<PAGE>
THE GOVETT FUNDS, INC.
PROSPECTUS DATED APRIL 24, 1996
The Govett Funds, Inc. (the "Company") is an open-end management investment
company, presently consisting of the following six portfolios (individually a
"Fund," and together the "Funds"):
GOVETT INTERNATIONAL EQUITY FUND seeks long-term capital appreciation by
investing primarily in equity securities of companies located throughout the
world.
GOVETT EMERGING MARKETS FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers located in emerging markets. (AN
INVESTMENT IN THIS FUND SHOULD BE CONSIDERED SPECULATIVE, SINCE IT WILL INVEST
IN EMERGING MARKET COUNTRIES, AS DISCUSSED ELSEWHERE IN THIS PROSPECTUS.)
GOVETT SMALLER COMPANIES FUND seeks long-term capital appreciation by investing
primarily in equity securities of smaller companies.
GOVETT PACIFIC STRATEGY FUND seeks long-term capital appreciation by investing
primarily in equity securities of companies located in the Pacific Rim. (AN
INVESTMENT IN THIS FUND SHOULD BE CONSIDERED SPECULATIVE SINCE IT WILL INVEST IN
EMERGING MARKET COUNTRIES, AS DISCUSSED ELSEWHERE IN THIS PROSPECTUS.)
GOVETT LATIN AMERICA FUND seeks long-term capital appreciation by investing
primarily in equity and debt securities of issuers located in Latin America. (AN
INVESTMENT IN THIS FUND SHOULD BE CONSIDERED SPECULATIVE AND IS SUBJECT TO
SPECIAL RISK FACTORS SINCE IT WILL INVEST IN LATIN AMERICAN COUNTRIES, AS
DISCUSSED ELSEWHERE IN THIS PROSPECTUS.)
GOVETT GLOBAL INCOME FUND seeks primarily a high level of current income,
consistent with preservation of capital, by investing primarily in foreign debt
securities, and has a secondary objective of capital appreciation.
The Funds' investment manager is John Govett & Co. Limited ("John Govett" or the
"Manager"), a United Kingdom corporation.
Please read this Prospectus carefully before investing and retain it for future
reference. It is designed to provide you with concise information and to help
you decide if the Funds' goals match your own. A Statement of Additional
Information about the Funds dated the same date as this Prospectus, as amended
from time to time, has been filed with the Securities and Exchange Commission
(the "SEC") and is available, upon request and without charge, by writing to Van
Kampen American Capital Distributors, Inc. (the "Distributor"), One Parkview
Plaza, Oakbrook Terrace, Illinois 60181, or by calling (800) 634-6838.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY AND ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
SUMMARY OF INVESTOR COSTS 6
FINANCIAL HIGHLIGHTS 10
ALTERNATIVE SALES ARRANGEMENTS 12
THE FUNDS 13
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS 14
MANAGEMENT OF THE FUNDS 22
HOW TO PURCHASE SHARES 29
SALES CHARGES CHART -- CLASS A 31
HOW TO MAKE EXCHANGES 36
HOW TO REDEEM SHARES 38
TELEPHONE TRANSACTIONS 41
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION 41
OTHER INFORMATION 43
APPENDIX A: DESCRIPTION OF DEBT RATINGS A-1
APPENDIX B: QUICK REFERENCE GUIDE B-1
APPLICATION FORM
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
GOVETT INTERNATIONAL EQUITY FUND GOVETT PACIFIC STRATEGY FUND
GOVETT EMERGING MARKETS FUND GOVETT LATIN AMERICA FUND
GOVETT SMALLER COMPANIES FUND GOVETT GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus. Cross-references in this
summary are to headings in the body of the Prospectus.
<TABLE>
<S> <C>
Investment Objectives: The investment objective of the Govett International Equity Fund, Govett
Emerging Markets Fund, Govett Smaller Companies Fund, Govett Pacific
Strategy Fund, and Govett Latin America Fund is long-term capital
appreciation. The Govett Global Income Fund seeks primarily a high level of
current income, consistent with preservation of capital, and has a
secondary objective of capital appreciation. See "Investment Objectives,
Policies and Risk Considerations" for each Fund.
- -----------------------------------------------------------------------------------------------------
Investment Manager: John Govett & Co. Limited, a U.K.-based investment management company whose
investment activities date back to the 1920s. See "Management of the
Funds."
- -----------------------------------------------------------------------------------------------------
Shares Available Brokerage and securities firms nationwide, or directly through the Funds'
Through: Shareholder Services Agent by calling (800) 421-6714. See "How to Purchase
Shares."
- -----------------------------------------------------------------------------------------------------
Alternative Sales The Funds have designated three classes of shares, each with its own sales
Arrangements: charge structure: Class A shares, Class B shares and Class C shares. Each
class has distinct advantages and disadvantages for different investors,
and investors may choose the class of shares that best suits their
circumstances and objectives. As of January 1, 1995, all of the previously
outstanding shares of each Fund were redesignated as Class A shares without
any other changes, and Class B and Class C shares were authorized for
issuance. Each class of shares of a Fund represents an interest in the same
portfolio of investments of the Fund. The per share dividends on Class B
and Class C shares are expected to be lower than the per share dividends on
Class A shares. See "Alternative Sales Arrangements."
</TABLE>
AT PRESENT, ONLY CLASS A SHARES OF THE FUNDS ARE AVAILABLE TO THE GENERAL
PUBLIC. IT IS ANTICIPATED THAT CLASS B AND CLASS C SHARES WILL BE AVAILABLE
SHORTLY.
3
<PAGE>
<TABLE>
<S> <C>
The following table compares certain aspects relating to the purchase of
shares of the three classes:
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B* CLASS C*
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Sales Charges Initial sales charge at CDSC of 4% to 1% applies to CDSC of 1% applies to
time of investment of up to shares redeemed within shares redeemed within 1st
4.95%, depending on amount first 6 years following year following purchase.
of investment. purchase; no CDSC after 6
On investments of $1 years.
million or more, no initial
sales charge; may be
subject to a 1% CDSC if
redeemed within 1st year
following purchase.
12b-1 Distribution Fee 0.50% (0.35% Global Income 0.75% for first 7 years for 0.75% for all Funds.
Fund). all Funds. At the beginning
of the 8th year, Class B
shares convert
automatically to Class A
shares.
Service Fee None. 0.25% for first 7 years for 0.25% for all Funds.
all Funds. During the 8th
year, Class B shares
convert automatically to
Class A shares.
</TABLE>
* AT PRESENT, CLASS B AND CLASS C SHARES ARE NOT AVAILABLE FOR PURCHASE BY THE
GENERAL PUBLIC.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------
Exchange Privileges: Shares of one Fund may be exchanged for shares of the same class of any
other Fund. See "How to Make Exchanges."
- -----------------------------------------------------------------------------------------------------
Distributions/Dividends: Distributions are paid annually from capital gains and income for the
Govett International Equity Fund, Govett Emerging Markets Fund, Govett
Smaller Companies Fund, Govett Pacific Strategy Fund and Govett Latin
America Fund. The Govett Global Income Fund seeks to pay monthly dividends
and annual capital gains distributions. See "Dividends, Distributions and
Federal Income Taxation."
- -----------------------------------------------------------------------------------------------------
Reinvestment: Distributions may be reinvested in Fund shares automatically without a
sales charge. See "Dividends, Distributions and Federal Income Taxation."
- -----------------------------------------------------------------------------------------------------
Initial Investment: $500 minimum or less as described under "How to Purchase Shares."
- -----------------------------------------------------------------------------------------------------
Subsequent Investments: $25 minimum or less as described under "How to Purchase Shares."
- -----------------------------------------------------------------------------------------------------
Redemptions: See "How to Make Exchanges" and "How to Redeem Shares."
- -----------------------------------------------------------------------------------------------------
Net Asset Values: For 24-hour price line, call (800) 468-6608.
- -----------------------------------------------------------------------------------------------------
Other Account - Letter of Intent
Convenience Options: - Right of Accumulation
- Automatic Investment Plan
- Systematic Withdrawal Plan
- Automatic Exchange Plan
- Individual Retirement Accounts
See "How to Purchase Shares."
</TABLE>
4
<PAGE>
(This page has been left blank intentionally.)
5
<PAGE>
SUMMARY OF INVESTOR COSTS
The operating expenses and maximum transaction expenses expected to be
associated with an investment in the Funds are reflected in the following
tables:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUND* EMERGING MARKETS FUND* SMALLER COMPANIES FUND*
-------------------------------- -------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
--------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases (as
a percentage of offering
price) 4.95% None None 4.95% None None 4.95% None None
Sales Charge Imposed on
Dividend Reinvestments None None None None None None None None None
Maximum Contingent
Deferred Sales Charge
(as a percentage of
original purchase price
or redemption proceeds,
as applicable) None(1) 4% 1st 1% 1st None(1) 4% 1st 1% 1st None(1) 4% 1st 1% 1st
year, 4% year year, 4% year year, 4% year
2nd year, 2nd year, 2nd year,
3% 3rd 3% 3rd 3% 3rd
year, 3% year, 3% year, 3%
4th year, 4th year, 4th year,
2% 5th 2% 5th 2% 5th
year, 1% year, 1% year, 1%
6th year, 6th year, 6th year,
0% 7th 0% 7th 0% 7th
year year year
Redemption Fees None None None None None None None None None
Exchange Fees(2) None None None None None None None None None
ANNUAL OPERATING EXPENSES:
(as a percentage of
average net assets)
Management Fee 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Distribution and
Service Fees 0.50% 1.00% 1.00% 0.50% 1.00% 1.00% 0.50% 1.00% 1.00%
Other Expenses (after
reduction of expenses) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.45% 0.45% 0.45%
Total Fund Operating
Expenses (after fee waiver
and reduction of
expenses)(3) 2.50% 3.00% 3.00% 2.50% 3.00% 3.00% 1.95% 2.45% 2.45%
</TABLE>
The Manager has agreed to reduce its management fees, and the Manager has agreed
to pay certain Fund operating expenses, through at least December 31, 1996 to
the extent necessary to limit total annual Fund Operating Expenses to the lesser
of the percentages listed above under "Total Fund Operating Expenses," or the
maximum allowed by the most stringent state expense limitations. Long-term Fund
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge otherwise permitted by the NASD.
- ----------------------------------
(1)
Purchases of Class A Shares in the amount of $1 million or more are not
subject to a front-end sales charge, but redemptions of such amounts within
one year of purchase may be subject to a CDSC. See "How to Redeem Shares --
CDSCs" for an explanation of this charge.
(2)
Investors may make up to four exchanges per year without charge; for each
exchange in excess of four, a $7.50 processing charge will be payable to
the Shareholder Services Agent.
6
<PAGE>
<TABLE>
<CAPTION>
PACIFIC STRATEGY FUND* LATIN AMERICA FUND* GLOBAL INCOME FUND*
- ----------------------------------- ----------------------------------- -----------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
- --------- ------------- --------- --------- ------------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4.95% None None 4.95% None None 4.95% None None
None None None None None None None None None
None(1) 4% 1st year, 1% 1st None(1) 4% 1st year, 1% 1st None(1) 4% 1st year, 1% 1st
4% 2nd year, year 4% 2nd year, year 4% 2nd year, year
3% 3rd year, 3% 3rd year, 3% 3rd year,
3% 4th year, 3% 4th year, 3% 4th year,
2% 5th year, 2% 5th year, 2% 5th year,
1% 6th year, 1% 6th year, 1% 6th year,
0% 7th year 0% 7th year 0% 7th year
None None None None None None None None None
None None None None None None None None None
1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.75% 0.75% 0.75%
0.50% 1.00% 1.00% 0.50% 1.00% 1.00% 0.35% 1.00% 1.00%
1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.65% 0.65% 0.65%
2.50% 3.00% 3.00% 2.50% 3.00% 3.00% 1.75% 2.40% 2.40%
</TABLE>
- ----------------------------------
(3)
The percentages in "Other Expenses" for the Class A shares of the
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Fund, Latin America Fund, and Global Income Fund are based on
expenses incurred by those Funds during the fiscal year ended December 31, 1995
after fee waivers and expense reimbursements. Absent such waivers and
reimbursements, "Total Fund Operating Expenses" as a percentage of net assets
for the Class A shares of the International Equity Fund, Emerging Markets Fund,
Smaller Companies Fund, Pacific Strategy Fund, Latin America Fund, and Global
Income Fund would have been 2.75%, 2.78%, 2.12%, 3.62%, 5.66%, and 1.93%,
respectively, for the fiscal year ended December 31, 1995. The operating expense
information for the Class B and Class C shares of each Fund has been estimated
based on the operating expense information for that Fund's Class A shares for
the above periods, after estimated fee waivers and expense reimbursements by the
Manager and Distributor. Absent such waivers and reimbursements, estimated
"Total Fund Operating Expenses" as a percentage of net assets for the Class B
and Class C shares of the International Equity, Emerging Markets, Smaller
Companies Pacific Strategy, Latin America, and Global Income Funds would have
been 3.25%, 3.28%, 2.62%, 4.12%, 6.16% and 2.58%, respectively.
*AT PRESENT, CLASS B AND CLASS C SHARES ARE NOT AVAILABLE FOR PURCHASE BY
THE GENERAL PUBLIC.
7
<PAGE>
EXAMPLES:
Assuming the current fee waivers and expenses limitations remain in effect, you
would pay the following expenses on a $1,000 investment assuming (1) 5% annual
return(4) and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
GOVETT INTERNATIONAL GOVETT EMERGING GOVETT SMALLER
EQUITY FUND MARKETS FUND COMPANIES FUND
------------------------------------- ------------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 74 $ 70 $ 40 $ 74 $ 70 $ 40 $ 68 $ 65 $ 35
3 years 124 123 93 124 123 93 108 106 76
5 years 176 178 158 176 178 158 150 151 131
10 years(5) 319 315 332 319 315 332 266 261 279
</TABLE>
<TABLE>
<CAPTION>
GOVETT PACIFIC GOVETT LATIN GOVETT GLOBAL
STRATEGY FUND AMERICA FUND INCOME FUND
------------------------------------- ------------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 74 $ 70 $ 40 $ 74 $ 70 $ 40 $ 66 $ 64 $ 34
3 years 124 123 93 124 123 93 102 105 75
5 years 176 178 158 176 178 158 140 148 128
10 years(5) 319 315 332 319 315 332 246 250 274
</TABLE>
You would pay the following expenses on the same investment assuming no
redemption:
<TABLE>
<CAPTION>
GOVETT INTERNATIONAL GOVETT EMERGING GOVETT SMALLER
EQUITY FUND MARKETS FUND COMPANIES FUND
------------------------------------- ------------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 74 $ 30 $ 30 $ 74 $ 30 $ 30 $ 68 $ 25 $ 25
3 years 124 93 93 124 93 93 108 76 76
5 years 176 158 158 176 158 158 150 131 131
10 years(5) 319 315 332 319 315 332 266 261 279
</TABLE>
<TABLE>
<CAPTION>
GOVETT PACIFIC GOVETT LATIN GOVETT GLOBAL
STRATEGY FUND AMERICA FUND INCOME FUND
------------------------------------- ------------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 74 $ 30 $ 30 $ 74 $ 30 $ 30 $ 66 $ 24 $ 24
3 years 124 93 93 124 93 93 102 75 75
5 years 176 158 158 176 158 158 140 128 128
10 years(5) 319 315 332 319 315 332 246 250 274
</TABLE>
- ----------------------------------
(4)
The 5% annual return assumption in this example is required by SEC
regulations applicable to all mutual funds; it does not represent a
projection of the Funds' actual performance. For a detailed discussion of these
matters, investors should refer to the relevant sections of this Prospectus.
(5)
Ten-year figures assume conversion of Class B shares to Class A shares at
the beginning of the eighth year following date of purchase.
The above tables are not intended to reflect precisely the fees and expenses
associated with a particular person's investment in Class A, Class B and Class C
shares of the Funds. THE TABLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE FUND EXPENSES, AND ACTUAL FUND EXPENSES MAY BE GREATER OR LESSER
THAN THOSE SHOWN IN THE TABLES. Rather, the tables have been provided only to
assist investors in understanding the various costs and expenses that a
shareholder will bear, directly or indirectly, in connection with an investment
in the Funds.
8
<PAGE>
(This page has been left blank intentionally.)
9
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides condensed information concerning income and capital
changes for one Class A share of the International Equity Fund, the Emerging
Markets Fund, the Smaller Companies Fund, the Pacific Strategy Fund, the Latin
America Fund, and the Global Income Fund for the periods shown. This information
has been audited by Price Waterhouse LLP, the Funds' independent accountants,
whose unqualified report thereon appears in the Annual Reports to Shareholders
of such Funds for the periods shown below. The financial statements and related
notes contained in such Reports (and no other portion of such Reports) are
incorporated by reference into this Prospectus. This information should be read
in conjunction with such statements and notes. CLASS B AND C SHARES OF THE FUNDS
HAD NOT BEEN OFFERED AS OF DECEMBER 31, 1995, AND, ACCORDINGLY, NO FINANCIAL
DATA IS PRESENTED FOR THE CLASS B OR C SHARES AT THIS TIME.
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND EMERGING MARKETS FUND
--------------------------------------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993 1992 (A) 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $10.16 $13.23 $ 9.31 $10.00 $13.29 $17.70
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income (loss) (0.08)+ (0.12)+ (0.03) (0.01) (0.06)+ (0.11)+
Net realized and unrealized
gain (loss) on investments 1.20 (0.94) 5.01 (0.52) (0.98) (1.93)
------ ------ ------ ------ ------ ------
Total from investment
operations 1.12 (1.06) 4.98 (0.53) (1.04) (2.04)
------ ------ ------ ------ ------ ------
Less distributions to
shareholders:
From net investment income -- -- -- (0.04) -- --
In excess of net investment
income -- -- -- -- -- --
From net realized gains (0.01) (2.01) (1.06) (0.12) (0.01) (2.33)
In excess of net realized
capital gains -- -- -- -- -- (0.04)
Tax return of capital -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions (0.01) (2.01) (1.06) (0.16) (0.01) (2.37)
------ ------ ------ ------ ------ ------
Net asset value, end of period $11.27 $10.16 $13.23 $ 9.31 $12.24 $13.29
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total Return** 11.01% (8.44)% 54.50% (5.32)% (7.92)% (12.65)%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $28,546 $32,296 $44,610 $1,328 $75,887 $76,812
Net expenses to average
daily net assets (Note A) 2.50% 2.50% 2.50% 2.50%* 2.50% 2.50%
Net investment income (loss)
to average daily net assets (0.64)% (0.98)% (0.79)% (0.10)%* (0.49)% (0.77)%
Portfolio turnover rate 101% 155% 151% 140% 115% 140%
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1993 1992 (A)
------------ ------------
<S> <C> <C>
Net asset value, beginning of
period $10.72 $10.00
------ ------
Income from investment
operations:
Net investment income (loss) (0.05) (0.03)
Net realized and unrealized
gain (loss) on investments 8.36 0.75
------ ------
Total from investment
operations 8.31 0.72
------ ------
Less distributions to
shareholders:
From net investment income -- --
In excess of net investment
income -- --
From net realized gains (1.33) --
In excess of net realized
capital gains -- --
Tax return of capital -- --
------ ------
Total distributions (1.33) --
------ ------
Net asset value, end of period $17.70 $10.72
------ ------
------ ------
Total Return** 79.73% 7.20%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $71,422 $5,625
Net expenses to average
daily net assets (Note A) 2.50% 2.50%*
Net investment income (loss)
to average daily net assets (0.88)% (0.49)%*
Portfolio turnover rate 143% 182%
</TABLE>
- ------------------------------
Note A: John Govett & Co. Limited waived a portion of its management fees and
Govett Financial Services, the Funds' former distributor, reimbursed a
portion of the other operating expenses of the Funds during the periods
indicated. Without the waiver and reimbursement of expenses, the expense
ratios as a percentage of average net assets for the periods indicated
would have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses 2.75% 2.74% 2.65% 13.85%* 2.78% 2.65% 2.52%
<CAPTION>
Ex 7.52%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
(b) Commencement of Operations was January 1, 1993.
(c) Commencement of Operations was January 1, 1994.
(d) Commencement of Operations was March 7, 1994.
* Annualized.
** Total return calculations exclude the impact of paying any otherwise
applicable front-end sales load.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 to the 1995 Annual Report.
10
<PAGE>
<TABLE>
<CAPTION>
SMALLER COMPANIES FUND PACIFIC STRATEGY FUND LATIN AMERICA FUND
- ------------------------------------------------ ------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993 (B) 1995 1994 (C) 1995 1994 (D)
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 19.06 $ 15.85 $ 10.00 $ 8.79 $ 10.00 $ 7.89 $ 10.00
------ ------ ------ ------ ------ ------ ------
(0.30)+ (0.10)+ (0.06) (0.05)+ (0.18)+ (0.01)+ (0.09)+
13.32 4.47 5.91 (0.21) (1.03) (1.44) (1.53)
------ ------ ------ ------ ------ ------ ------
13.02 4.37 5.85 (0.26) (1.21) (1.45) (1.62)
------ ------ ------ ------ ------ ------ ------
-- -- -- -- -- -- --
-- -- -- -- -- --
(2.12) (1.16) -- -- -- -- (0.27)
-- -- -- -- -- -- (0.22)
-- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
(2.12) (1.16) -- -- -- -- (0.49)
------ ------ ------ ------ ------ ------ ------
$ 29.96 $ 19.06 $ 15.85 $ 8.53 $ 8.79 $ 6.44 $ 7.89
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
69.08% 28.74% 58.50% (2.96)% (12.10)% (18.38)% (16.94)%
$517,990 $76,873 $39,681 $12,491 $13,849 $4,817 $7,096
1.95% 1.95% 1.95% 2.50% 2.50% 2.50% 2.50%*
(1.64)% (1.13)% (0.93)% (0.67)% (1.33)% 0.00% (1.06)%*
280% 519% 483% 163% 213% 127% 185%
2.12% 2.40% 2.44% 3.62% 2.66% 5.66% 3.35%*
<CAPTION>
S GLOBAL INCOME FUND
- -------------- -----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1994 1993 1992 (A)
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 19.06 $ 8.48 $ 10.16 $ 9.77 $ 10.00
------ ------ ------ ------ ------
(0.30)+ 0.63+ 0.76+ 0.99 0.80
13.32 0.53 (1.67) 0.66 0.06
------ ------ ------ ------ ------
13.02 1.16 (0.91) 1.65 0.86
------ ------ ------ ------ ------
-- 0.63+ (0.24) (0.95) (0.78)
-- (0.04) --
(2.12) -- -- (0.31) (0.31)
-- -- -- -- --
-- -- (0.53) -- --
------ ------ ------ ------ ------
(2.12) (0.67) (0.77) (1.26) (1.09)
------ ------ ------ ------ ------
$ 29.96 $ 8.97 $ 8.48 $ 10.16 $ 9.77
------ ------ ------ ------ ------
------ ------ ------ ------ ------
69.08% 14.11% (9.16)% 17.64% 8.95%
$517,990 $41,181 $51,691 $82,000 $34,084
1.95% 1.75% 1.75% 1.72% 1.75%*
(1.64)% 7.45% 8.30% 9.66% 9.75%*
280% 249% 701% 328% 378%
2.12% 1.93% 1.95% 1.72% 3.17%*
</TABLE>
11
<PAGE>
ALTERNATIVE SALES ARRANGEMENTS
The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares. AT PRESENT, ONLY
CLASS A SHARES OF THE FUNDS ARE AVAILABLE TO THE GENERAL PUBLIC. IT IS
ANTICIPATED THAT CLASS B AND CLASS C SHARES WILL BE AVAILABLE SHORTLY.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 4.95% of the offering price. Class A shares are
subject to an ongoing distribution fee at an annual rate of 0.50% (0.35% for the
Global Income Fund) of each Fund's aggregate average daily net assets
attributable to its Class A shares. Certain purchases of Class A shares will
qualify for reduced initial sales charges. See "How to Purchase Shares -- Class
A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to a
CDSC if they are redeemed within six years of purchase. Class B shares are
subject to ongoing distribution and service fees at annual rates equal to 0.75%
and 0.25%, respectively, of each Fund's aggregate average daily net assets
attributable to its Class B shares. Class B shares enjoy the benefit of
permitting all of the investor's dollars to work from the time the investment is
made. The higher ongoing distribution charges paid by Class B shares will cause
such shares to have a higher expense ratio and to pay lower dividends than those
related to Class A shares. See "How to Purchase Shares -- Class B Shares." Class
B shares will automatically convert to Class A shares seven years after the end
of the calendar month in which the Class B shares were purchased. See
"Conversion Feature" below for a discussion of the applicability of the
conversion feature to Class B shares.
CLASS C SHARES. Class C shares are sold at net asset value and are subject to a
CDSC if redeemed within one year of purchase. Class C shares are subject to
ongoing distribution and service fees at annual rates equal to 0.75% and 0.25%,
respectively, of each Fund's aggregate average daily net assets attributable to
its Class C shares. Class C shares enjoy the benefit of permitting all of the
investor's dollars to work from the time the investment is made. The higher
ongoing distribution charges paid by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those related to
Class A shares. Class C shares do not convert automatically to another Class.
See "How to Purchase Shares -- Class C Shares."
CLASS B CONVERSION FEATURE. Class B shares will automatically convert to Class A
shares seven years after the end of the calendar month in which the Class B
shares were purchased, and will no longer be subject to the higher distribution
charges of such class upon conversion. Such conversion will be on the basis of
the relative net asset value per share, and no sales load, fee or other charge
will be charged on the conversion. The purpose of the conversion feature is to
relieve the holders of the Class B shares that have been outstanding for a
period of time from the higher ongoing distribution and service fees applicable
to that class.
For purposes of conversion to Class A shares, shares purchased through the
reinvestment of dividends and distributions paid on Class B shares will be
considered to be held in a separate sub-account. Each time any Class B shares in
the shareholder's Fund account (other than those in the sub-account) convert to
Class A shares, an equal pro rata portion of the Class B shares in the
sub-account will also convert to Class A shares.
The conversion of Class B shares to Class A shares is subject to the continuing
availability of an opinion of counsel or private letter ruling to the effect
that (i) the assessment of the higher distribution charges and transfer agency
costs with respect to Class B shares does not result in the Funds' dividends or
distributions constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) the conversion of shares does
not constitute a taxable event under federal income tax law. The conversion of
Class B shares may be suspended if such an opinion or private letter ruling is
no longer available. In that event, no further conversions of Class B shares
would occur, and such shares might continue to be subject to the higher
distribution charges for an indefinite period, which may extend beyond the
period ending seven years after the end of the calendar month in which the
shareholder's order to purchase such shares was accepted.
FACTORS FOR CONSIDERATION. Investors should consider whether, during the
anticipated life of their investment in a Fund, the accumulated distribution and
service fees and CDSCs on Class B shares (prior to their conversion)
12
<PAGE>
or Class C shares of the Fund would be less than the initial sales charge and
accumulated distribution fee on the Fund's Class A shares purchased at the same
time, and to what extent such differential would be offset by the anticipated
higher yield of the Class A shares. To assist investors in making this
determination, the tables under the caption "Summary of Investor Costs" sets
forth examples of the charges applicable to each class of shares of each Fund.
In this regard, Class A shares may be more beneficial to an investor who
qualifies for reduced initial sales charges or purchases at net asset value, as
described herein under "How to Purchase Shares -- Class A Shares." It is
presently the Distributor's policy not to accept any order of $500,000 or more
for Class B shares or any order of $1 million or more for Class C shares.
Class A shares are subject to a lower distribution charge and, accordingly, pay
correspondingly higher dividends per share. However, because initial sales
charges are deducted at the time of purchase, purchasers of Class A shares would
not have all their funds invested initially and, therefore, would initially own
fewer shares. Furthermore, the higher continuing distribution charges on Class B
shares and Class C shares may offset any return that is realized on the
additional funds initially invested. There can be no assurance as to the return,
if any, which will be realized on such additional funds. Other investors might
determine that it would be more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to higher continuing distribution charges and, for a six-year
or one-year period, respectively, being subject to a CDSC. As described above,
Class B shares will be subject to lower continuing distribution charges upon
their conversion to Class A shares. Class C shares will not convert, and
therefore will be subject to higher continuing distribution charges
indefinitely.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be paid, in the case of Class A shares, from the
proceeds of the initial sales charge and the ongoing distribution fee; in the
case of Class B and Class C shares, from the proceeds of the ongoing
distribution and service fee and the CDSC incurred upon redemption within six
years or one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Funds' shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A, Class B or Class C shares. INVESTORS SHOULD UNDERSTAND THAT THE
PURPOSE AND FUNCTION OF THE CDSC AND ONGOING DISTRIBUTION AND SERVICE FEES WITH
RESPECT TO THE CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF THE
INITIAL SALES CHARGE AND ONGOING DISTRIBUTION FEE WITH RESPECT TO CLASS A
SHARES. See "Management of the Funds -- Distribution Plans."
Dividends paid by the Funds with respect to Class A, Class B and Class C shares
will be calculated in the same manner at the same time on the same day, except
that the higher distribution charges and any incremental transfer agency costs
relating to Class B or Class C shares will be borne by the respective class. See
"Dividends, Distributions and Federal Income Taxation." Shares of each Fund may
be exchanged for shares of the same class of the other Funds. See "How to Make
Exchanges."
The Directors of the Company have determined that currently no conflict of
interest exists between the classes of shares of any Fund. On an ongoing basis,
the Directors of the Company, pursuant to their fiduciary duties under the
Investment Company Act of 1940 (the "1940 Act") and state laws, will seek to
ensure that no such conflict arises.
- --------------------------------------------------------------------------------
THE FUNDS
This Prospectus describes six open-end investment portfolios, each with its own
investment objective and policies. Please see "Investment Objectives and
Policies."
GOVETT INTERNATIONAL EQUITY FUND is a diversified portfolio which seeks
long-term capital appreciation by investing primarily in equity securities of
issuers located in certain foreign countries.
GOVETT EMERGING MARKETS FUND is a diversified portfolio which seeks long-term
capital appreciation by investing primarily in equity securities of issuers
located in certain emerging markets.
GOVETT SMALLER COMPANIES FUND is a diversified portfolio which seeks long-term
capital appreciation by investing primarily in equity securities of smaller
companies located throughout the world.
13
<PAGE>
GOVETT PACIFIC STRATEGY FUND is a diversified portfolio which seeks long-term
capital appreciation by investing primarily in equity securities of issuers
located in the Pacific Rim.
GOVETT LATIN AMERICA FUND is a non-diversified portfolio which seeks long-term
capital appreciation by investing primarily in equity and debt securities of
issuers located in Latin America.
GOVETT GLOBAL INCOME FUND is a non-diversified portfolio which seeks a high
level of current income, consistent with preservation of capital, by investing
primarily in debt securities of issuers located in certain foreign countries, as
well as the U.S. This Fund's secondary objective is capital appreciation.
For purposes of this Prospectus, the term "issuers located in" a particular
country includes issuers:
(i) which are organized under the laws of that country and which have a
principal office in that country; or
(ii) which derive 50% or more of their total revenues from business in that
country; or
(iii) the equity securities of which are principally traded on a stock exchange
of that country.
INVESTMENT OBJECTIVES, POLICIES AND
RISK CONSIDERATIONS
While no single Fund is intended to provide a complete or balanced investment
program, each can serve as a component of an investor's overall program to meet
long-term objectives. There can be no assurance that any Fund will achieve its
investment objective. Each Fund's net asset value fluctuates based upon changes
in the value of its portfolio securities. Each Fund's investment objective and
certain investment limitations (as described in the Statement of Additional
Information) are fundamental and may not be changed without shareholder
approval. All other investment limitations or policies may be changed by the
Company's Board of Directors without shareholder approval. Whenever an
investment policy or limitation states a maximum percentage of a Fund's assets
that may be invested in any security or other asset, or sets forth a policy
regarding quality standards, such standard or percentage limitation shall be
determined immediately after and as a result of the Fund's acquisition of such
security or other asset. Accordingly, any later increase or decrease resulting
from a change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with the Fund's
investment policies and limitations.
INVESTMENT TECHNIQUES FOLLOWED BY THE FUNDS
INTERNATIONAL EQUITY FUND. This Fund seeks long-term capital appreciation by
investing primarily in equity securities of companies located in some or all of
the following countries: Argentina, Austria, Australia, Belgium, Brazil, Canada,
Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Indonesia, Israel,
Italy, Japan, Luxembourg, Malaysia, Mexico, New Zealand, Netherlands, Norway,
Poland, Portugal, Singapore, South Africa, South Korea, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey and the United Kingdom. The list of
countries in which the International Equity Fund invests may change from time to
time.
Under normal market conditions, at least 65% of the International Equity Fund's
total assets will be invested in issuers located in not less than three
different countries (other than the U.S.). Additionally, at least 65% of the
International Equity Fund's total assets normally will be invested in common and
preferred stocks, and warrants to acquire such stocks. The International Equity
Fund will typically invest in equity securities listed on recognized foreign
securities exchanges, but may also hold securities which are not so listed. The
International Equity Fund may also invest in debt obligations convertible into
equity securities. With respect to 75% of its total assets, the Manager will not
invest more than 5% of the International Equity Fund's total assets in the
securities of any one issuer (excluding the U.S. government and its agencies).
In addition, the Fund will not invest 25% or more of the Fund's total assets in
any one industrial classification.
The International Equity Fund may also invest in debt securities when the
Manager believes such debt securities present a favorable opportunity for
capital appreciation. Debt securities other than commercial paper must be rated,
at the time of purchase, in one of the four highest grades assigned by Moody's
Investors Service, Inc. (Aaa, Aa, A, or Baa) or Standard & Poor's Corporation
(AAA, AA, A, or BBB), or if unrated,
14
<PAGE>
determined to be of comparable quality by the Manager (in either case,
"investment grade"). At least 75% of the International Equity Fund's total
assets invested in such securities will be invested in securities rated A or
better by Moody's or Standard & Poor's or, if unrated, determined to be of
comparable quality by the Manager. The International Equity Fund's commercial
paper investments must, at the time of purchase, be rated at least Prime-2 by
Moody's or A-2 by Standard & Poor's. A description of these ratings is included
as Appendix A to this Prospectus. Debt securities having a Baa or BBB rating may
have speculative characteristics and may be more susceptible to adverse economic
or competitive industry conditions than higher rated debt securities, and have
been found to be more sensitive to adverse economic downturns or individual
corporate developments.
EMERGING MARKETS FUND. This Fund pursues its investment objective of long-term
capital appreciation by investing primarily in equity securities of issuers
located in emerging markets. The Fund is designed to provide investors with
broadly diversified, direct access to the equity markets of those developing
nations anticipated to rank among the world's top performing economies in the
future. An emerging or developing market is broadly defined as one with low- to
middle-range per capita income. The classification system used by the World Bank
in determining the emerging markets of the world will be used by the Manager in
determining the potential universe of emerging markets for investment. From that
universe, the Manager identifies those emerging markets which it believes are
suitable for investment by this Fund. This Fund currently expects to invest in
issuers located in some or all of the following emerging or developing market
countries: Argentina, Brazil, Czech Republic, Chile, China, Colombia, Greece,
Hong Kong, Hungary, India, Indonesia, Israel, Jordan, Kenya, Lebanon, South
Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Singapore, Slovakia, South Africa, Sri Lanka, Taiwan, Thailand,
Turkey, Venezuela, Zimbabwe and Austria, which the Manager believes to be a
"gateway" into Hungary and the Czech Republic. The list of countries in which
this Fund invests may change from time to time.
The Emerging Markets Fund typically invests in equity securities listed on
recognized foreign securities exchanges, but the Fund may also hold securities
that are not so listed. The Emerging Markets Fund may also invest in debt
obligations convertible into equity securities. Under normal market conditions,
at least 65% of the Emerging Markets Fund's total assets will be invested in
securities of issuers located in at least three different countries (other than
the U.S.). Additionally, at least 65% of the Emerging Markets Fund's total
assets normally will be invested in common and preferred stocks, and warrants to
acquire such stocks. With respect to 75% of its total assets, the Manager will
not invest more than 5% of the Fund's total assets in the securities of any one
issuer (excluding the U.S. government and its agencies). In addition, the Fund
will not invest 25% or more of the Fund's total assets in any one industrial
classification.
The Emerging Markets Fund may also invest in debt securities when the Manager
believes such debt securities present a favorable opportunity for capital
appreciation. Debt securities other than commercial paper must be investment
grade at the time of purchase. At least 75% of the Emerging Markets Fund's total
assets invested in such securities will be invested in securities rated A or
better by Moody's or Standard & Poor's or, if unrated, determined to be of
comparable quality by the Manager. The Emerging Markets Fund's commercial paper
investments must, at the time of purchase, be rated at least Prime-2 by Moody's
or A-2 by Standard & Poor's. A description of these ratings is included as
Appendix A to this Prospectus.
SMALLER COMPANIES FUND. This Fund seeks long-term capital appreciation by
investing primarily in equity securities of those smaller companies that the
Manager believes may be the industry leaders of tomorrow. The Smaller Companies
Fund will select its portfolio investments primarily from among U.S. and foreign
companies with individual market capitalizations which would, at the time of
purchase, place them in the same size range as companies included in the NASDAQ
Composite Index, excluding its top 75 companies. Based on this policy and recent
U.S. share prices, as of the date of this Prospectus the companies in which the
Fund invests typically will have individual market capitalizations of less than
$2.5 billion ("smaller companies"). Under normal market conditions, the Fund
will invest at least 65% of its total assets in smaller companies.
Under normal market conditions, it is expected that at least 80% of the Fund's
total assets will be invested in common stocks. The Smaller Companies Fund may
also invest up to 20% of its total assets in other types of securities with
equity characteristics such as preferred stocks, convertible securities,
warrants, units, and rights. Under normal market conditions, the Fund will not
invest more than 35% of its total assets in the securities of issuers located in
any one country (other than the U.S.). The Fund may invest in both
exchange-listed and
15
<PAGE>
over-the-counter ("OTC") securities. Although the Fund may receive current
income from dividends, interest and other sources, income is only an incidental
consideration in the selection of the Fund's investments. With respect to 75% of
its total assets, not more than 5% of the Smaller Companies Fund's total assets
will be invested in the securities of any one issuer (excluding the U.S.
government and its agencies). In addition, the Fund will not invest 25% or more
of the Fund's total assets in any one industrial classification.
PACIFIC STRATEGY FUND. This Fund seeks long-term capital appreciation by
investing primarily in equity securities of companies located in some or all of
the following Pacific Rim countries: Australia, China, Hong Kong, India,
Indonesia, Japan, Malaysia, New Zealand, Pakistan, the Philippines, Singapore,
South Korea, Sri Lanka, Taiwan and Thailand. The list of countries in which the
Pacific Strategy Fund invests may change from time to time.
Under normal market conditions, at least 65% of the Pacific Strategy Fund's
total assets will be invested in issuers located in not less than three
different Pacific Rim countries. Additionally, at least 65% of the Pacific
Strategy Fund's total assets normally will be invested in common and preferred
stocks, and warrants to acquire such stocks. The Pacific Strategy Fund will
typically invest in equity securities listed on recognized foreign securities
exchanges, but may also hold securities which are not so listed. The Pacific
Strategy Fund may also invest in debt obligations convertible into equity
securities. With respect to 75% of its total assets not more than 5% of the
Pacific Strategy Fund's total assets will be invested in the securities of any
one issuer (excluding the U.S. government and its agencies). In addition, the
Fund will not invest 25% or more of the Fund's total assets in any one
industrial classification.
The Pacific Strategy Fund may also invest in debt securities when the Manager
believes such debt securities present a favorable opportunity for capital
appreciation. Debt securities other than commercial paper must be investment
grade at the time of purchase. At least 75% of the Pacific Strategy Fund's total
assets invested in such securities will be invested in securities rated A or
better by Moody's or Standard & Poor's or, if unrated, determined to be of
comparable quality by the Manager. The Pacific Strategy Fund's commercial paper
investments must, at the time of purchase, be rated at least Prime-2 by Moody's
or A-2 by Standard & Poor's. A description of these ratings is included in
Appendix A to this Prospectus.
LATIN AMERICA FUND. This Fund seeks long-term capital appreciation by investing
primarily in equity and debt securities of issuers located in some or all of the
following Latin American countries: Argentina, Belize, Bolivia, Brazil, Chile,
Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, French Guiana,
Guatemala, Guyana, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru,
Suriname, Uruguay and Venezuela. The list of countries in which the Latin
America Fund invests may change from time to time.
Under normal market conditions, at least 65% of the Latin America Fund's total
assets will be invested in issuers located in not less than three different
Latin American countries. The Fund may invest in common stocks, preferred
stocks, rights, warrants and securities convertible into common stocks, and
other substantially similar forms of equity with comparable risk
characteristics, as well as corporate and governmental bonds, notes, debentures,
or other forms of indebtedness that may be developed in the future. These
securities may be listed on securities exchanges, traded in various
over-the-counter markets, or have no organized market.
The Latin America Fund may invest up to 50% of its total assets in debt
securities, although under normal market conditions it invests a majority of its
assets in equity securities. The percentage distribution between equity and debt
will vary from country to country. Subject to prevailing market conditions, the
Fund may invest up to 35% of its total assets in debt securities which are below
investment grade at the time of purchase. Capital appreciation in debt
securities may arise as a result of favorable changes in relative foreign
exchange rates, in interest rate levels, or in the creditworthiness of issuers.
The receipt of income from such debt securities is incidental to the Fund's
objective of long-term capital appreciation.
Many debt securities in which the Latin America Fund invests are not rated. The
Fund's ability to achieve its investment objective is thus more dependent on the
Manager's credit analysis than would be the case if the Fund were to invest in
higher quality, rated bonds. The Fund will not invest in debt securities that
are in default in payment of principal or interest. Lower quality debt
securities involve a high degree of risk and are predominantly speculative (see
"Principal Risk Factors"). Such securities are the equivalent of U.S. corporate
debt securities commonly known as "junk bonds." A description of certain debt
ratings is included as Appendix A to this Prospectus. Also, many Latin American
debt securities are not rated by U.S. rating agencies
16
<PAGE>
such as Moody's and Standard & Poor's. The Fund may invest in debt securities
issued or guaranteed by the governments of Latin American countries, and in debt
securities issued or guaranteed by such governments' agencies or
instrumentalities, or by the central banks of Latin American countries, or
issued by banks or other companies located in those countries.
Under normal market conditions, the equity and debt securities of issuers
located in any one country will represent no more than 40% of the Latin America
Fund's total assets (except that this Fund may invest up to 60% of its total
assets in issuers located in either Mexico or Brazil). The Manager will not
invest 25% or more of the Fund's total assets in any one industrial
classification. Additionally, under normal market conditions, the Fund may
invest up to 35% of its total assets in any combination of equity and debt
securities of issuers located in the U.S. In evaluating investments in the U.S.,
the Manager will consider, among other things, the issuer's Latin American
business activities and the impact that developments in Latin America may have
on the issuer's results.
GLOBAL INCOME FUND. This Fund seeks to achieve its investment objectives of high
current income (consistent with preservation of capital) and capital
appreciation by investing primarily in debt securities of issuers located in
some or all of the following countries: the U.S., Canada, Japan, Mexico, the
European Nations, New Zealand, Australia, Poland, South Africa and Turkey, as
well as in securities denominated in multinational currency units and in
obligations issued by supranational entities. The countries in which the Global
Income Fund invests may change from time to time.
Under normal market conditions, at least 65% of the Global Income Fund's total
assets will be invested in debt securities of issuers located in at least three
different countries (including the U.S.). Normally, the debt securities of
issuers located in any one country (other than the U.S.) will represent no more
than 40% of the Global Income Fund's total assets. The Manager will not invest
25% or more of the Fund's total assets in any one industrial classification. The
securities in which the Global Income Fund invests include bonds, debentures,
notes, commercial paper, certificates of deposit, bankers' acceptances, fixed
time deposits, and other debt obligations issued by U.S. or foreign companies
and financial institutions, debt securities issued or guaranteed by the
governments (or governmental agencies or instrumentalities) of U.S. and foreign
countries, and certain U.S. mortgage-related securities. The Global Income Fund
may not invest in any securities issued by the Manager or any of its affiliates
(as such term is defined in the 1940 Act).
At least 75% of the Fund's total assets will be invested in debt securities,
rated at time of purchase, at least Baa by Moody's or BBB by Standard & Poor's,
or if unrated, determined to be of comparable quality by the Manager, and
commercial paper rated, at the time of purchase, at least Prime-2 by Moody's or
A-2 by Standard & Poor's, or if unrated, determined to be of comparable quality
by the Manager. A description of these ratings is included as Appendix A to this
Prospectus. The subsequent downgrade of a debt security to a level below
investment grade will not require a sale of that security, but John Govett will
consider such an event in determining whether to continue to hold that security.
The Manager currently follows a policy of maintaining the average
dollar-weighted maturity of the Global Income Fund's portfolio comparable to
maturities of intermediate-term (i.e., five to ten years) debt instruments. The
Manager may adjust the average maturity of the Global Income Fund's portfolio
from time to time and may also increase or decrease the maximum maturity target.
For instance, the Manager may increase the average maturity if it anticipates a
decline in interest rates, and may decrease the average maturity if it
anticipates that interest rates may rise.
Consistent with its investment objectives, the Global Income Fund may invest up
to 20% of its total assets in common and preferred stocks, and in warrants to
acquire such stocks. In addition, the Global Income Fund may invest in debt
obligations convertible into equity securities or which have attached warrants
or rights to purchase equity securities. This Fund is designed to provide the
potential for higher yields and greater capital appreciation than a U.S.-only
bond fund. As discussed below, this Fund's investment strategy involves certain
risks, including the special risks associated with investing in foreign
securities.
17
<PAGE>
GENERAL POLICIES
DEPOSITARY RECEIPTS. The Funds may also invest in both sponsored and unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other similar global instruments. The
issuance of these depositary instruments is typically administered by a U.S. or
foreign bank or trust company, and they evidence ownership of underlying
securities issued by a U.S. or foreign corporation. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, available information concerning the issuer
may not be as current as for sponsored depositary instruments and their prices
may be more volatile than if they were sponsored by the issuers of the
underlying securities.
TEMPORARY STRATEGIES. Pending investment of proceeds from new sales of Fund
shares, to meet ordinary daily cash needs, and to retain the flexibility to
respond promptly to changes in market and economic conditions, the Manager (or,
in the case of the Smaller Companies Fund, the Subadvisor), may employ a
temporary defensive investment strategy for one or more of the Funds if the
Manager or Subadvisor determines such a strategy to be warranted. It is
impossible to predict when or for how long the Manager or Subadvisor may employ
such strategies. Under such a strategy, a Fund may hold cash (U.S. dollars,
foreign currencies or multinational currency units) and/or invest any portion or
all of its respective assets in short-term high quality money market
instruments. For debt obligations other than commercial paper, this includes
securities rated, at the time of purchase, at least AA by Standard & Poor's or
Aa by Moody's, or if unrated, determined to be of comparable quality by the
Manager or Subadvisor. For commercial paper, this includes securities rated, at
the time of purchase, at least A-2 by Standard & Poor's or Prime-2 by Moody's,
or if unrated, determined to be of comparable quality by the Manager or
Subadvisor.
HEDGING STRATEGIES. The Funds may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with the Funds' present and planned investments. There can be no assurance that
such efforts will succeed. It is currently intended that no Fund will place at
risk more than 5% of its net assets in any one of the following categories of
transactions or securities: forward currency contracts (except the Global Income
Fund, which may invest more significantly in forward currency contracts),
writing of covered put and call options, purchase of put and call options on
currencies and equity and debt securities, stock index futures and options
thereon, interest rate or currency futures and options thereon and securities
futures and options thereon. However, although there is no limit on the number
of forward currency contracts the Global Income Fund may enter into, this Fund
may not position hedge with respect to a particular currency for an amount
greater than the aggregate market value (determined at the time of making any
sale of foreign currency) of the securities held in its portfolio denominated or
quoted in, or currently convertible into, such currency.
Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transactions costs to which the Funds
would not be subject absent the use of these strategies. If the Manager's or
Subadvisor's prediction of movements in the direction of interest rates,
securities prices, or currency markets are inaccurate, the adverse consequences
to the Funds may leave the Funds in a worse position than if such strategies
were not used. Risks inherent in the use of options, foreign currency and
futures contracts and options thereon include: (1) dependence on the Manager's
or Subadvisor's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) the imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies being
hedged; (3) the fact that the skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for a particular instrument at any time;
and (5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. The Funds' ability to enter into futures contracts and
options thereon is limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company. These hedging techniques are
described in the Statement of Additional Information.
SECURITY FORWARD COMMITMENTS. The Global Income Fund may purchase or sell
securities on a "when issued" or "delayed delivery" basis ("Forward
Commitments"). These transactions occur when securities are purchased or sold by
a fund with payment and delivery taking place in the future, frequently a month
or more after such transaction. The price is fixed on the date of the
commitment, and the seller continues to accrue interest on the
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securities covered by the Forward Commitment until delivery and payment takes
place. At the time of settlement, the market value of the securities may be more
or less than the purchase or sale price.
The Global Income Fund may either settle a Forward Commitment according to its
original terms, or it may resell or repurchase a Forward Commitment on or before
the settlement date if doing so is deemed advisable by John Govett. When
engaging in Forward Commitments, the Global Income Fund will rely on the other
party to complete the transaction; should the other party fail to do so, the
Global Income Fund might lose a purchase or sale opportunity that could be more
advantageous than alternative opportunities at the time of the failure.
Relative to a Forward Commitment purchase, the Global Income Fund will maintain
a segregated account (which is marked to market daily) of cash, U.S. Government
securities or other high quality liquid debt securities (which may have
maturities which are longer than the term of the Forward Commitment) with the
Fund's custodian in an aggregate amount equal to the amount of the commitment as
long as the obligation to purchase continues. Since the market value of the
securities or currency subject to the Forward Commitment and the securities or
currency held in the segregated account may fluctuate, the use of Forward
Commitments may magnify the impact of interest rate changes on the Fund's net
asset value.
A Forward Commitment sale by the Global Income Fund is covered if the Fund owns
or has the right to acquire the underlying securities or currency subject to the
Forward Commitment. A Forward Commitment sale is for cross-hedging purposes if
it is not covered, but is designed to provide a hedge against a decline in value
of a security or currency which the Fund owns or has the right to acquire. In
either circumstance, the Fund maintains in a segregated account (which is marked
to market daily) either the security or currency covered by the Forward
Commitment or cash, U.S. Government securities or other high quality liquid debt
securities (which may have maturities which are longer than the term of the
Forward Commitment) with the Fund's custodian in an aggregate amount equal to
the amount of its commitment as long as the obligation to sell continues. By
entering into a Forward Commitment sale transaction, the Fund will forego or
reduce the potential for both gain and loss in the holding which is being hedged
by the Forward Commitment sale.
BRADY BONDS. The Latin America Fund may invest in "Brady Bonds," which are debt
restructurings that provide for the exchange of cash and loans for newly issued
bonds. Brady Bonds recently have been issued by the governments of Costa Rica,
Mexico, Uruguay and Venezuela, and are expected to be issued by Argentina,
Brazil and the Philippines and other emerging market countries. The Manager does
not intend to invest more than 5% of the Fund's assets in Brady Bonds.
REPURCHASE AGREEMENTS AND OVERNIGHT TIME DEPOSITS. Each Fund may enter into
repurchase agreements in which the Fund acquires a high grade liquid debt
security from a U.S. bank, broker-dealer or other financial institution that
simultaneously agrees to repurchase the security at a specified time and price.
Under the 1940 Act, repurchase agreements are considered to be loans
collateralized by the underlying security and therefore will be collateralized
in an amount at least equal to the current market value of the loaned
securities, plus any accrued interest, by cash, letters of credit, U.S.
government securities or other high grade liquid debt securities the Fund's
custodian, or a designated sub-custodian, segregated from other Fund assets. In
segregating such assets, the Fund's custodian either places them in a segregated
account or separately identifies them and renders them unavailable for
investment by the Fund. Fund assets may also be invested in overnight time
deposits placed at competitive interest rates with creditworthy banks, including
the Funds' global custodian.
MORTGAGE-RELATED SECURITIES AND DERIVATIVE SECURITIES. The GLOBAL INCOME FUND
may invest in fixed and adjustable rate mortgage-related securities which are
issued or guaranteed by private institutions or by the U.S. government, its
agencies or instrumentalities, collateralized by or representing an interest in
mortgages created from pools of mortgages and other asset-backed securities. The
Manager does not intend to invest more than 5% of the Fund's assets in these
types of securities. See the Statement of Additional Information for other
information about these types of securities.
INVESTMENTS IN OTHER INVESTMENT COMPANIES OR VEHICLES. Certain sectors of the
economies of certain emerging market and Latin American countries are closed to
equity investments by foreigners. Due to the absence of securities markets and
publicly-owned corporations, and due to restrictions on direct investment by
foreign entities in certain emerging market and Latin American countries, the
Latin America Fund and the Emerging
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Markets Fund may be able to invest in such countries solely or primarily through
foreign closed-end investment vehicles or companies. The Latin America Fund and
the Emerging Markets Fund may each invest up to 10% of its total assets in the
aggregate in shares of other investment companies and up to 5% of its total
assets in any one investment company, as long as that investment does not
represent more than 3% of the total voting stock of the acquired investment
company at the time such shares are purchased. The Funds do not invest in
open-end investment companies.
PRINCIPAL RISK FACTORS
The INVESTMENT APPROACH REQUIRED TO INVEST IN FOREIGN MARKETS, particularly
emerging markets, is quite specialized. The quality and quantity of historic
economic and securities market data is, in many of those markets, limited, and
many foreign markets are inherently more volatile than the U.S. securities
markets. As a result, the Manager has developed an investment management process
over several decades using in-house and outside research services. The Manager's
in-house analysis includes a three-part monitoring process including review and
analysis of overall market information (including both political and economic
factors); investigation of companies which are candidates for investment; and
use of on-site representatives providing investment information, where deemed
appropriate by the Manager.
Each Fund's portfolio is subject to MARKET RISK (I.E., the possibility that
stock prices will decline over short, or even extended, periods). Equity and
bond markets outside of the U.S. have, in fact, significantly outperformed U.S.
markets from time to time, and the Manager or Subadvisor believe that
investments in securities of companies based outside of the U.S. may provide
greater long-term investment returns than would be available from investing
solely in U.S. securities. It is important, however, to recognize that
investments in securities of foreign issuers involve greater risks than
investments in U.S. companies. There may be less information publicly available
about foreign companies, and less government regulation and supervision of
foreign stock exchanges, securities dealers and listed companies. Foreign
companies are not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies. Securities of some foreign companies are less liquid, and
their prices more volatile, than securities of comparable U.S. companies.
Settlement of transactions in some foreign markets may be delayed or may be less
frequent than in the U.S., which could affect the liquidity of the Funds'
portfolios. Security trading practices abroad may offer less protection to
investors such as the Funds. Additionally, in some foreign countries, there
exists the possibility of expropriation, nationalization of issuers or
confiscatory taxation, limitations on the removal of securities, property or
other assets, political or social instability, including war or other armed
conflict, or diplomatic developments which could affect U.S. investments in
those countries. The performance of individual foreign economies may also
compare unfavorably to that of the U.S. economy, and the U.S. dollar value of
securities denominated in currencies other than the U.S. dollar may be affected
unfavorably by exchange rate movements. Each of these factors could adversely
affect the value of a Fund's shares, as well as the value of dividends and
interest earned by the Fund and gains which may be realized.
Foreign governments may withhold TAXES (typically at a rate between 10% and 35%
of the gross amount paid) from dividends or interest paid with respect to
securities held by the Funds, decreasing the net asset value of the Funds. Some
foreign securities are subject to brokerage taxes levied by foreign governments,
increasing the cost of such securities and reducing the realized gain, or
increasing the realized loss, on such securities at the time of sale.
The Funds invest in COMPANIES LOCATED WITHIN EMERGING OR DEVELOPING COUNTRIES.
These investments involve exposure to economic structures that are generally
less diverse and mature, and to political systems which can be expected to have
less stability, than those of more developed countries. Such countries may have
relatively unstable governments, economies based on only a few industries, and
securities markets which trade only a small number of securities. Historical
experience indicates that emerging markets have been more volatile than the
markets of more mature economies; such markets have also from time to time
provided higher rates of return and greater risks to investors. The Manager
believes that these characteristics of emerging markets can be expected to
continue in the future. In addition, throughout the countries commonly referred
to as the Eastern Bloc, the lack of a capital market structure or
market-oriented economy and the possible reversal of recent favorable economic,
political and social events in some of those countries present greater risks
than those associated with more developed, market-oriented Western European
countries and markets.
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The LATIN AMERICA FUND'S ability to invest up to 60% of its total assets in the
securities of issuers located in either Brazil or Mexico presents additional
risks. Investments in securities issued by Mexican companies involve special
considerations and risks not typically associated with investments in securities
of U.S. companies, including the risks associated with high rates of inflation
and interest rates with respect to the Mexican economy, the limited liquidity
and relatively small market capitalization of the Mexican securities market,
relatively higher price volatility, restrictions on foreign investment,
political and social uncertainties, governmental involvement in the economy and
significant foreign currency devaluations and fluctuations. See "Special Latin
America Considerations" in the Statement of Additional Information. See
"Description of Securities, Investment Policies and Risk Factors" in the
Statement of Additional Information for a description of these and other risks
of investing in the Funds.
The special risks of investment in foreign exchange contracts, interest rate and
forward currency futures contracts, options on foreign currencies, and stock
index futures contracts (and options on such futures contracts) are described in
the Statement of Additional Information.
Shares of the SMALLER COMPANIES FUND are an appropriate investment for
prospective investors who are willing and able to assume the risks associated
with the types of investments made by the Fund. The smaller companies in which
the Fund primarily invests often have rates of sales, earnings, growth and share
price appreciation that exceed those of larger companies. However, such
companies also often have limited product lines, markets or financial resources,
and investors should note that stocks of smaller companies may have limited
marketability and typically experience more market price volatility than stocks
of larger companies, and the Fund's net asset value may reflect this volatility.
The value of the fixed-income securities held by the LATIN AMERICA FUND and the
GLOBAL INCOME FUND, and to a lesser extent by the other Funds, generally
fluctuates inversely with interest rate movements. The Global Income Fund and
the Latin America Fund normally will invest in a number of issuers; however,
they each will operate as a "non-diversified" series and may invest more than 5%
of their assets in the securities of one issuer. Accordingly, each of those
Funds may be subject to greater credit risk with respect to their portfolios
than funds which are more broadly diversified. For more information, see
"Additional Distribution and Taxation Information" in the Statement of
Additional Information.
The LATIN AMERICA FUND may invest in sovereign debt securities of Latin American
governments, and may invest up to 35% of its total assets in debt securities
rated below investment grade (determined at time of purchase). The GLOBAL INCOME
FUND may invest up to 25% of its total assets in debt securities rated below
investment grade. These securities are the equivalent of high yield, high risk
"junk bonds." Such investments involve a higher degree of risk of default or
price change than higher quality securities because of changes in the issuer's
creditworthiness, economic downturns or increases in interest rates. The yields
of such securities will fluctuate over time. The Latin America Fund and the
Global Income Fund may incur additional expenses to the extent they are required
to seek recovery upon a default in the payment of principal or interest on their
portfolio holdings. Debt securities issued by an emerging market government can
differ from debt obligations issued by private entities in that remedies from
defaults generally must be pursued in the courts of the defaulting government,
and legal recourse can therefore be significantly diminished.
Investments in sovereign debt and securities rated below investment grade
involve other special risks. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal or interest when due in accordance with the terms of such debt.
Periods of economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn the Fund's net asset value, to a greater extent than
the volatility inherent in U.S. fixed income securities. Debt rated BB, B, CCC,
CC and C and debt rated Ba, B, Caa, Ca and C is regarded by Standard & Poor's
and Moody's, respectively, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligation. Some of these securities, with respect to which the
issuer currently may not be paying interest or may be in payment default, may be
comparable to securities rated "D" by Standard & Poor's or "C" by Moody's. In
the case of the Latin America and Global Income Funds, the subsequent default or
reduction of credit rating of a debt security will not require a sale of that
security, but the Manager will consider such an event in determining whether to
continue to hold that security. A description of these ratings is included in
Appendix A to this Prospectus.
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The GLOBAL INCOME FUND and LATIN AMERICA FUND may have difficulty disposing of
and valuing certain sovereign debt obligations because there may be a limited
trading market for such securities. If reliable market quotations are not
available, these securities are valued in accordance with procedures established
by the Board of Directors, including the use of outside pricing services. The
Manager's judgment and credit analysis plays a greater role in valuing high
yield debt securities than is the case for securities for which more external
sources for quotations and last sale information are available. Adverse
publicity and changing investor perceptions may affect the value of these
securities and the Funds' ability to dispose of them. Because there is no liquid
secondary market for many of these securities, these Funds anticipate that such
securities could be sold only to a limited number of dealers or institutional
investors. See "Description of Securities, Investment Policies and Risk Factors"
in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
The International Equity Fund, the Emerging Markets Fund, the Smaller Companies
Fund and the Pacific Strategy Fund are diversified series of the Company. A
diversified series of shares of an investment company is required under the 1940
Act to follow certain guidelines in managing its investments which may help to
reduce risk. See "Other Policies" in the Statement of Additional Information.
As a non-fundamental policy, the International Equity, Emerging Markets, Smaller
Companies, Pacific Strategy, Latin America and Global Income Funds may not
invest more than 5% of their respective net assets in securities restricted as
to resale or in illiquid securities. No Fund may invest 25% or more of its total
assets in any one industry (other than U.S. Government and agency obligations).
In addition, no Fund may borrow money or mortgage or pledge any of its assets
(except that a Fund may borrow from banks, for temporary or emergency purposes,
up to 33 1/3% of its total assets and pledge up to 33 1/3% of its total assets
in connection therewith). Any borrowings that come to exceed the 33 1/3%
limitation will be reduced within three days. No Fund may purchase securities
when its borrowings exceed 5% of its assets. No Fund may make loans if, as a
result, more than 33 1/3% of the Fund's total assets would be lent to other
parties except (i) through the purchase of a portion of an issue of debt
securities in accordance with its investment objectives, policies, and
limitations, or (ii) by engaging in repurchase agreements with respect to
portfolio securities.
See the Statement of Additional Information for the full text of these
restrictions and the Funds' other investment policies. Except for those
investment restrictions designated as fundamental in the Statement of Additional
Information, the investment policies described in this Prospectus and in the
Statement of Additional Information are not fundamental policies. The Company's
Board of Directors may change a non-fundamental investment policy without
shareholder approval.
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MANAGEMENT OF THE FUNDS
The Company's Board of Directors is responsible for overseeing the conduct of
the Company's business and the activities of each of the Funds. Pursuant to an
Investment Management Contract, and subject to such policies as the Board of
Directors may establish, John Govett provides the Funds (except the Smaller
Companies Fund) with day-to-day management services and makes investment
decisions on their behalf in accordance with each Fund's respective investment
policies. The Subadvisor provides similar services to the Smaller Companies
Fund.
Subject to the supervision of the Board of Directors, John Govett also oversees
the Funds' operations. For these investment management and administrative
services, the Funds pay fees monthly to John Govett based upon the average net
assets of the Company, as determined at the close of each business day during
the month, at an annual rate of 1% of the average daily net assets of each Fund
(0.75% for the Global Income Fund). Due to the added complexities involved in
managing international and smaller company investments, the Manager's fee is
higher than that paid by most other investment companies. The management fees
will be reduced, if necessary, to comply with the most stringent total expense
limits prescribed by the states in which the Funds' shares are offered for sale.
The Manager, the distributor, and certain of the distributor's affiliates have
agreed to
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share management fees, distribution and service fees, excess Fund expenses, and
sales charges related to the sale of Fund shares. The Funds pay all expenses not
assumed by John Govett or other persons, such as the Distributor, including but
not limited to the Manager's fees, outside directors' fees; taxes, if any;
auditing, legal, custodial, transfer agent and certain investor servicing and
shareholder reporting expenses; brokerage and commission expenses, if any;
interest charges on any borrowings; costs and expenses of accounting,
bookkeeping and recordkeeping; insurance premiums; trade association dues; fees
and expenses of registering and maintaining registration of their shares for
sale under federal and applicable state securities laws; costs associated with
shareholders' meetings and the preparation and distribution of proxy materials;
printing and mailing prospectuses and statements of additional information and
reports to shareholders; and other expenses relating to the Funds' operations
plus any extraordinary and non-recurring expenses. The Manager, Distributor, and
certain of their respective affiliates have agreed to share management fees,
distribution and service fees, excess Fund expenses, and sales charges related
to the sale of Fund shares.
John Govett has entered into a Subadvisory Agreement with Berkeley Capital
Management ("Berkeley," or the "subadvisor," formerly named Govett Asset
Management), whereby Berkeley provides day-to-day investment advisory services
to the Smaller Companies Fund. Under the subadvisory arrangements, Berkeley
furnishes an investment program and makes investment decisions for the Smaller
Companies Fund, subject to the supervision of John Govett and the Board of
Directors. On December 11, 1995 and February 23, 1996, the Directors and
shareholders of the Smaller Companies Fund, respectively, approved a new
Subadvisory Agreement at the same time as they approved a new Investment
Management Agreement with John Govett, in connection with John Govett's sale to
Allied Irish Banks p.l.c. ("AIB" -- see page 24 below).
The new Subadvisory Agreement is essentially a continuation of the existing
agreement, except for a change in the fees. Under the new agreement, John Govett
pays Berkeley an amount equal to the difference, if any, between (i) the
investment advisory and management fees actually received by John Govett, and
all revenue actually received by John Govett under an agreement between John
Govett and the Distributor (excluding any amounts payable to the distributor by
the Manager), with respect to the Smaller Companies fund, and (ii) 0.10% of such
Fund's average daily net assets. Under the prior agreement, John Govett paid to
Berkeley, out of the investment advisory fee John Govett received from the
company with respect to the Smaller Companies Fund, an annual fee, computed
daily and paid monthly, equal to 0.50% of the Smaller Companies Fund's average
daily net assets. There is no change in the fees the shareholders will pay for
investment advisory services.
In addition, the agreement for the sale of John Govett to AIB requires that John
Govett Holdings Limited, the current parent of John Govett, pay London Pacific
Group Limited (the former parent of John Govett) a cash fee under certain
circumstances if Berkeley is removed as subadvisor to the Smaller Companies
Fund. Of course, the Subadvisory Agreement may be terminated, without the
payment of any penalty by the Smaller Companies Fund, by the Company's Board of
Directors or by the Fund's shareholders on sixty days' written notice.
As required by the Investment Company Act of 1940, as amended (the "1940 Act"),
the Investment Management Contract and the Investment Subadvisory Agreement in
effect prior to the sale terminated automatically when the sale closed, as the
sale constituted an "assignment" under the 1940 Act. John Govett and the
Subadvisor each agreed that neither would be paid any advisory fees in
connection with its investment advisory services to the Funds during the interim
period between the closing of the sale on December 29, 1995 and shareholder
approval of the agreements on February 23, 1996. John Govett and Berkeley, and
their respective parent companies, also agreed with the Company that each will
be responsible to the Company (and, with respect to the Subadvisory Agreement,
to the Manager), for any failure during the interim period to provide services
or to honor all of the terms and conditions of the current agreements.
The Smaller Companies Fund does not compensate Berkeley directly for its
subadvisory services. The subadvisory fee payable to Berkeley will be reduced
proportionately if the advisory fee paid to John Govett by the Company with
respect to the Smaller Companies Fund is reduced as a result of applicable state
expense limitations or fee waivers.
During the fiscal period ended December 31, 1995, the total operating expenses
paid by the Class A Shares of International Equity Fund, Emerging Markets Fund,
Pacific Strategy Fund, Latin America Fund, Smaller
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Companies Fund, and Global Income Fund (including management and administrative
and distribution fees, but, after fee reductions and expense reimbursements)
were 2.50%, 2.50%, 2.50%, 2.50%, 1.95%, and 1.75% respectively, of such Funds'
average daily net assets.
JOHN GOVETT & CO. LIMITED
John Govett is a United Kingdom-based investment management company whose
investment management activities originated in the 1920s, and was incorporated
in 1955 to provide a corporate structure for a management group. John Govett is
located at Shackleton House, 4 Battle Bridge Lane, London SE1 2HR, England, and
has offices in Singapore, Bangalore, Jersey, San Francisco, and Budapest. Until
December 29, 1995, John Govett was a wholly-owned subsidiary of London Pacific
Group Limited (formerly Govett & Company Limited). On that date, John Govett and
certain of its affiliates, excluding the Subadviser to the Smaller Companies
Fund (the "John Govett Group"), were sold to John Govett Holdings Limited, a
majority-owned affiliate of Allied Irish Banks p.l.c. ("AIB"). As of March 29,
1996, the John Govett Group had approximately $5.1 billion of assets under
management. AIB is the parent company of the AIB Group of Companies, a multi-
national banking group based in Dublin, Ireland. AIB Group provides a diverse
range of banking, financial and related services principally in Ireland, the
United States, and the United Kingdom. As of September 30, 1995, AIB Group was
the largest Irish banking group in terms of total assets and total deposits,
with approximately 321 branches in the republic of Ireland, where it had more
than 20% of the total market for both Irish pound loans and deposits. In the
U.S., as of September 30, 1995, through its wholly-owned subsidiary, First
Maryland Bancorp, the Group operated from over 200 banking facilities
principally in Maryland and adjoining states and the District of Columbia. On
June 30, 1995, AIB Group had assets of $35.8 billion and employed approximately
15,250 people on a full-time-equivalent basis. AIB, the parent company of the
AIB Group, is the sole owner of AIB Group Holdings (U.K.) Limited, which owns on
a fully diluted basis 75% of John Govett Holdings Limited. The remaining owners
of John Govett Holdings Limited are individual members of John Govett management
and Govett Oriental Investment Trust, which own on a fully-diluted basis 20% and
5%, respectively. John Govett Holdings Limited is the sole owner of John Govett.
The portfolio manager for the International Equity Fund is Gareth L. Watts.
Since the Fund's inception in 1992, he has been primarily responsible for the
day-to-day management of the Fund's portfolio and has been a portfolio manager
with John Govett since 1988. Mr. Watts graduated in Statistics from the
University of Wales. He worked for Legal and General as a fund manager for five
years before moving to Morgan Grenfell in 1983, where he managed both North
American and international investment funds. In 1986, he joined Scrimgeour
Vickers Asset Management as Senior Fund Manager in charge of all overseas
assets.
The portfolio manager for the Emerging Markets Fund is Rachael Maunder. Since
the Fund's inception in 1992, she has been primarily responsible for the
day-to-day management of the Fund's portfolio and has been a portfolio manager
with John Govett since 1991. Ms. Maunder graduated in Economics and Politics
from Bath University. She joined INVESCO MIM as a graduate trainee in the UK
pension fund department before joining their international investment team in
1986. As part of that team, she managed a range of global equity accounts for
U.S. institutional clients, and was in charge of the firm's global emerging
markets investment funds.
The portfolio manager for the Global Income Fund is Alan Doyle. He is primarily
responsible for the day-to-day management of the Fund's portfolio and has been a
portfolio manager with John Govett since 1994. Mr. Doyle graduated from Rhodes
University with a M.Sc. in Economics. He was a Senior Economist with Barclays
National Bank (South Africa) until 1987, when he joined World Invest Limited in
London as an Economist in the fixed income department.
The portfolio manager for the Pacific Strategy Fund is Peter Robson. Since the
Fund's inception,
he has been primarily responsible for the day-to-day management of the Fund's
portfolio and has been with John Govett since 1990. Mr. Robson graduated in
Engineering from Oxford University. He was commissioned into the 1st Queen's
Dragoon Guards in 1985. He then joined BZW Investment Management where he
managed UK unit trusts before moving to specialize in Far Eastern markets.
The portfolio manager for the Latin America Fund is Caroline Lane. Since the
Fund's inception, she has been primarily responsible for the day-to-day
management of the Fund's portfolio and has been with John Govett
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since 1990. Ms. Lane graduated from Exeter University in Economic History. She
joined Lloyds Bank International and worked in Taiwan and France before joining
Crosby Securities Hong Kong Ltd. in 1983, where she became head of research.
BERKELEY CAPITAL MANAGEMENT
Berkeley Capital Management is a registered investment adviser whose principal
office is located at 650 California Street, 28th Floor, San Francisco,
California 94108. Berkeley has been engaged in the investment management
business since 1972, and as of March 29, 1996 managed approximately $1.8 billion
in assets for both individual and institutional clients. Its investment
management activities include investment in equities (ranging from small
capitalization to large capitalization companies), a full range of fixed income
securities, and asset allocation strategies.
Effective December 30, 1995, Jeffrey Bernstein took over responsibility as
portfolio manager of the Smaller Companies Fund, following Garrett Van Wagoner's
departure on December 29, 1995. Mr. Bernstein joined the Subadvisor at the end
of November, 1995. Prior to that time he was a vice president at Bankers Trust,
where he was assistant portfolio manager of the bank's small and mid-cap
collective funds, and of the BT Investment Small Cap Fund, an open-end mutual
fund. He came to Bankers Trust from Cowen Asset Management, where he was a vice
president specializing in analysis of the technology sector. He graduated from
Union College in 1988.
ALLOCATION OF PORTFOLIO TRANSACTIONS
Neither the Manager nor the Subadvisor has any agreement or commitment to place
orders with any particular securities dealer or dealers with respect to the
Funds. In placing orders for the Funds' portfolio transactions, the Manager and
the Subadvisor seek the best net results, analyzing such factors as price, size
of order, difficulty of execution and the operational capabilities of the firm
involved. Prior to making an investment, the Manager and the Subadvisor perform
considerable research on the specified company and country. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the underwriter. On occasion, securities may be
purchased directly from an issuer, in which case there are no commissions or
discounts. Dealers may receive commissions on futures, currency and options
transactions. Commissions on trades made through foreign securities exchanges or
OTC markets typically are fixed and generally are higher than those made through
United States securities exchanges or OTC markets.
Consistent with their obligations to obtain the best net results, the Manager
and the Subadvisor may consider a securities broker-dealer's sale of Fund
shares, or research and brokerage services provided by the securities
broker-dealer, as factors in considering through whom portfolio transactions
will be effected. The Funds may pay to those securities broker-dealers who
provide brokerage and research services to the Manager or Subadvisor a higher
commission than that charged by other securities broker-dealers if the Manager
or Subadvisor determines in good faith that the amount of the commission is
reasonable in relation to the value of those services in terms either of the
particular transaction, or in terms of the overall responsibility of the Manager
or Subadvisor to the Funds and to any other accounts over which the Manager or
Subadvisor exercises investment discretion.
The frequency of portfolio transactions, a Fund's turnover rate, will vary from
year to year depending on market conditions. The portfolio turnover rates of the
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Fund, Latin America Fund and Global Income Fund for the period
from January 1, 1995 through December 31, 1995 were 101%, 115%, 280%, 163%, 127%
and 249%, respectively. The Smaller Companies Fund's portfolio turnover rate
reflects market conditions during the year. The turnover rate for the Global
Income Fund reflects the change in investment strategy at midyear when the Fund
started to take exposure to various markets using security forward purchase
commitments and, as a consequence, sold securities held directly. Because a high
annual turnover rate (over 100%) increases transaction costs and may increase
the incidence of federal taxation on a Fund's capital, the Manager and
Subadvisor will carefully weigh the anticipated benefits of a portfolio
transaction against expected transaction costs and tax consequences. Neither the
Manager nor the Subadvisor will engage in short-term trading other than what is
necessary for the prudent management of the Funds' portfolios.
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DISTRIBUTION ARRANGEMENTS
Van Kampen American Capital Distributors, Inc. ("VKAC," or the "Distributor") is
the distributor, or principal underwriter, of the Funds' shares. VKAC is a
diversified asset management company with more than two million retail investor
accounts and more than $50 billion under management or supervision. VKAC's more
than 40 open-end and 38 closed-end funds and more than 2,800 unit investment
trusts are professionally distributed by leading financial advisers nationwide.
VKAC is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is
controlled through the ownership of a substantial majority of its common stock
by The Clayton & Dubilier Private Equity Fund IV Limited Partnership (the "C&D
LP"), a Connecticut limited partnership. C&D LP is managed by Clayton, Dubilier
& Rice, Inc., a New York private investment firm. The general partners of C&D
Associates LP are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of VKAC own, in the
aggregate, not more than seven percent of the common stock of VK/AC Holding,
Inc., and have the right to acquire, upon the exercise of options, approximately
an additional 13% of its common stock. The Distributor collects the sales
charges imposed on purchases and redemptions of Fund shares, and reallows a
portion (in accordance with the schedule set forth under "How To Purchase
Shares," and as described below in "Distribution Plans") of such charges to
securities dealers who have sold such shares.
Agreements are in place which provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Funds with subsidiaries of Travelers Group, Inc.
From time to time the Distributor may implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediaries at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for share of the
funds. Also, in its discretion the Distributor may from time to time, pursuant
to objective criteria it establishes, pay fees to, and sponsor business seminars
for, qualifying brokers, dealers or financial intermediaries for certain
services or activities which are primarily intended to result in sales of shares
of the Funds. Fees may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Such fees paid for such
services and activities with respect to the funds will not exceed in the
aggregate 1.25% of the average total daily net assets of the Funds on a annual
basis. The Distributor may provide additional compensation to Edward D. Jones &
Co. or an affiliate thereof based on a combination of its sales of shares and
increases in assets under management. All of the foregoing payments are made by
the distributor out of its own assets. These programs will not change the price
an investor will pay for shares or the amount that a Fund will receive from such
a sale. No such programs or additional compensation will be offered to the
extent that they are prohibited by the laws of any state or any self-regulatory
agency with jurisdiction over the Distributor, such as the NASD.
DISTRIBUTION PLANS
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") in accordance with a plan adopted by the
Company's Board of Directors and approved by its shareholders. Pursuant to Rule
12b-1, the Company's Board of Directors and the shareholders of each class of
each Fund have adopted three Distribution Plans hereinafter referred to as the
"Class A Plan," the "Class B Plan," and the "Class C Plan." Each distribution
plan is in compliance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD Rules") applicable to mutual fund
sales charges. The NASD Rules regulate the distribution and service charges that
the Funds may impose on a class of shares. The Distributor uses the Class A,
Class B and Class C service fees to compensate authorized dealers for personal
service and for the maintenance of shareholder accounts.
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Under the Class A Plan, each Fund pays an ongoing distribution fee to the
Distributor at an annual rate of 0.50% (0.35% for the Global Income Fund) of
each Fund's aggregate average daily net assets attributable to its Class A
shares. Under the Class B Plan and the Class C Plan, each Fund pays an ongoing
distribution fee and an ongoing service fee to the Distributor at annual rates
of equal to 0.75% and 0.25%, respectively, of the Fund's aggregate average daily
net assets attributable to its Class B shares and Class C shares to reimburse
the Distributor for service fees it pays to authorized dealers, and for its
distribution costs.
CLASS A PLAN
The Class A Plan allows the Funds to compensate the Distributor for services
provided and expenses incurred in the distribution of Class A shares, including
advertising expenses and printing costs (e.g., sales materials used to offer
Class A shares to the public). The Distributor may reallow all or a portion of
the payments received under the Plan to third parties, including banks.
The Class A Plan provides for quarterly payments by the Funds to the Distributor
at the annual rate of 0.50% of the respective average daily net assets of the
International Equity Fund, the Emerging Markets Fund, the Smaller Companies
Fund, the Pacific Strategy Fund and the Latin America Fund attributable to those
Funds' Class A shares. The Class A Plan also provides for quarterly payments to
the Distributor at the annual rate of 0.35% of the average daily net assets of
the Global Income Fund attributable to its Class A shares. If the Class A Plan
should be terminated as provided therein, the Distributor would not be
compensated for costs incurred but not yet recovered. Payments under the Class A
Plan of a Fund may not be increased to more than 0.50% of the Fund's average
daily net assets attributable to Class A shares (0.35% for the Global Income
Fund) without prior approval of the Class A and Class B shareholders.
At present, the Company's Board of Directors has approved payments under the
Class A Plan for the purpose of reimbursing the Distributor for payments of
commissions to the Funds' dealers as well as for certain additional expenses
related to shareholder services and the distribution of Class A shares
(including payments for travel, telephone, and overhead expenses of the
Distributor), subject to the overall percentage limitations described above.
CLASS B AND CLASS C PLANS
The Class B and Class C Plans allow the Funds to compensate the Distributor for
services provided and expenses incurred in the distribution of Class B shares
and Class C shares, respectively. Such expenses include advertising expenses and
printing costs (E.G., sales materials used to offer Class B shares and Class C
shares to the public). The Distributor may reallow all or a portion of the
payments received under a Class B or Class C Plan to third parties, including
banks.
The Class B and Class C Plans provide that the Distributor shall use a portion
of the Class B fee and Class C fee (0.25% of the net assets of the respective
Class B shares or Class C shares) for payments (i) to compensate certain
financial institutions, which may include banks, securities dealers, and other
industry professionals (collectively, "Service Organizations") for providing
distribution assistance or services to clients which purchase or own Class B or
Class C shares of the Funds, and (ii) to otherwise promote the sale of shares of
the Funds. The Distributor intends to make payments to compensate Service
Organizations equal to 0.25% per year of the assets maintained in a Fund by
their customers attributable to Class B or Class C shares for personal services
and/or maintenance of shareholder accounts. Under the Class B and Class C Plans,
the Distributor receives additional payments from the Funds at the annual rate
equal to 0.75% of the net assets of the Class B and Class C shares,
respectively, as compensation for providing services and incurring expenses in
the distribution of Class B and Class C shares. Such expenditures may include
payment of (i) front-end commissions of up to 4% of the purchase price of Class
B shares purchased by clients of securities dealers and other Service
Organizations, (ii) front-end commissions of up to 0.75% of the purchase price
of Class C shares purchased by clients of securities dealers and other Service
Organizations and ongoing commissions of up to 0.75% of the average daily net
assets of the Funds' Class C shares and (iii) other distribution expenses as
described in the Statement of Additional Information. If a Class B Plan or a
Class C Plan should be terminated as provided therein, the Distributor would not
be compensated for costs incurred but not yet recovered. Payments under a
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<PAGE>
Class B Plan or a Class C Plan of a Fund may not be increased to more than the
percentage amounts described above without prior approval of the Class B or
Class C shareholders, respectively, of such Fund.
At present, the Company's Board of Directors has approved payments under the
Class B and Class C Plans for the purpose of reimbursing the Distributor for
payments of commissions to the Funds' dealers as well as for certain additional
expenses related to shareholder services and the distribution of Class B and
Class C shares (including payments for travel, telephone, and overhead expenses
of the Distributor), subject to the overall percentage limitations described
above.
The payments made to the Distributor under a Distribution Plan may be more or
less than the amount it spends for distribution of the shares covered by such
Plan, resulting in a profit or loss for the Distributor. The payments made by a
Fund to the Distributor under a Distribution Plan may be used by the Distributor
to defray distribution expenses related to the covered class of shares of one or
more of the other Funds. Distribution expenses related to a particular class of
shares will be allocated among the Funds based on each Fund's outstanding shares
in such class.
In adopting the Distribution Plans, the Directors of the Company determined that
there was a reasonable likelihood that the Distribution Plans would benefit the
Funds and their shareholders. Information with respect to distribution revenues
and expenses is presented to the Directors each year for their consideration in
connection with their deliberations as to the continuance of the Distribution
Plans. In their review of the Distribution Plans, the Directors are asked to
take into consideration expenses incurred in connection with the distribution of
each class of shares separately. The distribution charge and the sales charge of
a particular class will not be used to subsidize the sale of the other classes.
The distribution and service fee attributable to Class B shares or Class C
shares is designed to permit an investor to purchase such shares without the
assessment of a front-end sales charge and at the same time permit the
Distributor to compensate Service Organizations with respect to such shares. In
this regard, the purpose and function of the combined CDSC and distribution and
service fee are the same as those of the initial sales charge and distribution
fee with respect to the Class A shares of the Funds in that in both cases the
sales charge and distribution charge provide for the financing of the
distribution of the Funds' shares.
SHAREHOLDER SERVICES AGENT
ACCESS Investor Services, Inc., an affiliate of the Distributor ("Shareholder
Services Agent"), provides the Company and the Funds with certain services,
including the following: (1) preparation and maintenance of accounts and records
for the Funds and performance of certain related functions; and (2) provision of
transfer agency services to the Funds. ACCESS provides such services at cost
plus a profit.
ACCOUNTING AND ADMINISTRATION SERVICES
Investors Bank & Trust Company ("IBT" or the "Fund Administrator") provides the
Company and the Funds with administration and accounting services. Effective
June 1, 1996, Chase Global Funds Services, Inc., will assume these functions.
HOW THE FUNDS VALUE THEIR SHARES
Each Fund calculates the net asset value per share of each class by dividing the
total value of the assets (the securities held by the Fund, plus any cash or
other assets, including interest and dividends accrued but not yet received)
attributable to the class, less the total liabilities attributable to the class,
by the total number of shares of the class outstanding. Shares are valued as of
the close of regular trading on the New York Stock Exchange (usually considered
4:00 p.m. Eastern Time) each day the Exchange is open. All securities traded on
an exchange are valued at the last sale quotation on the exchange prior to the
time of valuation. Portfolio securities for which market quotations are readily
available are stated at market value. Short-term investments that will mature in
60 days or less are valued using amortized cost, which the Company's Board of
Directors has determined approximates market value. Amortized cost valuation
means that a debt security with a maturity at purchase of 60 days or less is
valued at its acquisition cost and a debt security originally purchased with a
maturity in excess of 60 days, which currently has a maturity of 60 days or
less, is valued at the market
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<PAGE>
or fair value of the security on the 61st day prior to maturity (each as
adjusted for amortization of premium or discount) rather than at current market
value. All other securities and assets are valued at their fair value following
procedures approved by the Company's Board of Directors. See "Additional
Purchase and Redemption Information" in the Statement of Additional Information
for a description of the special valuation procedures for options and futures
contracts.
Each Fund's portfolio is expected to include foreign securities listed on
foreign stock exchanges or debt securities of the United States and foreign
governments and corporations. Some of these securities trade on days other than
Business Days, as defined below. Foreign securities quoted in foreign currencies
are translated into United States dollars at the exchange rates at 1:00 p.m.
Eastern Time or at such other rates as the Manager or Subadvisor may determine
to be appropriate in computing net asset value. As a result, fluctuations in the
value of such currencies in relation to the United States dollar will affect the
net asset value of a Fund's shares even though there has not been any change in
the market values of such securities.
Because of time zone differences, foreign exchanges and securities markets will
usually be closed prior to the time of the closing of the New York Stock
Exchange and values of foreign options and foreign securities will be determined
as of the earlier closing of such exchanges and securities markets. However,
events affecting the values of such foreign securities may occasionally occur
between the earlier closing of such exchanges and securities markets and the
closing of the New York Stock Exchange which will not be reflected in the
computation of the net asset value of the Funds. If an event materially
affecting the value of such foreign securities occurs during such period of
which the Manager or Subadvisor becomes aware, then such securities will be
valued at fair value as determined in good faith, or in accordance with
procedures adopted, by the Company's Board of Directors.
SHAREHOLDER INQUIRIES
ANY QUESTIONS OR COMMUNICATIONS REGARDING A SHAREHOLDER ACCOUNT SHOULD BE
DIRECTED TO: THE GOVETT FUNDS, INC. AT P.O. BOX 419434, KANSAS CITY, MO 64141.
SHAREHOLDERS MAY ALSO OBTAIN INFORMATION BY CALLING (800) 421-5666. FOR 24-HOUR
PRICE LINE, CALL (800) 468-6608.
- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
GENERAL
Each Fund has designated three classes of shares. AT PRESENT, ONLY CLASS A
SHARES OF THE FUNDS ARE AVAILABLE TO THE GENERAL PUBLIC. IT IS ANTICIPATED THAT
CLASS B AND CLASS C SHARES WILL BE AVAILABLE SHORTLY. Class A shares are sold
with an initial sales charge; Class B shares and Class C shares are sold without
an initial sales charge and are subject to a contingent deferred sales charge
("CDSC") upon certain redemptions. See "Alternative Sales Arrangements" for a
discussion of factors to consider in selecting which class of shares to
purchase. When purchasing shares of a Fund, investors must specify whether the
purchase is for Class A, Class B or Class C shares. AN UNSPECIFIED PURCHASE
ORDER WILL BE CONSIDERED AN ORDER FOR CLASS A SHARES. Shares of the Funds may be
purchased through members of the National Association of Securities Dealers,
Inc. ("NASD") who are acting as securities dealers ("dealers") and NASD members
or eligible non-NASD members who are acting as brokers or agents for investors
("brokers"). Brokers and dealers are sometimes referred to in this Prospectus as
"authorized dealers." Shares may also be purchased directly through the
Shareholder Services Agent. The Shareholder Services Agent will price each
purchase order that it receives for a Fund's shares at the net asset value of
the Fund next determined after receipt of the order, plus a front-end sales
charge (Class A shares only) depending on the method of purchasing shares chosen
by the investor, as shown in the tables under the caption "Summary of Investor
Costs." Net asset value per share for each class is determined by dividing the
value of each Fund's securities, cash and other assets (including accrued
interest) attributable to such class, less all liabilities (including accrued
expenses) attributable to such class, by the total number of shares of the class
outstanding. The minimum initial investment is $500, and subsequent investments
must be $25 or more. Both minimums may be waived by the Distributor for plans
involving periodic investments. The Funds and the Distributor reserve the right
to refuse to accept any order for the
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purchase of shares, and to suspend the offering of shares for a period of time.
The procedures for purchasing Fund shares are summarized in the "Quick Reference
Guide" in Appendix B and described in detail below. Investors may be charged a
fee if they effect transactions in Fund shares through a securities dealer,
bank, or other financial institution.
PURCHASES THROUGH AUTHORIZED DEALERS
Orders received by a securities dealer before 4:00 p.m., Eastern Time, on any
Business Day, will be executed at the public offering price determined that day,
provided that the securities dealer (or other qualified broker) transmits the
order to the Shareholder Services Agent by 5:00 p.m., Eastern Time, that day. A
"Business Day" is any Monday through Friday on which the New York Stock Exchange
is open for business. Authorized dealers are responsible for timely transmission
of orders to the Shareholder Services Agent. After an initial investment is made
and a shareholder account is established through an authorized dealer,
subsequent purchases may be made, at the investor's option, directly through the
Shareholder Services Agent. Orders of less than $500 must be mailed by the
authorized dealer and will be processed at the offering price next calculated
upon acceptance by ACCESS. The sales agreements between the Distributor and the
authorized dealers provide that all orders are subject to acceptance by the
Distributor, and the Distributor retains the right to reject any order.
PURCHASES THROUGH THE SHAREHOLDER SERVICES AGENT
Investors may purchase shares and open an account directly through the
Shareholder Services Agent by completing and signing the Account Application
provided with this Prospectus. In such cases, the sales charge will be paid to
the Distributor. Investors desiring to purchase shares directly through the
Shareholder Services Agent should mail the completed Account Application
together with a check to cover the purchase price to the Shareholder Services
Agent in accordance with the instructions on the Account Application. Purchases
will be executed at the public offering price next computed after the
Shareholder Services Agent has received the order. Subsequent investments do not
need to be accompanied by an Account Application.
Investors may also purchase shares of the Funds through the Shareholder Services
Agent by bank wire, provided that within seven days of an initial purchase the
Shareholder Services Agent has received an executed Account Application with the
investor's taxpayer identification number. Bank wire purchases will be effected
at the next computed public offering price after the bank wire is received;
accordingly, a bank wire received by 4:00 p.m. Eastern Time on a Business Day
will be effected that day. A wire investment is considered received when the
Shareholder Services Agent is notified that the bank wire has been credited to a
Fund. The investor is responsible for providing prior telephone notice to the
Shareholder Services Agent that a bank wire is being sent. See "Telephone
Transactions" below. An investor's bank may charge a service fee for wiring
money to the Funds; the Shareholder Services Agent currently charges no service
fees for facilitating wire purchases, but reserves the right to do so in the
future. Investors desiring to open an account by bank wire should call the
Shareholder Services Agent at (800) 421-6714.
PURCHASE PRICE OF FUND SHARES
Shares of each Fund are offered at the public offering price which is the net
asset value per share (plus, for Class A shares only, a front-end sales charge)
next computed after the investor's authorized dealer receives the order and
promptly transmits it to the Shareholder Services Agent, or after the
Shareholder Services Agent receives by mail from the investor a completed
Account Application accompanied by a negotiable check. An order is considered to
be promptly transmitted if it is received by the Shareholder Services Agent by
4:00 p.m. Eastern Time on a Business Day. Orders received by the Shareholder
Services Agent after 4:00 p.m. Eastern Time will be executed at the public
offering price computed the following Business Day. The front-end sales charge
applicable to purchases of Class A shares is a variable percentage of the
offering price depending upon the amount of the purchase. Class A shares may
also be purchased under a variety of plans (described below), some of which
provide for reduced sales charges.
Generally, the net asset values per share of the Class A, Class B and Class C
shares are expected to be substantially the same. However, the per share net
asset values of the Class A, Class B and Class C shares may differ from one
another, reflecting the daily expense accruals of the greater distribution and
transfer agency
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fees applicable with respect to the Class B and Class C shares, and the
differential in the dividends paid on the classes of shares.
Each class of shares of a Fund represents an interest in the same portfolio of
investments in the Fund, has the same rights and is identical in all respects
except that (i) Class B and Class C shares bear the expenses of the deferred
sales arrangement and any expenses (including the higher distribution charges
and incremental transfer agency costs) resulting from such sales arrangement,
(ii) each class has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan pursuant to which its distribution charges are paid
which relate to a specific class, and (iii) Class B shares are subject to a
conversion feature. Each class has different exchange privileges and certain
different shareholder services options available. See "Management of the Funds
- -- Distribution Plans" and "How to Make Exchanges." The net income attributable
to Class B and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by the amount of the higher distribution charges and
incremental expenses associated with such distribution charges. Securities
dealers distributing a Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A, Class B or Class C shares.
CLASS A SHARES
Set forth below is a table of total front-end sales charges and dealer
concessions applicable to certain purchases of Class A shares; the latter
represents the amount of any sales charges reallowed by the Distributor to
authorized dealers selling Class A shares of the Funds.
- --------------------------------------------------------------------------------
SALES CHARGES TABLE -- CLASS A
<TABLE>
<CAPTION>
SALES CHARGE
AS A PERCENTAGE OF AMOUNT OF SALES CHARGE
---------------------------- REALLOWED TO DEALERS
AMOUNT OF PURCHASE AT OFFERING NET AS A PERCENTAGE OF
THE PUBLIC OFFERING PRICE PRICE INVESTMENT OFFERING PRICE
-------------------------- ------------ -------------- ---------------------------
<S> <C> <C> <C>
Less than $100,000 4.95% 5.21% 4.25%
$100,000 to less than $250,000 3.95% 4.11% 3.25%
$250,000 to less than $500,000 3.00% 3.09% 2.50%
$500,000 to less than $1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more* 0.00% 0.00% 0.00%**
</TABLE>
* Quantity purchases of Class A shares of $1 million or more may be subject to
a CDSC. See "How To Redeem Shares -- CDSCs" below.
** The Distributor will pay commissions, from its own resources, to authorized
dealers who initiate and are responsible for purchases of Class A shares of
$1 million or more as follows: 1% on sales to $2 million, plus 0.80% on the
next 1 million, plus 0.20% on the next $2 million and 0.08% on the excess
over $5 million.
The following purchases of Class A shares may be aggregated for purposes of
determining the "Amount of Purchase":
(a) Individual purchases on behalf of a single purchaser, the purchaser's spouse
or their minor children. This includes shares purchased in connection with
an employee benefit plan(s) exclusively for the benefit of such
individual(s), such as an IRA, individual Section 403(b) plan or
single-participant Keogh-type plan. This also includes purchases made by a
company controlled by such individual(s).
(b) Individual purchases by a trustee or other fiduciary purchasing shares for a
single trust, estate or fiduciary account, including an employee benefit
plan (such as employer-sponsored pension, profit-sharing, and stock bonus
plans, including Section 401(k) plans, and medical, life and disability
insurance trusts) other than a plan described in (a) above.
(c) Individual purchases by a trustee or other fiduciary purchasing shares
concurrently for two or more employee benefit plans of a single employer or
of employers affiliated with each other (again excluding an employee benefit
plan described in (a) above).
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<PAGE>
OR
(d) Purchases made concurrently by certain fiduciary entities (such as
investment advisors, bank trust departments, and bank custodians) for the
accounts of clients.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell shares of the Funds. Authorized
dealers which are reallowed all or substantially all of the sales charges may be
deemed to be underwriters for purposes of the Securities Act of 1933.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Funds for their clients a transaction fee up to
the level of the reallowance allowable to authorized dealers described herein.
Such financial institutions, other industry professionals and dealers are
hereinafter referred to as "Service Organizations." Banks are currently
prohibited under the Glass-Steagall Act from providing certain underwriting or
distribution services. If banking firms were prohibited from acting in any
capacity or providing any of the described services, the Distributor would
consider what action, if any, would be appropriate. The Distributor does not
believe that termination of a relationship with a bank would result in any
material adverse consequences to the Funds. State securities laws regarding
registration of banks and other financial institutions may differ from the
interpretations of federal law expressed herein, and banks and other financial
institutions may be required to register as dealers pursuant to certain state
laws.
FRONT-END SALES CHARGE WAIVERS -- CLASS A SHARES
The Funds sell Class A shares at net asset value without imposition of sales
charges when investments are made by the following classes of investors:
- - Current or retired trustees or directors (including their families and their
beneficial accounts) of funds advised by John Govett, Van Kampen American
Capital Asset Management, Inc., or the Van Kampen American Capital Investment
Advisory Corp.; employees of an investment advisor or subadvisor to any such
fund or an affiliate of such subadvisor, and such employees' families and such
persons' beneficial accounts.
- - Current or retired directors, officers and employees of the Funds, the Fund
Administrator, and VKAC Holding, Inc. and its subsidiaries, Clayton, Dubilier
& Rice, Inc., and companies affiliated with John Govett.
- - Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children then purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.
- - Registered investment advisors, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that the
aggregate amount invested in the Funds during the 13 month period commencing
with the first investment pursuant hereto equals at least $1 million. The
Distributor may pay Service Organizations through which purchases are made an
amount up to 0.50% of the amount invested over a 12 month period following
such transaction.
- - Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1% for such purchases.
- - Accounts as to which a bank or broker-dealer charges a management or
administrative fee ("wrap accounts"), provided the bank or broker-dealer has a
separate agreement with the Distributor.
- - Investors purchasing shares of a Fund with the redemption proceeds from other
mutual fund complexes on which the investor has paid a front-end sales charge
or was subject to a deferred sales charge, whether or not paid, if such
redemption has occurred no more than 30 days prior to such purchase.
- - Investment accounts managed by John Govett or by its affiliated companies.
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<PAGE>
- - Purchases made by or on behalf of participants in employee benefit, retirement
or pension plans with North American Trust Company (a former affiliate of John
Govett), or persons who have purchased annuity contracts with London Pacific
Life & Annuity Company (a former affiliate of John Govett).
- - Shares sold to any registered investment companies, including unit investment
trusts, affiliated with the Distributor.
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
REDUCED SALES CHARGE PLANS -- CLASS A SHARES
Class A shares of the Funds may be purchased at reduced sales charges either
through the Right of Accumulation Privilege or under a Letter of Intent. For
more details on these plans investors should contact their securities dealers,
the Shareholder Services Agent, or the Distributor.
LETTER OF INTENT. In executing a Letter of Intent ("LOI") an investor indicates
an aggregate investment amount he or she intends to invest in the Class A shares
of a Fund, or Funds, in the following thirteen months. The LOI is included as
part of the Account Application provided with this Prospectus. The sales charge
applicable to that aggregate amount then becomes the applicable sales charge on
all Class A share purchases made concurrently with the execution of the LOI and
in the thirteen months following that execution. If an investor executes an LOI
within 90 days of a prior purchase of Class A shares, the prior purchase may be
included under the LOI and an appropriate adjustment, if any, with respect to
the sales charges paid by the investor in connection with the prior purchase
will be made, based on the then-current net asset value(s) of the pertinent
Fund(s). Registered investment advisors trust companies, and bank trust
departments may be eligible to receive commissions on certain LOI purchases. See
"Front-End Sales Charge Waivers -- Class A Shares" for more information.
If at the end of the thirteen month period covered by the LOI the total amount
of Class A share purchases does not equal the amount indicated, the investor
will be required to pay the difference between the sales charges paid at the
reduced rate and the sales charges applicable to the purchases actually made.
Class A shares having a value equal to 5% of the amount specified in the LOI
will be held in escrow by the Shareholder Services Agent during the thirteen
month period (while remaining registered in the investor's name) and are subject
to redemption by the Shareholder Services Agent to assure any necessary payment
of a higher applicable sales charge. Any dividends accrued on the shares held in
escrow will accrue to the shareholder's account.
RIGHT OF ACCUMULATION. Pursuant to the Right of Accumulation Privilege,
investors are permitted to purchase Class A shares of the Funds at the sales
charge applicable to the total of (a) the dollar amount then being purchased
plus (b) the dollar amount of the investor's concurrent purchases of Class A
shares of the other Funds plus (c) the current value of all Class A shares of
any Fund already held by the investor. To receive the Right of Accumulation,
investors must, at the time of purchase give their securities dealers, the
Shareholder Services Agent or the Distributor sufficient information to permit
confirmation of qualification.
AUTOMATIC INVESTMENT PLAN -- ALL CLASSES
Investors may purchase shares of a Fund through the Automatic Investment Plan.
Under this Plan, an investor specifies an amount, equal to or greater than $25
per Fund, to be invested on a regular basis. The specified amount will be
transferred to the Shareholder Services Agent directly from the investor's bank
for investment in the designated Fund(s) on the designated investment day. In
the event that the designated investment day falls on a Saturday, Sunday or
holiday, the investment will take place on the next Business Day. To participate
in the Automatic Investment Plan, investors should complete the appropriate
portion of the Account Application provided with this Prospectus.
SYSTEMATIC WITHDRAWAL PLAN -- ALL CLASSES
Shareholders owning shares with a value of $10,000 or more may establish a
monthly Systematic Withdrawal Plan. Shareholders owning shares with a value of
$5,000 or more may establish a quarterly, semiannual or
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<PAGE>
annual Systematic Withdrawal Plan. A participating shareholder will receive
proceeds from monthly or quarterly redemptions of Fund shares, in amounts of not
less than $25 per redemption per Fund, as specified by the shareholder. In the
event that the specified redemption day falls on a Saturday, Sunday or holiday,
the redemption will take place on the prior Business Day. Checks will be made
payable to the designated recipient and mailed within seven (7) days. To
participate in the Systematic Withdrawal Plan, investors should complete the
appropriate portion of the Account Application provided with this Prospectus.
Shareholders participating in this plan with respect to Class A shares for a
particular Fund should not simultaneously purchase Class A shares of the Fund,
as such purchases are subject to a sales charge. Investors should contact the
Shareholder Services Agent for more information. Redemptions pursuant to the
Systematic Withdrawal Plan of certain Class A shares purchased at net asset
value that are effected within 12 months of initial purchase may be subject to a
CDSC. See "How to Redeem Shares -- CDSCs" below.
Under the Plan, sufficient shares of a Fund are redeemed to provide the amount
of the periodic withdrawal payment. Dividends and capital gains distributions on
shares held under this Plan are reinvested in additional shares at the next
determined net asset value. If periodic withdrawals continuously exceed
reinvested dividends and capital gains distributions, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. Any taxable
gain or loss will be recognized by the shareholder upon redemption of shares.
Class B and Class C shareholders who establish a Systematic Withdrawal Plan may
redeem up to 12% annually of the shareholder's Initial Account Balance without
incurring a CDSC. Initial Account Balance means the amount of the shareholder's
investment in the Class B or Class C shares of the Fund on the date the plan for
such class is established. See "How To Purchase Shares -- Waiver of CDSCs" and
the Statement of Additional Information.
FUND TO FUND DIVIDENDS
A shareholder may elect to have all dividends and other distributions paid by
one Fund invested into another Fund. Such election may be made by written
request or by completing the appropriate section of the Account Application
provided with this Prospectus. Both Fund accounts must be of the same type,
either non-retirement or retirement. If the accounts are retirement accounts,
they must both be for the same type of retirement plan and for the benefit of
the same individual. Distributions are invested into the selected Fund at its
net asset value as of the payable date of the distribution.
CLASS B SHARES
Class B shares are offered at the next determined net asset value. Class B
shares which are redeemed within six years of purchase are subject to a CDSC at
the rates set forth in the following table, charged as a percentage of the
dollar amount subject thereto. The CDSC is assessed on an amount equal to the
lesser of the then current market value or the cost of the Class B shares being
redeemed. Accordingly, no CDSC is imposed on increases in net asset value above
the initial purchase price. In addition, no CDSC is assessed on shares derived
from reinvestment of dividends or capital gains distributions on the Class B
shares, or on certain redemptions under a Systematic Withdrawal Plan as
described above.
The amount of the CDSC, if any, varies depending on the number of years from the
time of payment for the purchase of Class B shares until the time of redemption
of such shares. Solely for purposes of determining the
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<PAGE>
number of years from the time of any payment for the purchase of shares, all
payments during a month are aggregated and deemed to have been made on the last
day of the month.
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ----------------------------------------------------------------------------- -----------------
<S> <C>
First........................................................................ 4%
Second....................................................................... 4%
Third........................................................................ 3%
Fourth....................................................................... 3%
Fifth........................................................................ 2%
Sixth........................................................................ 1%
Seventh...................................................................... 0%
Eighth....................................................................... 0%
</TABLE>
In determining whether a CDSC is applicable to a redemption of Class B shares,
the calculation is determined in the manner that results in the lowest possible
rate being charged. Therefore, it is assumed that the redemption is first of any
Class B shares in the shareholder's Fund account that are not subject to a CDSC,
second, of shares held for over six years or shares acquired pursuant to
reinvestment of dividends or distributions, and third of Class B shares held
longest during the six-year period. The charge is not applied to dollar amounts
representing an increase in the net asset value since the time of purchase.
For example, assume an investor purchases 100 shares 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 or her first
redemption of 50 shares (proceeds of $600), 10 shares will not be subject to
charge because of dividend reinvestment. With respect to the remaining 40
shares, the charge 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 are subject to a CDSC at a rate of 4% (the applicable rate
in the second year after purchase).
A commission or transaction fee of 4% of the purchase amount will be paid to
authorized dealers and other Service Organizations at the time of purchase.
Additionally, the Distributor may, from time to time, pay additional promotional
incentives, in the form of cash or other compensation, to Service Organizations
that sell Class B shares of the Funds.
CLASS C SHARES
Class C shares are offered at the next determined net asset value. Class C
shares which are redeemed within the first year of purchase are subject to a
CDSC of 1%. The CDSC is assessed on an amount equal to the lesser of the then
current market value, or the cost of the Class C shares being redeemed.
Accordingly, no CDSC is imposed on increases in net asset value above the
initial purchase price. In addition, no CDSC is assessed on Class C shares
derived from reinvestment of dividends or capital gains distributions.
In determining whether a CDSC is applicable to a redemption of Class C shares,
the calculation is determined in the manner that results in the lowest possible
rate being charged. Therefore, it is assumed that the redemption is first of any
Class C shares in the shareholder's Fund account that are not subject to a CDSC,
and second of shares held for more than one year or shares acquired pursuant to
reinvestment of dividends or distributions.
A commission or transaction fee of up to 0.75% of the purchase amount will be
paid to authorized dealers and other Service Organizations at the time of
purchase. Securities dealers and other Service Organizations will also be paid
ongoing commissions and transaction fees up to 0.75% of the average daily net
asset value of each Fund's Class C shares. Additionally, the Distributor may,
from time to time, pay additional promotional incentives, in the form of cash or
other compensation, to Service Organizations that sell Class C shares of the
Funds.
35
<PAGE>
WAIVER OF CDSCS
The CDSC is waived on redemptions of Class B and Class C shares (i) following
the death or disability (as defined in the Code) of a shareholder, (ii) in
connection with certain distributions from an IRA or other retirement plan,
(iii) pursuant to the Funds' systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant to the
right of the Funds to liquidate a shareholder's account as described herein
under "How to Redeem Shares." The CDSC is also waived on redemptions of Class C
shares as it relates to the reinvestment of redemption proceeds in Class C
shares within 120 days after redemption. See "How to Redeem Shares --
Reinstatement Privilege" below and the Statement of Additional Information for
further discussion of waiver provisions.
CERTIFICATES -- ALL CLASSES
In the interest of economy and convenience, physical certificates representing
the Funds' shares will not be issued unless an investor submits a written
request to the Shareholder Services Agent, or unless the investor's securities
dealer requests that the Shareholder Services Agent provide certificates.
Ownership of Fund shares is recorded on a register by the Shareholder Services
Agent, and shareholders who do not elect to receive certificates have the same
rights of ownership as if certificates had been issued to them. Redemptions by
shareholders who hold certificates may take longer to effect than similar
transactions involving non-certificated shares because the physical delivery and
processing of properly executed certificates is required, and shareholders with
certificated shares ordinarily may not hold their shares through the "street
name" of their securities dealers. Accordingly, the Company and the Distributor
recommend that shareholders not request issuance of certificates.
- --------------------------------------------------------------------------------
HOW TO MAKE EXCHANGES
Class A Shares of any Fund generally may be exchanged for shares of the same
class of any of the other Funds or for shares of the Goldman Sachs Institutional
Liquid Assets Money Market Portfolio (the "Money Market Fund"), based on their
respective net asset values, without imposition of any sales charges, provided
that the account holder remains the same. Class A shares acquired through
quantity purchases of $1 million or more on which no front-end sales charge was
paid CANNOT be exchanged for shares of the Money Market Fund during the first
year after their purchase. The Money Market Fund is not a series of the Company,
but is available as an exchange vehicle for Fund shareholders. Shares of the
Money Market Fund may also be exchanged for Class A shares of any Fund, without
imposition of a sales charge, but only if the investor seeking to exchange the
Money Market Fund shares acquired those shares through an exchange out of one or
more of the Funds. Money Market Fund shares that were acquired by direct
purchase from the Money Market Fund cannot be exchanged for Class A shares of
any Fund. Investors interested in making an exchange with respect to shares of
the Money Market Fund should write or call their authorized dealer or the
Shareholder Services Agent to request that fund's prospectus. Certain securities
dealers may charge a fee for handling exchanges. It is anticipated that the
Funds' shares will be exchangeable for shares of other funds distributed by the
Distributor in the near future.
Class B and Class C shareholders of each Fund have the ability to exchange their
shares ("original shares") for the same class of shares of any other Fund that
offers such shares ("new shares") in an amount equal to the aggregate net asset
value of the original shares, without the payment of any CDSC otherwise due upon
redemption of the original shares. For purposes of computing the contingent
deferred sales charge payable upon a disposition of the new shares, the holding
period for the original shares is added to the holding period of the new shares.
Class B or Class C shareholders would remain subject to the CDSC imposed by the
original fund upon their redemption from the Company. The CDSC is based on the
holding period requirements of the original fund.
Investors may make up to four exchanges during a year without charge; for each
exchange in excess of four a $7.50 processing charge will be deducted and paid
to the Shareholder Services Agent. If investors do not surrender all of their
shares in an exchange, the remaining balance in an investor's account after the
exchange must be at least $500, or the Fund may automatically redeem the account
in full as described in "How To
36
<PAGE>
Redeem Shares" below. The exchange fee described above will be waived for any
exchange transmitted through Fund/SERV or via computer transmission. Contact the
Shareholder Services Agent at (800) 421-5666 for further information.
EXCHANGES BY TELEPHONE. Exchange orders effected by telephone should be directed
to the Funds' Shareholder Services Agent at the toll-free number set forth in
the "Quick Reference Guide" in Appendix B. See "Telephone Transactions" below.
EXCHANGES BY MAIL. Exchange orders effected by mail should be sent to the
investor's authorized dealer or to the Shareholder Services Agent at the address
set forth in the "Quick Reference Guide" in Appendix B.
AUTOMATIC EXCHANGE PLAN. Investors may also exchange Fund shares through the
Automatic Exchange Plan ($25 minimum for existing account; $100 minimum for
establishing a new account). Both accounts must be of the same type and class.
The exchange fee described above will be waived for such automatic exchanges. To
participate in this plan, investors should complete the appropriate portion of
the Account Application provided with this Prospectus and should contact the
Shareholder Services Agent for more information.
OTHER EXCHANGE INFORMATION. Purchases, redemptions, and exchanges should be made
for investment purposes only. A pattern of frequent fund exchanges, purchases
and sales may be deemed abusive by the Manager or Subadvisor and, at the
discretion of the Manager or Subadvisor, can be limited by a fund's refusal to
accept purchase and/or exchange orders from the investor. Although the Manager
or Subadvisor will consider all factors it deems relevant in determining whether
a pattern of frequent purchases, redemptions and/or exchanges by a particular
investor or potential investor is abusive and not in the best interests of a
Fund or its shareholders, as a general policy investors should be aware that
engaging in more than one exchange or purchase-sale transaction during any
30-day period with respect to a particular Fund may be deemed abusive and
therefore subject to the above restrictions. For purposes of determining whether
the CDSC is applicable to the redemption of shares that were acquired in
exchange for shares subject to the CDSC at the time of exchange, the holding
period for the original shares is added to the holding period for the new
shares. Material changes to the terms of the exchange offer described above may
be made by any Fund only upon 60 days' notice to its shareholders. This exchange
privilege is available only in the states in which the exchange may legally be
made.
37
<PAGE>
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares without charge on any Business
Day. Your shares will be redeemed at the net asset value next computed after
your properly completed and authorized redemption request is received by the
Shareholder Services Agent.
CDSCS
As described above under "How To Purchase Shares," redemptions of Class B and
Class C shares are subject to a CDSC. In addition, although no front-end sales
charge is payable at the time of purchase of Class A shares on investments of $1
million or more, a CDSC of 1% will be imposed, subject to the exceptions
described below, on certain redemptions of such investments made within 12
months following the investment. All CDSCs incurred upon redemption of a Fund's
shares are paid to the Distributor in reimbursement for distribution-related
expenses. See "How To Purchase Shares." A custodian of a retirement plan account
may also charge fees based on the custodian's fee schedule.
The CDSC otherwise payable upon redemption of Class A shares is waived on
redemptions (1) following the death or disability (as defined in Section
72(m)(7) of the Code) (2) to the extent that the redemption (a) represents a
minimum required distribution from an individual retirement account, Keogh plan
or Section 403(b) plan or custodian account to a shareholder who has attained
the age of 70-1/2, (b) represents a distribution following retirement from a tax
exempt employer-sponsored retirement plan; (c) results from a tax-free return of
an excess contribution pursuant to Section 408(d) (4) or (5) of the Code, or (d)
represents a distribution from a tax exempt employer-sponsored retirement plan
which is permitted to be made without penalty pursuant to the Code, other than
tax-free rollovers or transfers of assets, the proceeds of which are reinvested
in Fund shares; (3) certain redemptions by investors which are tax exempt
employee benefit plans; and (4) redemption of Fund shares followed by a
reinvestment of such shares within 120 days of the redemption. Upon any
reinvestment made in accordance with clause (4) above, which is a one-time
privilege, the amount reinvested will be subject to the same CDSC to which that
amount was subject prior to the redemption, and the 12-month CDSC period with
respect to that amount will continue to run from the original reinvestment date,
but will be extended by the number of days between the redemption and
reinvestment dates.
Shareholders with accounts at authorized dealers may redeem shares through their
securities dealers. If the shares are held in the authorized dealer's "street
name" the redemption must be made through the securities dealer; other
shareholders may redeem shares through the authorized Services Agent. The
procedures for redeeming Fund shares are described in detail below and are
summarized in "Quick Reference Guide for Investments and Redemptions" in
Appendix B.
REDEMPTIONS THROUGH THE SHAREHOLDER
SERVICES AGENT
Redemption requests may be transmitted to the Shareholder Services Agent by
telephone or by mail, in accordance with the instructions provided in the "Quick
Reference Guide for Investments and Redemptions" in Appendix B. The proceeds of
such redemptions will be based on the net asset value per share (less any
applicable CDSC) next computed after the Shareholder Services Agent has received
the request in proper form, as described below, and any required supporting
documentation. Further documentation may be required from corporations,
executors, administrators, trustees, guardians, and other fiduciaries. The
Shareholder Services Agent should be contacted in this respect for further
information. Redemption requests respecting a Fund received after the time at
which the Fund's net asset value is calculated each day (the close of business
on the New York Stock Exchange) will be honored at the net asset value (less any
applicable CDSC) calculated on the following Business Day.
Every signature must be guaranteed (by a bank or trust company, broker-dealer,
credit union, national securities exchange, registered securities association,
or clearing agency, savings and loan association or federal
38
<PAGE>
savings bank), if the redemption request involves ANY of the following
situations: (1) the proceeds of the redemption are $50,000 or more; (2) the
proceeds (in any amount) are to be paid to someone other than the registered
owner(s) of the account; (3) the proceeds (in any amount) are to be sent to any
address other than the shareholder's address of record, predesignated bank,
savings and loan, credit union, or brokerage firm account; (4) the Fund and the
Shareholder Services Agent believe that a signature guarantee would protect
against potential claims based on the transfer instructions, including, for
example, when (a) the current address of one or more joint owners of an account
cannot be confirmed, (b) multiple owners have a dispute or give inconsistent
instructions to the Fund, (c) the Fund has been notified of an adverse claim,
(d) the instructions received by the Fund are given by an agent, not the actual
registered owner, (e) the Fund determines that joint owners who are married to
each other are separated or subject to divorce proceedings, or (f) the authority
of a representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Redemption requests will not require a signature guarantee if none of the above
points apply AND the redemption proceeds are to be sent either: (1) to the
redeeming shareholder's address of record as maintained by the Shareholder
Services Agent, provided the shareholder's address of record has not been
changed within the preceding 60 days; or (2) directly to a predesignated bank,
savings and loan, credit union, or brokerage firm account (in this instance, the
investor must complete the "Bank Wiring Information" section of the Account
Application provided with this Prospectus). Shareholders requesting a bank wire
should allow two Business Days from the time the redemption request is effected
for the proceeds to be deposited in the shareholder's predesignated account.
When the shares to be redeemed are represented by a share certificate, the
request for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as described below. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed for redemption.
Written requests must be accompanied by properly endorsed share certificates (if
any) and any required supporting documentation.
The Shareholder Services Agent will accept signature guarantees from all
eligible firms, as defined by Rule 17Ad-15 under the Securities Exchange Act of
1934. The Shareholder Services Agent reserves the right to waive signature
guarantees under certain circumstances; it also reserves the right to request
additional documentation under certain circumstances.
REDEMPTIONS BY TELEPHONE. Redemption requests by telephone should be directed to
the Shareholder Services Agent at the toll-free number provided in the "Quick
Reference Guide" in Appendix B. See "Telephone Transactions" below.
REDEMPTIONS BY MAIL. Redemption requests should be mailed directly to the
Shareholder Services Agent at the appropriate address provided in the "Quick
Reference Guide" in Appendix B. As discussed above, requests for payment of
redemption proceeds to a party other than the registered account owner(s) and/or
requests that redemption proceeds be mailed to an address other than the
shareholder's address of record require a signature guarantee. Redemption
requests for shares for which a certificate has been issued must be accompanied
by a properly endorsed share certificate and a share assignment form signed by
the registered shareholder(s) exactly as the account is registered, with the
signature(s) guaranteed as described above.
REDEMPTIONS THROUGH AUTHORIZED DEALERS
Shareholders with accounts at authorized dealers who sell shares of the Funds
(or with other qualified brokers) may submit redemption requests to their
authorized dealers. Orders received from securities dealers must be at least
$500, unless submitted via Fund/SERV. The Shareholder Services Agent will accept
such redemption requests by telephone on any Business Day from 8:00 a.m. to 4:00
p.m. Eastern Time, from securities dealers who have a dealer agreement with the
Funds' Distributor or from other qualified brokers. This is known as a
repurchase. Even after receipt of a repurchase order from a dealer, the Funds
will still require a signed letter from the shareholder containing redemption
instructions and all other documents required for direct redemption requests, as
set forth above. The shareholder's letter should reference the particular Fund
involved, the shareholder's account number, the fact that the repurchase was
ordered through a dealer, and the dealer's
39
<PAGE>
name. Details of the dealer-ordered trade, such as trade date, confirmation
number, and the amount of shares or dollars, will help speed processing of the
redemption. The seven-day period within which the proceeds of the shareholder's
redemption will be sent to him or her will begin when the Shareholder Services
Agent receives all documents required to complete ("settle") the repurchase in
proper form. The redemption proceeds will not earn dividends or interest during
the time between receipt by the Shareholder Services Agent of the dealer's
repurchase order and the date the redemption is processed upon receipt of all
documents necessary to settle the repurchase. Thus, it is in a shareholder's
best interest to have the required documentation completed and forwarded to the
Shareholder Services Agent as soon as possible. The shareholder's dealer may
charge a fee for handling the order.
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed Class
A or Class B shares of a Fund may reinstate any portion or all of the net
proceeds of such redemption in Class A shares of any other Fund. Class B
redemption proceeds cannot be reinstated in Class B shares. A Class C
shareholder who has redeemed Class C shares of a Fund may reinstate any portion
or all of the net proceeds of such redemption in Class C shares of the Fund. Any
such reinstatements of Class A, Class B, or Class C shares will be made at the
net asset value (without sales charge except as described under "How to Make
Exchanges") next determined after the reinstatement request is received, which
must be within 120 days after the date of the initial redemption. See "How To
Purchase Shares -- Waiver of CDSCs" and the Statement of Additional Information.
Reinstatement at net asset value is also offered to participants and those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plans. The reinstatement privilege may be exercised only once for each Fund
investment. The redemption is a taxable event but some or all of any loss on
redemption may be disallowed under certain "wash sale" rules for federal income
tax purposes. See "Dividends, Distributions and Federal Income Taxation -- U.S.
Federal Taxation of Shareholders" below. It is the responsibility of the
investor or the investor's broker to notify the Shareholder Services Agent of
the investor's intent to exercise the reinstatement privilege. The Funds may
modify or terminate the reinstatement privilege at any time upon notice to
shareholders.
REDEMPTION REQUIREMENTS TO REMEMBER
To ensure acceptance of your redemption request, please follow the procedures
described here and in the "Quick Reference Guide" in Appendix B. Once your
shares are redeemed, the proceeds will normally be sent to you on the next
Business Day, if all redemption instructions described above are followed and
all documentation described above is complete when received by the Shareholder
Services Agent. If making immediate payment could adversely affect a Fund, it
may take up to seven (7) days (or such shorter period as may be required by law
or regulation) to pay you. The Funds may hold payment until they are reasonably
satisfied that investments initially made by check have been collected (which
may take up to 15 days from the date of receipt of the check). When the New York
Stock Exchange is closed (or when trading is restricted) for any reason other
than its customary weekend or holiday closings, or under any emergency
circumstances as determined by the SEC to merit such action, redemptions may be
suspended or payment dates postponed. Under limited circumstances set forth in
the Statement of Additional Information, the Funds may also make redemptions in
securities or other assets of the Funds.
Each Fund may automatically redeem the shares of any shareholder who does not
maintain a net asset value of at least $500 in her/his account with that Fund.
Automatic redemption will not occur if the net asset value falls below $500
solely as a result of fluctuations in the value of the Fund's investment
portfolio (rather than as a result of redemptions or exchanges by the
shareholder). The proceeds from such a redemption will be mailed to the
shareholder's address of record. Affected shareholders will receive at least 60
days' prior written notice that their account will be closed unless they make an
additional investment to increase their account balance to the $500 minimum. Any
applicable CDSC will be deducted from the proceeds of this redemption.
40
<PAGE>
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
Unless the Telephone Privilege is waived by the shareholder (by completing the
appropriate section of the Account Application provided with this Prospectus),
each shareholder may effect purchase, exchange, redemption, and account
maintenance transactions by telephone. The Telephone Privilege authorizes the
Company, the Shareholder Services Agent and the Distributor to act upon
instructions by telephone to purchase, exchange, redeem and generally to
maintain the account for which the Telephone Privilege applies.
A shareholder may give EXCHANGE INSTRUCTIONS by telephone to the Shareholder
Services Agent by calling the appropriate toll-free number provided in the
"Quick Reference Guide" in Appendix B, or through the shareholder's securities
dealer.
REDEMPTION REQUESTS may be made by telephone by calling the Shareholder Services
Agent at the appropriate toll-free number provided in the "Quick Reference
Guide" in Appendix B. Shareholders who have retirement accounts or who hold
certificates for shares may not redeem by telephone. For redemptions authorized
by telephone, amounts of $50,000 or less may be redeemed daily if the proceeds
are to be paid by check and amounts of at least $1,000 up to $1 million may be
redeemed daily by wire. The proceeds must be payable to the shareholder(s) of
record and sent to the address of record for the account or wired directly to
their predesignated bank account. This privilege is not available if the address
of record has been changed within 30 days prior to a telephone redemption
request. Proceeds from redemptions are expected to be wired on the next business
day following the date of redemption. The Company reserves the right to
terminate, limit or otherwise modify this redemption privilege at any time.
In an effort to confirm that telephone requests are genuine, reasonable
procedures are employed, which currently include recording all telephone
instructions and mailing a confirming account statement to the record address.
If reasonable procedures are followed, neither the Company, the Distributor, nor
the Shareholder Services Agent will be liable for following telephone
instructions it reasonably believes to be genuine. The Company, the Distributor,
or the Shareholder Services Agent may be liable for losses due to unauthorized
or fraudulent instructions if reasonable procedures are not followed. Exchanges
and redemptions will be accepted from authorized dealers on behalf of a
shareholder by telephone provided that the exchange or redemption involves only
uncertificated shares on deposit in the shareholder's account or shares for
which certificates have previously been deposited.
Investors should be aware that they may have difficulties effecting telephone
transactions during unusual market conditions.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION
The International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Fund and Latin America Fund will annually distribute
substantially all of their net investment income and net realized capital gains.
The annual distribution and/or dividend, if any, will be declared in November or
December of each year. Distributions from net investment income, if any, are
expected to be small. Distributions from capital gains are made after applying
any available loss carryovers.
The Global Income Fund seeks to declare dividends daily and to pay dividends
monthly from net investment income, if any. Distributions from net investment
income may include all or a portion of the Funds' net realized short-term gains.
Annual distributions of any net realized long-term gains and any remaining
short-term gains will be declared in November or December of each year. Each
Fund may make additional dividend or capital gain distributions to comply with
certain distribution requirements under the Code.
The per share dividends on Class B and Class C shares are expected to be lower
than the per share dividends on Class A shares as a result of the higher
distribution fees and expenses and incremental transfer agency fees applicable
to Class B and Class C shares.
41
<PAGE>
Shareholders may choose from four distribution options:
- - Reinvest all income dividends and capital gains distributions in additional
Fund shares;
- - Receive income dividends in cash and accept capital gains distributions in
additional Fund shares;
- - Receive capital gains distributions in cash and accept income dividends in
additional Fund shares; or,
- - Receive income dividends and capital gains distributions in cash.
Unless otherwise designated on your account application, all income dividends
and capital gains distributions for which reinvestment has been elected will be
reinvested in shares of the Fund that paid the dividend or distribution. You may
not elect to receive in cash capital gains distributions from a particular Fund
if you have also elected to reinvest income dividends paid by that Fund in
shares of any other Fund or Funds. Additionally, you may not elect to receive in
cash income dividends from a particular Fund if you have also elected to
reinvest capital gains distributions paid by that Fund in shares of any other
Fund or Funds.
You can change your distribution option by notifying the Shareholder Services
Agent by telephone or in writing prior to the distribution record date. If you
do not select an option, all dividends and distributions will be automatically
reinvested. Automatic reinvestments in additional shares are made without a
sales charge as of the ex-dividend date using the net asset value determined on
that date, and are credited to your account on the payment date.
UNITED STATES FEDERAL TAXATION OF THE FUNDS
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, for federal
income tax purposes and to meet all other requirements that are necessary for it
(but not its shareholders) to be exempt from federal taxes on income and gains
paid to shareholders in the form of dividends. In order to accomplish this goal,
each Fund must, among other things, distribute substantially all of its ordinary
income and net capital gains on a current basis and maintain a portfolio of
investments which satisfies certain diversification criteria.
UNITED STATES FEDERAL TAXATION OF SHAREHOLDERS
For federal income tax purposes, any income dividends which the shareholder
receives from a Fund, as well as any distributions derived from the excess of
net short-term capital gains over net long-term capital losses, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares. Distributions derived from the excess of net long-term
capital gains over net short-term capital losses are treated as long-term
capital gains regardless of the length of time the shareholder has owned the
shares of a Fund and regardless of whether the shareholder receives such
distributions in cash or in additional shares.
Certain distributions which are declared in October, November, or December but
which, for operational reasons, may not be paid to the shareholder until the
following January, may be treated for federal tax purposes as if received by the
shareholder on December 31 of the calendar year in which the distributions are
declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. All or a portion of a loss realized upon
a redemption of shares will be disallowed to the extent other shares of a Fund
are purchased (through reinvestment of dividends or otherwise) within 30 days
before or after such redemption. If a shareholder receives a long-term capital
gain distribution on shares of a Fund and such shares are held for less than six
months and are sold at a loss, the portion of the loss equal to the amount of
the long-term capital gain distribution will be considered a long-term capital
loss for tax purposes.
All or a portion of the sales charge incurred in purchasing shares of a Fund
will not be included in the federal tax basis of any such shares sold within 90
days of their purchase (for the purpose of determining gain or loss upon the
sale of such shares) if the sales proceeds are reinvested in the Funds and a
sales charge that would otherwise apply to the reinvestment is reduced or
eliminated because the sales proceeds were reinvested in the Fund. The portion
of the sales charge so excluded from the tax basis of the shares sold will equal
the amount by which the sales charge that would otherwise be applicable upon the
reinvestment is reduced. Of course,
42
<PAGE>
any portion of such sales charge excluded from the tax basis of the shares sold
will be added to the tax basis of the shares acquired in the reinvestment.
Each Fund will inform shareholders of the source of dividends and distributions
paid by the Fund at the time they are paid, and will promptly after the close of
each calendar year advise shareholders of the tax status for federal income tax
purposes of such dividends and distributions. Income received by the Funds 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 shareholders to take a credit (or, if more advantageous, a deduction) for
foreign income taxes paid by the Fund, subject to limitations contained in the
Internal Revenue Code of 1986, as amended. Shareholders would then include in
gross income dividends paid to them by the Fund as well as the foreign taxes
paid by the Fund on their foreign investments. The Funds cannot assure
shareholders that they will be eligible for the foreign tax credit. The Funds
will advise shareholders annually of their share of any creditable foreign taxes
paid by the Funds.
Each Fund will be required to report to the Internal Revenue Service ("IRS") any
taxable dividend or other reportable payment (including share redemption
proceeds). Each Fund will also be required to withhold 31% of any such payments
made to individuals and other non-exempt shareholders who have not provided a
correct taxpayer identification number and made certain required certifications
that appear in the Account Application provided with this Prospectus. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Funds that the taxpayer identification number furnished by
the shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
It is recommended that shareholders consult their own tax advisors with respect
to the foregoing and the applicability of state and local income taxes to
distributions and redemption proceeds received from a Fund. Shareholders who are
not United States persons for purposes of federal income taxation should consult
with their financial or tax advisors regarding the applicability of United
States withholding taxes to distributions received by them from a Fund. More
detailed information regarding taxation of shareholders and taxation of the
Funds can be found in the Statement of Additional Information.
The foregoing discussion has been prepared by the management of the Company and
does not purport to be a complete description of all tax implications of an
investment in the Funds. Shareholders are advised to consult with their own tax
advisors concerning the application of foreign, federal, state and local taxes
to an investment in the Funds.
- --------------------------------------------------------------------------------
OTHER INFORMATION
CONFIRMATIONS AND REPORTS TO SHAREHOLDERS
Currently, each time a transaction is made that affects a shareholder's account
in a Fund, such as an additional investment, redemption, exchange or the payment
of a dividend or distribution, the shareholder will receive from the Shareholder
Services Agent a confirmation statement reflecting the transaction. After the
end of the Fund's fiscal year on December 31 and fiscal half-year on June 30 of
each year, shareholders will receive an annual and semiannual report,
respectively. These reports will list the securities held by the Fund and
include financial statements relating to the Fund. The federal income tax status
of distributions made by the Funds to shareholders will be reported after the
end of the calendar year on Form 1099-DIV.
ORGANIZATION
The Company is a Maryland corporation and is registered with the SEC as an
open-end management investment company. Each of the Funds corresponds to a
distinct investment portfolio and a distinct series of the Company's shares. In
the future, from time to time, the Company's Board of Directors may, in its
discretion, establish additional funds and issue shares of additional series of
the Company's shares. Shares of the Funds are entitled to one vote per share
(with proportional voting for fractional shares) and are freely
43
<PAGE>
transferable subject to applicable federal and state securities laws.
Shareholders have no preemptive or conversion rights.
Each Fund has designated three classes of shares: Class A, Class B and Class C
shares. AS OF THE DATE OF THIS PROSPECTUS, ONLY A SHARES ARE AVAILABLE TO THE
GENERAL PUBLIC. Each class of shares of a Fund represents interests in the
assets of the Fund and has identical voting, dividend, liquidation and other
rights on the same terms and conditions except that expenses related to the
distribution of each class of shares are borne solely by that class and each
class of shares of a Fund has exclusive voting rights with respect to provisions
of the Fund's Class A, Class B and Class C distribution plan which pertains to
that class. The Funds are relying on an order issued by the SEC to issue and
sell multiple classes of shares representing interests in the Funds' portfolios.
The Funds normally will not hold meetings of shareholders except as required
under the 1940 Act and Maryland law. On any matter submitted to a vote of
shareholders, shares of each Fund will be voted by that Fund's shareholders
individually when the matter affects the specific interest of that Fund only,
such as approval of that Fund's investment management arrangements. The shares
of all the Funds will be voted in the aggregate on other matters, such as the
election of directors and ratification of the Board of Directors' selection of
the Funds' independent accountants.
At March 29, 1995, the following affiliates of the Fund owned the following:
John Govett & Co. Limited owned 26.31% of the Pacific Strategy Fund; Arthur I.
Trueger, Chairman of London Pacific Group Limited, the former owner of John
Govett & Co. Limited and the current owner of Berkeley Capital Management,
Subadviser to the Smaller Companies Fund, owned 25.84% of the Pacific Strategy
Fund.
As is the case for other investors in the Funds, the Govett investors may redeem
their Fund shares at any time. A Director may be removed upon a majority vote of
the shareholders qualified to vote in the election. Shareholders holding 10% of
the Company's outstanding shares may call a meeting of shareholders. The
Company's Bylaws require it to assist shareholders in calling such a meeting.
Pursuant to the Company's Articles of Incorporation, each Fund may issue up to
250 million shares. Each share of a Fund represents an interest in that Fund
only, has a par value of one thousandth of one cent per share, represents an
equal proportionate interest in the Fund with other shares of the Fund and is
entitled to such dividends and distributions out of the income earned and gains
realized on the assets belonging to the Fund as may be declared by the Board of
Directors.
PERFORMANCE INFORMATION
Each Fund may from time to time include information on its investment results
and/or comparisons of its investment results to various managed or unmanaged
indices or averages or results of other mutual funds or groups of mutual funds
in advertisements, sales literature or reports furnished to present or
prospective shareholders.
In such materials, a Fund may quote its average annual total return
("Standardized Return"). Standardized Return represents the percentage rate
reflecting the average annual change in the value of an assumed investment in
the Fund at the end of a one-year period and at the end of five- and ten-year
periods, reduced by the maximum applicable front-end sales charge imposed on
sales of Fund shares (Class A shares only). Performance information with respect
to a Fund will also reflect that any applicable CDSC has been paid. If a one-,
five- and/or ten-year period has not yet elapsed, data will be provided as of
the end of a shorter period corresponding to the life of the Fund. The total
return computation assumes the reinvestment of all dividends and capital gain
distributions at net asset value.
Standardized Returns quoted in advertising will reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per share over the
period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in the Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded
44
<PAGE>
basis in ten years. While average annual returns are a convenient means of
comparing investment alternatives, investors should realize that a Fund's
performance will not be constant over time, but will change from year to year,
and that average annual returns represent averaged figures as opposed to the
actual year-to-year performance of the Fund.
The Global Income Fund may also refer in advertising and promotional materials
to its yield. A Fund's yield shows the rate of income that it earns on its
investments, expressed as a percentage of the public offering price of its
shares. The Fund calculates yield by determining the investment income it earned
from its portfolio investments for a specified thirty-day period (net of
expenses), dividing such income by the average number of shares outstanding, and
expressing the result as an annualized percentage based on the public offering
price of its shares at the end of that thirty-day period. Yield accounting
methods differ from the methods used for other accounting purposes; accordingly,
a Fund's yield may not equal the dividend income actually paid to investors or
the income reported in its financial statements.
In addition, a Fund may also include in advertisements, sales literature and
shareholder reports other than total return performance data ("Non-Standardized
Return"). Non-Standardized Return reflects the percentage rates of return
encompassing all elements of return (i.e., income and capital appreciation or
depreciation); and will assume reinvestment of all dividends and capital gain
distributions. Non-Standardized Return may be quoted for the same or different
periods as those for which Standardized Return is quoted; it may consist of an
aggregate or average annual percentage rate of return, actual year-by-year rates
or any combination thereof. It may or may not take sales charges into account; a
Fund's performance calculated without taking the effect of sales charges into
account will be better than such performance including the effect of such
charges.
Yield and total return are calculated separately for Class A, Class B and Class
C shares of each Fund. Class A total return figures include the maximum
front-end sales charge of 4.95%; Class B and Class C total return figures
include any applicable CDSC. Because of the differences in sales charges and
distribution charges, the total returns for each of the classes of the same Fund
will differ. Each Fund will include performance data for its Class A, Class B
and Class C shares in any advertisement or information including performance
data of the Fund.
Each Fund's performance data reflects past performance and is not necessarily
indicative of future results. A Fund's investment results will vary from time to
time depending upon market conditions, the composition of its portfolio and its
operating expenses. These factors and possible differences in calculation
methods should be considered when comparing a Fund's investment results with
those published for other mutual funds, other investment vehicles and unmanaged
indices. A Fund's results also should be considered relative to the risks
associated with its investment objectives and policies. See "Performance" in the
Statement of Additional Information.
The Company's Annual Report for the fiscal year ended December 31, 1995 contains
additional performance information on the International Equity Fund, Emerging
Markets Fund, Smaller Companies Fund, Pacific Strategy Fund, Latin America Fund,
and Global Income Fund. This Annual Report is available without charge upon
request.
45
<PAGE>
THE GOVETT FUNDS, INC.
GOVETT INTERNATIONAL EQUITY FUND
GOVETT EMERGING MARKETS FUND
GOVETT SMALLER COMPANIES FUND
GOVETT PACIFIC STRATEGY FUND
GOVETT LATIN AMERICA FUND
GOVETT GLOBAL INCOME FUND
SHAREHOLDER SERVICES AGENT
Please send all investments to:
The Govett Funds, Inc.
P.O. Box 419376
Kansas City, MO 64141
(800) 821-0803
OVERNIGHT MAIL
The Govett Funds, Inc.
7501 Tiffany Springs Parkway
Kansas City, MO 64153-1386
THE GOVETT FUNDS, INC.
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
INVESTMENT MANAGER
John Govett & Co. Limited
Shackleton House
4 Battle Bridge Lane
London SE1 2HR
England
DISTRIBUTOR
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(800) 624-6839
CUSTODIANS
The Chase Manhattan Bank, NA
1211 Avenue of the Americas
New York, NY 10036
Investors Bank & Trust Company (until June 1, 1996)
89 South Street
Boston, MA 02111
DIRECTORS
Elliott L. Atamian
Sir Victor Garland
Kevin J. T. Pakenham
James M. Oates
Frank R. Terzolo
OFFICERS
Brian Lee, President
Peter Moffatt, Vice President
Colin Kreidewolf, Treasurer
Alice L. Schulman, Secretary
<PAGE>
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE DEBT
RATINGS
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues; AA. Bonds 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 amplitude or
there may be other elements present which made 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 giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future; BAA. Bonds 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; BA. Bonds which are rated Ba have speculative elements
and their future cannot be considered to be well assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class; B. Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; CAA. Bonds which are rated Caa are in poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest; CA. Bonds which are rated Ca are speculative in a high
degree. Such issues are often in default or have other marked shortcomings; C.
Bonds which are rated C are the lowest rated class of bonds. Issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
DESCRIPTION OF STANDARD & POOR'S CORPORATION CORPORATE DEBT RATINGS
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong; AA. Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree; A. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories; BBB. Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories; BB. Debt rated BB has less near-term vulnerability to default than
other speculative issues; however, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating; B. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB-" rating; CCC. Debt rated
CCC has a currently indefinable vulnerability to default, and is dependent upon
favorable business, financial and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse business, financial
or economic conditions, it is not likely to have the capacity to pay interest
and repay principal. The "CCC" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "B" or "B-"
rating; CC. Debt rated CC typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating; C. Typically applied to debt
subordinated to senior debt which is assigned an actual or implied "CCC-" debt
rating. The "C" rating may be used to cover a situation where a bankrupcty
petition has been filed, but debt service payments are continued; D. In payment
default. The "D" rating is used when interest payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
A-1
<PAGE>
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
COMMERCIAL PAPER RATINGS
Moody's employs the designations "Prime-1" and "Prime-2" to indicate commercial
paper having the highest capacity for timely repayment. Issuers rated Prime-1
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protections; 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. Issues rated Prime-2 have a strong capacity for repayment
of short-term promissory 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, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Standard & Poor's ratings of commercial paper are graded into four categories
ranging from "A" for the highest quality obligations to "D" for the lowest. A -
Issues assigned its highest rating are regarded as having the greatest capacity
for timely payment. Issues in this category are delineated with numbers 1 and 2
to indicate the relative degree of safety. A-1 - This designation indicates that
the degree of safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety characteristics
will be denoted with a plus (+) sign designation. A-2 - Capacity for timely
payments on issues with this designation is strong. However, the relative degree
of safety is not as high as for issues designated "A-1."
* * *
Ratings of debt securities represent the rating agency's opinion regarding their
quality and are not a guarantee of quality. Subsequent to its purchase by a
Fund, the rating of an issue of debt securities may be reduced below the minimum
rating required for purchase by that Fund. The Manager or Subadvisor will
consider such an event in determining whether the Fund should continue to hold
the security. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.
A-2
<PAGE>
APPENDIX B
QUICK REFERENCE GUIDE
Shareholders are encouraged to place purchase, exchange and redemption orders
through their securities dealers. Shareholders may, however, place orders
directly through the Funds' Shareholder Services Agent.
INVESTMENTS BY MAIL
Send completed Account Application (if initial purchase) or letter stating the
particular Fund's name, the shareholder's registered name and the account number
(if a subsequent purchase) with a check to:
The Govett Funds, Inc.
P.O. Box 419376
Kansas City, MO 64141
INVESTMENTS BY BANK WIRE
An investor opening a new account should call (800) 421-6714. Within seven days
of purchase, the investor must send a completed Account Application containing
the investor's taxpayer identification number to the Funds at the address
provided under "Investments By Mail." Wire instructions must state the Fund
name, the shareholder's registered name and the account number. Bank wires
should be sent through the Federal Reserve Wire System to:
The Govett Funds, Inc.
IFTC ABA #101003621
Bank Account #890-752-244-4
EXCHANGES BY MAIL
Send complete instructions, including the name of the Funds which shares are to
be exchanged in and out of, the amount of exchange, shareholder's registered
name and account number to:
The Govett Funds, Inc.
P.O. Box 419434
Kansas City, MO 64141
EXCHANGES BY TELEPHONE
If the telephone privilege section of the Account Application was completed,
call The Govett Funds, Inc. at (800) 421-5684. You will be asked for the
following information: the name of the Funds which shares are to be exchanged
into and out of, the amount of exchange, shareholder's registered name and
account number.
REDEMPTIONS BY MAIL
Send complete instructions, including the name of the Fund, amount of
redemption, shareholder's registered name and account number to:
The Govett Funds, Inc.
P.O. Box 419434
Kansas City, MO 64141
REDEMPTIONS BY TELEPHONE
If the telephone privilege section on the Account Application was completed,
call The Govett Funds, Inc. at (800) 421-5684. You will be asked for the
following information: the name of the Fund, amount of redemption, shareholder's
registered name and account number.
ADDITIONAL QUESTIONS
Shareholders with additional questions regarding purchase, exchange and
redemption procedures may call (800) 821-0803. For 24-hour price line, call
(800) 468-6608.
B-1
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
ACCOUNT APPLICATION
WE PLACE GREAT EMPHASIS ON SERVICE. IF YOU HAVE ANY
QUESTIONS ABOUT THIS APPLICATION FORM, PLEASE FEEL FREE TO CALL
VAN KAMPEN AMERICAN CAPITAL CUSTOMER SERVICE DEPARTMENT
AT (800) 821-0803.
GENERAL INSTRUCTIONS
- - This application may be used for a new account or revisions to your existing
account.
- - Please read the Prospectus carefully before investing in the Funds.
- - This application may not be used to establish an IRA. For an IRA application
or any questions, please call: (800) 821-0803.
- - PLEASE SIGN THIS APPLICATION ON THE LAST PAGE UNDER "SIGNATURE AND TAXPAYER
IDENTIFICATION NUMBER CERTIFICATION."
- - Mail and make checks payable to: The Govett Funds, Inc.
P.O. Box 419376
Kansas City, MO 64141
ACCOUNT REGISTRATION / / New Account / / Revise Existing Account
Number _________________________________________________________________________
<TABLE>
<S> <C> <C>
/ / Individual
- -
--------------------------------------------------------- -------------------------------
First Name Middle Initial Last Name Social Security Number
- -
/ /Joint --------------------------------------------------------- -------------------------------
Registration First Name Middle Initial Last Name Social Security Number
JOINT TENANCY WITH RIGHTS OF SURVIVORSHIP WILL BE PRESUMED UNLESS OTHERWISE SPECIFIED.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
/ / Gift/Transfer ----------------------------------------------------
To A Minor Custodian's Name (only one) AS CUSTODIAN FOR
UNDER THE
----------------------------------------------------
Minor's Name (only one)
Uniform Gift/Transfer to Minors Act of ------------------
Name of State
-
----------------------------------
Minor's Social Security Number
- ------------------------------------------------------------------------------------------------------------------------------
/ / Trust or --------------------------------------------------------------------------------------------
Qualified Plan Name of Trust or Plan
---------------------------------------------------- ----------------------------------
Name of Trustee or Custodian Trust/Plan Agreement Date
-
---------------------------------------------------- ----------------------------------
For the Benefit of Taxpayer Identification Number
- ------------------------------------------------------------------------------------------------------------------------------
/ /Corporation,
Partnership ---------------------------------------------------- -
or Other Name of Entity ----------------------------------
Organization Taxpayer Identification Number
ACCOUNT REGISTRATION ADDRESS
</TABLE>
<TABLE>
<S> <C>
( )
- -------------------------------------------------------------------------------- ------------------------------
Street Address Business Phone Number
( )
- -------------------------------------------------------------------------------- ------------------------------
City State ZIP Home Phone Number
</TABLE>
FUND INVESTMENT
<TABLE>
<S> <C> <C> <C>
Minimum initial investment is $500 per Fund. Make checks payable to: The Govett Funds, Inc.
Govett International Equity Fund $
-----------------------
Govett Emerging Markets Fund $
-----------------------
Govett Smaller Companies Fund $
-----------------------
Govett Pacific Strategy Fund $
-----------------------
Govett Latin America Fund $
-----------------------
Govett Global Income Fund $
-----------------------
TOTAL AMOUNT INVESTED $
-----------------------
/ / Please send information regarding the Money Market Fund
If this application relates to a broker/dealer or wire order purchase,
please provide date and confirmation number:
</TABLE>
<PAGE>
DIVIDENDS/CAPITAL GAINS
<TABLE>
<S> <C> <C> <C>
All dividends and capital gains distributions will be reinvested into the Fund which pays them unless the
appropriate boxes below are checked: If you would like your dividends and/or capital gains distributions to be
wired to you, please check "Paid in Cash" below and complete Section F.
Dividends are to be: / / Reinvested / / Paid in Cash
Capital gains distributions are to be: / / Reinvested / / Paid in Cash
If you have elected above to reinvest BOTH capital gains and dividends, you may elect to reinvest these
distributions in another Govett Fund.
/ / Invest all distributions into the following Govett Fund: --------------------
Name of Fund
If you have elected to have capital gains and/or dividends paid in cash, you may elect to have these
distributions mailed to a third party. Please complete the third party address below.
</TABLE>
THIRD PARTY ADDRESS
<TABLE>
<S> <C> <C>
I would like / / duplicate confirmation statements / / cash dividends/distributions and/or / / systematic withdrawals*
to be mailed to the following third party:
( )
------------------------------------------------------------------------------------
Name Phone Number
------------------------------------------------------------------------------------------------------------------------
Street Address
------------------------------------------------------------------------------------------------------------------------
City State ZIP
(If no third party is specified above, cash dividends/distributions will be mailed to the Account Registration Address.)
*Please complete Section D, Systematic Withdrawal Plan, in addition to completing address above.
</TABLE>
ACCOUNT CONVENIENCE OPTIONS
<TABLE>
<S> <C> <C> <C> <C> <C>
Unless waived by the shareholder below, the shareholder hereby authorizes ACCESS
A. Telephone to accept and act upon telephone instructions regarding shareholder's Fund
Privilege account(s). By my signature herein, I certify that I have read and understand
Waiver the conditions of the Telephone Privilege set forth in the Telephone
Transactions section of this Prospectus.
/ / I hereby waive my option to execute exchange and redemption transactions by
telephone.
<CAPTION>
<CAPTION>
A.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
B. Automatic You may start an Automatic Exchange Plan and direct any Fund to transfer a
Exchange specified amount ($25 minimum) to another Fund on a monthly or quarterly
Plan basis.
/ /Please establish an Exchange Plan under which I will transfer $ monthly.
($25 minimum)
from
Name of Fund
to
Name of Fund
I would like transfers to begin
Month/Day/Year
<CAPTION>
B.
<CAPTION>
</TABLE>
<PAGE>
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C. Letter of / / I agree to the terms of the Letter of Intent set forth in the Prospectus. Although I am not obliged
Intent to do so, it is my intention to invest over a 13-month period, in shares of one or more of the
Govett Funds, an aggregate at least equal to:
/ / $100,000 / / $250,000 / / $500,000 / / $1,000,000
(NOTE: FOR A LETTER OF INTENT, THE MINIMUM INITIAL INVESTMENT MUST EQUAL AT LEAST 5% OF THE INTENDED
AMOUNT.)
- -------------------------------------------------------------------------------------------------------------------------------
D. Systematic You may start a Systematic Withdrawal Plan and direct the Fund to send a specified amount ($25
Withdrawal minimum) to your Account Registration Address or to a specified third party on a monthly, quarterly,
Plan semiannual or annual basis. Please refer to the Prospectus for complete details.
/ /Please establish a Withdrawal Plan under which I will receive payments:
/ / monthly / / quarterly / / semiannually / / annually
from ---------------------------------- for $ ----------------------------------
Name of Fund ($25 minimum)
I would like withdrawals to begin ----/ ----. Checks will be mailed on or about the 21st day of each
month.
Month Year
I would like withdrawals
/ / to be directly deposited into my bank account. Please complete Bank/Wiring section.
/ / to go to a third party. Please complete Third Party Address section.
- -------------------------------------------------------------------------------------------------------------------------------
E. Automatic / / I have read the terms and conditions of the Automatic Investment Plan set forth in the Prospectus.
Investment I wish to invest on a monthly basis, directly from my checking account, into the following Fund(s).
Plan Please complete Section F, and attach a voided check.
Please designate the amount you would like invested. (Minimum $25 per Fund) To begin //
Month Day Year
International Equity $ Pacific Strategy Fund $
Fund
Emerging Markets Fund $ Latin America Fund $
Smaller Companies Fund $ Global Income Fund $
/ / I wish to increase my Automatic Investment Plan beginning ---/ ---
Month Year
Dollar Amount of Increase $
($10 Minimum)
Percentage of Increase%
(10% Minimum)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
F. Bank/ Complete this portion if you are participating in the Automatic Investment Plan,
Wiring or would like dividends/capital gains distributions, telephone redemptions or
Information systematic withdrawals to be automatically deposited to your bank. YOU MUST
ATTACH A VOIDED CHECK TO PARTICIPATE. CHECK THOSE THAT APPLY:
/ / Automatic Investment / / Checking / /
Plan
ATTACH
VOIDED CHECK / / Systematic Withdrawal / / Telephone Redemptions / /
HERE Plan
---------------------------------------------------------------------------------
Name of Shareholder's Bank
-------------------------------------------------------------------- ---------
Name on Bank Account Account
Number
Authorized Signature (AS SHOWN ON BANK RECORDS)
<CAPTION>
F.
Savings
Dividends/Capital Gains
Distributions
---------------------------------------------------------------------------------
-------------------------------------------------------------------- ---------
<CAPTION>
</TABLE>
<PAGE>
BROKER/DEALER INFORMATION (To be completed by your representative, if
applicable)
<TABLE>
<S> <C>
We hereby submit this application for the purchase of shares in accordance with the terms of our Selling Agreement with
Van Kampen American Capital Distributors, Marketing, Inc. and with the Prospectus and Statement of Additional
Information. We agree to notify ACCESS of any purchases made under a Letter of Intent or Right of Accumulation.
Dealer Name Representative's Last Name First Name M. I.
Dealer Home Office Address Representative's Branch Office Address
City State ZIP City State ZIP
() ()
Telephone Number Telephone Number
Dealer Number Representative Number
</TABLE>
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
<TABLE>
<S> <C>
By my signature below and under penalties of perjury, I certify: (1) that the number shown on this application is my
correct Social Security or Taxpayer Identification Number, and (2) that I am not subject to backup withholding because
either I have not been notified by the Internal Revenue Service that I am subject to backup withholding, or the Internal
Revenue Service has notified me that I am no longer subject to backup withholding.
If you are currently subject to backup withholding due to an Internal Revenue Service notice, strike out clause (2) of
the preceding sentence, and check the box below.
/ / Check here if you have been notified by the IRS that you are currently subject to backup withholding.
/ /Check here if you qualify as a non-resident alien. If so, your country of residence for tax purposes is:
.
</TABLE>
SIGNATURE
<TABLE>
<S> <C>
I have read the prospectus and application for the Fund in which I am investing and agree to its terms. I am also aware
that a Telephone Privilege exists and that the privilege is automatically available unless affirmatively declined. I also
understand that if the Fund fails to follow the procedures outlined in the prospectus, it may be liable for any losses
due to unauthorized or fraudulent instructions. I am of legal age. Sign below exactly as printed in registration. For
joint registration, both must sign.
For Corporations, Trusts, or Partnerships: We hereby certify that each of the persons listed below has been duly elected,
and is now legally holding the office set forth opposite his/her name and has the authority to make this authorization.
Please print titles below if signing on behalf of a business or trust to establish this account.
</TABLE>
<TABLE>
<S> <C> <C>
PLEASE SIGN BELOW:
Individual (or Custodian) Signature Date
Joint Registrant (if any) Signature Date
Corporate Officer, Partner, Trustee, etc. Signature Date
Print Name and Title
</TABLE>
<PAGE>
THE GOVETT FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 24, 1996
RELATING TO PROSPECTUS OF THE SAME DATE
The Govett Funds, Inc. (the "Company") is an open-end, management investment
company. The Company presently consists of a series of six funds, each a
separate investment portfolio with its own investment objective and policies, as
follows: GOVETT INTERNATIONAL EQUITY FUND, GOVETT EMERGING MARKETS FUND, GOVETT
SMALLER COMPANIES FUND, GOVETT PACIFIC STRATEGY FUND, GOVETT LATIN AMERICA FUND,
each of which seeks long-term capital appreciation, and GOVETT GLOBAL INCOME
FUND, which seeks primarily a high level of current income, consistent with
preservation of capital, and has a secondary objective of capital appreciation
(individually a "Fund", and together the "Funds"). There can, of course, be no
assurance that a Fund's investment objective will be achieved.
The Funds' investment manager is John Govett & Co. Limited ("John Govett" or the
"Manager"), a United Kingdom corporation. John Govett is an affiliate of Allied
Irish Banks p.l.c. ("AIB"), the parent of the AIB Group of Companies. The AIB
Group provides a diverse range of banking, financial and related services,
principally in Ireland, the United States and the United Kingdom.
A Prospectus for the Funds, dated the same date as this Statement of Additional
Information, as amended from time to time, provides the basic information that a
prospective shareholder should know before investing in the Funds. The
Prospectus is incorporated by reference herein and may be obtained without
charge by calling (800) 634-6838 or by writing to:
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
This Statement of Additional Information is not a prospectus. It contains
information in addition to and in more detail than is set forth in the
Prospectus. It should be read in conjunction with the Prospectus.
1
<PAGE>
CONTENTS
PAGE
ABOUT THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . .3
OTHER POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS. . . . . . .6
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MANAGEMENT OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . 21
BROKERAGE ALLOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
DESCRIPTION OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . 27
ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION. . . . . . . . . 28
ADDITIONAL DISTRIBUTION AND TAXATION INFORMATION . . . . . . . . . . . . . 35
THE FUNDS' DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . 37
PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2
<PAGE>
ABOUT THE FUNDS
DEFINITIONS
The "Company"
The Govett Funds, Inc., a Maryland corporation
The "Funds"
Govett International Equity Fund, Govett Emerging Markets Fund,
Govett Smaller Companies Fund, Govett Pacific Strategy Fund,
Govett Latin America Fund, and Govett Global Income Fund
"John Govett" or the "Manager"
John Govett & Co. Limited
"Berkeley" or the "Subadviser"
Berkeley Capital Management (formerly named Govett Asset
Management)
"Van Kampen American Capital" or the "Distributor"
Van Kampen American Capital Distributors, Inc.
"AIB Group"
Allied Irish Banks p.l.c. and its subsidiaries
"Custodians"
The Chase Manhattan Bank, N.A., and Investors Bank & Trust
Company
"Shareholder Services Agent"
ACCESS Investor Services, Inc.
The Govett Funds, Inc. is an open-end management investment company, commonly
called a "mutual fund," incorporated in Maryland on November 13, 1990. The
Company is organized in series form, presently consisting of six portfolios:
GOVETT INTERNATIONAL EQUITY FUND, GOVETT EMERGING MARKETS FUND, GOVETT SMALLER
COMPANIES FUND, GOVETT PACIFIC STRATEGY FUND, GOVETT LATIN AMERICA FUND, and
GOVETT GLOBAL INCOME FUND. Each Fund is a separate and distinct investment
portfolio, with its own separate investment objective and policies.
INVESTMENT OBJECTIVES AND POLICIES
As noted in the Prospectus, each Fund has its own investment objective and
follows policies designed to achieve that objective. The following investment
policies and limitations for the Funds supplement those set forth in the
Prospectus. Whenever an investment policy or limitation states a maximum
percentage of a Fund's assets that may be invested in any security or other
asset, or sets forth a policy regarding quality standards, such standard or
percentage limitation shall be determined immediately after and as a result of
the Fund's acquisition of such security or other asset. Accordingly, any later
increase or decrease resulting from a change in values, net assets or other
circumstances will not be considered when determining whether the investment
complies with the Fund's investment policies and limitations.
A Fund's fundamental investment limitations cannot be changed without approval
by a majority of the outstanding voting securities, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act") of that Fund. Except for the
numbered limitations set forth immediately below, the investment policies and
limitations described in this Statement of Additional Information are not
fundamental policies, and may be changed without consent of shareholders. These
limitations, except as otherwise indicated, apply separately to each Fund.
3
<PAGE>
The following are the Funds' fundamental investment limitations. No Fund may:
1. Borrow money or mortgage or pledge any of its assets, except that a
Fund may borrow from banks, for temporary or emergency purposes, up to 33-1/3%
of its total assets and pledge up to 33-1/3% of its total assets in connection
therewith. Any borrowings that come to exceed 33-1/3% of the value of the Fund's
total assets at any time will be reduced within three days (exclusive of Sundays
and legal holidays) to the extent necessary to comply with the 33-1/3%
limitation. No Fund may purchase securities when borrowings exceed 5% of its
assets. Borrowings for purposes of this restriction include reverse repurchase
agreements.
2. Purchase any securities on "margin," or underwrite securities, except
that a Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of securities and except that the Funds may
make margin deposits in connection with futures contracts and options.
3. Make loans if, as a result, more than 33-1/3% of a Fund's total assets
would be lent to other parties except (i) through the purchase of a portion of
an issue of debt securities in accordance with its investment objectives,
policies, and limitations, or (ii) by engaging in repurchase agreements with
respect to portfolio securities. Portfolio securities may be loaned only if
continuously collateralized at least 100% by "marking-to-market" daily.
4. Invest 25% or more of its total assets in the securities of issuers in
a single industry (excluding securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities).
5. Purchase from, or sell any portfolio securities to, a Fund's officers
or Directors, or any firm of which any such officer or Director is a member, as
principal, except that a Fund may deal with such persons or firms as securities
dealers and pay a customary brokerage commission; or retain securities of any
issuer, if to the knowledge of a Fund, one or more of its officers, Directors or
investment managers own beneficially more than one-half of 1% of the securities
of such issuer and all such persons together own beneficially more than 5% of
such securities.
6. Purchase the securities of any issuer if, as a result thereof, more
than 5% of the value of total assets of any Fund (other than the Smaller
Companies Fund) would be invested in the securities of companies which,
including predecessors, have a record of less than three years' continuous
operations.
7. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result thereof, any such Fund, or the Company as a whole, would own
more than 10% of the outstanding voting securities of such issuer.
8. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit a Fund from (a) making any otherwise
permitted borrowings, mortgages or pledges, or (b) entering into option
contracts, futures contracts, forward contracts or repurchase transactions.
9. With respect to 75% of its total assets, invest in securities of any
one issuer if immediately after, and as a result of such investment, more than
5% of the total assets of the Fund, taken at market value, would be invested in
the securities of such issuer, provided that the Latin America and Global Income
Funds are not restricted in this regard. This restriction does not apply to
investments in U.S. government or agency securities.
10. Make investments for the purpose of exercising control, or underwrite
the securities of other issuers, except insofar as a Fund may be technically
deemed an underwriter in connection with the disposition of its portfolio
securities.
11. Purchase interests in oil, gas or other mineral exploration or
development programs, including mineral leases, although the Funds may invest in
common stocks of companies which invest in or sponsor such programs.
12. Purchase or sell real estate or real estate limited partnerships or
securities issued by companies that invest in real estate or interests therein.
4
<PAGE>
13. Purchase commodities or commodity contracts (including futures
contracts), except that the Funds may purchase securities of issuers which
invest or deal in commodities or commodity contracts, and except that the Funds
may enter into futures and options contracts only for hedging purposes.
In order to change any restriction which is a fundamental policy, approval must
be obtained from the respective Fund's shareholders; this would require the
affirmative vote of the lesser of (i) 67% or more of the respective Fund's
outstanding voting securities that are represented at the meeting if more than
50% of the outstanding voting securities of the respective Fund are represented,
or (ii) more than 50% of the respective Fund's outstanding voting securities.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT PRIOR SHAREHOLDER APPROVAL (THEY TOO APPLY TO EACH FUND).
The Funds do not currently intend to:
(i) Engage in any reverse repurchase agreements if, as a result, more than
5% of a Fund's net assets would be subject to reverse repurchase agreements.
(ii) Purchase or otherwise acquire any security or enter into a repurchase
agreement with respect to any security if, as a result, more than 5% of a Fund's
net assets (taken at current value) would be invested in repurchase agreements
not entitling the holder to payment of interest and principal within seven days,
or in securities that are illiquid by virtue of legal or contractual
restrictions on resale or for which there is no readily available market.
(iii) Purchase securities of another investment company, except as permitted
by the 1940 Act and other applicable laws.
(iv) Lend assets, other than portfolio securities, to other parties, except
by purchasing debt securities and engaging in repurchase agreements. Portfolio
securities may be loaned only if continuously collateralized at least 100% by
"marking-to-market" daily. The Funds, however, do not currently intend to lend
their portfolio securities during the current fiscal year.
(v) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the respective Fund owns an equal amount
of such securities or securities convertible or exchangeable into, without
payment of any further consideration, securities of the same issuer as, and
equal in amount to, the securities sold short ("short sales against the box"),
and unless not more than 5% of the Fund's net assets (taken at market value) is
held as collateral for such sales at any one time.
(vi) Purchase a security if, as a result thereof, more than 5% of a Fund's
net assets would be invested in warrants or more than 2% of such Fund's net
assets will be invested in warrants which are not listed on the American or New
York Stock Exchange.
(vii) Purchase the securities of any issuer if, as a result thereof, more
than 5% of the value of the total assets of the Smaller Companies Fund would be
invested in the securities of companies which, including predecessors, have a
record of less than three years' continuous operations.
(viii) Invest 25% or more of the Global Income Fund's total assets in asset-
backed securities.
The U.S. government has from time to time imposed restrictions, through taxation
and otherwise, on foreign investments by U.S. entities such as the Funds. If
such restrictions should be reinstituted for a Fund, it might become necessary
for the Fund to invest all or substantially all of its securities in U.S.
securities. In such event, the Board of Directors would reevaluate the Fund's
investment objective and policies, but would adopt any revised investment
objectives and fundamental policies only after approval by the shareholders
holding a majority (as defined in the 1940 Act) of the shares of the Fund.
5
<PAGE>
The Funds' ability to borrow money creates special risks not associated with
funds that have similar investment objectives and policies but do not have the
ability to borrow money or borrow at the same level as the Funds. Borrowings by
the Funds may have either a positive or negative effective on their respective
levels of investment income. Any investment income or gains earned from amounts
borrowed which is in excess of the interest due on and other costs of such
borrowings may cause the Funds' investment income to be greater than would
otherwise be the case. Conversely, if the investment performance of any amounts
borrowed fails to cover the interest due on and other costs of such borrowings,
the Funds' investment income will be less than would otherwise be the case.
OTHER POLICIES
The Manager generally evaluates foreign currencies on the basis of fundamental
economic criteria (e.g., relative inflation and interest rate levels and trends,
growth rate forecasts, balance of payments status and economic policies) as well
as technical and political data. If the currency in which a security is
denominated appreciates against the U.S. dollar, or (in the case of debt
securities) if interest rates decline, the dollar value of the security will
generally increase. Conversely, if other factors remain constant, a rise in
interest rates or a decline in the exchange rate of the currency will adversely
affect the value of the security expressed in dollars.
The Funds will not invest in securities denominated in a foreign currency if, at
the time of investment, such currency is not considered by the Manager or
Subadvisor to be fully exchangeable into U.S. dollars without significant legal
restriction. The Funds may purchase securities issued by the government of, or
a corporation or financial institution located in, one nation but denominated in
the currency of another nation (or in a multinational currency unit).
The Funds retain the flexibility to respond promptly to changes in market and
economic conditions. Accordingly, in the interest of preserving shareholders'
capital and consistent with the Funds' investment objectives, the Manager (or
the Subadvisor, in the case of the Smaller Companies Fund) may employ a
temporary defensive investment strategy for one or more of the Funds if the
Manager or Subadvisor determines such a strategy to be warranted. It is
impossible to predict when or for how long the Manager or Subadvisor may employ
such defensive strategies. Under a defensive strategy, the Funds may hold cash
(U.S. dollars, foreign currencies or multinational currency units) and/or invest
any portion or all of their respective assets in high quality money market
instruments. For debt obligations other than commercial paper, this includes
securities rated, at the time of purchase, at least Aa by Standard & Poor's or
AA by Moody's, or if unrated, determined to be of comparable quality by the
Manager. For commercial paper, this includes securities rated, at the time of
purchase, at least A-2 by Standard & Poor's or Prime-2 by Moody's.
Pending investment of proceeds from new sales of Fund shares or to meet their
ordinary daily cash needs, the Funds may hold cash (U.S. dollars, foreign
currencies or multinational currency units) and may invest in short-term high
quality money market instruments. Money market instruments in which the Funds
may invest include, but are not limited to, U.S. or foreign government and
agency securities, commercial paper, bank certificates of deposit, and bankers'
acceptances.
The Funds' Prospectus and this Statement of Additional Information omit certain
information contained in the Funds' Registration Statement filed with the
Securities and Exchange Commission. Copies of such information may be obtained
from the Securities and Exchange Commission upon payment of the prescribed fee.
DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS
FOREIGN SECURITIES. All of the Funds (except the Smaller Companies Fund) will
invest primarily in securities issued by companies or other issuers whose
principal activities are outside the U.S.; such investments involve significant
risks not present in U.S. investments. The Smaller Companies Fund invests in
the securities of issuers located in the U.S. and/or foreign countries. At any
point in time, all or substantially all of the Smaller Companies Fund's assets
may be invested in issuers located (1) solely in the U.S., or (2) solely in
countries other than the U.S., or (3) in the U.S. and foreign countries. The
value of securities denominated in foreign currencies and of dividends and
interest paid with respect to such securities will fluctuate based on the
relative strength of the U.S. dollar. In addition, less information is generally
publicly available about foreign companies, particularly those not subject to
the disclosure
6
<PAGE>
and reporting requirements of the U.S. securities laws. Foreign companies are
not bound by uniform accounting, auditing, and financial reporting requirements
and standards of practice comparable to those applicable to U.S. companies.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the repatriation of monies or other assets
of the Funds, political or financial instability or diplomatic and other
developments which could affect such investments. Further, the economies of
particular countries or areas of the world may perform less favorably than the
economy of the U.S., and the U.S. dollar value of securities denominated in
currencies other than the U.S. dollar may be affected unfavorably by exchange
rate movements. Each of these factors could influence the value of a Fund's
shares, as well as the value of dividends and interest earned by the Fund and
the gains and losses which it realizes. It is anticipated that in most cases the
best available market for foreign securities will be on exchanges or in
over-the-counter markets located outside of the U.S.. However, foreign
securities markets, while growing in volume and sophistication, are generally
not as developed as those in the U.S., and securities of some foreign companies
(particularly those located in developing countries) are generally less liquid
and more volatile than securities of comparable U.S. companies. Foreign security
trading practices, including those involving securities settlement where Fund
assets may be released prior to receipt of payment, may expose the Funds to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. In addition, foreign brokerage commissions and other fees are
generally higher than on securities traded in the U.S. and may be
non-negotiable. There is less overall governmental supervision and regulation of
securities exchanges, securities dealers, and listed companies than in the U.S.
The Funds may invest in foreign securities that are restricted against transfer
within the U.S. or to U.S. persons. Although securities subject to such transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions. Unless
these securities are acquired directly from the issuer or its underwriter, the
Funds treat such foreign securities whose principal market is abroad as not
being subject to investment limitation (ii) on page 5.
SPECIAL LATIN AMERICA CONSIDERATIONS
The Latin America Fund invests substantially all of its assets in issuers
located in Latin America. Certain of the other Funds also invest in such
issuers. Latin America is a region rich in natural resources such as silver,
gold, copper, steel, tin, oil and coffee. The regions' large population
represents a pool of low cost labor and a large domestic market. During the
1960s and 1970s, Latin America grew at an average Gross Domestic Product ("GDP")
of over 5.6%. The 1980s, however, was a decade of economic stagnation due to
state protection of inefficient enterprises and spiraling budget deficits that
led to chronic inflation and social unrest in several countries. As economic
growth slowed dramatically in the 1980s, there were political reforms in most
Latin America countries that led to civilian democratic governments. While
there is an overall trend toward democratic government in Latin America, some
countries, such as Peru, Brazil and Venezuela, are in the midst of reforms.
Many of these new democratic governments in Latin America have adopted an agenda
of aggressive market oriented economic reform, including the privatization of
state owned companies.
Along with trade, fiscal and monetary reforms, international discussions have
focused on establishing free trade zones in the region, including the North
American Free Trade Agreement between Mexico, the U.S. and Canada. Over the
last twenty years debt burdens as a proportion of GDP have been reduced.
Efforts to control inflation have also been implemented. Most Latin American
countries have experienced substantial, and in some periods extremely high rates
of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had, and may continue to have, negative effects on the economies and
securities markets of certain Latin American countries. In 1995 the Latin
American markets were recovering from the effects of the devaluation of the
Mexican peso at the end of 1994.
The Mexican economy had experienced significant difficulties during the 1980s,
including high rates of inflation, interest and unemployment and low or negative
rates of growth. Since 1988, the Mexican economy has experienced consecutive
years of growth in gross domestic product and reduction in inflation rates,
reduction in interest rates and reduction in public sector financial deficit.
These improvements were reflected in the performance of the Mexican securities
market in recent years and the reversal of the capital flight which prevailed in
the early 1980s. However,
7
<PAGE>
during the second half of 1994 Mexico began to experience a wave of political
disturbances, which affected confidence and caused a considerable flight of the
short term money that had been financing the current account deficit. In early
1995 an aggressive refinancing package was put together by the U.S. and other
international organizations which helped to stabilize the currency. The Mexican
government has been forced to adopt a very tight monetary stance which has
helped curb inflationary forces and allowed interest rates to be reduced.
The Mexican securities market is not as large or as liquid as the securities
markets in the U.S. and there is a high concentration of investors, issuers and
financial intermediaries in the Mexican securities markets as compared to the
U.S. markets. Prices of equity securities traded on the Mexican stock exchange
are generally more volatile than prices of equity securities trade on U.S. stock
exchanges. The combination of price volatility and the relatively limited
liquidity of the Mexican stock exchange may have an adverse impact on the
investment performance of the Latin America Fund.
Additionally, Mexican accounting, auditing and financial reporting standards
differ from U.S. standards, and less information may be available to investors
investing in securities of Mexican companies or the Mexican government than to
investors investing in securities of U.S. companies or the U.S. government. All
Mexican companies listed on the Mexican stock exchange must incorporate the
effects of inflation directly in accounting records and in their published
financial statements. Thus, Mexican financial statements and reported earnings
may differ from those of companies in other countries. Also, there is generally
less governmental supervision and regulation of exchanges, brokers and issuers
in Mexico than there is in the U.S. Mexican corporate laws regarding fiduciary
responsibility and protection of shareholders are less developed than those in
the U.S.
Chile was the first major Latin American nation to begin major economic reforms.
Privatization of industry began in the mid-1980s and bolstered the equity
market. Political reform was begun more recently and the government has
promised to continue free market economic policies. Chile's average GDP growth
was over 6% per annum from 1986 to 1992. These policies have contributed to the
reduction in Chile's inflation rate from over 27% in 1990 to approximately 8.2%
by the end of 1995. The country's dependency on the export of copper has been
reduced by economic policies which have enabled Chilean companies to prosper in
other industries.
Argentina has a well-educated and skilled population, with one of the highest
literacy rates in Latin America. Although the country has a poor record of
inflationary control, recent government efforts at economic reform have led to a
significant improvement. In 1989, Argentina's annual inflation rate reached
over 3000%, but by 1995 it had been reduced to 1.6%. Under the government's
privatization program which began in 1989, many of the country's state owned
enterprises have been sold. In 1994, Argentina experienced economic and
political difficulties similar to those affecting Mexico, resulting in higher
interest rates and market volatility. This led to negative GDP growth of 4.4% in
1995.
Brazil's aggressive economic reform program began more recently than reforms in
other Latin American countries. Brazil's political leaders faced severe economic
problems, including high inflation and foreign debt. The government's reform
program has met obstacles and the country has been plagued by political
corruption scandals. However, government priorities include infrastructure
spending and the opening of the Brazilian economy to foreign competition.
EMERGING MARKETS SOVEREIGN DEBT. The Latin America Fund may invest in sovereign
debt securities of emerging market governments. Investments in such securities
involve special risks. The issuer of the debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of the debt.
Periods of economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn the Fund's net asset value, to a greater extent than
the volatility inherent in domestic fixed income securities.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign
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debtor may be subject. Emerging market governments could default on their
sovereign debt. Such sovereign debtors also may be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
abroad to reduce principal and interest arrearages on their debt. The
commitment on the part of these governments, agencies and others to make such
disbursements may be conditioned on a sovereign debtor's implementation of
economic reforms and/or economic performance and the timely service of such
debtor's obligations. Failure to implement such reforms, achieve such levels of
economic performance or repay principal or interest when due, could result in
the cancellation of such third parties' commitments to lend funds to the
sovereign debtor, which may further impair such debtor's ability or willingness
timely to service its debt.
LOWER QUALITY DEBT SECURITIES. Under normal market conditions, the Global
Income Fund may invest up to 25% of its total assets in debt securities of below
investment grade quality, and the Latin America Fund may invest up to 35% of its
total assets in such securities. Such investments involve a high degree of
risk. Debt rated BB, B, CCC, CC and C, and debt rated Ba, B, Caa, Ca and C is
regarded by Standard & Poor's and Moody's, respectively, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. For
Standard & Poor's, BB indicates the lowest degree of speculation and C the
highest degree of speculation. For Moody's, Ba indicates the lowest degree of
speculation and C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or Standard & Poor's is the lowest quality debt that is not in
default as to principal or interest, and such issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Such securities are also generally considered to be subject to greater risk than
higher quality securities with regard to a deterioration of general economic
conditions. These securities are the equivalent of high yield, high risk "junk"
bonds.
The market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality debt
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality debt securities. Issuers of lower quality debt securities are
often highly leveraged and may not have available to them more traditional
methods of financing.
The market for lower rated debt securities may be thinner and less active than
that for higher rated securities, which can adversely affect the prices at which
these securities can be sold. If market quotations are not available, these
securities are valued in accordance with procedures established by the Board of
Directors, including the use of outside pricing services. Judgment plays a
greater role in valuing high yield debt securities than is the case for
securities for which more external sources for quotations and last sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services used by the Global Income
Fund and Latin America Fund to value their portfolio securities, and the Funds'
ability to dispose of these lower rated debt securities.
Factors having an adverse effect on the market value of lower rated debt
securities or their equivalents purchased by the Global Income Fund and Latin
America Fund will adversely affect the net asset value of those Funds. In
addition to the foregoing, such factors may include: (i) potential adverse
publicity; (ii) heightened sensitivity to general economic or political
conditions; and (iii) the likely adverse impact of a major economic recession.
The Global Income Fund and Latin America Fund may incur additional expenses to
the extent they are required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings, and the Funds may have limited
legal recourse in the event of a default. Debt securities issued by an emerging
market government can differ from debt obligations issued by private entities in
that remedies from defaults generally must be pursued in the courts of the
defaulting government, and legal recourse can therefore be significantly
diminished. Political conditions, in terms of a government's willingness to
meet the terms of its debt obligations, also are of considerable significance.
There can be no assurance that the holders of commercial bank debt may not
contest payments to the holders of debt securities issued by governments in
emerging markets in the event of default by the governments under commercial
bank loan agreements.
BRADY BONDS. The Latin America Fund may invest in "Brady Bonds," which are debt
restructurings that provide for the exchange of cash and loans for newly issued
bonds. Brady Bonds recently have been issued by the governments of Costa Rica,
Mexico, Uruguay and Venezuela, and are expected to be issued by Argentina,
Brazil and the
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Philippines and other emerging markets countries. Brady Bonds may be rated
below investment grade. As of the date of this Statement of Additional
Information, the Manager is not aware of the occurrence of any payment defaults
on Brady Bonds. Investors should recognize, however, that Brady Bonds have been
issued only recently and, accordingly, do not have a long payment history.
Brady Bonds may be collateralized or uncollateralized, are issued in various
currencies (primarily the U.S. dollar) and are actively traded in the secondary
market for Latin American debt. The Salomon Brothers Brady Bond Index provides
a bench-mark that can be used to compare returns of emerging market Brady Bonds
with returns in other markets, e.g. the U.S. bond market.
The Latin America Fund may invest in either collateralized or uncollateralized
Brady Bonds. U.S. dollar denominated, collateralized Brady Bonds, which may be
fixed rate par bonds or floating rate discount bonds, are collateralized in full
as to principal by U.S. Treasury zero coupon bonds having the same maturity as
the Brady Bonds. Interest payments on such bonds generally are collateralized
by cash or securities in an amount that, in the case of fixed rate bonds, is
equal to at least one year of rolling interest payments, or in the case of
floating rate bonds, initially is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time, and is adjusted at
regular intervals thereafter.
MORTGAGE SECURITIES. The Global Income Fund may invest in mortgage securities
which are issued or guaranteed by private institutions or by the U.S.
government, its agencies or instrumentalities, collateralized by or representing
an interest in mortgages created from pools of mortgages and other asset-backed
securities. This Fund may not invest 25% or more of its total assets in asset-
backed securities.
The mortgage securities in which the Global Income Fund invests differ from
conventional bonds in that principal is paid back over the life of the mortgage
security rather than at maturity. As a result, the holder of the mortgage
securities (i.e., the Global Income Fund) receives monthly scheduled payments of
principal and interest, and may receive unscheduled principal payments
representing prepayments on the underlying mortgages. When the holder
reinvestments the payments and any unscheduled prepayments of principal it
receives, it may receive a rate of interest which is lower than the rate on the
existing mortgage securities. For this reason, mortgage securities may be less
effective than other types of debt securities as a means of "locking in" long-
term interest rates. The market value of mortgage securities, like other U.S.
government securities, will generally vary inversely with changes in market
interest rates, declining when interest rates rise and rising when interest
rates decline.
At least 75% of such mortgage-backed securities purchased by the Global Income
Fund will be investment grade at time of purchase, or if unrated, determined to
be of comparable quality by the Manager. The subsequent downgrade of a debt
security to a level below investment grade will not require a sale of that
security, but John Govett will consider such an event in determining whether to
continue to hold that security.
In addition, to the extent mortgage securities are purchased at a premium,
mortgage foreclosures and unscheduled principal prepayments may result in some
loss of the holder's principal investment to the extent of the premium paid. If
mortgage securities are purchased at a discount, both a scheduled payment of
principal and an unscheduled prepayment of principal will increase current and
total returns and will accelerate the recognition of income which, when
distributed to Fund shareholders, will be taxable as ordinary income.
With respect to pass-through mortgage pools issued by non-governmental issuers,
there can be no assurance that the private insurers associated with such
securities, can meet their obligations under the policies. Although the market
for such non-governmentally issued or guaranteed mortgage securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. The purchase of such securities is subject to the Fund's
5% limit with respect to investment in illiquid securities.
The following paragraphs provide additional detail about various types of
mortgage-related securities in which the Global Income Fund may invest.
OPTIONS ON FOREIGN AND U.S. CURRENCIES AND SECURITIES. In an effort to reduce
the fluctuations in their respective net asset value ("NAV"), the Funds may
write covered put and call options and purchase put and call options on U.S. and
foreign currencies and securities that are traded on U.S. and foreign securities
exchanges and over-the-counter.
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Call options written by the Funds give the holder the right to buy the
underlying currency or security from the Funds at a stated exercise price upon
exercising the option at any time prior to its expiration. A call option written
by the Funds is "covered" if the Funds own or have an absolute right (such as by
conversion) to the underlying currency or security covered by the call. A call
option is also covered if the Funds hold a call on the same currency or security
and in the same principal amount as the call written and the exercise price of
the call held is (a) equal to or less than the exercise price of the call
written, or (b) greater than the exercise price of the call written if the
difference is maintained by the Funds in cash, U.S. government securities or
other liquid high grade debt obligations in a segregated account with its
Custodian. Put options written by the Funds give the holder the right to sell
the underlying currency or security to the Funds at a stated exercise price. A
put option written by the Funds is "covered" if the Fund maintains cash or
liquid high grade debt obligations with a value equal to the exercise price in a
segregated account with its Custodian, or else holds a put on the same currency
or security and in the same principal amount as the put written, and the
exercise price of the put held is equal to or greater than the exercise price of
the put written. Premiums for currency options held by any Fund may not exceed
5% of its total assets.
The writer of an option who wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing authority or otherwise
economically nullified. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option. Likewise, a
holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. The Funds may enter into closing transactions
to terminate an options position. The Funds will realize a profit from a closing
transaction if the price of the transaction is less than the premium received
from writing the option or is more than the premium paid to purchase the option;
the Funds will realize a loss from closing a transaction if the price of the
transaction is more than the premium received from writing the option or is less
than the premium paid to purchase the option.
The Funds may write options in connection with buy-and-write transactions, that
is, the Funds may purchase a currency or security and then write a call option
against that currency or security. The exercise price of the call will depend
upon the expected price movement of the underlying currency or security. The
exercise price of a call option may be below ("in-the-money") or equal to
("at-the-money") or above ("out-of-the-money") the current price of the
underlying currency or security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected by
the Manager or Subadvisor that the price of the underlying currency or security
will remain flat or decline moderately during the option period. Buy-and-write
transactions using at-the-money call options may be used when it is expected by
the Manager or Subadvisor that the price of the underlying currency or security
will remain fixed or advance moderately during the option period. Buy-and-write
transactions using out-of-the-money call options may be used when the Manager or
Subadvisor expects that the premiums received from writing the call option plus
the appreciation in the market price of the underlying currency or security up
to the exercise price will be greater than the appreciation in the price of the
underlying currency or security alone. If the call options are exercised in such
transactions, a Fund's maximum gain will be the premium received by it for
writing the option, adjusted upward or downward by the difference between the
Fund's purchase price for the currency or security and the exercise price. If
the options are not exercised and the price of the underlying currency or
security declines, the amount of such decline will be mitigated by the premium
received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying currency or security rises or otherwise is above the exercise price,
the put option will expire worthless and the Fund's gain will be limited to the
premium received. If the market price of the underlying currency or security
declines or otherwise is below the exercise price, the Fund may elect to close
the position or wait for the option to be exercised and take delivery of the
currency or security at the exercise price. The Fund's return will be the
premium received from the put option minus the amount by which the market price
of the currency or security is below the exercise price. Out-of-the-money,
at-the-money, and in-the-money put options may be used by the Funds in the same
market environments that call options are used in equivalent buy-and-write
transactions.
In addition to the matters discussed in the Prospectus, shareholders should be
aware that when trading options on foreign exchanges or in the over-the-counter
market, many of the protections afforded to U.S. option exchange
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participants will not be available. For example, there are no daily price
fluctuation limits in such exchanges or markets, and adverse market movements
could therefore continue to an unlimited extent over a period of time. Although
the purchaser of an option cannot lose more than the amount of the premium plus
related transaction costs, this entire amount could be lost. Moreover, the Fund
as an option writer could lose amounts substantially in excess of its initial
investment, due to the margin and collateral requirements typically associated
with such option writing. The ability of any Fund to engage in options
transactions is subject to the following limitations: (a) not more than 5% of
the net assets of the Fund may be invested in options purchased by the Fund; (b)
the obligations of the Fund under put options written by the Fund may not exceed
5% of the net assets of the Fund; and (c) the obligations of the Fund under call
options written by the Fund may not exceed 5% of the net assets of the Fund.
The staff of the Securities and Exchange Commission (SEC) has taken the position
that purchased over-the-counter ("OTC") options and the assets used as "cover"
for written OTC options are illiquid securities. However, the Funds may treat
the securities they use as cover for written OTC options as liquid provided the
Funds follow a specified procedure. The Funds may sell OTC options only to
qualified dealers who agree that the Funds may repurchase any OTC options
written for a maximum price to be calculated by a predetermined formula. In
such cases, the OTC option would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Since investments in companies whose
principal business activities are located outside of the U.S. will frequently
involve currencies of foreign countries, and since assets of a Fund may
temporarily be held in bank deposits in foreign currencies during the completion
of investment programs, the value of the Funds' assets as measured in U.S.
dollars generally will be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Although the
Funds value their assets daily in terms of U.S. dollars, they do not intend to
convert their holdings of foreign currencies into U.S. dollars on a daily basis.
The Funds may conduct their foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into contracts to purchase or sell foreign currencies
at a future date (i.e., a forward foreign currency contract or forward
contract). Foreign currency futures contracts and options on foreign currencies
may also be used. The Funds will convert currency on a spot basis from time to
time, and shareholders 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.
A forward currency exchange contract ("Forward Contract") involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract, agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A Forward Contract generally has no
deposit requirement, and no commissions are charged at any stage for trades. A
Fund will cover a Forward Contract that it has sold by establishing and
maintaining with its Custodian a segregated account, consisting of cash, cash
equivalents or liquid, short-term high quality debt securities from its
portfolio.
The Funds may enter into Forward Contracts in order to fix a definite U.S.
dollar price for securities denominated in foreign currencies, in connection
with a purchase or sale of those securities. For example, if a Fund placed a
purchase order for securities denominated in Japanese Yen, it would be required
to pay for the securities with Yen on the date the transaction settles. If the
Fund has U.S. dollar-denominated cash or securities on hand, it can enter into a
Forward Contract to exchange its dollars for Yen, with the exchange taking place
on the settlement date of the security purchase order, so that the Fund would
have sufficient Yen to pay for the securities it has purchased. This type of
currency strategy is often referred to as a "transaction hedge."
The Funds may also enter into Forward Contracts to hedge securities in their
portfolios that are denominated in foreign currency against losses caused by a
decline in foreign currency values. For example, if a Fund owns securities
denominated in French Francs, and the Manager or Subadvisor anticipates a
decline in the Franc's value relative to the U.S. dollar, the Fund can enter
into a contract to exchange Francs for dollars in order to lock in the
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current exchange rate for the term of the contract. By locking in an exchange
rate, the Fund would seek to protect itself against a decline in the Franc's
value relative to the U.S. dollar, but would also give up the opportunity to
profit from an increase in its value. This type of transaction is often termed
"position hedging." Of course, a position hedge does not protect against price
changes caused by other factors such as a change in an issuer's prospects--it
only hedges against losses caused by currency movements relative to the U.S.
dollar.
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 by purchasing an "offsetting" contract with the same currency trader
obliging it to purchase, on the same maturity date, the same amount of the
foreign currency.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of the Forward Contract. Accordingly, it may be
necessary for the Funds to purchase additional foreign currency on the spot
market (and bear the expense of such purchases) if the market value of the
security is less than the amount of foreign currency the Funds are obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Funds are obliged to
deliver.
If the Funds retain the portfolio security and engage in an offsetting
transaction, they will incur a gain or a loss to the extent that there has been
a movement in Forward Contract prices. If the Funds engage in an offsetting
transaction, they may subsequently enter into a new Forward Contract to sell the
foreign currency. Should forward prices decline during the period between the
date the Funds enter into a Forward Contract for the sale of the foreign
currency and the date they enter into an offsetting contract for the purchase of
the foreign currency, the Funds will realize a gain to the extent the price of
the currency they have agreed to sell exceeds the price of the currency they
have agreed to purchase. Such gain may be offset by a corresponding change in
the value of the underlying securities if they are retained by the Funds and if
an offset is effected. Should forward prices increase, the Funds will suffer a
loss to the extent that the price of the currency they have agreed to purchase
exceeds the price of the currency they have agreed to sell. Although there are
no limits on the number of Forward Contracts which a Fund may enter into, no
Fund may position hedge with respect to a particular currency for an amount
greater than the aggregate market value (determined at the time of making any
sale of foreign currency) of the securities held in its portfolio, denominated
or quoted in, or currently convertible into, such currency.
FUTURES CONTRACTS. The Funds may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies, or
contracts based on financial indexes including any index of U.S. government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets by the CFTC, and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. The Funds may enter
into futures contracts which are based on debt securities that are backed by the
full faith and credit of the U.S. government, such as long-term U.S. Treasury
bonds, Treasury notes, GNMA modified pass-through mortgage backed securities and
three month U.S. Treasury bills. The Funds may also enter into futures
contracts which are based on bonds issued by entities other than the U.S.
government.
The Funds will not enter into Futures Contracts for speculation and will only
enter into Futures Contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal interest rate and currency Futures exchanges in the U.S. are the Board
of Trade of the City of Chicago and the Chicago Mercantile Exchange. U.S.
futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"). Futures are also exchanged in
London at the London International Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could be
used to reduce the Funds' exposure to interest rate, currency exchange rate and
stock price fluctuations, the Funds may be able to hedge their exposure
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more effectively and at a lower cost through using Futures Contracts. A Fund
will not enter into Futures Contracts if, as a result thereof, more than 5% of a
Fund's total assets (taken at market value at the time of entering into the
contract) would be committed to "margin" (down payment) deposits on such Futures
Contracts.
An interest rate Futures Contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (debt security or currency) for a specified price at a designated
date, time and place. A stock index Futures Contract provides for the delivery,
at a designated date, time and place, of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck; no physical delivery of the stocks comprising the index is
made. Most stock index futures and options are based on broad-based stock
indexes reflecting the prices of a broad variety of common stocks, such as the
Nikkei Keizai Shimbun (the Nikkei Dow). Some index options are based on narrow
industry averages or market segments. A foreign currency Futures Contract
provides for the purchase or sale for future delivery of a currency. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment for
financial instruments and currencies, or the delivery of cash, they are usually
closed out before the delivery date. Closing out an open Futures Contract sale
or purchase is effected by entering into an offsetting Futures Contract purchase
or sale, respectively, for the same aggregate amount of the identical financial
instrument, currency or stock index and the same delivery date. If the
offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance, however,
that a Fund will be able to enter into an offsetting transaction with respect to
a particular Futures Contract at a particular time. If a Fund is not able to
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations arising
from the sale of one Futures Contract of September Treasury Bills on an exchange
may be fulfilled at any time before delivery under the Futures Contract is
required (i.e., on a specified date in September, the "delivery month") by the
purchase of another Futures Contract of September Treasury Bills on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Fund.
Persons who trade in Futures Contracts may be broadly classified as "hedgers"
and "speculators." Hedgers, such as the Funds, whose business activity involves
investment or other commitment in securities or other obligations, use the
futures markets primarily to offset unfavorable changes in value that may occur
because of fluctuations in the value of the securities and obligations held or
expected to be acquired by them or fluctuations in the value of the currency in
which the securities or obligations are denominated. Debtors and other obligors
may also hedge the interest cost of their obligations. The speculator, like the
hedger, generally expects neither to deliver nor to receive the financial
instrument underlying the Futures Contract, but, unlike the hedger, hopes to
profit from fluctuations in prevailing interest rates, the underlying stock
index, or currency exchange rates. A Fund's Futures transactions will be
entered into for traditional hedging purposes; that is, Futures Contracts will
be sold to protect against a decline in the price of securities or currencies
that the Fund owns, or Futures Contracts will be purchased to protect the Fund
against an increase in the price of securities or currencies it has committed to
purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by a Fund with a securities dealer in order to initiate Futures
trading and to maintain the Fund's open positions in Futures Contracts. A margin
deposit made when the Futures Contract is entered into ("initial margin") is
intended to assure the Fund's performance of the Futures Contract. The margin
required for a particular Futures Contract is set by the exchange on which the
Futures Contract is traded, and may be significantly modified from time to time
by the exchange during the term of the Futures Contract. Futures Contracts are
customarily purchased and sold on margins that may range upward from less than
5% of the value of the Futures Contract being traded.
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If the price of an open Futures Contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the securities dealer will require an increase in the margin
deposit ("margin variation"). However, if the value of a position increases
because of favorable price changes in the Futures Contract so that the margin
deposit exceeds the required margin, the securities dealer will pay the excess
to the Fund. In computing daily net asset values, a Fund will mark-to-market the
current value of its open Futures Contracts. The Funds expect to earn interest
income on their margin deposits.
The prices of Futures Contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates, which in turn are
affected by fiscal and monetary policies and national and international
political and economic events. At best, the correlation between changes in
prices of Futures Contracts and of the securities or currencies being hedged can
be only approximate. The degree of imperfection of correlation depends upon
circumstances such as: variations in speculative market demand for Futures and
for debt securities or currencies, including technical influences in Futures
trading; and differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading. A
decision of whether, when, and how to hedge involves skill and judgment and even
a well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, or
gain, to the investor. For example, if at the time of purchase, 10% of the value
of the Futures Contract is deposited as margin, a subsequent 10% decrease in the
value of the Futures Contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the contract were closed out. Thus, a purchase or
sale of a Futures Contract may result in losses in excess of the amount invested
in the Futures Contract. However, the Fund would presumably have sustained
comparable losses if, instead of the Futures Contract, it had invested in the
underlying financial instrument and sold it after the decline.
Furthermore, in the case of a Futures Contract purchase, in order to be certain
that the Fund has sufficient assets to satisfy its obligations under a Futures
Contract, the Fund segregates and commits to back the Futures Contract with an
amount of cash, U.S. government securities or other liquid, high-grade debt
securities equal in value to the current value of the underlying instrument less
the margin deposit.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in Futures
Contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a Futures Contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of Futures Contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures Contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of Futures positions and subjecting some
Futures traders to substantial losses.
Except for transactions the Funds have identified as hedging transactions, the
Funds are required for federal income tax purposes to recognize as income for
each taxable year their net unrealized gains and losses on Futures Contracts as
of the end of the year as well as those actually realized during the year.
Except for transactions in Futures Contracts which are classified as a part of a
"mixed straddle," any gain or loss recognized with respect to a Futures Contract
is considered to be 60% long term capital gain or loss and 40% short-term
capital gain or loss, without regard to the holding period of the Futures
Contract. In the case of a Futures transaction classified as a "mixed straddle"
the recognition of losses may be deferred to a later taxable year. Sales of
Futures Contracts which are intended to hedge against a change in the value of
securities or currencies held by the Funds may affect the holding period of such
securities or currencies and, consequently, the nature of the gain or loss on
such securities or currencies upon disposition.
15
<PAGE>
In order for each Fund to continue to qualify for federal income tax treatment
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended, (the "Code") at least 90% of its gross income for a taxable year must
be derived from qualifying income, i.e., dividends, interest, income derived
from loans of securities, and gains from the sale of securities or currencies.
In addition, gains realized on the sale or other disposition of securities or
currencies held for less than three months must be limited to less than 30% of
the Fund's annual gross income. It is anticipated that any net gain realized
from the closing out of Futures Contracts will be considered gain from the sale
of securities or currencies and therefore be qualifying income for purposes of
the 90% requirement. In order to avoid realizing excessive gains on securities
or currencies held less than three months, the Fund may be required to defer the
closing out of Futures Contracts beyond the time when it would otherwise be
advantageous to do so. It is anticipated that unrealized gains on Futures
Contracts, which have been open for less than three months as of the end of the
Fund's fiscal year and which are recognized for tax purposes, will not be
considered gains on securities or currencies held less than three months for
purposes of the 30% test.
The Funds will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fiscal year) on Futures transactions. Such
distributions will be combined with distributions of capital gains realized on a
Fund's other investments and shareholders will be advised of the nature of
payments.
REGULATORY ASPECTS OF HEDGING. The Funds are not commodity pools. Each Fund's
transactions in futures and options thereon will constitute bona fide hedging or
other permissible transactions under regulations promulgated by the CFTC. In
addition, no Fund may engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired futures and options
thereon would exceed 5% of the fair market value of the Fund's assets, with
certain exclusions as defined in the applicable CFTC rules.
SPECIAL RISKS OF HEDGING. Participation in the options or futures markets and in
currency exchange transactions involves investment risks and transactions costs
to which the Funds would not be subject absent the use of these strategies. If
the Manager's or Subadvisor's prediction of movements in the direction of
interest rates, securities prices, or currency markets are inaccurate, the
adverse consequences to the Funds may leave the Funds in a worse position than
if such strategies were not used. Risks inherent in the use of options, foreign
currency and futures contracts and options on futures contracts include: (1)
dependence on the Manager's or Subadvisor's ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. The Funds' ability to enter into futures contracts
and options thereon is limited by the requirements of the Code for qualification
as a regulated investment company.
WARRANTS OR RIGHTS. Warrants or rights may be acquired by a Fund in connection
with other securities or separately, and provide the Fund with the right to
purchase at a later date other securities of the issuer. As a condition of its
continuing registration in a state, each Fund has undertaken that its
investments in warrants or rights, valued at the lower of cost or market, will
not exceed 5% of the value of its net assets and not more than 2% of such assets
will be invested in warrants and rights which are not listed on the American or
New York Stock Exchange. Warrants or rights acquired by a Fund in units or
attached to securities will be deemed to be without value for purpose of this
restriction. These limits are not fundamental policies of the Funds and may be
changed by the Company's Board of Directors without shareholder approval.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which the Funds
purchase a security and simultaneously commit to resell that security to the
seller at an agreed upon price on an agreed upon date within a specified number
of days (usually not more than seven) from the date of purchase. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value (at least equal to the amount
of the agreed upon resale price and marked to market daily) of the underlying
security. Repurchase agreements are considered to be loans by the Funds for
purposes of the 1940 Act. In the event of the seller's default, the Funds could
suffer a loss if the fair market value of the security "purchased" is less than
the
16
<PAGE>
amount paid for the security. The Manager or Subadvisor will consider the
creditworthiness of sellers before causing a Fund to enter into repurchase
agreements with them, and will review such creditworthiness periodically. In the
event of the bankruptcy of the other party to a repurchase agreement, a Fund
could experience delays in recovering either the securities or the cash lent. To
the extent that, in the meantime, the value of the securities purchased had
decreased, the Fund could experience a loss. In all cases, the Manager must find
the creditworthiness of the other party to the transaction satisfactory.
The purpose of engaging in repurchase agreements is to earn a return on
uninvested cash. The Funds may engage in a repurchase agreement with respect to
any security in which they are authorized to invest. Whether a repurchase
agreement is the purchase and sale of a security or a collateralized loan has
not been definitively established. This might become an issue in the event of
the bankruptcy of the other party to the transaction. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the underlying
securities, as well as delays and costs to the Funds in connection with
bankruptcy proceedings), it is currently the policy of the Funds to enter into
repurchase agreements only with those member banks of the Federal Reserve System
and primary dealers in U.S. government securities whose creditworthiness has
been reviewed and found satisfactory by the Manager or Subadvisor, pursuant to
policies established by the Company's Board of Directors.
The Funds may in the future wish to invest in foreign repurchase agreements.
Currently, markets for foreign repurchase agreements are in the developing stage
in various countries and it can be expected that new markets will continue to be
developed in the future. The Funds do not have any current intention of engaging
in foreign repurchase agreements, and will not do so until general guidelines
and criteria have been approved by the Company's Board of Directors.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a Fund
temporarily transfers possession of a security to another party, such as a bank,
in return for cash. At all times that a reverse repurchase agreement is
outstanding, the Fund will maintain cash and liquid high grade debt securities
in a segregated account at its custodian bank with a value at least equal to its
obligation under the agreement. Reverse repurchase agreements are considered to
be borrowings for purposes of investment limitation 1. on page 4, and therefore
are subject to the overall percentage limitations on borrowings and the
restrictions on the purposes of borrowings contained in that limitation. As of
the date of this Statement of Additional Information, the Funds do not invest in
reverse repurchase agreements, and will not do so until the Board of Directors
has approved guidelines for such investments.
PORTFOLIO TURNOVER. The Company's Board of Directors periodically reviews the
Manager's and the Subadvisor's performance of their respective responsibilities
in connection with the placement of portfolio transactions on behalf of the
Funds, and reviews the commissions paid by the Funds to determine whether such
commissions are reasonable in relation to what the directors believe are the
benefits to the Funds. See "Allocation of Portfolio Transactions" in the
Prospectus for information on the Funds' portfolio turnover rates.
MONEY MARKET INSTRUMENTS. As noted in the Funds' Prospectus, the Funds may, from
time to time, invest excess cash in the following "money market" securities:
U.S. GOVERNMENT SECURITIES. The Funds may invest in the various types of
short-term marketable securities issued by or guaranteed as to principal and
interest by the U.S. government and supported by the full faith and credit of
the U.S. Treasury. U.S. Treasury obligations differ mainly in the length of
their maturity. Treasury bills, the most frequently issued marketable government
securities, have a maturity of up to one year and are issued on a discount
basis.
U.S. GOVERNMENT AGENCY SECURITIES. The Funds may invest in short-term U.S.
government agency securities which are debt securities issued by
government-sponsored enterprises and federal agencies. Examples are the Federal
National Mortgage Association and the Federal Intermediate Credit Bank. Such
securities are not direct obligations of the Treasury but involve U.S.
government sponsorship or guarantees by U.S. government agencies or enterprises.
Such securities are subject to fluctuations in market value due to fluctuations
in market interest rates. Certain types of these securities are subject to
fluctuations in yield due to early prepayments on mortgages underlying such
securities.
17
<PAGE>
The Funds may invest in all types of U.S. government agency securities currently
outstanding or to be issued in the future.
BANK OBLIGATIONS. These obligations include, but are not limited to, negotiable
certificates of deposit, bankers' acceptances and fixed time deposits. The Funds
will limit their investment in U.S. bank obligations to obligations of U.S.
banks (including foreign branches) which have more than $1 billion in total
assets at the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits are insured
by the Federal Deposit Insurance Corporation. The Funds will limit their
investments in foreign bank obligations to U.S. dollar denominated obligations
of foreign banks which at the time of investment (i) have more than $10 billion,
or the equivalent in other currencies, in total assets; (ii) in terms of assets
are among the 75 largest foreign banks in the world; (iii) have branches or
agencies in the U.S.; and (iv) in the opinion of the Manager or Subadvisor are
of an investment quality comparable with obligations of U.S. banks which may be
purchased by the Funds.
Fixed time deposits are obligations of U.S. banks, of foreign branches of U.S.
banks, or of foreign banks which are payable at a stated maturity date and bear
a fixed rate of interest. Generally, fixed time deposits may be withdrawn on
demand by the investor, but they may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have a market, there are no
contractual restrictions on the Funds' right to transfer a beneficial interest
in the deposit to a third party. It is the policy of each Fund not to invest in
(i) fixed time deposits subject to withdrawal penalties, other than overnight
deposits; (ii) repurchase agreements with more than seven days to maturity; or
(iii) other illiquid securities, if in the aggregate more than 5% of the value
of its net assets would be so invested.
Obligations of foreign banks and foreign branches of U.S. banks involve somewhat
different investment risks from those affecting obligations of U.S. banks,
including the possibilities that liquidity could be impaired because of future
political and economic developments, that the obligations may be less marketable
than comparable obligations of U.S. banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions (such as foreign exchange controls) may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks, or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks differ from those applicable to U.S.
banks. In that connection, foreign banks are not subject to examination by any
U.S. government agency or instrumentality.
SHORT-TERM CORPORATE DEBT INSTRUMENTS. The Funds may invest in commercial paper,
which refers to short-term, unsecured promissory notes issued by U.S. and
foreign corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months.
The Funds may also invest in non-convertible corporate debt securities (e.g.,
bonds and debentures) with no more than one year remaining to maturity at the
date of settlement. Corporate debt securities with a remaining maturity of less
than one year tend to become extremely liquid and are traded as money market
securities.
The Funds' commercial paper investments at the time of purchase will be rated at
least A-2 by Standard & Poor's or Prime-2 by Moody's, or if unrated, will be of
comparable quality as determined by the Manager or Subadvisor. The Funds' short-
term investments in corporate bonds and debentures (which must have maturities
at the date of purchase of one year or less) must be rated at the time of
settlement at least AA by Standard & Poor's or Aa by Moody's. See Appendix A to
the Prospectus for information about Moody's and Standard & Poor's ratings.
DIRECTORS AND OFFICERS
The Company's Board of Directors has the responsibility for the overall
management of the Funds, including general supervision and review of their
investment activities. The Board of Directors, in turn, appoints the officers
who are responsible for administering the day-to-day operations of the Funds.
Listed below are the directors and officers of
18
<PAGE>
the Funds, and their affiliations and principal occupations for the past five
years. Directors who may be "interested persons" of the Funds, as defined in the
1940 Act, are designated by an asterisk(*).
DIRECTORS
Elliott Atamian (24 Country Drive, Weston, MA 02193) is a private investor, and
has served on the Board of Directors of Rogers Foam Corp. since 1989 and
Brookline Savings Bank since 1978. He was a Professor of Finance at
Northeastern University from 1977 to 1991, and served on the Board of Directors
of certain mutual funds managed by John Hancock Advisors, Inc. from 1972 to
1991. He is 76.
Sir Victor Garland (15 Wilton Place, Knightsbridge, London, SW1X 8RL) has been a
private investor since 1984, and currently serves as a director of a number of
U.K. public companies. He is 61.
Kevin J.T. Pakenham* (c/o John Govett & Co. Limited, Shackleton House, 4
Battlebridge Lane, London, SE1 2HR) graduated from Oxford University with an
M.A. and M.Phil in Economics. After working at Rothschild Intercontinental
Bank, in 1975 he was appointed Chief Economist at American Express Bank and, two
years later, was responsible for setting up their international asset management
business. In 1983, he joined Foreign & Colonial Management as Managing
Director. He joined John Govett & Co. Limited as Chief Executive Officer in
1988. He is 48.
James M. Oates (c/o The Wydown Group, 50 Congress Street, Suite 1040, Boston, MA
02109) is currently Managing Director of The Wydown Group. From 1984 to 1994,
he was President and Chief Executive Officer of Neworld Bancorp, Inc. From 1983
to 1984, Mr. Oates was President and Chief Operating Officer of Burgess & Leith,
a financial services company. From 1977 to 1983, he was President and Chief
Operating Officer of Metro Bancholding Corporation. Mr. Oates currently serves
on the Board of Directors of Massachusetts Bankers Association, Savings Bank
Life Insurance Company, Phoenix Mutual Funds and Savings Bank Life Insurance
Guarantee Fund, and Investors Bank & Trust Company. He is 49.
Frank R. Terzolo (c/o Ameritrust Network, Inc. 6263 N. Scottsdale Road, #360,
Scottsdale, AZ 85250) is presently President and Chief Executive Officer of
Ameritrust Network, Inc., a company that designs and implements charitable
remainder trusts. From 1988 to 1989, he was President and Chief Executive
Officer of American Equities, and from 1984 to 1988, he was President and Chief
Operating Officer for Equitec Securities Co., a financial services company. He
is 62.
OFFICERS
Colin Kreidewolf (c/o John Govett & Co. Limited, Shackleton House, 4
Battlebridge Lane, London, SE1 2HR), Treasurer of the Company, joined John
Govett in 1981. He became a member of The Institute of Chartered Secretaries
and Administrators in England and Wales in 1986. Currently he is responsible
for the management of the U.K. and U.S. retail funds reporting functions at John
Govett. He is 36.
Brian M. Lee (c/o John Govett & Co. Limited, Shackleton House, 4 Battlebridge
Lane, London, SE1 2HR), President of the Company, graduated from the University
of Wales in 1980 and qualified as a Chartered Accountant with Deloitte Haskins &
Sells in 1982. He joined John Govett in 1987 and was appointed Finance Director
in 1991. From November 1993 until January 1995, he was on secondment to the
London Pacific Holdings Limited's life and annuity company in the U.S. He is
responsible for the financial control, compliance and administrative functions
at John Govett. He is 37.
Peter J. Moffatt (c/o John Govett & Co. Limited, Shackleton House, 4
Battlebridge Lane, London, SE1 2HR), Vice President of the Company, is
Director, Compliance Officer and Secretary of John Govett. He served previously
at the Bank of England, where he was involved in banking and financial market
supervision, and later as Compliance Officer for the London investment business
of Paine Webber and J.P. Morgan before joining John Govett in 1990. He is 49.
19
<PAGE>
Alice L. Schulman, (c/o John Govett & Co. Limited, 250 Montgomery Street, Suite
1200, San Francisco, CA 94104), Secretary of the Company, is presently Liaison
Compliance Officer for John Govett in the U.S. From 1993 until she joined
Berkeley Capital Management in 1994 she was Compliance Officer at BZW Barclays
Global Investment Advisors, and from 1989 to 1993, she was a compliance manager
for The Benham Group. Prior to 1989, she served in various compliance
management functions at McKesson Corporation and Kaiser Aluminum & Chemical
Corporation. She is 46.
As indicated above, a director and officer may hold other positions with the
Manger and its affiliates. The President of the Company is a resident of the
United Kingdom and has appointed the Company, located at 250 Montgomery Street,
Suite 1200, San Francisco, as his agent for notice.
From January through June, 1995, Directors not affiliated with the Manager or
its affiliates were paid fees of $7,500 per year. On May 12, 1995, the Board
approved a proposal to increase these fees to $20,000 per year plus a fee of
$1,000 per Board meeting, with the independent Board member who serves on the
Pricing Committee to receive a retainer of $1,000. On July 21, 1995, the
Committee on Administration, which is comprised of all of the independent
directors, was formed. At that time, the Board approved a proposal to
compensate each member of this committee in the amount of $1,000 for each
meeting, except when its meetings are held in conjunction with regular or
special Board meetings or for short telephonic meetings. Directors not
affiliated with the Manager are reimbursed for expenses incurred in connection
with attending Board of Directors meetings.
These fees are paid pro rata by each Fund based on their relative net assets. No
officer or director receives any other compensation directly from the Funds.
As of the date of this Statement of Additional Information, the directors and
officers, as a group, owned of record and beneficially less than 1% of the total
outstanding shares of each Fund. The officers and directors of the Company who
are not U.S. residents have appointed the Company, 250 Montgomery Street, Suite
1200, San Francisco, California 94104, as their agent for notice. At March 29,
1996 the following affiliates of the fund owned the following: John Govett & Co.
Limited owned 26.31% of the Pacific Strategy Fund; Arthur I. Trueger, Chairman
of London Pacific Group Limited, the former owner of John Govett & Co. Limited
and the current owner of Berkeley Capital Management, Subadvisor to the Smaller
Companies Fund, owned 25.84% of the Pacific Strategy Fund. The holders of a
majority of the outstanding shares of the Company can elect all of the Company's
Directors and can remove one or more of the Directors. The holders of a
majority of the outstanding shares of a Fund can change the Fund's investment
objective and fundamental investment policies and restrictions, and can approve,
disapprove, or amend the Management Contract and Distribution Agreement, with
respect to that Fund. The holders of a majority of the outstanding shares of
any class of a Fund can approve, disapprove, or amend the Distribution Plan for
such class. Shareholders holding at least 10% of the Company's outstanding
shares may call a meeting of shareholders. Large redemptions by one or more
shareholders in a Fund could give rise to significant transaction costs which
will be borne by the remaining shareholders in the Fund, and could otherwise
adversely affect the performance of the Fund.
20
<PAGE>
The following table summarizes the above information relating to the Directors
and officers of the Company, and the total compensation paid to them by the
Funds during 1995. The Govett Funds have not established any pension,
retirement or deferred compensation plans for Directors or Officers. No officers
of the Company received any compensation from any Fund or the Fund Complex
during 1995.
<TABLE>
<CAPTION>
Aggregate Aggregate Aggregate Aggregate Aggregate Aggregate
Compensation Compensation Compensation Compensation Compensation Compensation
From From From From From From Total
International Emerging Smaller Pacific Latin Global Compensation
Equity Markets Companies Strategy America Income From
Fund Fund Fund Fund Fund Fund Funds*
<S> <C> <C> <C> <C> <C> <C> <C>
Name, Age and Position
Elliott L. Atamian (Age 76) $3,881 $5,170 $7,430 $3,374 $3,086 $4,586 $27,500
Director
Sir Victor Garland (Age 61) $3,943 $5,200 $7,383 $3,421 $3,116 $4,637 $27,500
Director
Kevin J.T. Pakenham(Age 48) None None None None None None None
President, Chairman and
Director
James M. Oates (Age 49) $3,943 $5,200 $7,383 $3,421 $3,116 $4,637 $27,500
Director
Frank R. Terzolo (Age 62) $3,943 $5,200 $7,383 $3,421 $3,166 $4,637 $27,500
Director
</TABLE>
* Based on fiscal year ending December 31, 1995.
MANAGEMENT OF THE FUNDS
MANAGER
John Govett & Co. Limited is the investment manager of the Funds. The
initial Investment Management Contract with respect to the International
Equity Fund, the Emerging Markets Fund and the Global Income Fund was
approved by the Company's Board of Directors (including a majority of the
Directors who are not "interested persons" of the Funds or the Manager) on
November 25, 1991 and by the initial shareholder of those Funds on November
26, 1991. The initial Investment Management Contract with respect to the
Smaller Companies Fund was approved by the Company's Board of Directors
(including a majority of the Directors who are not "interested persons" of
that Fund or the Manager) on November 6, 1992 and by the initial shareholder
of the Smaller Companies Fund on December 28, 1992. The initial Investment
Management Contract with respect to the Pacific Strategy Fund was approved by
the Company's Board of Directors (including a majority of the Directors who
are not "interested persons" of the Funds or the Manager) on November 5,
1993, and by the initial shareholder of that Fund on December 15, 1993. The
initial Investment Management Contract with respect to the Latin America Fund
was approved by the Company's Board of Directors (including a majority of the
Directors who are not "interested persons" of the Funds or the Manager) on
March 4, 1994, and by the initial shareholder of that Fund on March 4, 1994.
In connection with the sale on December 29, 1995 of John Govett to an affiliate
of Allied Irish Banks p.l.c., a new investment management agreement was approved
by the Board of Directors on December 11, 1995, and by the shareholders of the
Funds on February 23, 1996. The terms and conditions of the new Investment
Management Contract are identical in all respects to the Investment Management
Contract in effect prior to the sale, except for the effective and termination
dates.
21
<PAGE>
The Company employs the Manager to furnish investment advisory and
administrative services to the Funds. Under the Investment Management Contract,
the Manager acts as investment advisor and, subject to the supervision of the
Board of Directors, directs the investments of the Funds in accordance with
their respective investment objectives, policies and limitations. The Manager
also provides the Funds with all necessary office facilities and personnel for
providing investment advice to the Funds and is responsible for the salaries and
fees of all officers and directors of the Funds who are "interested persons" of
the Funds or of John Govett, and of all personnel of the Funds or John Govett
performing services relating to research, statistical, and investment
activities. In addition, the Manager, subject to the supervision of the Board of
Directors and in connection with the Fund Administrator, oversees the day-to-day
operations of the Funds. These services include supervising relations with
custodians, transfer and pricing agents, accountants, securities dealers and
other persons dealing with the Funds and maintaining certain of the Funds'
records. John Govett organizes its investment management functions on the basis
of teams of specialists who focus on specific geographic or industrial market
sectors. Each specialist team is headed by a Director of John Govett, who is an
experienced senior investment professional.
SUBADVISOR
In connection with the sale on December 29, 1995 of John Govett to an affiliate
of AIB, John Govett has entered into a new Subadvisory Agreement Berkeley
Capital Management ("Berkeley" or the "Subadvisor", formerly named Govett Asset
Management Company) dated February 23, 1996. As described on page 27 below, the
new agreement is essentially a continuation of the existing agreement, except
for a change in the fees. The initial Subadvisory Agreement dated August 20,
1993, was approved on June 11, 1993 by the Directors (including a majority of
the Directors who were not "interested persons" of the Adviser or the
Subadvisor), and by the public shareholders on August 20, 1993. The Subadvisor
is a registered investment adviser whose principal office is at 650 California
Street, Suite 2800, San Francisco, CA 94108. Prior to the sale to AIB, John
Govett and the Subadvisor were affiliates. The Subadvisor has engaged in the
investment management business since 1972, and as of March 29, 1996 managed
approximately $1.8 billion in assets for individual and institutional clients.
Its investment management activities include investment in growth equities, a
full range of fixed income securities, and asset allocation strategies.
SHAREHOLDER SERVICES AGENT
Van Kampen American Capital Shareholder Services ("ACCESS" or the "Shareholders
Services Agent") provides the Company and each Fund with certain services,
including the following: (1) preparation and maintenance of accounts and
records for each Fund and performance of certain related functions; and (2)
provision of transfer agency services to each Fund. These services are provided
at cost plus a profit. The Shareholder Services Agent is an affiliate of the
Distributor.
FUND ADMINISTRATOR
Effective June 1, 1996, Chase Global Services will provide the Company with
certain administration and account services. Until that time, Investors Bank &
Trust Company ("IBT" or the "Fund Administrator") provides these services.
22
<PAGE>
PRINCIPAL SHAREHOLDERS AND CONTROL PERSONS
The following persons are known by the Company to own of record or beneficially
5% or more of the Class A securities of the indicated Funds:
<TABLE>
<CAPTION>
Name and Address of Shareholder Fund Percentage of Outstanding Shares
- ------------------------------- ---- --------------------------------
at March 29, 1996
-----------------
<S> <C> <C>
Gerald C. Letch Jr. Chairman Govett Global Income Fund 11.82%
U/A 01/01/74
FBO University Health System PP
Attention: Richard Rodriguez Int. Exec. VP
4502 Medical Drive
San Antonio, TX 78229-4493
USNB of Oregon Cust. Govett International Equity Fund 10.23%
FBO M.J. Murdock Charitable Trust
Attention: Mutual Funds
P.O. Box 3168
Portland, OR 97208-3168
National Financial Svcs Corp. Govett Emerging Markets Fund 8.94%
FBO Our Customers
Attention: Mutual Funds, 5th Floor
200 Liberty Street
New York, NY 10281-1003
Charles Schwab & Co. Inc. Govett Emerging Markets Fund 8.35%
Special Custody Account for the
Exclusive Benefit of Cusotmers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
John Govett & Co. Limited Govett Pacific Strategy Fund 26.31%
Shackleton House
Attention: Colin Kreidewolf
4 Battle Bridge Lane
London, SE12HR England
Arthur I. Trueger Govett Pacific Strategy Fund 25.84%
c/o London Pacific Group Limited
650 California Street, Suite 2800
San Francisco, CA 94108-2609
Arthur I. Trueger Govett Latin American Fund 17.68%
c/o London Pacific Group Limited
650 California Street, Suite 2800
San Francisco, CA 94108-2609
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Charles Schwab & Co. Inc. Govett Latin American Fund 8.68%
Special Custody Account for the
Exclusive Benefit of Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Prudential Securities FBO Govett Latin American Fund 5.48%
John P. Dobson
140 Christie Hill Road
Darien, CT 06820-3016
</TABLE>
EXPENSES; INVESTMENT MANAGEMENT AND SUBADVISORY ARRANGEMENTS
In addition to the investment management fee payable to the Manager (described
below) and the compensation payable to the Shareholder Services Agent, the Funds
pay all of their own expenses, including, without limitation, the costs and
expenses attributable to the preparation, typesetting, printing and mailing of
their proxy materials to existing shareholders, their legal expenses, and the
fees of their custodians, auditor and non-interested directors. The Funds'
Investment Management Contract with the Manager also provides that the Funds
will pay for the typesetting, printing and mailing of Prospectuses, Statements
of Additional Information and reports to existing shareholders. Other expenses
paid by the Funds include interest, taxes, brokerage commissions, and other
portfolio transactions fees and charges, the Funds' proportionate share of
insurance premiums and dues, and the costs of registering shares under federal
and state securities laws. The Funds are also responsible for such nonrecurring
expenses as may arise, including costs of litigation to which the Funds are
party and any obligations they may have to indemnify their officers and
directors with respect to such litigation.
Pursuant to the Investment Management Contract, each Fund is obligated to pay
the Manager a monthly fee computed at the close of business on the last business
day of each month equal to a monthly rate of approximately .08%, or 1% per year
(.06% monthly or .75% per year for the Global Income Fund), of the average daily
net assets of the Fund. Given the added complexities involved in managing
international and smaller company investments, this fee is higher than that paid
by most other investment companies. The Investment Management Contract also
specifies that the management fee will be reduced to the extent necessary to
comply with the most stringent expense limits prescribed by any state in which
the Funds' shares are offered for sale. The most stringent current state
restriction limits each Fund's allowable operating expenses (excluding interest,
taxes, a portion of the Fund's Rule 12b-1 distribution fees, a portion of the
Fund's custodian expenses attributable to investments in foreign securities,
brokerage commissions and extraordinary expenses such as litigation costs) in
any fiscal year to 2.5% of the first $30 million of the average daily net assets
of the Fund, 2.0% of the next $70 million of the average daily net assets of the
Fund, and 1.5% of the average daily net assets of the Fund in excess of $100
million.
During the fiscal years ending December 31, 1993, 1994 and 1995, the Manager was
entitled to receive management fees as follows:
<TABLE>
<CAPTION>
FUND 1993 1994 1995
<S> <C> <C> <C>
International Equity $297,543 $ 365,679 $ 302,657
Emerging Markets $367,125 $ 837,173 $ 745,285
Smaller Companies $159,139 $ 417,857 $3,173,782
Pacific Strategy n/a $ 208,445 $ 118,565
Latin America n/a $ 73,186 $ 47,489
Global Income $630,526 $ 546,289 $ 338,596
</TABLE>
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<PAGE>
Of these fees, the Manager waived the following amounts:
<TABLE>
<CAPTION>
FUND 1993 1994 1995
<S> <C> <C> <C>
International Equity $44,847 $ 86,528 $76,145
Emerging Markets $6,939 $121,674 $207,496
Smaller Companies $ 77,394 $190,035 $559,632
Pacific Strategy n/a $ 32,472 $133,040
Latin America n/a $ 61,909 $150,934
Global Income -0- $148,986 $80,573
</TABLE>
The Investment Management Contract remains in effect as to a Fund until the
second anniversary of its effective date with respect to such Fund. Thereafter,
it continues in effect for successive annual periods, provided such continuance
is specifically approved at least annually by a vote of the Company's Board of
Directors or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority of the Company's directors
who are not parties to the agreement or interested persons of any such party
(other than as directors of the Company), cast in person at a meeting called for
that purpose. The Investment Management Contract may be terminated without
penalty at any time by one or more of the Funds or by the Manager on sixty days
written notice without penalty, and will automatically terminate in the event of
its assignment, as defined in the 1940 Act.
Pursuant to the Subadvisory Agreement with the Manager, the Subadvisor provides
day-to-day investment advisory services to the Smaller Companies Fund. Under
the Subadvisory Agreement, the Subadvisor furnishes an investment program and
makes investment decisions for the Smaller Companies Fund, subject to the
supervision of the Manager and the Company's Board of Directors. On December 11,
1995 and February 23, 1996, respectively, the Directors and shareholders of the
Smaller Companies Fund, approved a new Subadvisory Agreement at the same time as
they approved a new Investment Management Contract with John Govett, in
connection with John Govett's sale to Allied Irish Banks p.l.c. The new
Subadvisory Agreement is essentially a continuation of the existing agreement,
except for a change in the fees. Under the new agreement, John Govett pays
Berkeley an amount equal to the difference, if any, between (i) the investment
advisory and management fees actually received by John Govett, and all revenue
actually received by John Govett under an agreement between John Govett and the
Distributor (excluding any amounts payable to the Distributor by the Manager in
accordance with an arrangement under which they share management fees,
distribution and service fees, excess Fund expenses, and sales charges related
to the sale of Fund shares), with respect to the Smaller Companies Fund, and
(ii) 0.10% of such Fund's average daily net assets. Under the prior agreement,
John Govett paid to Berkeley, out of the investment advisory fee John Govett
received from the Company with respect to the Smaller Companies Fund, an annual
fee, computed daily and paid monthly, equal to 0.50% of the Smaller Companies
Fund's average daily net assets. In addition, the agreement for the sale of
John Govett to AIB requires that John Govett Holdings Limited, the current
parent of John Govett, pay London Pacific Group Limited (the former parent of
John Govett), a cash fee under certain circumstances if Berkeley is removed as
subadvisor to the Smaller Companies Fund. Of course, the Subadvisory Agreement
may be terminated, without the payment of any penalty by the Smaller Company
Fund, by the Company's Board of Directors or by the Fund's shareholders on sixty
days' written notice.
As required by the Investment Company Act of 1940, as amended (the "1940 Act"),
the Investment Management Agreement and the Investment Subadvisory Agreement in
effect prior to the sale terminated automatically when the sale closed, as the
sale constituted an "assignment" under the 1940 Act. John Govett and the
Subadvisor each agreed that neither would be paid any advisory fees in
connection with its investment advisory services to the Funds during the interim
period between the closing of the sale on December 29, 1995 and shareholder
approval of the agreements on February 23, 1996. John Govett and Berkeley, and
their respective parent companies, also agreed with the Company that each will
be responsible to the Company (and, with respect to the Subadvisory Agreement,
to the Manager), for any failure during the interim period to provide services
or to honor all of the terms and conditions of the current agreements.
The Smaller Companies Fund does not compensate the Subadvisor directly for its
subadvisory services. The subadvisory fee paid to the Subadvisor will be
reduced proportionately if the investment management fee paid to the
25
<PAGE>
Manager by the Company with respect to the Smaller Companies Fund is reduced as
a result of applicable state expense limitations or fee waivers.
The Manager, the distributor, and certain of the distributor's affiliates have
agreed to share management fees, distribution and service fees, excess Fund
expenses, and sales charges related to the sale of Fund shares.
The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036, and Investors Bank & Trust Company, P. O. Box 1537, Boston, Massachusetts
02205, act as Custodians of the securities and other assets of the Funds and
provide certain fund accounting and recordkeeping services. The Custodians do
not participate in decisions relating to the purchase and sale of portfolio
securities. The Custodians provide services in connection with the sale,
exchange, substitution, transfer and other dealings with the Funds' investments,
receive and disburse all funds and perform various other duties upon receipt of
proper instructions from the Funds. The Custodians also act as custodians for
certain cash and securities of the Funds maintained outside of the U.S. in
certain countries through certain foreign subcustodians pursuant to the
requirements of a Securities and Exchange Commission rule. The Custodians each
charge custody fees which are believed to be competitive within the industry.
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110, (617)
439-4390, acts as the Funds' independent accountants.
The validity of the shares of the Funds offered hereby will be passed upon by
Goodwin, Procter & Hoar, One Exchange Place, Boston, Massachusetts 02109-2881.
BROKERAGE ALLOCATION
Under the Funds' Investment Management Contract, and under the Subadvisory
Agreement for the Smaller Companies Fund, the selection of securities dealers to
execute transactions in the portfolios of the Funds is made by the Manager (or
by the Subadvisor for the Smaller Companies Fund) in accordance with criteria
set forth in the Prospectus, the Investment Management Contract, the Subadvisory
Agreement and policies adopted by the Funds' Board of Directors. The following
procedures followed by the Manager for the International Equity Fund, Emerging
Markets Fund, Pacific Strategy Fund, Latin America Fund, and Global Income Fund
are also followed by the Subadvisor with respect to the Smaller Companies Fund.
The Manager places portfolio transactions for the Funds with those securities
broker-dealers which the Manager believes will provide best value in transaction
and research services for the Funds, either in a particular transaction or over
a period of time. Although some transactions involve only brokerage services,
many involve research services as well.
In valuing brokerage services, the Manager makes a judgment as to which
securities broker-dealers are capable of providing the most favorable net price
(not necessarily the lowest commission) and the best execution in a particular
transaction. Best execution connotes not only general competence and
reliability of a securities broker-dealer, but specific expertise and effort of
a securities broker-dealer in overcoming the anticipated difficulties and
fulfilling the requirements of particular transactions, because the problems of
execution and the required skills and effort vary greatly among transactions.
In valuing research services, the Manager makes a judgment as to the usefulness
of research and other information provided by a securities broker-dealer to the
Manager in managing the Funds' investment portfolios. In some cases, the
information, e.g., data for recommendations concerning particular securities,
relates to the specific transaction placed with the securities broker-dealer,
but for the greater part the research consists of a wide variety of information
concerning companies, industries, investment strategy and economic, financial
and political conditions and prospects, useful to the Manager in advising the
Funds. The Funds may pay to those securities broker-dealers which provide
brokerage and research services to the Manager a higher commission than that
charged by other securities broker-dealers if the Manager determines in good
faith that the amount of the commission is reasonable in relation to the value
of those services in terms either of the particular transaction, or in terms of
the overall responsibility of the Manager to the Funds and to any other accounts
over which the Manager exercises investment discretion.
26
<PAGE>
The reasonableness of brokerage commissions paid by the Funds in relation to
transaction and research services received is evaluated by the staff of the
Manager on an ongoing basis. The general level of brokerage charges and other
aspects of the Funds' portfolio transactions are reviewed periodically by the
Company's Board of Directors.
The Manager is the principal source of information and advice to the Funds, and
is responsible for making and initiating the execution of investment decisions
for the Funds. However, the Manager believes that it is important for the
Manager, in performing its responsibilities to the Funds, to continue to receive
and evaluate the broad spectrum of economic and financial information that many
securities broker-dealers have customarily furnished in connection with
brokerage transactions, and that in compensating securities broker-dealers for
their services, it is in the interest of the Funds to take into account the
value of the information received for use in advising the Funds. The extent, if
any, to which the obtaining of such information may reduce the expenses of the
Manager in providing management services to a Fund is not readily determinable.
In addition, other clients of the Manager, including other Funds, might also
benefit from the information obtained for a particular Fund, in the same manner
that Fund might also benefit from information obtained by the Manager in
performing services to others, including one or more of the other Funds.
The Manager will ordinarily place orders for the purchase and sale of over-the-
counter securities on a principal rather than agency basis with a principal
market maker unless, in the opinion of the Manager, a better price and execution
can otherwise be obtained. Purchases of portfolio securities from underwriters
will include a commission or concession paid by the issuer to the underwriter,
and purchases from securities broker-dealers will include a spread between the
bid and asked prices. Subject to the requirement of best execution, the sale of
Fund shares may also be considered as a factor in the selection of securities
broker-dealers to execute the Funds' portfolio transactions.
Investment decisions for each Fund are made independently from those of other of
the Manager's client accounts or other funds managed or advised by the Manager,
including the other Funds. Nevertheless, it is possible that at times identical
securities will be acceptable for both one or more Funds and one or more of such
client accounts or other funds. In such event, the position of the Fund and
such other client accounts or other funds in the same issuer may vary. The
length of time that each may choose to hold its investment in the same issuer
may also vary. However, to the extent any of these client accounts or other
funds seeks to acquire the same security as a Fund at the same general time, the
Fund may not be able to acquire as large a part of such security as it desires,
or it may have to pay a higher price or obtain a lower yield for such security.
Similarly, the Fund may not be able to obtain as high a price for, or as large
an execution of, an order to sell any particular security at the same general
time. The Manager seeks to provide fair and equitable treatment for each Fund
in the selection of investments and allocation of investment opportunities
between the Fund and the Manager's other investment management clients,
including the other Funds.
Total brokerage commissions paid by the Funds during 1993, 1994 and 1995 were:
<TABLE>
<CAPTION>
FUND 1993 1994 1995
<S> <C> <C> <C>
International Equity $436,772 $ 518,373 $ 203,906
Emerging Markets $722,702 $1,145,847 $ 763,407
Smaller Companies $ 69,494 $ 383,985 $1,098,810
Pacific Strategy n/a $ 541,681 $ 202,580
Latin America n/a $ 139,205 $ 53,126
Global Income $ 26,486 $ 429 n/a
</TABLE>
DESCRIPTION OF THE FUNDS
Each Fund is a series of The Govett Funds, Inc. (the "Company"). The Company was
organized as a Maryland corporation on November 13, 1990. It is classified as an
open-end management investment company.
The Company's Articles of Incorporation permit the Directors to create an
unlimited number of series (funds). There are currently six funds which
comprise the Company. They are: Govett International Equity Fund, Govett
Emerging Markets Fund, Govett Smaller Companies Fund, Govett Pacific Strategy
Fund, Govett Latin America Fund, and Govett Global Income Fund.
27
<PAGE>
The International Equity Fund, Emerging Markets Fund, Smaller Companies Fund and
Pacific Strategy Fund are diversified series of the Company. A diversified
series of shares of an investment company is required under the 1940 Act to
follow certain guidelines in managing its investments which may help to reduce
risk. These guidelines, which apply only to the four aforementioned Funds,
prohibit each Fund from:
- - acquiring more than 10% (when considered together with the securities
held by the other Funds) of the outstanding voting securities of any one
issuer; and
- - investing, with respect to 75% of its total assets, more than 5% of its
total assets in securities of any one issuer (other than U.S. government
and agency obligations).
Each Fund has designated three classes of shares. Class A shares are sold with
an initial sales charge; Class B shares and Class C shares are sold without an
initial sales charge but are subject to a contingent deferred sales charge
("CDSC") upon certain redemptions. AT PRESENT, CLASS B AND CLASS C SHARES ARE
NOT AVAILABLE FOR PURCHASE BY THE GENERAL PUBLIC. See "Additional Purchase,
Exchange and Redemption Information -- "Alternative Sales Arrangements" below.
VOTING RIGHTS. The total authorized capital stock of the Company consists of
three billion shares. Currently, the Company issues six series of shares, each
of which corresponds to one of the Funds. Each Fund has authorized 250 million
shares for issuance. The shares have no preemptive or conversion rights; the
voting and dividend rights, and the right of exchange or redemption with respect
to each class of shares of the Funds are described in the Funds' Prospectus.
Upon issuance and payment as described in the Prospectus, shares of each Fund
will be fully paid and nonassessable. Shareholders holding 10% or more of the
outstanding shares of the Funds may, as set forth in the Articles of
Incorporation, call meetings for any purpose, including the purpose of voting on
removal of one or more of the Company's Directors. Separate votes are taken by a
Fund when a matter affects only that Fund. The Funds normally will not hold
meetings of shareholders except as required under the 1940 Act and Maryland law.
The Funds would be required to hold a shareholders' meeting in the event that,
at any time, less than a majority of the directors holding office have been
elected by shareholders. Directors will continue to hold office until their
successors are elected and have qualified. Shares of the Funds do not have
cumulative voting rights, which means that the holders of a majority of the
shares voting for the election of Directors can elect all of the Directors. A
Fund may be terminated upon the sale of its assets to another diversified,
open-end management investment company, or upon liquidation and distribution of
its assets, if approved by the requisite vote of the holders of the outstanding
shares of that Fund. If not so terminated, the portfolios are expected to
continue indefinitely.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
ALTERNATIVE SALES ARRANGEMENTS
Each Fund has designated three classes of shares. Class A shares are sold with
an initial sales charge; Class B shares and Class C shares are sold without an
initial sales charge but are subject to a CDSC upon certain redemptions. The
three classes of shares of each Fund represent interests in the same portfolio
of investments of the Fund, have the same rights and are identical in all
material respects, except that the Class B and Class C shares bear the expenses
of their deferred sales arrangements, a higher distribution and servicing
charge, and any expenses (including incremental transfer agency costs) resulting
from such deferred sales arrangements. In addition, each class has exclusive
voting rights with respect to the Rule 12b-1 distribution plan pursuant to which
the distribution fee for such class is paid. See "Prospectus Summary -- Multiple
Pricing System," "How to Purchase Shares," and "How to Redeem Shares -- CDSCs"
in the Prospectus.
When purchasing shares of a Fund, investors must specify whether the purchase is
for Class A, Class B or Class C shares. AN UNSPECIFIED PURCHASE ORDER WILL BE
CONSIDERED AN ORDER FOR CLASS A SHARES.
AT PRESENT, CLASS B AND CLASS C SHARES ARE NOT AVAILABLE FOR PURCHASE BY THE
GENERAL PUBLIC.
28
<PAGE>
ADDITIONAL INFORMATION REGARDING FUND SHARES
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Funds must be denominated in U.S. dollars. The Funds
reserve the right, in their sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) to
honor the transaction or make adjustments to the shareholder's account for the
transaction as of a date and with a foreign currency exchange factor determined
by the drawee bank. As discussed in the Prospectus, certain categories of
investors may purchase shares of the Funds at net asset value per share (without
or at a reduced sales charge) because, with respect to these investors, there is
no, or minimal, sales effort required. Investors may be charged a fee if they
effect transactions in Fund shares through a securities broker-dealer, bank, or
other financial institution.
PURCHASES THROUGH SECURITIES DEALERS
Shares may be purchased through securities dealers that have dealer agreements
with the Distributor and through other qualified brokers. Orders received by a
securities dealer (or other qualified broker) before 4:00 p.m., Eastern Time, on
any Business Day, will be executed at the public offering price determined that
day, provided that the securities dealer transmits the order to the Shareholder
Services Agent by 5:00 p.m., Eastern Time, that day. A "Business Day" is any
Monday through Friday on which the New York Stock Exchange is open for business.
After an initial investment is made and a shareholder account is established
through a securities dealer, at the shareholder's option, subsequent purchases
may be made directly through the Shareholder Services Agent. Securities dealers
and brokers are responsible for timely transmission of orders to the
Distributor.
PURCHASES THROUGH THE SHAREHOLDER SERVICES AGENT
Investors may purchase shares and open an account directly through the
Shareholder Services Agent by completing and signing the Account Application
provided with the Funds' Prospectus. Investors should mail the completed Account
Application together with a check to cover the purchase to the Shareholder
Services Agent in accordance with the instructions on the Account Application.
Purchases will be executed at the public offering price next computed after the
Shareholder Services Agent has received the order. Subsequent investments need
not be accompanied by an Account Application.
Investors also may purchase shares of the Funds through the Shareholder Services
Agent by bank wire, provided that within seven days of an initial purchase the
Shareholder Services Agent has received an executed Account Application with the
shareholder's taxpayer identification number. Bank wire purchases will be
effected at the next computed public offering price after the bank wire is
received; accordingly, a bank wire purchase received by 4:00 p.m. Eastern Time
on a Business Day will be effected that day. A wire investment is considered
received when the Shareholder Services Agent is notified that the bank wire has
been credited to a Fund. The shareholder is responsible for providing prior
telephonic notice to the Shareholder Services Agent that a bank wire is being
sent. A shareholder's bank may charge a service fee for wiring money to the
Funds; the Shareholder Services Agent currently charges no service fees for
facilitating wire purchases, but reserves the right to do so in the future.
Shareholders desiring to open an account by bank wire should call the
Shareholder Services Agent at (800) 421-6714.
EXCHANGES BETWEEN FUNDS
Shares of any Fund generally may be exchanged for shares of the same class of
any other Fund, based on their respective net asset values, without imposition
of any sales charges, provided that the account holder remains the same. Fund
shares may be exchanged for shares of the Goldman Sachs Institutional Liquid
Assets Money Market Portfolio (the "Money Market Fund"), with the following
exception: Class A Fund shares acquired through quantity purchases of $1
million or more on which no front-end sales charge was paid cannot be exchanged
for shares of the Money Market Fund during the first year after their purchase.
The Money Market Fund is not a series of the Company, but is available as an
exchange vehicle for Fund shareholders. Shares of the Money Market Fund may also
be exchanged for Class A shares of any Fund, without imposition of a sales
charge, but only if the investor seeking to exchange the Money Market Fund
shares acquired those shares through an exchange out of one or more of the Class
A shares of one or more of the Funds, subject to the exception noted above.
Money Market Fund shares that were acquired by direct
29
<PAGE>
purchase from the Money Market Fund, and Money Market Fund shares that were
acquired through the reinvestment of Money Market Fund dividends, cannot be
exchanged for Class A shares of any Fund. Investors interested in making an
exchange with respect to shares of the Money Market Fund should write or call
their securities dealer or the Shareholder Services Agent to request that fund's
prospectus. Exchange requests may be transmitted to the Shareholder Services
Agent by telephone or by mail, in accordance with the instructions provided in
the "Quick Reference Guide" in Appendix B of the Funds' Prospectus.
REDEMPTIONS THROUGH THE SHAREHOLDER SERVICES AGENT
Redemption requests may be transmitted to the Shareholder Services Agent by
telephone or by mail, in accordance with the instructions provided in the "Quick
Reference Guide" in Appendix B of the Funds' Prospectus. The procedures for
redemption are set forth more fully in the Prospectus.
REDEMPTIONS THROUGH SECURITIES DEALERS
Shareholders with accounts at securities dealers (or other qualified brokers)
who sell shares of the Funds may submit redemption requests to such securities
dealers or brokers. If the shareholder redeems through a securities dealer or
broker, his/her shares will be redeemed at their NAV next calculated after the
shareholder's securities dealer or broker receives the order which is promptly
transmitted to the Shareholder Services Agent (less any applicable CDSC), rather
than on the day the Shareholder Services Agent receives the shareholder's
written redemption request form. It is the securities dealer's or broker's
responsibility to transmit the order in a timely fashion, and any loss to the
customer resulting from failure to do so must be resolved between the customer
and his/her securities dealer. The procedures for redemptions are set forth more
fully in the Funds' Prospectus.
Certain redemptions of Class A, Class B and Class C shares will be subject to
payment of a CDSC. See "Prospectus Summary -- Multiple Pricing System," "How to
Purchase Shares," and "How to Redeem Shares -- CDSCs" in the Prospectus.
CONTINGENT DEFERRED SALES CHARGE
CLASS A CDSC. No sales charge is payable at the time of purchase on investments
in Class A shares of $1 million or more. However, a CDSC will be imposed
(subject to certain exceptions described in the Funds' Prospectus) on certain
redemptions of such investments made within 12 months following the investment,
at the rate of 1.00% of the lesser of (1) the net asset value of the Class A
shares redeemed or (2) the net cost of such shares. No CDSC is imposed on a
redemption derived from (1) increases in the value of Class A shares due to
increases in their net asset value per share; (2) shares acquired through
reinvestment of dividend income or capital gains distributions; or (3) Class A
shares held for more than 12 months from the date of purchase. See "How to
Redeem Shares - CDSCs" in the Funds' Prospectus.
WAIVER OF CLASS B AND CLASS C CDSC. The CDSC on Class B and C may be waived on
redemptions of Class B and Class C shares in the circumstances described below:
REDEMPTION UPON DISABILITY OR DEATH. The Funds will waive any otherwise
applicable CDSC on redemptions following the death or disability of a
Class B or Class C shareholder. An individual will be considered
disabled for this purpose if he or she meets the definition thereof in
Section 72(m)(7) of the Internal Revenue Code of 1986, as amended (the
"Code"), which in pertinent part defines a person as disabled if such
person "is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which
can be expected to result in death or to be of long-continued and
indefinite duration." While the Funds do not specifically adopt the
balance of Code's definition which pertains to furnishing the Secretary
of Treasury with proof as he or she may require, the Distributor will
require satisfactory proof of death or disability before it determines
to waive the CDSC.
In cases of disability or death, the CDSC may be waived when the
descendent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of the death or initial
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<PAGE>
determination of disability. This waiver of the CDSC applies to a total or
partial redemption, but only to redemptions of Class B or Class C shares held at
the time of the death or initial determination of disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS. The
Funds will waive the CDSC when a total or partial redemption is made in
connection with certain distributions from the following types of retirement
plans: deferred compensation plans under Section 451 of the Code; custodial
accounts maintained pursuant to Section 403(b)(7) of the Code, and pension or
profit sharing plans qualified under Section 401(a) of the Code. The charge may
be waived upon the tax-free rollover or transfer of assets to another retirement
plan invested in one or more of the Funds; in such event, as described below,
the Funds will "tack" the period for which the original shares were held on to
the holding period of the shares acquired in the transfer or rollover for
purposes of determining what, if any, CDSC is applicable in the event that such
acquired shares are redeemed following the transfer or rollover. The CDSC also
will be waived on any redemption which results from the return of an excess
contribution pursuant to Section 408(d)(4) or (5) of the Code, the return of
excess deferral amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from
the death or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii). In addition, the CDSC may be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).
The Funds do not currently intend to waive the CDSC for any distributions
from IRAs or other retirement plans not specifically described above.
REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN. A shareholder may
elect to participate in a systematic withdrawal plan ("SWP") with respect to the
shareholder's investment in the Class A, Class B or Class C shares of a Fund.
Under the SWP, a dollar amount of a participating shareholder's investment in
the Fund will be redeemed systematically by the Fund on a periodic basis, and
the proceeds transmitted to the shareholder. The amount to be redeemed and
frequency of the systematic withdrawals will be specified by the shareholder
upon his or her election to participate in the SWP. The Class B or Class C CDSC
may be waived on certain redemptions made under the SWP. Class A shares
redeemed through a SWP that are subject to a CDSC will be charged the CDSC.
The amount to be systematically redeemed from any Fund without the imposition of
a Class B or Class C CDSC may not exceed a maximum of 12% annually of the
shareholder's Initial Account Balance (see "Systematic Withdrawal Plan - All
Classes" below). The Funds reserve the right to change the terms and conditions
of the SWP and the ability to offer the SWP.
INVOLUNTARY REDEMPTION OF SHARES IN ACCOUNT THAT DO NOT HAVE THE REQUIRED
MINIMUM BALANCE. The Funds reserve the right to redeem shareholder accounts with
balances of less than a specified dollar amount as set forth in the Prospectus.
Prior to such redemptions, shareholders will be notified in writing and allowed
a specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Funds will waive the Class B or Class C
CDSC upon any such involuntary redemption.
REINVESTMENT OF REDEMPTION PROCEEDS IN SHARES OF THE SAME FUND WITHIN 120 DAYS
AFTER REDEMPTION. A Class A or Class B shareholder who has redeemed Class A or
Class B shares of a Fund may reinstate any portion or all of the net proceeds of
such redemption in Class A share of any other Fund. Class B redemption proceeds
cannot be reinstated in Class B shares. A Class C shareholder who has redeemed
Class C shares of any Fund may reinstate any portion or all of the net proceeds
of such redemption in Class C shares of the Fund. Any such reinstatements of
Class A, Class B, or Class C shares will be made at the net asset value next
determined after the reinstatement request is received, which must be within 120
days after the date of the initial redemption. Reinstatement at net asset value
is also offered to participants and those eligible retirement plans held or
administered by American Capital Trust Company for repayment of principal (and
interest) on their borrowings on such plans.
REDEMPTION BY MANAGER. The Funds may waive the Class B or Class C CDSC when a
total or partial redemption is made by the Manager with respect to its
investments in a Fund.
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TELEPHONE TRANSACTIONS
Unless the Telephone Privilege is waived by a shareholder (by completing the
appropriate section of the Account Application provided with the Funds'
Prospectus), each shareholder may effect purchase, exchange, redemption, and
account maintenance transactions by telephone. The Telephone Privilege
authorizes the Company, the Shareholder Services Agent, and the Distributor to
act upon instructions by telephone to purchase, exchange, redeem and generally
to maintain the account for which the Telephone Privilege applies. For a more
detailed discussion of this privilege, please see "Telephone Transactions" in
the Funds' Prospectus.
REDEMPTIONS IN KIND
The Funds have committed themselves to pay in cash all requests for redemption
of Fund shares by any shareholder of record, limited in amount, however, during
any 90-day period to the lesser of $250,000 or 1% of the value of each Fund's
net assets at the beginning of such period. This commitment is irrevocable
without the prior approval of the SEC. In the case of requests for redemption in
excess of such amounts, in an emergency, or if the payment of such a redemption
in cash would be detrimental to the existing shareholders of the Fund, the Board
of Directors reserves the right to make payments in whole or in part in
securities or other assets held by the Fund from which the shareholder is
redeeming. In such circumstances, the assets distributed would be valued using
the same methods used to determine the Fund's NAV. Should a Fund make a
redemption in kind, the recipient shareholder may incur brokerage fees and
additional tax costs in converting the securities to cash.
SUSPENSION OF REDEMPTION PRIVILEGE
The Funds may suspend redemption privileges or postpone the date of payment of
redemptions for more than seven days after a redemption order is received during
any period (1) when the New York Stock Exchange is closed other than customary
weekend and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the SEC; (2) when an emergency exists as defined by
the SEC, which makes it not reasonably practicable for the Funds to dispose of
securities owned by it or fairly to determine the value of its assets; or (3) as
the SEC may permit.
LETTER OF INTENT -- CLASS A SHARES
A Letter of Intent ("LOI") is not a binding obligation to purchase the indicated
amount of Class A Fund shares. During such time as Fund shares are held in
escrow under an LOI to assure payment of applicable front-end sales charges if
the indicated amount of Class A is not purchased, all dividends and capital gain
distributions on the escrowed shares will be reinvested in additional shares or
paid in cash, as specified by the shareholder. If the intended investment is not
completed within the specified 13-month period, the purchaser must remit to the
Shareholder Services Agent the difference between the front-end sales charge
actually paid and the sales charge which would have been applicable if the total
purchases of Class A shares had been made at a single time. If this amount is
not paid to the Shareholder Services Agent within 20 days after written request,
the appropriate number of escrowed shares will be redeemed by the Shareholder
Services Agent.
AUTOMATIC INVESTMENT PLAN -- ALL CLASSES
To establish participation in the Funds' Automatic Investment Plan ("AIP"),
investors or their brokers should complete the appropriate section of the
Account Application found with the Prospectus. Investment amounts will be drawn
on the designated monthly investment dates (monthly on or about the 21st day, or
quarterly on or about the 21st day of January, April, July and October) in order
to purchase full and fractional shares of the Funds at the public offering price
determined on that day. In the event that the designated investment day falls on
a Saturday, Sunday or holiday, shares will be purchased on the next Business
Day. If an investor's check is returned because of insufficient funds, a stop
payment order or the account is closed, the AIP may be discontinued, and any
share purchase made upon deposit of such check may be canceled. Furthermore, the
shareholder will be liable for any loss incurred by the Funds by reason of such
cancellation. Investors should allow one month for the establishment of an AIP.
An AIP may be terminated by the
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Shareholder Services Agent or the Funds upon 30 days' written notice, or by the
participant at any time without penalty upon written notice to the Funds or the
Shareholder Services Agent.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders owning shares with a value of $10,000 or more may establish a
monthly Systematic Withdrawal Plan. Shareholders owning shares with a value of
$5,000 or more may establish a quarterly, semiannual or annual Systematic
Withdrawal Plan. A participating shareholder will receive proceeds from monthly
or quarterly redemptions of Fund shares, in amounts of not less than $25 per
redemption per Fund, as specified by the shareholder. Such redemptions will
occur on or about the 21st day of the month. In the event that the 21st day
falls on a Saturday, Sunday or holiday, the redemption will take place on the
prior Business Day. Checks will be made payable to the designated recipient and
mailed within seven (7) days. To participate in the Systematic Withdrawal Plan,
investors should complete the appropriate portion of the Account Application
provided with this Prospectus. Shareholders participating in this plan with
respect to Class A shares for a particular Fund should not simultaneously
purchase Class A shares of the Fund, as such purchases are subject to a sales
charge. Investors should contact the Shareholder Services Agent for more
information. Redemptions pursuant to the Systematic Withdrawal Plan of certain
Class A shares purchased at net asset value that are effected within 12 months
of initial purchase may be subject to a CDSC. See "How to Redeem Shares --
CDSCs" in the Prospectus. Class B and Class C shareholders who establish a
Systematic Withdrawal Plan may redeem up to 12% annually of the shareholder's
Initial Account Balance without incurring a CDSC. Initial Account Balance means
the amount of the shareholder's investment in the Class B or Class C shares of
the Fund on the date the plan for such class is established. See "How to
Purchase Shares -- Waiver of CDSCs" in the Prospectus.
Under the Plan, sufficient shares of a Fund are redeemed to provide the amount
of the periodic withdrawal payment. Dividends and capital gains distributions
on shares held under the Plan are reinvested in additional shares at the next
determined net asset value. If periodic withdrawals continuously exceed
reinvested dividends and capital gains distributions, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. Any
taxable gain or loss will be recognized by the shareholder upon redemption of
shares.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA)
Shares of the Funds may also be purchased as the underlying investment for an
individual retirement account meeting the requirements of Section 408(a) of the
Internal Revenue Code of 1986, as amended. IRA applications are available from
securities dealers who sell Fund shares or from the Shareholder Services Agent.
CALCULATION OF NET ASSET VALUE
The Funds are open for business, and each Fund's net asset value ("NAV") is
calculated, on every day the New York Stock Exchange is open for trading. The
New York Stock Exchange is closed on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. The close of trading and the determination
of NAV will coincide with the close of business of the New York Stock Exchange
(normally considered 4:00 p.m. Eastern Time). When the New York Stock Exchange
is closed or when trading is restricted or suspended for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the SEC to merit such action, the Funds will determine NAV at the
close of business, the exact time of which will coincide with the closing of the
New York Stock Exchange. If there is such a restriction or suspension, any
shareholder may withdraw any demand for redemption or any tender of shares which
has been received by the Shareholder Services Agent during any such period, the
applicable NAV of which would but for such restriction or suspension be
calculated as of a time during such period. Upon such withdrawal, the
Shareholder Services Agent shall return to the shareholder the share
certificates tendered, if any.
Securities listed or traded on the New York Stock Exchange or on a foreign
securities exchange ("Listed Securities") are valued at the last quoted sales
price on that exchange prior to the time when the Funds' assets are valued.
Securities listed or traded on certain foreign exchanges whose operations are
similar to the U.S. over-the-counter market are valued at the price within the
limits of the latest available current bid and asked prices deemed by the
Manager (or the Subadvisor, in the case of the Smaller Companies Fund) best to
reflect a fair value. Foreign securities quoted in foreign
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currencies are translated into U.S. dollars at the spot exchange rates at 1:00
p.m. Eastern Time or at such other rates as the Manager or Subadvisor may
determine to be appropriate in computing NAV. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security by the Manager or
Subadvisor. Listed securities that are not traded on a particular day, and
securities regularly traded in the over-the-counter market, are valued at the
price within the limits of the latest available current bid and asked prices
deemed by the Manager or Subadvisor best to reflect a fair value. In instances
where the price of a security determined above is deemed by the Manager or
Subadvisor not to be representative, the security is valued in such a manner as
prescribed by the Funds' Board of Directors to reflect the security's fair
value. Because the Funds invest in securities that are traded in foreign markets
on days the Funds are not open for business, the Funds' NAV may be significantly
affected on days when shareholders do not have access to the Funds to purchase
or redeem shares. For purposes of determining the Funds' NAV, all assets and
liabilities initially expressed in foreign currencies are converted into U.S.
dollars at exchange rates quoted by a major bank. If such quotations are not
available, the rate of exchange will be determined in accordance with policies
established in good faith by the Board of Directors. The Board of Directors
monitors the Funds' method of valuation on an ongoing basis.
Long-term debt obligations are valued at the mean of representative quoted bid
and asked prices for such securities or, if such prices are not available, at
prices for securities of comparable maturity, quality and type; however, when
the Manager or Subadvisor deems it appropriate, prices obtained for the day of
valuation from a bond pricing service will be used. Short-term debt obligations
with remaining maturities in excess of 60 days are valued at the mean of
representative quoted bid and asked prices for such securities or, if such
prices are not available, such securities are valued using the prices for
securities of comparable maturity, quality, and type.
Options are valued at the last sale price on the exchange on which they are
listed, unless no sales of such options have taken place that day, in which case
they will be valued at the mean between their closing bid and asked prices. If
an option exchange closes later than 4:00 p.m. Eastern Time, the options traded
on it are valued based on the sale price, or on the mean between the bid and
asked prices, as the case may be, as of 4:00 p.m. Eastern Time. When the seller
writes a call, an amount equal to the premium received is included as an asset,
and an equivalent deferred credit is included as a liability. If a call written
by a Fund is exercised, the proceeds are increased by the premium received. If a
call expires, a Fund has a gain in the amount of the premium; if a Fund enters
into a closing purchase transaction, the Fund will have a gain or loss depending
on whether the premium was more or less than the cost of the closing
transaction. If a put held by a Fund is exercised, the amount the Fund receives
on sale of the underlying investment is reduced by the amount of the premium
paid by the Fund.
Futures are valued at the last sale price as of the close of the commodities
exchange on which they are traded, unless such exchange closes later than 4:00
p.m. Eastern Time, in which case such Futures are valued at the last sale price
as of 4:00 p.m. Eastern Time. Should the Board of Directors determine that such
price does not reflect the instrument's fair value, such instruments will be
valued at their fair market value as determined by, or in accordance with
valuation procedures and guidelines established by, the Board of Directors.
As noted in the Prospectus, the purchase and redemption prices of a Fund's
shares are based upon the Fund's net asset value ("NAV") per share of each such
class. Each Fund determines its NAV per share of each class by subtracting the
Fund's liabilities (including accrued expenses and dividends payable)
attributable to that class from its total assets (the value of the securities
the Fund holds plus cash and the value of other assets, including income accrued
but not yet received) attributable to that class and dividing the result by the
total number of shares outstanding. The NAV per share of the Fund is calculated
at the close of trading on the New York Stock Exchange (normally considered 4:00
p.m. Eastern Time) every day the Exchange is open.
REINVESTMENT DATE
The dividend reinvestment date is the date on which additional Fund shares are
purchased for shareholders who have elected to have their Fund dividends
reinvested. Automatic reinvestments in additional shares are made without a
sales charge as of the ex-dividend date using the relevant Fund's NAV determined
on that date, and are credited to your account on that date.
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ADDITIONAL DISTRIBUTION AND TAXATION INFORMATION
The following information is a supplement to and should be read in conjunction
with the section in the Funds' Prospectus entitled "Dividends, Distributions and
Federal Income Taxation."
TAX STATUS OF THE FUNDS. The Funds intend to qualify each year as "regulated
investment companies" for federal income tax purposes, to avoid liability for
federal income tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company, the Funds intend to declare
distributions of substantially all of their net taxable income and net realized
capital gains within each calendar year to shareholders of their Class A, Class
B and Class C shares. The Company's Board of Directors retains the right to
determine, for any particular year, that one or more of the Funds should not
qualify as a regulated investment company. In any year in which a Fund does not
so qualify, the Fund will be subject to federal and state income tax as a
regular corporation, and all distributions of its current or accumulated
earnings and profits (including distributions derived from net realized long-
term capital gains) will be taxed to shareholders as ordinary income. The
Global Income Fund seeks to pay monthly dividends from net investment income, if
any, which may include all or a portion of their respective net realized
short-term gains. Annual distributions of any net realized long-term gains and
any remaining short-term gains, if any, will be declared in November or December
of each year. The Funds also intend to comply with other tax rules applicable to
regulated investment companies, including a requirement that capital gains from
selling securities and certain options, futures and forward contracts held for
less than three months must constitute less than 30% of each Fund's gross income
for each fiscal year. Gains from foreign currency and foreign currency
denominated forward, futures and options contracts held less than three months
which are not directly related to the Funds' business of investing in foreign
securities are included in this 30% limitation, which may limit the Funds'
investments in such instruments.
DIVIDENDS. Gains (losses) attributable to foreign currency fluctuations are
generally taxable as ordinary income and therefore increase (decrease) dividend
income. Because the Funds invest primarily in foreign securities (including the
Smaller Companies Fund, which from time to time may invest primarily in foreign
securities), corporate shareholders should not expect dividends from the Funds
to qualify for the dividends received deduction. If the Funds earn qualifying
dividends from U.S. corporations, they will notify corporate shareholders
annually of the percentage of the Funds' dividends which qualify for the
dividends received deduction. Dividends are declared annually (the Global Income
Fund seeks to declare monthly dividends out of net investment income, if any).
The Funds will send each shareholder a notice promptly after the end of the
calendar year describing the tax status of dividends and capital gain
distributions made during the prior year. The per share dividend on Class B and
Class C shares are expected to be lower than the per share dividends on Class A
shares as a result of the higher distribution fees and expenses and incremental
transfer agency fees applicable to Class B and Class C shares.
CAPITAL GAINS DISTRIBUTIONS. Long-term capital gains earned by the Funds on the
sale of securities and distributed to shareholders are generally taxable as
long-term capital gains, regardless of the length of time that the shareholders
have held their shares. Under current U.S. federal income tax rules, long-term
capital gains are taxed at rates up to twenty-eight percent. If a shareholder
receives a long-term capital gain distribution on shares of a Fund and such
shares are held for less than six months and are sold at a loss, the portion of
the loss equal to the amount of the long-term capital gain distribution will be
considered a long-term capital loss for tax purposes. Short-term capital gains
distributed by the Funds are taxable to shareholders as dividends, not as
capital gains. Distributions from the short-term capital gains do not qualify
for the dividends received deduction.
FEDERAL INCOME TAX TREATMENT OF OPTIONS. Certain option transactions have
special tax implications for the Funds. Listed non-equity options, including
options on currencies, will be considered to have been closed out at the end of
the Funds' taxable year, and any gains or losses will be recognized for tax
purposes at that time. Such gains or losses will be characterized as 60%
long-term capital gain or loss and 40% short-term capital gain or loss
regardless of the holding period of the option. Gains or losses on unlisted
currency options will not be subject to this treatment and will generally result
in ordinary income or loss. In addition, losses on purchased puts and written
covered calls, excluding "qualified covered call options" on equity securities,
to the extent they do not exceed the unrealized gains on the securities or
currencies covering the options, may be subject to deferral until the securities
or currencies covering the options have been sold. The holding period of the
securities covering these options will be deemed not to begin until the option
is terminated. For securities covering a purchased put, this adjustment of the
holding period may increase the gain from
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sales of securities held for less than three months. The holding period of the
security covering an "in-the-money-qualified covered call" option on an equity
security will not include the period of time the option is outstanding. Losses
on written covered calls and purchased puts on securities, excluding certain
"qualified covered call" options on equity securities, may be long-term capital
losses, if the security covering the option was held for more than twelve months
prior to the writing of the option.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. Except for transactions the Funds
have identified as hedging transactions, the Funds are required for federal
income tax purposes to recognize as income for each taxable year their net
unrealized gains and losses on listed Futures Contracts as of the end of the
year, as well as those actually realized during the year. Except for
transactions in Futures Contracts which are classified as part of a "mixed
straddle," any gain or loss recognized with respect to a Futures Contract is
considered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the Futures Contract. In
the case of a Futures transaction classified as a "mixed straddle," the
recognition of losses may be deferred to a later taxable year.
Sales of Futures Contracts which are intended to hedge against a change in the
value of securities or currencies held by the Funds may affect the holding
period of such securities or currencies and, consequently, the nature of the
gain or loss on such securities or currencies upon disposition.
In order for each Fund to continue to qualify for federal income tax treatment
as a "regulated investment company" under the Code, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or certain currency positions. In addition, gains realized on
the sale or other disposition of securities or certain currency positions held
for less than three months must be limited to less than 30% of the Fund's annual
gross income. It is anticipated that any net gain realized from the closing out
of Futures Contracts will be considered gain from the sale of securities or
currencies and therefore be qualifying income for purposes of the 90%
requirements. In order to avoid realizing excessive gains on securities or
currencies held less than three months, the Funds may be required to defer the
closing out of Futures Contracts beyond the time when it would otherwise be
advantageous to do so. It is anticipated that unrealized gains on Futures
Contracts which have been open for less than three months as of the end of a
Fund's fiscal year and which are recognized for tax purposes, will not be
considered gains on securities or currencies held less than three months for
purposes of the 30% test.
The Funds will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fiscal year) on Futures transactions. Such
distributions will be combined with distributions of capital gains realized on a
Fund's other investments and shareholders will be advised of the nature of such
distributions.
FOREIGN TAXES. Income received by the Funds 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 its shareholders to
take a credit (or, if more advantageous, a deduction) for foreign income taxes
paid by the Fund, subject to limitations contained in the Code. Shareholders
would then include in gross income both dividends paid to them by the Fund and
the foreign taxes paid by the Fund on its foreign investments. The Funds cannot
assure shareholders that they will be eligible for the foreign tax credit. The
Funds will advise shareholders annually of their share of any creditable foreign
taxes paid by the Funds.
The foregoing discussion and the related discussion in the Prospectus have been
prepared by management of the Company and do not purport to be a complete
description of all tax implications of an investment in the Funds. Shareholders
are advised to consult with their own tax advisors concerning the application of
foreign, federal, state, and local taxes to an investment in the Funds. Heller,
Ehrman, White & McAuliffe has expressed no opinion in respect thereof.
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THE FUNDS' DISTRIBUTOR
UNDERWRITING AGREEMENT / 12B-1 DISTRIBUTION PLANS
Pursuant to an Underwriting Agreement that is subject to annual renewal, Van
Kampen American Capital Distributors, Inc. (the "Distributor") acts as principal
underwriter and distributor in a continuous public offering of the Funds'
shares. The Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. The Underwriting Agreement requires the Distributor to use its
best efforts to secure purchasers for shares of the Funds.
The Distributor pays the expenses of distribution of the Funds' shares,
including advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Funds pay the expenses of
preparing and printing amendments to their registration statements and
prospectuses (other than those necessitated by the activities of the
Distributor) and of sending prospectuses and reports to existing shareholders.
The Underwriting Agreement will continue in effect with respect to a Fund for
successive annual periods provided that its continuance is specifically approved
at least annually by a vote of the Company's Board of Directors, or by a vote of
the holders of a majority of a Fund's outstanding voting securities, and in
either event by a majority of the Company's directors who are not parties to the
Underwriting Agreement or interested persons of any such party (other than as
Directors of the Company), cast in person at a meeting called for that purpose.
The Underwriting Agreement may be terminated without penalty by either party as
to one or more of the Funds on 60 days' written notice.
Pursuant to the Underwriting Agreement, the Distributor is entitled to
receive a sales charge in connection with certain sales of Fund shares.
During the fiscal year ended December 31, 1993, Govett Financial Services
Limited ("Services") the Funds' former distributor, services received
front-end sales charges of $704,654.09, after reallowances of front-end sales
charges to dealers of $384,018.63 for sales of Class A shares of the
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund, and
the Global Income Fund. During the period from January 1, 1994 through
October 2, 1994, Services received sales charges of $222,723.00 after
reallowances of front-end sales charges to dealers of $6,341,249.00 for sales
of Class A shares of the International Equity Fund, Emerging Markets Fund,
Smaller Companies Fund, Pacific Strategy Fund, Latin America Fund, and Global
Income Fund. During the period from October 3, 1994 through December 31,
1994, Van Kampen American Capital, the new Distributor, received sales
charges of $163,601.00 after reallowances of front-end sales charges to
dealers of $847,100.00 for sales of Class A shares of the International
Equity Fund, Emerging Markets Fund, Smaller Companies Fund, Pacific Strategy
Fund, Latin America Fund, and Global Income Fund. These sales charges also
include charges applicable to the Govett Developing Markets Bond Fund, which
was open for investments during 1994 but which was closed to new investment
on February 1, 1995 and was merged into the Global Income Fund on June 29,
1995. During the fiscal year ended December 31, 1995, the Distributor
received sales charges of $3,699,507.00 after reallowances of front-end sales
charges to dealers of $20,922,480.00 for Class A shares of the International
Equity Fund, Emerging Markets Fund, Smaller Companies Fund, Pacific Strategy
Fund, Latin America Fund, and Global Income Fund.
Rule 12b-1 adopted by the SEC under the Investment Company Act of 1940 permits
an investment company to directly or indirectly pay expenses associated with the
distribution of its shares ("distribution expenses") in accordance with a plan
adopted by the investment Company's Board of Directors and approved by its
shareholders. Pursuant to such Rule, the Company's Board of Directors, and the
shareholders of each class of each Fund, have adopted three Distribution Plans
hereinafter referred to as the "Class A Plan," the "Class B Plan," and the
"Class C Plan" and together as the "Plans." Under the Class A Plan, each Fund
pays a distribution fee to the Distributor at an annual rate of 0.50% (0.35% for
the Global Income Fund) of each Fund's aggregate average daily net assets
attributable to its Class A shares. Under the Class B Plan and the Class C
Plan, each Fund pays a distribution and service fee to the Distributor at an
annual rate of 1% of the Fund's aggregate average daily net assets attributable
to its Class B shares and Class C shares. During the period from January 1,
1994 through October 2, 1994, Govett Financial Services Limited, the Funds'
former distributor, was entitled to receive distribution fees from the
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund, the
Global Income Fund, the Pacific Strategy Fund (from inception), and the Latin
America Fund with respect to their Class A shares in the amounts of $139,291,
$300,038, $138,948, $204,218, $85,171, and $24,092, respectively. During the
period from October 3, 1994 through December 31, 1994, the Distributor was
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entitled to receive distribution fees from the International Equity Fund,
Emerging Markets Fund, Smaller Companies Fund, Pacific Strategy Fund, Latin
America Fund and the Global Income Fund with respect to their Class A shares in
the amounts of $43,548, $118,548, $69,981, $19,052, $12,501, and $50,717,
respectively. During the period from January 1, 1995 through December 31,
1995, the Distributor was entitled to receive distribution fees from the
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Fund, Latin America Fund and the Global Income Fund with
respect to their Class A shares in the amounts of $156,106, $374,718,
$1,601,106, $59,626, $23,877 and $158,798, respectively
The Plans are deemed by the Staff of the Securities and Exchange Commission (the
"SEC") to be "compensation plans" because payments made are not tied directly to
actual expenses incurred, and the Distributor is given discretion concerning
what expenses are payable under the Plans. The fees received by the Distributor
pursuant to the Plans may exceed or, particularly in the early years of the
Funds, be less than the estimated direct and indirect costs incurred by the
Distributor in providing its services under the Plans and its Underwriting
Agreement with the Funds. If the fees received exceed expenses incurred, the
Distributor may be deemed to have received a "profit" to the extent of such
excess. For example, if the Distributor pays $1 for distribution expenses and
receives $2 under the Class A Plan, the $1 difference could be said to be a
profit for the Distributor. If the fees received are less than expenses
incurred, the Plans do not carry over any excess costs over fees to a subsequent
annual period.
Under the Plans, the Distributor receives distribution fees from the Funds at
the annual rates described in the Prospectus as compensation for providing
services and incurring expenses in the distribution of Fund shares. Such
expenditures may include payment of (1) commissions to certain financial
institutions (which may include banks), securities dealers and other industry
professionals (collectively, "Service Organizations") for providing distribution
assistance or services to clients which purchase shares of the Funds, (2) out-
of-pocket expenses of printing and distributing prospectuses and annual and
semiannual shareholder reports to other than existing shareholders, (3) out-of-
pocket and overhead expenses for preparing, printing and distributing
advertising material and sales literature, (4) expenses for promotional
incentives to securities dealers and financial and industry professionals, and
(5) advertising and promotional expenses, including conducting and organizing
sales seminars, marketing support salaries and bonuses, and travel-related
expenses.
The distribution and service fees attributable to Class B shares or Class C
shares are designed to permit an investor to purchase such shares without the
assessment of a front-end sales charge and at the same time permit the
Distributor to compensate Service Organizations with respect to such shares. In
this regard, the purpose and function of the combined CDSC and distribution and
service fees are the same as those of the initial sales charge and distribution
fee with respect to the Class A shares of the Funds in that in both cases the
sales charge and distribution charge provide for the financing of the
distribution of the Funds' shares.
As required by Rule 12b-1 under the Investment Company Act, each Plan and the
forms of servicing agreements and selling agreements were approved by the
Company's Board of Directors, including a majority of the Directors who are not
interested persons (as defined in the Investment Company Act) of the Company and
who have no direct or indirect financial interest in the operation of any of the
Plans or in any agreements related to a Plan (the "Independent Directors"). In
approving each Plan in accordance with the requirements of Rule 12b-1, the
Directors determined that there is a reasonable likelihood that each Plan will
benefit the Funds and their respective shareholders. Information with respect
to distribution revenues and expenses is presented to the Directors each year
for their consideration in connection with their deliberations as to the
continuance of the Plans. In their review of the Plans, the Directors are asked
to take into consideration expenses incurred in connection with the distribution
of each class of shares separately. The distribution charge and the sales charge
of a particular class will not be used to subsidize the sale of the other
classes.
Each Plan requires the Distributor to provide the Company's Board of Directors
at least quarterly with a written report of the amounts expended pursuant to the
Plan and the purposes for which such expenditures were made. Unless sooner
terminated in accordance with their terms, the Plans will continue in effect
initially for a period of one year, and thereafter will continue in effect so
long as such continuance is specifically approved at least annually by the
Company's Board of Directors, including a majority of the Independent Directors.
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Each Plan may be terminated with respect to a class of any Fund by vote of a
majority of the Independent Directors, or by vote of a majority of the
outstanding voting shares of the respective class. Any change in a Distribution
Plan that would materially increase the distribution expenses borne by a Fund
requires shareholder approval, voting separately by class; otherwise, each Plan
may be amended by a majority of the Board of Directors, including a majority of
the Independent Directors, by vote cast in person at a meeting called for the
purpose of voting upon such amendment. So long as any Plan is in effect, the
selection or nomination of the Independent Directors is committed to the
discretion of the Independent Directors.
The Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, the Distributor believes that the
Glass-Steagall Act should not preclude a bank from performing shareholder
support, servicing and recordkeeping functions. The Distributor intends to
engage banks to perform only such functions with respect to the Funds. However,
changes in federal or state statutes and regulations pertaining to the
permissible activities of banks and their affiliates or subsidiaries, as well as
further judicial or administrative decisions or interpretations, could prevent a
bank from continuing to perform all or a part of the contemplated services. If a
bank were prohibited from so acting, the Company's Board of Directors would
consider what actions, if any, would be necessary to continue to provide
efficient and effective shareholder services. In such event, changes in the
operation of the Funds might occur, including possible termination of any
automatic investment or redemption or other services then provided by the bank.
It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. The Funds may execute
transactions with and purchase securities issued by depository institutions that
receive payments under the Plans. No preference will be shown in the selection
of Fund investments for the securities of such depository institutions.
PERFORMANCE
As noted in the Prospectus, the Funds may from time to time quote various
performance figures to illustrate the Funds' past performance. They may also
occasionally cite statistics to reflect the volatility or risk of their
portfolios.
A Fund's "Standardized Return," as referred to in the Prospectus (see
"Performance Information") is calculated as follows: Standardized Return ("T")
is computed by using the value at the end of the period ("V") of a hypothetical
initial investment of $1,000 ("P") over a period of years ("n") according to the
following formula as required by the SEC: P(1 + T)n=EV (the ending redeemable
value of initial investment). The following assumptions will be reflected in
computations made in accordance with this formula: (1) deduction of the maximum
front-end sales charge of 4.95% from the $1,000 initial investment (Class A
shares only); (2) reinvestment of dividends and distributions at net asset value
on the reinvestment date determined by the Company's Board of Directors; (3) a
complete redemption at the end of any period illustrated, and (4) deduction of
any applicable CDSC. The Standardized Returns of the Class A shares of the
following Funds for the periods indicated are:
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING SMALLER GLOBAL
EQUITY MARKETS COMPANIES INCOME
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
Jan 1, 1995 - Dec 31, 1995 5.51% -12.46% 60.73% 8.48%
Jan 1, 1994 - Dec 31, 1994 -12.98% -16.97% 22.34% -13.66%
Jan 1, 1993 - Dec 31, 1993 46.85% 70.83% 50.65% 11.79%
Jan 7, 1992 - Dec 31, 1992 18.10% 35.72% n/a 10.47%
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
PACIFIC LATIN
STRATEGY AMERICA
FUND FUND
---- ----
<S> <C> <C>
Jan 1, 1995 - Dec 31, 1995 -7.78% -22.41%
Jan 1, 1994 - Dec 31, 1994 -16.44% n/a
Mar 7, 1994 - Dec 31, 1994 n/a -21.04%
</TABLE>
"Non-Standardized Return," as referred to in the Prospectus, is calculated for a
specified period of time by assuming the investment of $1,000 in Fund shares and
further assuming the reinvestment of all dividends and distributions made to
Fund shareholders in additional Fund shares at their net asset value. Percentage
rates of return are then calculated by comparing this assumed initial investment
to the value of the hypothetical account at the end of the period for which the
Non-Standardized Return is quoted. The Funds do not take sales charges into
account in calculating Non-Standardized Return, and the inclusion of such
charges would reduce such return.
Current yield ("YIELD") is computed by dividing the difference between dividends
and interest earned during a one-month period ("a") and expenses accrued for the
period (net of reimbursements) ("b") by the product of the average daily number
of shares outstanding during the period that were entitled to receive dividends
("c") and the maximum offering price per share on the last day of the period
("d") according to the following formula as required by the SEC:
YIELD = 2[(a-b + 1)6 - 1]
cd
The YIELD of the Class A shares of the Global Income Fund for the one month
period ended December 31, 1995 was 8.48%.
As of January 1, 1995, all of the outstanding shares of each Fund were
redesignated as Class A shares without any other changes, and Class B and Class
C shares were authorized for issuance. Yield and total return are calculated
separately for Class A, Class B and Class C shares of each Fund. Class A total
return figures included the maximum front-end sales charge of 4.95%; Class B and
Class C total return figures include any applicable CDSC. Because of the
differences in sales charges and distribution charges, the total returns for
each of the classes of the same Fund will differ. Each Fund will include
performance data for its Class A, Class B and Class C shares in any
advertisement or information including performance data of the Fund.
Each Fund's investment results will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund, so that current or past yield or total return should not be considered
representations of what an investment in a Fund may earn in any future period.
These factors and possible differences in the methods used in calculating
investment results should be considered when comparing a Fund's investment
results with those published for other investment companies and other investment
vehicles. A Fund's results also should be considered relative to the risks
associated with such Fund's investment objectives and policies. Each Fund and
the Distributor may from time to time compare the Funds with the following:
(1) Various Salomon Brothers World Bond Indices, which measure the total
return performance of high-quality securities in major sectors of the worldwide
bond markets.
(2) The Shearson Lehman Government Corporate Bond Index, which is a
comprehensive measure of all public obligations of the U.S. Treasury (excluding
flower bonds and foreign targeted issues), all publicly issued debt of agencies
of the U.S. government (excluding mortgage backed securities), and all public,
fixed rate, non-convertible investment grade domestic corporate debt rated at
least Aa by Moody's Investors Service or AA by Standard & Poor's, or, in the
case of bonds not rated by Moody's or Standard & Poor's, BBB by Fitch Investors
Service (excluding Collateralized Mortgage Obligations).
40
<PAGE>
(3) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures supplied
by the U.S. League of Savings Institutions). Savings accounts offer a guaranteed
rate of return on principal, but no opportunity for capital growth. During a
portion of the period, the maximum rates paid on some savings deposits were
fixed by law.
(4) The Consumer Price Index, which is a measure of the average change
in prices over time in a fixed market basket of goods and services (e.g., food,
clothing, shelter, fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
(5) Data and mutual fund rankings and comparisons published or prepared
by Lipper Analytical Data Services, Inc. ("Lipper"), Morningstar Inc.
("Morningstar"), Micropal, Inc. ("Micropal"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Company Services ("Wiesenberger") and/or other
companies that rank or compare mutual funds by overall performance, investment
objectives, assets, expense levels, periods of existence and/or other factors.
In this regard, each Fund may be compared to its "peer group" as defined by
Lipper, Morningstar, Micropal, CDA, Wiesenberger and/or other firms, as
applicable or to specific funds or groups of funds within or without such peer
group.
(6) Bear Stearns Foreign Bond Index, which provides simple average
returns for individual countries and a GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
(7) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(8) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500 of the
largest publicly traded stocks in the U.S., and Russell 2000 Index, NASDAQ
Composite Index and the Wilshire 500 Stock Index, which are recognized indices
composed of capitalization-weighted average share prices of smaller company
stocks.
(9) Salomon Brothers Broad Investment Grade Index, which is a widely
used index composed of U.S. domestic government, corporate, and mortgage-backed
fixed income securities.
(10) Dow Jones Industrial Average.
(11) Financial News Composite Index.
(12) Morgan Stanley Capital International World Indices, including,
among others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of more than 800
companies located in Europe, Australia and the Far East.
(13) International Finance Corporation (IFC) Emerging Markets Data Base
which provides detailed statistics on bond and stock markets in developing
countries.
(14) J.P. Morgan & Co. Bond Indices, including, among others, the J.P.
Morgan Traded Government Bond Index which is an index composed of liquid non-
U.S. fixed income securities based on market weightings and currency since 1986.
(15) Chemical Emerging Markets Debt Index.
(16) Morgan Stanley Capital International Latin America Emerging Market
Indices, including the Morgan Stanley Emerging Markets Free Latin America Index
(which excludes securities issued by Mexican banks and securities companies
which cannot be purchased by foreigners) and the Morgan Stanley Emerging Markets
Global Latin America Index. Both indices include 60% of the market
capitalization of the following countries: Argentina, Brazil, Chile, and
Mexico. The indices are weighted by market capitalization and are calculated
without dividends reinvested.
41
<PAGE>
(17) International Financial Corporation ("IFC") Latin American Indices
which include 60% of the market capitalization in the covered countries and are
market weighted. One index includes reinvestment of dividends and one does not.
(18) Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith,
Inc.; Bear Stearns & Co., Inc.; Morgan Stanley; and Ibbottson Associates may be
used, as well as information provided by the Federal Reserve Board. In addition,
performance rankings and ratings reported periodically in national financial
publications, including but not limited to MONEY MAGAZINE, FORBES, BUSINESS
WEEK, THE WALL STREET JOURNAL and BARRON'S may also be used.
The Funds may, from time to time, publish information describing a Funds'
largest holdings, country weightings, and sector allocations. The Funds may
also publish information concerning the average maturity of bond holdings in a
Fund.
FINANCIAL STATEMENTS
Audited financial statements for the fiscal year ended December 31, 1995 for the
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Funds, Latin America Funds, and Global Income Fund are included
in those Funds' Annual Report to Shareholders dated December 31, 1995. Such
financial statements (but no other portion of such Annual Report) are
incorporated herein by this reference.
Any person who desires a copy of the most recent financial statements for The
Govett Funds Inc., should call or write Van Kampen American Capital
Distributors, Inc. to obtain a free copy.
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