------
individuals, who receive compensation for services rendered and wish to purchase
shares of a Fund. An IRA may also be established pursuant to a SEP. Spousal
Individual Retirement Accounts
32
<PAGE>
("SPIRA") are available to individuals who are otherwise eligible to establish
an IRA for themselves and whose spouses are treated as having no compensation of
their own.
In general, the maximum deductible contribution to an IRA which may be
made for any one year is $2,000 or 100% of annual compensation includible in
gross income, whichever is less. If an individual establishes a SPIRA, after tax
years ending on December 31, 1996, the maximum deductible amount that the
individual may contribute annually is the lesser of $4000 or 100% of such
individual's compensation includible in his/her gross income for such year;
provided, however, that no more than $2,000 per year for either individual may
be contributed to either the IRA or SPIRA. Contributions to a SEP are excluded
from an employee's gross income and are subject to different limitations.
In the case of a taxpayer who is deemed to be an active participant in
an employer-sponsored retirement plan, no deduction is available for
contributions to an IRA or SPIRA if his adjusted gross income exceeds the
following levels: $35,000 for a single taxpayer, $50,000 for married taxpayers
who file joint returns, and $10,000 for married taxpayers who file separate tax
returns. (Married taxpayers who file joint tax returns will generally be deemed
to be active participants if either spouse is an active participant under an
employer-sponsored retirement plan.) All taxpayers, including those who are
active participants in employer-sponsored retirement plans, will be able to make
fully deductible IRA contributions at the same levels discussed above, if their
adjusted gross income is less than the following levels: $25,000 for single
taxpayers and $40,000 for married taxpayers who file joint returns.
In the case of taxpayers who are active participants in
employer-sponsored retirement plans and who have adjusted gross income which
exceeds these specified levels, deductible IRA contributions will be phased out
on the basis of adjusted gross income between $25,000 and $35,000 for single
taxpayers, adjusted gross income of $10,000 and under for married taxpayers who
file separate returns, and combined adjusted gross income between $40,000 and
$50,000 for married taxpayers who file joint returns. The $2,000 IRA deduction
is reduced by $200 for each $1,000 of adjusted gross income in excess of the
following levels: $25,000 for single taxpayers, $40,000 for married taxpayers
who file joint returns, and $0 for married taxpayers who file separate returns.
In the case of a taxpayer who contributes to an IRA and a SPIRA, the $4000 IRA
deduction is reduced by $400 for each $1,000 of adjusted gross income in excess
of $40,000.
Individuals who are ineligible to make fully deductible contributions
may make nondeductible contributions up to an aggregate of $2,000 in the case of
contributions (deductible and nondeductible) to an IRA and up to an aggregate of
$4,000 in the case of contributions (deductible and nondeductible) to an IRA and
SPIRA and the income upon all such contributions will accumulate tax free until
distribution.
In addition, a separate IRA may be established by a "rollover"
contribution, which may permit the tax-free transfer of assets from qualified
retirement plans under specified circumstances. A "rollover contribution"
includes a lump sum distribution received by an individual, because of severance
of employment, from a qualified plan and paid into an individual retirement
account within 60 days after receipt.
Dividends and capital gains earned on amounts invested in either an IRA
or SPIRA are automatically reinvested by the Trustee in shares of a Fund and
accumulate tax-free until distribution. Distributions from either an IRA or
SPIRA prior to age 59-1/2, unless made as a result of disability or death, may
result in adverse tax consequences and penalties. In addition, there is a
penalty on contributions in excess of the contribution limits and other
penalties are imposed on insufficient payouts after age 70-1/2.
Simplified Employee Pension Plan. A SEP may be utilized by employers to
--------------------------------
provide retirement income to employees by making contributions to employee SEP
IRAs. Owners and partners may qualify as employees. The employee is always 100%
vested in contributions made under a SEP. The maximum contribution to a SEP-IRA
(an IRA established to receive SEP contributions) is the lesser of $30,000 or
15% of compensation, excluding contributions made pursuant to a salary reduction
arrangement. Subject to certain limitations, an employer may also
33
<PAGE>
make contributions to a SEP-IRA under a salary reduction arrangement by which
the employee elects contributions to a SEP-IRA in lieu of immediate cash
compensation. After December 31, 1996, contributions under a salary reduction
arrangement are permitted only into SEP plans in existence on December 31, 1996.
Contributions by employers under a SEP arrangement up to the maximum
permissible amounts are deductible for federal income tax purposes.
Contributions up to the maximum permissible amounts are not includible in the
gross income of the employee. Dividends and capital gains on amounts invested in
SEP-IRAs are automatically reinvested by the Trustee in shares of the mutual
fund that paid such amounts and accumulate tax-free until distribution.
Contributions in excess of the maximum permissible amounts may be withdrawn by
the employee from the SEP-IRA no later than April 15 of the calendar year
following the year in which the contribution is made without tax penalties. Such
amounts will, however, be included in the employee's gross income. Withdrawals
of such amounts after April 15 of the year next following the year in which the
excess contributions is made and withdrawals of any other amounts prior to age
59 1/2, unless made as a result of disability or death, may result in adverse
tax consequences.
Qualified Pension Plans. The Qualified Pension Plan can be utilized by
------------------------
self-employed individuals, partnerships and corporations (for this purpose
called "Employers") and their employees who wish to purchase shares of a Fund
under a retirement program.
The maximum contribution which may be made to a Qualified Pension Plan
in any one year on behalf of a participant is, depending on the benefit formula
selected by the Employer, up to the lesser of $30,000 or 25 percent of
compensation (net earned income in the case of a self-employed individual).
Contributions by Employers to Qualified Pension Plans up to the maximum
permissible amounts are deductible for Federal income tax purposes.
Contributions in excess of permissible amounts will result in adverse tax
consequences and penalties to the Employer. Dividends and capital gains earned
on amounts invested in Qualified Pension Plans are automatically reinvested by
the Trustee in shares of a Fund and accumulate tax-free until distribution.
Withdrawals of contributions prior to age 59-1/2, unless made as a result of
disability, death or early retirement, may result in adverse tax consequences
and penalties.
403(b)(7) Program. The Tax-Deferred Annuity Program and Custodial
------------------
Account offered by the Fund (the "403(b)(7) Program") allows employees of
certain tax exempt organizations and schools to have a portion of their
compensation set aside for their retirement years in shares held in an
investment company custodial account.
In general, the maximum limit on annual contributions for each employee
is the lesser of $30,000 per year (as adjusted by the IRS for cost-of-living
increases), 25% of the employee's compensation or the employee's exclusion
allowance specified in Section 403(b) of the Code. However, an employee's salary
reduction contributions to a 403(b)(7) Program may not exceed $9,500 a year (as
adjusted for cost of living expenses). Contributions in excess of permissible
amounts may result in adverse tax consequences and penalties. Dividends and
capital gains on amounts invested in the 403(b)(7) Program are automatically
reinvested in shares of a Fund. It is intended that dividends and capital gains
on amounts invested in the 403(b)(7) Program will accumulate tax-free until
distribution.
Employees will receive distributions from their accounts under the
403(b)(7) Program following termination of employment by retirement or at such
other time as the employer shall designate, but in no case later than an
employee's reaching age 65. Withdrawals of contributions prior to age 59-1/2,
unless made as a result of disability, death or early retirement, may result in
adverse tax consequences and penalties. Employees will also receive
distributions from their accounts under the 403(b)(7) Program in the event they
become disabled.
INVESTMENT PROGRAMS
-------------------
Dividend Reinvestment Plan. Reinvestments of dividends of the Funds,
except for U.S. Government Money Fund, will occur on a date selected by the
Board of Trustees. Reinvestment of U.S. Government Money Fund will occur on the
last day of the month.
34
<PAGE>
Automatic Exchange Plan. Investors may arrange under the Exchange Plan
-----------------------
to have DST collect a specified amount once a month or quarter from the
investor's account in one of the Funds and purchase full and fractional shares
of another Fund at the public offering price next computed after receipt of the
proceeds. Further details of the Automatic Exchange Plan are given in the
application which is available from DST or the Funds. This does not apply to
Class B or Class C shares.
An investor should realize that he is investing his funds in securities
subject to market fluctuations, and accordingly the Automatic Exchange Plan does
not assure a profit or protect against depreciation in declining markets. The
Automatic Exchange Plan contemplates the systematic purchase of securities at
regular intervals regardless of price levels.
The expenses of the Automatic Exchange Plan are general expenses of a
Fund and will not involve any direct charge to the participating shareholder.
The Automatic Exchange Plan is completely voluntary and may be terminated on
fifteen days notice to DST.
Automatic Investment Plan. Investors may arrange under the Automatic
---------------------------
Investment Plan to have DST collect a specified amount once a month or quarter
from the investor's checking account and purchase full and fractional shares of
a Fund at the public offering price next computed after receipt of the proceeds.
Further details of the Automatic Investment Plan are given in the application
which is available from DST or the Funds.
An investor should realize that he is investing his funds in securities
subject to market fluctuations, and accordingly the Automatic Investment Plan
does not assure a profit or protect against depreciation in declining markets.
The Automatic Investment Plan contemplates the systematic purchase of securities
at regular intervals regardless of price levels.
The expenses of the Automatic Investment Plan are general expenses of a
Fund and will not involve any direct charge to the participating shareholder.
The Automatic Investment Plan is completely voluntary. The Automatic Investment
Plan may be terminated on thirty days notice to DST.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan is designed to
-------------------------
provide a convenient method of receiving fixed redemption proceeds at regular
intervals from shares of a Fund deposited by the investor under this Plan. This
Plan is not available to Class B or Class C shareholders. Further details of the
Automatic Withdrawal Plan are given in the application which is available from
DST or the Funds.
In order to open an Automatic Withdrawal Plan, the investor must
complete the Application and deposit, or purchase for deposit, with DST, agent
for the Automatic Withdrawal Plan, shares of a Fund having a total value of not
less than $10,000 based on the offering price on the date the Application is
accepted.
Income dividends and capital gains distributions on shares under an
Automatic Withdrawal Plan will be credited to the investor's Automatic
Withdrawal Plan account in full and fractional shares at the net asset value in
effect on the reinvestment date.
Periodic checks for a specified amount will be sent to the investor, or
any person designated by him, monthly or quarterly (January, April, July and
October). A Fund will bear the cost of administering the Automatic Withdrawal
Plan.
Redemption of shares of a Fund deposited under the Automatic Withdrawal
Plan may deplete or possibly use up the initial investment plus income dividends
and distributions reinvested, particularly in the event of a market decline. In
addition, the amounts received by an investor cannot be considered as an actual
yield or income on his
35
<PAGE>
investment since part of such payments may be a return of his capital. The
redemption of shares under the Automatic Withdrawal Plan may give rise to a
taxable event.
The maintenance of an Automatic Withdrawal Plan concurrently with
purchases of additional shares of a Fund would be disadvantageous because of the
sales charge payable with respect to such purchases. An investor may not have an
Automatic Withdrawal Plan in effect and at the same time have in effect an
Automatic Investment Plan or an Automatic Exchange Plan. If an investor has an
Automatic Investment Plan or an Automatic Exchange Plan, such service must be
terminated before an Automatic Withdrawal Plan may take effect.
The Automatic Withdrawal Plan may be terminated at any time (1) on 30
days notice to DST or from DST to the investor, (2) upon receipt by DST of
appropriate evidence of the investor's death or (3) when all shares under the
Automatic Withdrawal Plan have been redeemed. Upon termination, unless otherwise
requested, certificates representing remaining full shares, if any, will be
delivered to the investor or his duly appointed legal representatives.
TAXES
-----
Taxation of the Funds -- In General
- -----------------------------------
Each Fund has qualified and intends to qualify and elect to be treated
each taxable year as a "regulated investment company" under Subchapter M of the
Code. To so qualify, a Fund must, among other things, (a) derive at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of any of the following which was held less than three
months (the "30% test"): (i) short sales of securities; (ii) stock or
securities; (iii) options, futures or forward contracts (other than on foreign
currencies) or (iv) foreign currencies (or options, futures or forward contracts
on foreign currencies) but only if such currencies (or options, futures or
forward contracts) are not directly related to the Fund's principal business of
investing in stock or securities; and (c) satisfy certain diversification
requirements.
As a regulated investment company, a Fund will not be subject to
federal income tax on its net investment income and capital gain net income
(capital gains in excess of its capital losses) that it distributes to
shareholders if at least 90% of its net investment income and short-term capital
gains for the taxable year are distributed. However, if for any taxable year a
Fund does not satisfy the requirements of Subchapter M of the Code, all of its
taxable income will be subject to tax at regular corporate rates without any
deduction for distribution to shareholders, and such distributions will be
taxable to shareholders as ordinary income to the extent of the Fund's current
or accumulated earnings or profits.
Each Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year a Fund
must distribute (i) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (ii) at least 98% of its
capital gain net income for the twelve month period ending on October 31 (or
December 31, if the Fund so elects), and (iii) any portion (not taxed to the
Fund) of the 2% balance from the prior year. Each Fund intends to make
sufficient distributions to avoid this 4% excise tax.
Taxation of the Funds' Investments
- ----------------------------------
Original issue discount. For federal income tax purposes, debt
-------------------------
securities purchased by a Fund may be treated as having an original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price. Original issue
discount is treated for federal income tax purposes as income earned by a Fund,
whether or not any income is actually received, and therefore is subject to the
distribution requirements of the Code. Generally,
36
<PAGE>
the amount of original issue discount included in the income of a Fund each year
is determined on the basis of a constant yield to maturity which takes into
account the compounding of accrued interest.
Debt securities may be purchased by a Fund at a discount which exceeds
the original issue discount remaining on the securities, if any, at the time the
Fund purchased the securities. This additional discount represents market
discount for income tax purposes. In the case of any debt security issued after
July 18, 1984, having a fixed maturity date of more than one year from the date
of issue and having market discount, the gain realized on disposition will be
treated as interest to the extent it does not exceed the accrued market discount
on the security (unless the Fund elects to include such accrued market discount
in income in the tax year to which it is attributable). Generally, market
discount is accrued on a daily basis. A Fund may be required to capitalize,
rather than deduct currently, part or all of any direct interest expense
incurred or continued to purchase or carry any debt security having market
discount, unless the it makes the election to include market discount currently.
Because a Fund must include original issue discount in income, it will be more
difficult for the Fund to make the distributions required for it to maintain its
status as a regulated investment company under Subchapter M of the Code or to
avoid the 4% excise tax described above.
Options and Futures Transactions Certain of the Funds' investments may
---------------------------------
be subject to provisions of the Code that (i) require inclusion of unrealized
gains or losses in the Funds' income for purposes of the 90% test, the 30% test,
the excise tax and the distribution requirements applicable to regulated
investment companies, (ii) defer recognition of realized losses, and (iii)
characterize both realized and unrealized gain or loss as short-term or
long-term gain or loss. Such provisions generally apply to options and futures
contracts. The extent to which the Funds make such investments may be materially
limited by these provisions of the Code.
Foreign Currency Transactions Under section 988 of the Code, special
------------------------------
rules are provided for certain foreign currency transactions. Foreign currency
gains or losses from foreign currency contracts (whether or not traded in the
interbank market), from futures contracts that are not "regulated futures
contracts," and from unlisted options are treated as ordinary income or loss
under section 988. A Fund may elect to have foreign currency-related regulated
futures contracts and listed options subject to ordinary income or loss
treatment under section 988. In addition, in certain circumstances, a Fund may
elect capital gain or loss for foreign currency transactions. The rules under
section 988 may also affect the timing of income recognized by a Fund.
Taxation of the Shareholders
- ----------------------------
Distributions of net investment income and the excess of net short-term
capital gain over net long-term capital loss are taxable as ordinary income to
shareholders. Distributions of net capital gain (the excess of net long-term
capital gain over net short-term capital loss) are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Any loss realized upon a taxable
disposition of shares within six months from the date of their purchase will be
treated as a long-term capital loss to the extent of any long-term capital gain
distributions received by shareholders during such period.
Distributions of net investment income and capital gain net income will
be taxable as described above whether received in cash or reinvested in
additional shares. When distributions are received in the form of shares issued
by a Fund, the amount of the distribution deemed to have been received by
participating shareholders is the fair market value of the shares received
rather than the amount of cash which would otherwise have been received. In such
case, participating shareholders will have a basis for federal income tax
purposes in each share received from a Fund equal to the fair market value of
such share on the payment date.
Except in the case of the U.S. Government Money Fund, distributions by
a Fund result in a reduction in the net asset value of the Fund's shares. Should
a distribution reduce the net asset value below a shareholder's cost basis, such
distribution nevertheless would be taxable to the shareholder as ordinary income
or long-term capital gain as described above, even though, from an investment
standpoint, it may constitute a partial return of capital. In particular,
investors should be careful to consider the tax implications of buying shares
just prior to a distribution.
37
<PAGE>
The price of shares purchased at that time includes the amount of any
forthcoming distribution. Those investors purchasing shares just prior to a
distribution will then receive a return of their investment upon distribution
which will nevertheless be taxable to them.
If a shareholder (i) incurs a sales load in acquiring shares in a Fund,
and (ii) by reason of incurring such charge or making such acquisition acquires
the right to acquire shares of one or more regulated investment companies
without the payment of a load or with the payment of a reduced load
("reinvestment right"), and (iii) disposes of the shares before the 91st day
after the date on which the shares were acquired, and (iv) subsequently acquires
shares in that regulated investment company or in another regulated investment
company and the otherwise applicable load charge is reduced pursuant to the
reinvestment right, then the load charge will not be taken into account for
purposes of determining the shareholder's gain or loss. To the extent such
charge is not taken into account in determining the amount of gain or loss, the
charge will be treated as incurred in connection with the subsequently acquired
shares and will have a corresponding effect on the shareholder's basis in such
shares.
Income received by a Fund may give rise to withholding and other taxes
imposed by foreign countries. If more than 50% of the value of a Fund's assets
at the close of a taxable year consists of securities of foreign corporations,
the Fund may make an election that will permit an investor to take a credit (or,
if more advantageous, a deduction) for foreign income taxes paid by that Fund,
subject to limitations contained in the Code. When any of Global Balanced Fund,
Global Hard Assets Fund, Asia Dynasty Fund, International Investors Gold Fund,
Gold/Resources Fund, Emerging Markets Growth Fund or Global Income Fund
satisfies this requirement, the Fund will make such an election. As an investor,
you would then include in gross income both dividends paid to you and the
foreign taxes paid by the Fund on its foreign investments.
The Funds cannot assure investors that they will be eligible for the
foreign tax credit. The Funds will advise shareholders annually of your share of
any creditable foreign taxes paid by the Funds.
A Fund may be required to withhold federal income tax at a rate of 31%
from dividends made to any shareholder who fails to furnish a certified taxpayer
identification number ("TIN") or who fails to certify that he is exempt from
such withholding or who the Internal Revenue Service notifies the Fund as having
provided the Fund with an incorrect TIN or failed to properly report for federal
income tax purposes. Any such withheld amount will be fully creditable on each
shareholder's individual Federal income tax return.
The foregoing discussion is a general summary of certain of the current
federal income tax laws affecting the Funds and investors in the shares. The
discussion does not purport to deal with all of the federal income tax
consequences applicable to the Fund, or to all categories of investors, some of
which may be subject to special rules. Investors should consult their own
advisors regarding the tax consequences, including state and local tax
consequences, to them of investment in the Fund.
REDEMPTIONS IN KIND
-------------------
Each Fund elects to have the ability to redeem its shares in kind,
committing itself to pay in cash all requests for redemption by any shareholder
of record limited in amount with respect to each shareholder of record during
any ninety-day period to the lesser of (i) $250,000 or (ii) 1% of the net asset
value of such company at the beginning of such period.
PERFORMANCE
-----------
U.S. Government Money Fund
- --------------------------
The U.S. Government Money Fund may advertise performance in terms of
yield based on a seven day yield or an effective yield.
38
<PAGE>
Seven-day yield is computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then multiplying the base period return by
(365/7) with the resulting yield figure carried to at least the nearest
hundredth of one percent.
Effective yield quotation is based on the seven days ended on the date
of the calculation and is computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula: EFFECTIVE YIELD = [(BASE
PERIOD RETURN + 1)365/7]-1 with the resulting yield figure carried to at least
the nearest hundredth of one percent.
In calculating yield or effective yield quotations, the net change in
an account value includes: (a) the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares; (b) all fees, other than nonrecurring
account or sales charges, that are charged to all shareholder accounts in
proportion to the length of the base period. The calculation excludes realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation.
The seven day yield and seven day effective yield for the U.S.
Government Money Fund at December 31, 1996 were 3.94% and 4.02%, respectively.
Global Balanced Fund, Global Hard Assets Fund, Asia Dynasty Fund,
Gold/Resources Fund, International Investors Gold Fund and Global Income Fund.
The above Funds may advertise performance in terms of average annual
total return for 1, 5 and 10 year periods, or for such lesser periods as any of
such Funds have been in existence. Average annual total return is computed by
finding the average annual compounded rates of return over the periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
- --------------------------------------------------------------------------------
P(1+T)n = ERV
Where: P=A hypothetical initial payment of $1,000
T=Average annual total return
n=Number of years
ERV=Ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5, or 10 year periods at the end of the year or
period;
- --------------------------------------------------------------------------------
The calculation assumes the maximum sales load (or other charges
deducted from payments) is deducted from the initial $1,000 payment and assumes
all dividends and distributions by the Fund are reinvested at the price stated
in the prospectus on the reinvestment dates during the period, and includes all
recurring fees that are charged to all shareholder accounts.
Average Annual Total Return for the Period ended December 31, 1996
(after maximum sales charge).
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life
<S> <C> <C> <C> <C>
International Investors
Gold Fund (Class A) (14.55)% 3.10% 3.3% 11.10%
Gold/Resources Fund (Class A) (3.38)% 7.64% -- 5.44%
Global Income Fund (Class A) (2.54)% 2.38% -- 7.88%
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Asia Dynasty Fund (Class A) 1.46% -- -- 8.70%
Asia Dynasty Fund (Class B) 0.08% -- -- 4.57%
Global Balanced Fund (Class A) 7.00% -- -- 5.74%
Global Balanced Fund (Class B) 6.49% -- -- 5.77%
Global Hard Assets Fund (Class A) 38.73% -- -- 25.83%
Global Hard Assets Fund (Class C) 44.18% -- -- 28.92%
</TABLE>
As the Emerging Markets Growth Fund will be a newly created series of
the Van Eck Global Funds, the Emerging Markets Growth Fund has no operating
history, therefore, it does not appear on the above chart.
The Global Balanced Fund, Asia Dynasty Fund, Gold/Resources Fund,
Global Income Fund, Global Hard Assets Fund, Emerging Markets Growth Fund, and
International Investors Gold Fund may advertise performance in terms of a 30-day
yield quotation. The 30-day yield quotation is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
- --------------------------------------------------------------------------------
YIELD = 2[(A-B/CD + 1)6-1]
Where: A =dividends and interest earned during the period
B =expenses accrued for the period (net of reimbursement)
C =the average daily number of shares outstanding during the
period that were entitled to receive dividends D =the maximum
offering price per share on the last day of the period after
adjustment for payment of dividends within 30 days thereafter
- --------------------------------------------------------------------------------
The Global Balanced Fund, Global Hard Assets Fund, Asia Dynasty Fund,
Gold/Resources Fund, Global Income Fund, Emerging Markets Growth Fund, and
International Investors Gold Fund may also advertise performance in terms of
aggregate total return. Aggregate total return for a specified period of time is
determined by ascertaining the percentage change in the net asset value of
shares of the Fund initially acquired assuming reinvestment of dividends and
distributions and without giving effect to the length of time of the investment
according to the following formula:
==========================================================
[(B-A)/A](100)=ATR
Where: A=initial investment
B=value at end of period
ATR=aggregate total return
==========================================================
The calculation assumes the maximum sales charge is deducted from the
initial payment and assumes all distributions by the Funds are reinvested at the
price stated in the Prospectus on the reinvestment dates during the period, and
includes all recurring fees that are charged to all shareholder accounts.
Aggregate Total Return for the period ended December 31, 1996 (after
maximum sales charge).
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life
<S> <C> <C> <C> <C>
International Investors
Gold Fund (Class A) (14.55)% 16.50% 38.69% 7,391%
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gold/Resources Fund (Class A) (3.38)% 44.53% 40.82% 77.9%
Global Income Fund (Class A) (2.54)% 12.49% -- 108.30%
Global Balanced Fund (Class A) 7.00% -- -- 18.4%
Global Balanced Fund (Class B) 6.49% -- -- 21.5%
Asia Dynasty Fund (A) 1.46% -- -- 37.1%
Asia Dynasty Fund (B) 0.08% -- -- 19.1%
Global Hard Assets Fund (Class A) 38.73% -- -- 64.6%
Global Hard Assets Fund (Class C) 44.18% -- -- 73.5%
</TABLE>
As the Emerging Markets Growth Fund will be a newly created series of
the Van Eck Global Funds, the Emerging Markets Growth Fund has no operating
history, therefore, it does not appear on the above chart.
Advertising Performance
- -----------------------
As discussed in the Funds' Prospectus, the Funds may quote performance
results from recognized publications which monitor the performance of mutual
funds, and the Funds may compare their performance to various published
historical indices. These publications are listed in Part B of the Appendix. In
addition, the Funds may quote and compare their performance to the performance
of various economic and market indices and indicators, such as the S&P 500,
Financial Times Index, Morgan Stanley Capital International Europe, Australia,
Far East Index, Morgan Stanley Capital International World Index, Morgan Stanley
Capital International Combined Far East (exJapan) Free Index, Salomon Brothers
World Bond Index, Salomon Brothers World Government Bond Index, GNP and GDP
data. Descriptions of these indices are provided in Part B of the Appendix.
ADDITIONAL INFORMATION
----------------------
Custodian. The Chase Manhattan Bank, Chase Metrotech Center, Brooklyn,
---------
New York is the custodian of the Trust's portfolio securities, cash, coins and
bullion. The Custodian is authorized, upon the approval of the Trust, to
establish credits or debits in dollars or foreign currencies with, and to cause
portfolio securities of a Fund to be held by its overseas branches or
subsidiaries, and foreign banks and foreign securities depositories which
qualify as eligible foreign custodians under the rules adopted by the Securities
and Exchange Commission.
Independent Accountants. Coopers & Lybrand L.L.P., 1301 Avenue of the
-------------------------
Americas, New York, New York 10019, serve as the independent accountants for the
Trust.
Counsel. Goodwin, Procter & Hoar, LLP, Exchange Place, Boston,
Massachusetts 02109, serves as counsel to the Trust.
FINANCIAL STATEMENTS
--------------------
The financial statements of Asia Dynasty Fund, Global Hard Assets Fund,
Global Balanced Fund, International Investors Gold Fund, Global Income Fund,
Gold/Resources Fund and U.S. Government Money Fund for the fiscal year ended
December 31, 1996, are hereby incorporated by reference from the Funds' Annual
Reports to Shareholders, which have been delivered with this Statement of
Additional Information and are available at no charge upon written or telephone
request to the Trust at the address or telephone numbers set forth on the first
page of this Statement of Additional Information. As the Emerging Markets Growth
Fund is a newly created series of the Van Eck Global Funds, the Emerging Markets
Growth Fund has no operating history, therefore, it does not have a financial
statement.
41
<PAGE>
APPENDIX
--------
PART A.
Corporate Bond Ratings
- ----------------------
Description of Moody's Investors Service, Inc. corporate bond ratings:
Aaa--Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors given
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Description of Standard & Poor's Corporation corporate bond ratings;
AAA --Bonds rated AAA have the highest rating assigned by S&P to a debt
obligations. Capacity to pay interest and repay principal is extremely strong.
AA --Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A --Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB --Bonds rated BBB are regarding as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
42
<PAGE>
Preferred Stock Ratings
- -----------------------
Moody's Investors Service, Inc. describes its preferred stock ratings
as:
aaa -An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of convertible preferred stocks.
aa -An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a -An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa -An issue which is rated baa is considered to be medium-grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
ba -An issue which is rated ba is considered to have speculative
elements, and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safe-guarded during adverse
periods.
Uncertainty of position characterizes preferred stocks in this class.
b -An Issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payment.
ca -An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
c -This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of every
attaining any real investment standing.
Standard & Poor's Corporation describes its preferred stock ratings as:
AAA -This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA -A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effect of changes in circumstances and economic conditions.
BBB -An issue rated BBB is regarded as backed by an adequate capacity
to play the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
43
<PAGE>
BB,B,CCC -Preferred stocks rated BB,B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Short-Term Debt Ratings
- -----------------------
Description of Moody's short-term debt ratings:
Prime-1--Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by may of the following
characteristics: leading market positions in well-established industries, higher
rates of return of funds employed, conservative capitalization structure with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected be external conditions. Ample alternate liquidity is maintained.
Prime-3--Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime--Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Description of Standard & Poor's short-term debt ratings:
A-1--This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B--Issues rated B are regarded as having only speculative capacity for
timely payment.
C--This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D--Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
44
<PAGE>
PART B
- ------
The publications and services from which the Funds will quote
performance are: Micropal, Ltd. (an international investment fund information
service), Fortune, Changing Times, Money, U.S. News & World Report, Money Fund
Scorecard, Morningstar, Inc., Business Week, Institutional Investor, The Wall
Street Journal, Wall Street Transcripts, New York Post, Investment Company
Institute publications, The New York Times, Barron's, Forbes magazine, Research
magazine, Donaghues Money Fund Report, Donaghue's Money Letter, The Economist,
FACS, FACS of the Week, Financial Planning, Investment Daily, Johnson's Charts,
Mutual Fund Profiles (S&P), Powell Monetary Analysis, Sales & Marketing
Management Magazine, Life magazine, Black Enterprise, Fund Action, Speculators
Magazine, Time, NewsWeek, U.S.A Today, Wiesenberger Investment Service, Mining
Journal Quarterly, Mining Journal Weekly, Northern Miner, Gold Gazette, George
Cross Newsletter, Engineering and Mining Journal, Weekly Stock Charts-Canadian
Resources, Jeweler's Circular Keystone, Financial Times, Journal of Commerce,
Mikuni's Credit Ratings, Money Market Directory of Pension Funds, Oil and Gas
Journal, Pension Funds and Their Advisers, Investment Company Data, Inc., Mutual
Funds Almanac, Callan Associates, Inc., Media General Financial Services,
Financial World, Pensions & Investment Age, Registered Investment Advisors, Aden
Analysis, Baxter Weekly, Congressional Yellow Book, Crain's New York Business,
Survey of Current Business, Treasury Bulletin, U.S. Industrial Outlook, Value
Line Survey, Bank Credit Analyst, S&P Corporation Records, Euromoney, Moody's,
Investment Dealer's Digest, Financial Mail, Financial Post, Futures, Grant's
Interest Rate Observer, Institutional Investor, International Currency Review,
International Bank Credit Analyst, Investor's Daily, German Business Weekly,
GATT Trade Annual Report, and Dimensional Fund Advisers, Inc.
45
<PAGE>
PERFORMANCE CHARTS
Best Performing World Government Bond Markets*
1986 through December, 1996
1986 Japan 47.4%
1987 U.K. 46.6%
1988 Australia 28.8%
1989 Canada 16.2%
1990 U.K. 30.9%
1991 Australia 23.5%
1992 Japan 10.8%
1993 Japan 27.6%
1994 Belgium 12.2%
1995 Sweden 34.8%
1996 Italy 27.2%
*in U.S. dollar terms
Source: Salomon Brothers World Government Bond Index, a market
capitalization weighted total return index of developed world
government bonds with remaining maturities of one year or more.
- -------------------------
Annual Real (Inflation-Adjusted) GDP Growth
(in local currency terms)
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Hong Kong 2.6% 3.4% 5.1% 6.3% 6.4% 5.4% 4.7%
Singapore 9.4% 8.1% 7.3% 6.2% 10.4% 10.1% 8.8%
Thailand 12.2% 11.6% 8.4% 7.8% 8.3% 8.8% 8.6%
Malaysia 9.2% 9.7% 8.4% 7.8% 8.3% 9.2% 9.5%
Indonesia 7.5% 7.2% 7.0% 6.5% 6.5% 7.7% 8.2%
Philippines 6.2% 3.0% -0.5% 0.3% 2.1% 4.4% 4.8%
South Korea 6.4% 9.5% 9.1% 5.1% 5.8% 8.6% 9.0%
China 4.3% 3.9% 9.2% 14.2% 13.5% 12.7% 10.6%
</TABLE>
Source: All Countries except Hong Kong: International Financial Statistics
(International Monetary Fund) - 2/96 and 5/97
Hong Kong: Datastream
Gross Domestic Product: The market value of all final goods
and services produced by labor and property supplied by residents of the
applicable country in a given period of time, usually one year. Gross Domestic
Product comprises (1) purchases of persons (2) purchases of governments
(Federal, State & Local) (3) gross private domestic investment (includes
change in business inventories) and (4) international trade balance from
exports.
46
<PAGE>
Asian Stock Market Total Returns**
The chart below provides returns for the key developing Asian stock
markets for the given periods. While these markets can be volatile, the
long-term returns may be greater than those achieved by more mature equity
markets.
<TABLE>
<CAPTION>
5 yr. compounded 9 yr. compounded
avg. annual return avg. annual return
1988 1989 1990 1991 1992 1993 1994 1995 1996 (1991-1995 12/31/96
---- ---- ---- ---- ---- ---- ---- ---- ---- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hong Kong 22.7% 3.4% 3.7% 42.8% 27.4% 109.9% -31.0% 18.2% 28.9% 23.0% 20.3%
Indonesia 227.8% 77.1% 5.2% -46.4% -2.1% 102.2% -27.0% 7.5% 25.4% 14.3% 22.8%
Malaysia 23.9% 52.6% -9.9% 3.1% 15.7% 107.3% -20.7% 4.0% 24.5% 19.7% 17.7%
Philippines 40.0% 62.9% -47.7% 83.5% 37.1% 121.4% -8.3% -11.8% 16.8% 23.5% 22.7%
Singapore 32.3% 43.3% -15.8% 41.6% 3.0% 71.4% 4.7% 11.0% -0.7% 15.3% 18.5%
So. Korea 94.0% 0.4% -28.5% -17.1% 0.0% 29.1% 22.1% -4.6% -38.4% -1.5% 0.8%
Taiwan 117.3% 83.5% -55.4% 11.8% -24.6% 82.3% 19.7% -30.2% 38.9% 9.8% 13.7%
Thailand 41.6% 106.1% -29.7% 18.1% 30.4% 97.8% -11.2% -5.7% -38.0% 14.0% 14.0%
</TABLE>
Source: Morgan Stanley & Co. Incorporated
Performance provided in U.S. dollar terms and does not include reinvestment of
dividends. Past performance is not indicative of future results.
**These are unmanaged indices and are not the investment results of the Fund nor
are they the results the Fund would have obtained, which may vary from returns
of these markets. Value of shares of the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
- ----------------------------
Morgan Stanley Capital International Stock Market Information
(in US currency with net dividends reinvested)
as of December 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Australia 16.5% 11.2% 5.4% 35.2% -10.8% 33.6% -17.5% 9.3% 36.4% 9.3%
Austria 4.5% -4.7% -6.3% 28.1% -10.7% -12.2% 6.3% 103.9% 0.6% 2.2%
Belgium 12.0% 25.9% 8.2% 23.5% -1.5% 13.8% -11.0% 17.3% 53.6% 7.9%
Canada 28.5% 18.3% -3.0% 17.6% -12.2% 11.1% -13.0% 24.3% 17.1% 13.9%
Denmark 21.8% 18.8% 3.8% 32.8% -28.3% 16.6% -0.9% 43.9% 52.7% 13.2%
Finland 33.9% 4.6% 52.2% 82.7% -13.0% -18.1% -31.7% -9.6% 13.7% N/A
France 21.2% 14.1% -5.2% 20.9% 2.8% 17.8% -13.8% 36.2% 37.9% -13.8%
Germany 13.6% 16.4% 4.7% 35.6% -10.3% 8.2% -9.4% 46.3% 20.6% -24.8%
Hong Kong 33.1% 22.6% -28.9% 116.7% 32.3% 49.5% 9.2% 8.4% 28.1% -4.1%
Ireland 32.0% 22.4% 14.5% 42.4% -21.2% 12.2% -16.7% 41.2% 25.1% N/A
Italy 12.6% 1.0% 11.6% 28.5% -22.2% -1.8% -19.2% 19.4% 11.5% -21.3%
Japan -15.5% 0.7% 21.4% 25.5% -21.5% 8.9% -36.1% 1.7% 35.4% 43.0%
Malaysia 25.9% 5.2% -19.9% 110.0% 17.8% 5.0% -7.9% 55.8% 26.5% N/A
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Netherlands 27.5% 27.7% 11.7% 35.3% 2.3% 17.8% -3.2% 35.8% 14.2% 7.1%
New Zealand 17.2% 20.9% 8.9% 67.7% -1.4% 18.3% -37.7% 11.4% -13.8% N/A
Norway 28.6% 6.0% 23.6% 42.0% -22.3% -15.5% 0.7% 45.5% 42.4% 5.7%
Singapore -6.9% 6.5% 6.7% 68.0% 6.3% 25.0% -11.7% 42.3% 33.3% 2.3%
Spain 40.1% 29.8% -4.8% 29.8% -21.9% 15.6% -13.7% 9.8% 13.5% 36.9%
Sweden 37.2% 33.4% 18.3% 37.0% -14.4% 14.4% -21.0% 31.8% 48.3% 2.0%
Switzerland 2.3% 44.1% 3.5% 45.8% 17.2% 15.8% -6.2% 26.2% 6.2% -9.5%
United Kingdom 27.4% 21.3% -1.6% 24.4% -3.7% 16.0% 10.3% 21.9% 6.0% 35.1%
US 23.2% 37.1% 1.1% 9.1% 6.4% 30.1% -3.2% 30.0% 14.6% 2.9%
</TABLE>
Morgan Stanley Capital International Index
(in US currency with net dividends reinvested)
as of December 31, 1996
10 year annual total return
---------------------------
Australia 11.4%
Austria 7.6%
Belgium 13.8%
Canada 9.3%
Denmark 15.2%
Finland N/A
France 10.3%
Germany 8.2%
Hong Kong 21.9%
Ireland N/A
Italy 0.5%
Japan 3.4%
Malaysia N/A
Netherlands 16.9%
New Zealand N/A
Norway 13.2%
Singapore 15.0%
Spain 11.6%
Sweden 16.4%
Switzerland 13.1%
United Kingdom 15.1%
USA 14.4%
MARKET INDEX DESCRIPTIONS
Morgan Stanley Capital International Europe, Australia, Far East Index
(US$ terms): An arithmetic, market value-weighted average of the performance of
over 1,079 companies listed on the stock exchanges of Europe, Australia, New
Zealand and the Far East. The index is calculated on a total return basis, which
includes reinvestment of gross dividends before deduction of withholding taxes.
48
<PAGE>
Morgan Stanley Capital International World Index (US$ terms): An
arithmetic, market value-weighted average of the performance of over 1,515
companies listed on the stock exchanges of the following countries: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, Malaysia, the Netherlands, New Zealand, Norway, Singapore, Spain,
Sweden, Switzerland, the United Kingdom and the United States. The index is
calculated on a total return basis, which includes reinvestment of gross
dividends before deduction of withholding taxes. The combined market
capitalization of these countries represents approximately 60% of the aggregate
market value of the stock exchanges of the above 22 countries.
Morgan Stanley Capital International Combined Far East ex-Japan Free
Index: An arithmetic, market value-weighted average of the performance of
companies listed on the stock exchanges of the following countries: Hong Kong,
Indonesia, Korea (Korea is included at 20% of its market capitalization in the
Combined Free Index), Malaysia, Philippines Free, Singapore Free and Thailand.
The combined market capitalization of these countries represents approximately
60% of the aggregate market value of the stock exchanges of the above seven
countries.
Salomon Brothers World Bond Index (US$ terms): Measures the total
return performance of high quality securities in major sectors of the
international bond market. The index covers approximately 600 bonds from 10
currencies: Australian Dollars, Canadian Dollars, European Currency Units,
French Francs, Japanese Yen, Netherlands Guilder, Swiss Francs, UK pounds
Sterling, US Dollars and German Deutsche Marks. Only high-quality, straight
issues are included. The index is calculated on both a weighted basis and an
unweighted basis. Generally, index samples for each market are restricted to
bonds with at least five years' remaining life.
Salomon Brothers World Government Bond Index (US$ terms): The WGBI
includes the Government bonds markets of the United States, Japan, Germany,
France, the United Kingdom, Canada, Italy, Australia, Belgium, Denmark, the
Netherlands, Spain, Sweden and Austria. Country eligibility is determined based
on market capitalization and investability criteria. A market's eligible issues
must total at least US$20 billion, Y2.5 trillion and DM30 billion for three
consecutive months for the market to be considered eligible for inclusion. Once
a market satisfies this criteria, it will be added at the end of the following
quarter. Guidelines by which a market may be excluded from the index have also
been established. A market will be excluded if the market capitalization of
eligible issues falls below half of all of the entry levels for six consecutive
months. Once again, the market will be removed at the end of the following
quarter. In addition, market entry barriers are a reason for exclusion despite
meeting the size criteria (for example, if a market discourages foreign investor
participation).
Gross Domestic Product: The market value of all final goods and
services produced by labor and property supplied by residents of the United
States in a given period of time, usually one year. Gross Domestic Product
comprises (1) purchases of persons (2) purchases of governments (Federal, State
& Local) (3) gross private domestic investment (includes change in business
inventories) and (4) international trade balance from exports. Nominal GDP is
expressed in 1993 dollars. Real GDP is adjusted for inflation and is currently
expressed in 1987 dollars.
49
