GOVETT FUNDS INC, 497, 1997-05-02

GOVETT FUNDS INC
497, 1997-05-02

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<PAGE>

THE GOVETT FUNDS, INC.

Prospectus dated May 1, 1997

The Govett Funds, Inc. (the "Company") operates six funds (the "Funds") each of
which is managed by John Govett & Co. Limited ("John Govett" or the "Investment
Manager"), a U.K.-based investment advisor which began managing money in the
1920's and has developed special expertise in investing in emerging markets and
smaller companies worldwide.

. 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.

. 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.

. GOVETT LATIN AMERICA FUND seeks long-term capital appreciation by investing
primarily in equity and debt securities of issuers located in Latin
America.

. GOVETT GLOBAL INCOME FUND seeks primarily a high level of current income,
consistent with preservation of capital, by investing primarily in foreign
debt securities. Its secondary objective is capital appreciation.

Investing in newer markets involves a higher degree of risk and expense than
investing in domestic or developed markets. Investments in the Funds should be
considered long-term, and there can be no assurance that any Fund will achieve
its investment objective.

Investors may buy shares of the Funds through brokerage and securities firms
nationwide, or directly, by calling the Funds at (800) 821-0803. Please read
this Prospectus carefully before investing, and retain it for future reference.
It provides concise information to help you decide if a Fund's goal matches
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 and is incorporated by reference into this
Prospectus (which means that it is legally part of this Prospectus). For a free
copy, call1-800-634-6838, or write to the Distributor at the address shown on
the back cover.

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.

1
<PAGE>

CONTENTS

<TABLE>
<S> <C>
ABOUT THE FUNDS
SUMMARY OF INVESTOR COSTS................................................... 3
FINANCIAL HIGHLIGHTS........................................................ 7
MULTIPLE CLASSES OF SHARES ................................................. 14
AN OVERVIEW OF THE FUNDS.................................................... 16
INVESTMENT TECHNIQUES AND POLICIES ......................................... 20
INVESTMENT RISKS............................................................ 25
MANAGEMENT OF THE FUNDS..................................................... 29
ABOUT YOUR ACCOUNT
HOW TO BUY SHARES........................................................... 36
HOW TO MAKE EXCHANGES....................................................... 45
HOW TO REDEEM SHARES........................................................ 47
TELEPHONE TRANSACTIONS...................................................... 50
DIVIDENDS, CAPITAL GAINS AND TAXES.......................................... 51
OTHER INFORMATION........................................................... 54
APPENDIX A: DESCRIPTION OF DEBT RATINGS..................................... A-1
APPENDIX B: QUICK REFERENCE GUIDE........................................... B-1
APPLICATION FORM
</TABLE>

2
<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>
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
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Maximum Sales Charge
Imposed on Dividend
Reinvestments......... None None None None None None None None None
Maximum Deferred Sales
Charge (as a
percentage of original
purchase price or
redemption proceeds,
whichever is less).... None/1/ 4% 1% None/1/ 4% 1% None/1/ 4% 1%
Redemption Fees...... None None None None None None None None None
Exchange Fees........ None None None None None None None None None
ANNUAL OPERATING
EXPENSES:
(as a percentage of
average net assets)
Management Fee/2/.... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Distribution
and Service Fees/5/... 0.50% 1.00% 1.00% 0.50% 1.00% 1.00% 0.50% 1.00% 1.00%
Other Expenses (after
reduction of
expenses)/2/.......... 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)/2/....... 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,
1997 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.

3
<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> <C>
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
Maximum Sales Charge
Imposed on Dividend
Reinvestments......... None None None None None None None None None
Maximum Deferred Sales
Charge (as a
percentage of original
purchase price or
redemption proceeds,
whichever is less).... None/1/ 4% 1% None/1/ 4% 1% None/1/ 4% 1%
Redemption Fees...... None None None None None None None None None
Exchange Fees........ None None None None None None None None None
ANNUAL OPERATING
EXPENSES:
(as a percentage of
average net assets)
Management Fee/2/.... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.75% 0.75% 0.75%
12b-1 Distribution
and Service Fees/5/... 0.50% 1.00% 1.00% 0.50% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses (after
reduction of
expenses)/2/.......... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.65% 0.65% 0.65%
Total Fund Operating
Expenses (after fee
waiver and reduction
of expenses)/2/....... 2.50% 3.00% 3.00% 2.50% 3.00% 3.00% 1.75% 2.40% 2.40%
</TABLE>
- -----------
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 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, 1996
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 3.09%, 2.62%, 2.08%, 6.66%, 6.49%, and 2.38%,
respectively, for the fiscal year ended December 31, 1996. 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 3.59%, 3.12%, 2.58%, 7.16%, 6.99% and
3.03%, respectively.
* AT PRESENT, CLASS B AND CLASS C SHARES ARE NOT AVAILABLE FOR PURCHASE BY
THE GENERAL PUBLIC.

4
<PAGE>

Examples:

Assuming the current fee waivers and expense limitations remain in effect, you
would pay the following expenses on a $1,000 investment assuming (1) 5% annual
return/3/ 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................. 123 123 93 123 123 93 108 106 76
5 years................. 176 178 158 176 178 158 150 151 131
10 years/4/............. 319 314 332 319 314 332 266 260 279
<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................. 123 123 93 123 123 93 102 105 75
5 years................. 176 178 158 176 178 158 140 148 128
10 years/4/............. 319 314 332 319 314 332 246 249 274
</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................. 123 93 93 124 93 93 108 76 76
5 years................. 176 158 158 176 158 158 150 131 131
10 years/4/............. 319 314 332 319 314 332 266 260 279
<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................. 123 93 93 123 93 93 102 75 75
5 years................. 176 158 158 176 158 158 140 128 128
10 years/4/............. 319 314 332 319 314 332 246 249 274
</TABLE>
- -----------

3 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.

4 Ten-year figures assume conversion of Class B shares to Class A shares at
the beginning of the eighth year following date of purchase.

5 Service fee applies to Class B and Class C shares only.

5
<PAGE>

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.

6
<PAGE>

FINANCIAL HIGHLIGHTS

The table below provides condensed information concerning income and capital
changes for one Class A share of International Equity Fund, Emerging Markets
Fund, Smaller Companies Fund, Pacific Strategy Fund, Latin America Fund, and
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 Report to Shareholders of such Funds for
the periods shown below. The financial statements and related notes contained
in such Report (and no other portion of such Report) 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, 1996, AND, ACCORDINGLY, NO FINANCIAL DATA IS
PRESENTED FOR THE CLASS B OR C SHARES AT THIS TIME.

7
<PAGE>

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992(a)
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 11.27 $ 10.16 $ 13.23 $ 9.31 $10.00
------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)................. (0.11)+ (0.08)+ (0.12)+ (0.03) (0.01)
Net realized and
unrealized gain (loss)
on investments......... 1.45 1.20 (0.94) 5.01 (0.52)
------- ------- ------- ------- ------
Total from investment
operations............ 1.34 1.12 (1.06) 4.98 (0.53)
------- ------- ------- ------- ------
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................. (0.11) -- -- -- (0.04)
In excess of net
investment income...... (0.09) -- -- -- --
From net realized gain.. (1.22) (0.01) (2.01) (1.06) (0.12)
In excess of net
realized capital gain.. -- -- -- -- --
------- ------- ------- ------- ------
Total distributions.... (1.42) (0.01) (2.01) (1.06) (0.16)
------- ------- ------- ------- ------
Net asset value, end of
period................. $ 11.19 $ 11.27 $ 10.16 $ 13.23 $ 9.31
======= ======= ======= ======= ======
TOTAL RETURN**.......... 12.03 % 11.01 % (8.44)% 54.50 % (5.32)%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's)......... $25,822 $28,546 $32,296 $44,610 $1,328
Net expenses to average
daily net assets
(Note A)............... 2.39 % 2.50 % 2.50 % 2.50 % 2.50 %*
Net investment Income
(loss) to average daily
net assets............. (1.06)% (0.64)% (0.98)% (0.79)% (0.10)%*
Portfolio turnover
rate................... 84 % 101 % 155 % 151 % 140 %
Average commission
rate++................. $0.0158 N/A N/A N/A N/A
- -----------
Note A: John Govett & Co. Limited waived a portion of its management fees and
Govett Financial Services Limited, a former distributor of the Funds
reimbursed a portion of the other operating expenses of the Funds for
the years ended December 31, 1992, 1993 and 1994. For the years ended
December 31, 1995 and 1996, John Govett & Co. Limited waived a portion
of its management fee and reimbursed a portion of the other operating
expenses of the Funds. Without the waiver and reimbursement of
expenses, the expense ratios as a percentage of average net assets for
the periods indicated would have been:

Expenses........... 3.09 % 2.75 % 2.74 % 2.65 % 13.85 %*
</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 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.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
trades on which commissions were charged. Based on markets in which the
fund trades, the commission rate per share may appear lower or higher in
relation to a domestic fund.

8
<PAGE>

<TABLE>
<CAPTION>
EMERGING MARKETS FUND
------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992(a)
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 12.24 $ 13.29 $ 17.70 $ 10.72 $10.00
------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)................. (0.13)+ (0.06)+ (0.11)+ (0.05) (0.03)
Net realized and
unrealized gain (loss)
on investments......... 1.61 (0.98) (1.93) 8.36 0.75
------- ------- ------- ------- ------
Total from investment
operations............ 1.48 (1.04) (2.04) 8.31 0.72
------- ------- ------- ------- ------
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................. -- -- -- -- --
In excess of net
investment income...... (0.06) -- -- -- --
From net realized gain.. -- (0.01) (2.33) (1.33) --
In excess of net
realized capital gain.. -- -- (0.04) -- --
------- ------- ------- ------- ------
Total distributions.... (0.06) (0.01) (2.37) (1.33) --
------- ------- ------- ------- ------
Net asset value, end of
period................. $ 13.66 $ 12.24 $ 13.29 $ 17.70 $10.72
======= ======= ======= ======= ======
TOTAL RETURN**.......... 12.08 % (7.92)% (12.65)% 79.73 % 7.20 %
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's)......... $56,814 $75,887 $76,812 $71,422 $5,625
Net expenses to average
daily net assets
(Note A)............... 2.38 % 2.50 % 2.50 % 2.50 % 2.50 %*
Net investment Income
(loss) to average daily
net assets............. (0.62)% (0.49)% (0.77)% (0.88)% (0.49)%*
Portfolio turnover
rate................... 122 % 115 % 140 % 143 % 182 %
Average commission
rate++................. $0.0011 N/A N/A N/A N/A
- -----------
Note A: John Govett & Co. Limited waived a portion of its management fees and
Govett Financial Services Limited, a former distributor of the Funds
reimbursed a portion of the other operating expenses of the Funds for
the years ended December 31, 1992, 1993 and 1994. For the years ended
December 31, 1995 and 1996, John Govett & Co. Limited waived a portion
of its management fee and reimbursed a portion of the other operating
expenses of the Funds. Without the waiver and reimbursement of
expenses, the expense ratios as a percentage of average net assets for
the periods indicated would have been:

Expenses........... 2.62 % 2.78 % 2.65 % 2.52 % 7.52 %*
</TABLE>

(a) Commencement of Operations was January 7, 1992.

(b) Commencement of Operations was January 1, 1993.

(d) Commencement of Operations was March 7, 1994.

* Annualized

** Total return calculations exclude 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.

++ For the fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
trades on which commissions were charged. Based on markets in which the
fund trades, the commission rate per share may appear lower or higher in
relation to a domestic fund.

9
<PAGE>

<TABLE>
<CAPTION>
SMALLER COMPANIES FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993(b)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 29.96 $ 19.06 $ 15.85 $ 10.00
-------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)...................... (0.44)+ (0.30)+ (0.10)+ (0.06)
Net realized and unrealized
gain (loss) on investments.. (2.84) 13.32 4.47 5.91
-------- -------- ------- -------
Total from investment
operations................. (3.28) 13.02 4.37 5.85
-------- -------- ------- -------
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income... -- -- -- --
In excess of net investment
income...................... -- -- -- --
From net realized gain....... (4.85) (2.12) (1.16) --
In excess of net realized
capital gain................ -- -- -- --
-------- -------- ------- -------
Total distributions......... (4.85) (2.12) (1.16) --
-------- -------- ------- -------
Net asset value, end of
period...................... $ 21.83 $ 29.96 $ 19.06 $ 15.85
======== ======== ======= =======
TOTAL RETURN**............... (10.87)% 69.08 % 28.74 % 58.50 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's)..................... $259,735 $517,990 $76,873 $39,681
Net expenses to average daily
net assets (Note A)......... 1.81 % 1.95 % 1.95 % 1.95 %
Net investment Income (loss)
to average daily net
assets...................... (1.40)% (1.64)% (1.13)% (0.93)%
Portfolio turnover rate...... 406 % 280 % 519 % 483 %
Average commission rate++.... $ 0.0581 N/A N/A N/A
- -----------
Note A: John Govett & Co. Limited waived a portion of its management fees and
Govett Financial Services Limited, a former distributor of the Funds
reimbursed a portion of the other operating expenses of the Funds for
the years ended December 31, 1992, 1993 and 1994. For the years ended
December 31, 1995 and 1996, John Govett & Co. Limited waived a portion
of its management fee and reimbursed a portion of the other operating
expenses of the Funds. Without the waiver and reimbursement of
expenses, the expense ratios as a percentage of average net assets for
the periods indicated would have been:

Expenses................ 2.08 % 2.12 % 2.40 % 2.44 %
</TABLE>

(a) Commencement of Operations was January 7, 1992.

(b) Commencement of Operations was January 1, 1993.

(d) Commencement of Operations was March 7, 1994.

* Annualized

** Total return calculations exclude 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.

10
<PAGE>

<TABLE>
<CAPTION>
PACIFIC STRATEGY FUND
--------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994(c)
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 8.53 $ 8.79 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............ (0.26)+ (0.05)+ (0.18)+
Net realized and unrealized gain (loss)
on investments......................... 1.05 (0.21) (1.03)
------- ------- -------
Total from investment operations....... 0.79 (0.26) (1.21)
------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income.............. (0.12) -- --
In excess of net investment income...... (0.05) -- --
From net realized gain.................. -- -- --
In excess of net realized capital gain.. -- -- --
Tax return of capital................... -- -- --
------- ------- -------
Total distributions.................... (0.17) -- --
------- ------- -------
Net asset value, end of period.......... $ 9.15 $ 8.53 $ 8.79
======= ======= =======
TOTAL RETURN**.......................... 9.32 % (2.96)% (12.10)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)....... $ 4,218 $12,491 $13,849
Net expenses to average daily net assets
(Note A)............................... 2.50 % 2.50 % 2.50 %
Net investment Income (loss) to average
daily net assets....................... (1.51)% (0.67)% (1.33)%
Portfolio turnover rate................. 170 % 163 % 213 %
Average commission rate++............... $0.0102 N/A N/A

- -----------
Note A: John Govett & Co. Limited waived a portion of its management fees and
Govett Financial Services Limited reimbursed a portion of the other
operating expenses of the Funds for the years ended December 31, 1992,
1993 and 1994. For the years ended December 31, 1995 and 1996, John
Govett & Co. Limited waived a portion of its management fee and
reimbursed a portion of the other operating expenses of the Funds.
Without the waiver and reimbursement of expenses, the expense ratios as
a percentage of average net assets for the periods indicated would have
been:

Expenses........................... 6.66 % 3.62 % 2.66 %
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
LATIN AMERICA FUND
--------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994(d)
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 6.44 $ 7.89 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)........... 0.07+ (0.01)+ (0.09)+
Net realized and unrealized gain (loss)
on investments........................ 1.52 (1.44) (1.53)
------- ------- -------
Total from investment operations...... 1.59 (1.45) (1.62)
------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............. (0.06) -- --
In excess of net investment income..... -- -- --
From net realized gain................. -- -- (0.27)
In excess of net realized capital
gain.................................. -- -- (0.22)
Tax return of capital.................. -- -- --
------- ------- -------
Total distributions................... (0.06) -- (0.49)
------- ------- -------
Net asset value, end of period......... $ 7.97 $ 6.44 $ 7.89
======= ======= =======
TOTAL RETURN**......................... 24.10 % (18.38)% (16.94)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)...... $ 4,261 $ 4,817 $ 7,096
Net expenses to average daily net
assets (Note A)....................... 2.50 % 2.50 % 2.50 %*
Net investment Income (loss) to average
daily net assets...................... 0.54 % 0.00 % (1.06)%*
Portfolio turnover rate................ 150 % 127 % 185 %
Average commission rate++.............. $0.0005 N/A N/A
- -----------
Note A: John Govett & Co. Limited waived a portion of its management fees and
Govett Financial Services Limited reimbursed a portion of the other
operating expenses of the Funds for the years ended December 31, 1992,
1993 and 1994. For the years ended December 31, 1995 and 1996, John
Govett & Co. Limited waived a portion of its management fee and
reimbursed a portion of the other operating expenses of the Funds.
Without the waiver and reimbursement of expenses, the expense ratios as
a percentage of average net assets for the periods indicated would have
been:

Expenses.......................... 6.49 % 5.66 % 3.35 %*
</TABLE>

(a) Commencement of Operations was January 7, 1992.

(b) Commencement of Operations was January 1, 1993.

(d) Commencement of Operations was March 7, 1994.

* Annualized

** Total return calculations exclude 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.

12
<PAGE>

<TABLE>
<CAPTION>
GLOBAL INCOME FUND
------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992(a)
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 8.97 $ 8.48 $ 10.16 $ 9.77 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)................. 0.57+ 0.63+ 0.76+ 0.99 0.80
Net realized and
unrealized gain (loss)
on investments......... (0.54) 0.53 (1.67) 0.66 0.06
------- ------- ------- ------- -------
Total from investment
operations............ 0.03 1.16 (0.91) 1.65 0.86
------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................. (0.66) (0.63) (0.24) (0.95) (0.78)
In excess of net
investment income...... (0.02) (0.04) -- -- --
From net realized gain.. -- -- -- (0.31) (0.31)
In excess of net
realized capital gain.. -- -- -- -- --
Tax return of capital... -- -- (0.53) -- --
------- ------- ------- ------- -------
Total distributions.... (0.68) (0.67) (0.77) (1.26) (1.09)
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 8.32 $ 8.97 $ 8.48 $ 10.16 $ 9.77
======= ======= ======= ======= =======
TOTAL RETURN**.......... 0.33 % 14.11 % (9.16)% 17.64 % 8.95 %
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's)......... $20,354 $41,181 $51,691 $82,000 $34,084
======= ======= ======= ======= =======
Net expenses to average
daily net assets (Note
A)..................... 1.64 % 1.75 % 1.75 % 1.72 % 1.75 %*
Net investment Income
(loss) to average daily
net assets............. 7.17 % 7.45 % 8.30 % 9.66 % 9.75 %*
Portfolio turnover
rate................... 236 % 249 % 701 % 328 % 378 %
Average commission
rate++................. N/A N/A N/A N/A N/A
- -----------
Note A: John Govett & Co. Limited waived a portion of its management fees and
Govett Financial Services Limited reimbursed a portion of the other
operating expenses of the Funds for the years ended December 31, 1992,
1993 and 1994. For the years ended December 31, 1995 and 1996, John
Govett & Co. Limited waived a portion of its management fee and
reimbursed a portion of the other operating expenses of the Funds.
Without the waiver and reimbursement of expenses, the expense ratios as
a percentage of average net assets for the periods indicated would have
been:

Expenses........... 2.38 % 1.93 % 1.95 % 1.72 % 3.17 %*
</TABLE>

(a) Commencement of Operations was January 7, 1992.

(b) Commencement of Operations was January 1, 1993.

(d) Commencement of Operations was March 7, 1994.

* Annualized

** Total return calculations exclude 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.

13
<PAGE>

MULTIPLE CLASSES OF SHARES

As of January 1, 1995, all of the previously outstanding shares of each Fund
were redesignated "Class A" shares without other changes, and Class B and Class
C shares were authorized for issuance. AT PRESENT, ONLY CLASS A SHARES ARE
AVAILABLE TO THE PUBLIC. Each class of shares of a Fund represents an interest
in the same portfolio of investments, and each class has its own sales charge
structure. The following table compares some important differences. Each class
has distinct advantages and disadvantages for investors in different financial
circumstances and with different investment goals.

<TABLE>
<CAPTION>
CLASS A CLASS B/1/ CLASS C
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Charges Initial No initial sales No initial
sales charge charge. Contingent sales
up to 4.95%, deferred sales load charge.
depending on ("CDSC") of 4% to 1% CDSC of 1%
amount of applies to shares re- applies to
investment. deemed within the shares re-
Certain pur- first 6 years follow- deemed
chases are ing purchase. Convert within
eligible for to A shares at the first year
reduced beginning of the following
sales eighth year after purchase.
charges. purchase.
- -----------------------------------------------------------------------------
12b-1 Distribution 0.50% (0.35% 0.75% for first 7 0.75% for
Fee Global In- years for all Funds. all Funds.
come Fund)
- -----------------------------------------------------------------------------
Service Fee None 0.25% for first 7 0.25% for
years for all Funds. all Funds.
- -----------------------------------------------------------------------------
Suitability May be more Investors should consider whether,
beneficial during the anticipated life of their
to investors investment, accumulated distribution
who qualify and service fees and CDSCs would
for reduced be less than Class A initial sales
initial charge and accumulated distribution
sales and service fee, and to what extent
charges. potential higher yield of Class A
shares might offset this difference.
Orders of $500,000 or more not
accepted for Class B shares. Orders
of $1 million or more not accepted
for Class C shares.
- -----------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of
the same class of the other Funds.
- -----------------------------------------------------------------------------
Dividends Calculated in the same manner and at the same time
of day for each class. Due to higher distribution
charges and any incremental transfer agency costs
relating to the B and C shares, Class B and Class C
dividends are expected to be lower than Class A
dividends.
</TABLE>
/1/CLASS B SHARES CONVERT at the beginning of the eighth calendar year after
purchase on the basis of net asset value ("NAV") per share at the time of
conversion, without sales loads, fees or other charges upon conversion. Shares
purchased through reinvestment of dividends and distributions will be
considered to be held in a separate sub-account. Each time any Class B shares
in the shareholder's 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.

14
<PAGE>

The Class B conversion feature is subject to the continuing availability of an
opinion of counsel or private letter ruling from the Internal Revenue Service
that (i) assessing higher distribution and transfer agency costs does not
result in the Funds' dividends or distributions constituting "preferential
dividends" under the Internal Revenue Code of 1986, as amended (the "IRS
Code"), and (ii) conversion does not constitute a taxable event under federal
income tax law. If such opinion or private letter ruling is no longer
available, the Funds may suspend Class B conversions and the higher
distribution charges would apply for an indefinite period.

The Board of Directors has determined that currently no conflict of interest
exists between the classes of shares of any fund. In accordance with their
fiduciary duties under the Investment Company Act of 1940 (the "1940 Act") and
state laws, the Directors will seek on an ongoing basis to ensure that no such
conflict arises. AT THE PRESENT TIME, ONLY CLASS A SHARES ARE AVAILABLE TO THE
GENERAL PUBLIC.

15
<PAGE>

- -------------------------------------------------------------------------------

AN OVERVIEW OF THE FUNDS

The following paragraphs summarize the Funds' objectives and investment
policies.

Although no Fund provides a complete or balanced investment program, investors
may use each Fund as part of a comprehensive program to meet their long-term
needs. Of course, there can be no assurance that any Fund will meet its
investment objective. Please refer also to the "Investment Techniques and
Policies" section, below, and to the Statement of Additional Information.

INTERNATIONAL EQUITY 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,
Croatia (indirect investment only), Czech Republic, Denmark, Finland, France,
Germany, Hong Kong, India, Indonesia, Israel, Italy, Japan, Luxembourg,
Malaysia, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Russia
(indirect investment only), Singapore, Slovakia, South Africa, South Korea,
Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, and the United Kingdom.
This list of countries may change from time to time.

Under normal market conditions, this Fund will invest at least 65% of its
total assets in issuers located in not less than three different countries
(other than the U.S.). In addition, the Fund will normally invest at least 65%
of its total assets in common and preferred stocks, and warrants to acquire
such stocks. The Fund typically invests in equity securities listed on
recognized foreign securities exchanges, but it may hold securities which are
not so listed. The Fund may invest in debt obligations convertible into equity
securities, and in non-convertible debt securities when the Manager believes
such non-convertible securities present favorable opportunities for capital
appreciation. See "Investment Techniques and Policies--Investment Techniques--
Investment in Debt Securities and Commercial Paper."

EMERGING MARKETS FUND seeks long-term capital appreciation by providing
investors with broadly diversified, direct access to equity markets in 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. John Govett uses the
classification system developed by the World Bank to determine the potential
universe of emerging markets for investment. This Fund currently expects to
invest in issues located in some or all of the following emerging or
developing market countries:

16
<PAGE>

Argentina, Brazil, Chile, Colombia, Croatia (indirect investment only), Czech
Republic, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Lebanon, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia (indirect investment only), Singapore, Slovakia, South Africa,
South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela, and Zimbabwe. The
list of countries in which this Fund invests may change from time to time.

The 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 Fund may invest in debt obligations convertible into equity
securities, and in non-convertible debt securities when John Govett believes
such non-convertible securities present favorable opportunities for capital
appreciation. See "Investment Techniques and Policies--Investment Techniques--
Investment in Debt Securities and Commercial Paper." Under normal market
conditions, at least 65% of the 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 Fund's total assets will normally
be invested in common and preferred stocks, and warrants to acquire such
stocks.

SMALLER COMPANIES FUND seeks long-term capital appreciation by investing
primarily in equity securities of those smaller companies John Govett believes
may be the industry leaders of tomorrow. The Fund selects 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 Russell 2000 Index. 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 $3.0 billion. Foreign smaller companies may have
lower market capitalization, depending upon the country and the industry.

Under normal market conditions, the Fund will invest at least 65% of its total
assets in smaller companies including foreign smaller companies, and at least
80% of its total assets in common stocks. The 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 securities of issuers located in any one country (other than the
U.S.). The Fund may invest in exchange-listed and over-the-counter ("OTC")
securities.

PACIFIC STRATEGY FUND seeks long-term capital appreciation by investing
primarily in equity securities of companies located in some or all of the

17
<PAGE>

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 Fund
invests may change from time to time.

Under normal market conditions, at least 65% of the 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 Fund's assets will normally be
invested in common and preferred stocks, and warrants to acquire such stocks.
The Fund typically invests in equity securities listed on recognized foreign
exchanges, but it may also hold securities which are not so listed. The Fund
may also invest in debt obligations convertible into equity securities, and in
non-convertible debt securities when John Govett believes such non-convertible
instruments present a favorable opportunity for capital appreciation. See
"Investment Techniques and Policies--Investment Techniques--Investment in Debt
Securities and Commercial Paper."

LATIN AMERICA 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 Fund
invests may change from time to time.

Under normal market conditions, the Fund invests at least 65% of its assets in
issuers located in not less than three Latin American countries, with equity
and debt securities of issuers located in any one country representing no more
than 40% of the Fund's total assets. There are two exceptions to this policy:
(1) the Fund may invest up to 60% of its total assets in issuers located in
either Mexico or Brazil; and (2) 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 U.S. issuers, John Govett will consider,
among other factors, the issuer's Latin American business activities and the
effect that developments in Latin America may have on the issuer's results.

The Fund may invest in common and preferred stocks, rights, warrants, and
securities convertible into common stocks and in other substantially similar
forms of equity with comparable risk characteristics. The securities may be
listed on exchanges, traded in various OTC markets, or there may be no
organized market for a particular security.

18
<PAGE>

The Fund may also invest in a variety of debt securities, although under normal
market conditions it invests the majority of its assets in equities. These debt
securities include bonds, notes, and debentures (or other forms of indebtedness
that may be developed in the future), issued by banks and other corporations,
or issued or guaranteed by Latin American national, state or local governments
or their agencies and instrumentalities (including central banks). The
proportion of equity and debt may 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,
that is, securities rated Ba or lower by Moody's Investor Services, Inc.
("Moody's") or BB+ or lower by Standard & Poor's Corporation ("Standard &
Poor's"), or, if unrated, determined to be of comparable quality by John
Govett. A description of Moody's and Standard & Poor's rating system is
included as Appendix A to this Prospectus. The Fund may also invest in debt
securities which are not rated (although the Fund does not invest in debt
securities that are in default of payment of principal or interest).
Consequently, the Fund's ability to achieve its investment objective depends
more on John Govett's credit analysis than if the Fund were limited to
investments in higher quality, rated bonds. 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." Appendix A to this Prospectus
provides a description of certain debt ratings. However, many Latin American
debt instruments are not rated by U.S. rating agencies.

Favorable changes in relative foreign exchange rates, interest rate levels, or
the creditworthiness of issuers may cause capital appreciation in debt
securities. Receipt of income from such changes is incidental to the Fund's
objective of long-term capital appreciation.

GLOBAL INCOME FUND seeks to achieve its investment objective of high current
income (consistent with preservation of capital), with capital appreciation as
a secondary objective, by investing primarily in corporate and government debt
securities of issuers located in some or all of the following countries: the
U.S., Canada, Japan, Mexico, the European Nations (including Austria, Belgium,
France, Germany, Luxembourg and the Netherlands), New Zealand, Australia,
Poland, South Africa, Turkey and the United Kingdom, as well as securities
denominated in multinational currency units and in obligations issued by
supranational entities. The countries in which Global Income Fund invests may
change from time to time. This Fund is designed to provide the potential for
higher yields and greater capital appreciation than a U.S.-only bond fund, but
its strategy also involves certain risks, including the special risks
associated with investing in foreign securities.

19
<PAGE>

Under normal market conditions, the Fund invests at least 65% of its total
income in debt securities of issuers located in at least three countries
(including the U.S.). Normally, the securities of issuers located in any one
country (other than the U.S.) will represent no more than 40% of the Fund's
total assets. The debt securities in which the 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, or issued or guaranteed by U.S.
or foreign national, state or local governments or their agencies or
instrumentalities, and certain U.S. mortgage-related securities. Consistent
with its investment objectives, 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 Fund may invest in debt obligations convertible into
equity securities or which have attached warrants or rights to purchase equity
securities. The Fund may not invest in any debt securities issued by John
Govett or any of its affiliates (as such term is defined in the 1940 Act).

The Fund invests at least 75% of its total assets in debt securities with
ratings, at the time or purchase, of at least Baa by Moody's or BBB by Standard
& Poor's (or, if unrated, determined to be of comparable quality by John
Govett) and in 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 John Govett). A description of these ratings is included
as Appendix A to this Prospectus.

John Govett's current policy is to maintain the average dollar-weighted
maturity of the Fund's portfolio comparable to maturities of intermediate-term
debt instruments (i.e., five to ten years). John Govett may adjust the Fund's
average maturity from time to time, and may decrease or increase the maximum
maturity target. For example, if John Govett anticipates an interest rate
decline, it may increase the average maturity, or if it anticipates that
interest rates may rise it may decrease the average maturity.

- --------------------------------------------------------------------------------

INVESTMENT TECHNIQUES AND POLICIES

Although no Fund provides a complete or balanced investment program, investors
can use each as part of an overall program to meet long-term objectives.
Although each Fund may receive current income from dividends, interest and
other sources, with the exception of the Global Income Fund, income is only an
incidental consideration in John Govett's selection of a Fund's investments. Of
course, there can be no assurance that any Fund will achieve its investment
objective. Each Fund's NAV fluctuates as the value of its portfolio securities
fluctuates.

20
<PAGE>

In interpreting each Fund's investment policies, John Govett adheres to the
following definitions:

. Whenever an investment policy or limitation states a maximum percentage of
a Fund's assets that may be invested in a security or other asset, or sets
forth a policy regarding quality standards, such percentage limitation is
determined immediately after and as a result of the Fund's acquisition of
that asset. Any later increase or decrease resulting from a change in
values, net assets or other circumstances will not be considered when
determining whether the asset complies with the Fund's investment policies
and limitations.

. 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.

. The term "indirect investment only," when referenced to a particular
country, means that the particular Fund will invest only in securities of
issuers domiciled or organized in that country which are purchased and sold
on an exchange or in an over-the-counter market located outside of that
country.

GENERAL LIMITATIONS

International Equity Fund, Emerging Markets Fund, Smaller Companies Fund, and
Pacific Strategy Fund are diversified funds, as that term is defined in the the
1940 Act. This means that each Fund (but not Latin America or Global Income
Funds), with respect to 75% of its total assets, may not invest more than 5% of
its total assets in the securities of any one issuer (excluding the U.S.
Government and its agencies).

With respect to all Funds, no Fund may borrow money or mortgage or pledge any
of its assets, except that a Fund may borrow from banks, for temporary
emergency purposes, up to 33 1/3% of its total assets and pledge up to 33 1/3%
of its total assets in connection with such borrowing. 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 total 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

21
<PAGE>

(i) through the purchase of a portion of a debt issue in accordance with the
Fund's investment objectives, policies or limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities. No Fund may invest
25% or more of its total assets in any one industrial classification. These
limitations are fundamental and cannot be changed without shareholder approval.
As a non-fundamental policy, no Fund may invest more than 5% of its respective
net assets in securities restricted as to resale or in illiquid securities, and
no Fund may purchase a security if, as a result, more than 5% of that Fund's
net assets would be invested in warrants, or more than 2% of the Fund's net
assets would be invested in warrants not listed on the American Stock Exchange
or the New York Stock Exchange.

The Statement of Additional Information provides the full text of these
restrictions and the Funds' other investment policies. Except for each Fund's
investment objective and those investment restrictions designated as
"fundamental," which only may be changed with shareholder approval, the
investment policies described in this Prospectus and in the Statement of
Additional Information are not fundamental policies and may be changed at any
time by the Company's Board of Directors.

INVESTMENT TECHNIQUES

DEPOSITARY RECEIPTS. The Funds may invest in sponsored and unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs"), and similar global instruments. A U.S. or foreign
bank or trust company typically "sponsors" these depositary instruments, which
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,
information about the issuer may not be as readily available or as current as
for sponsored depositary instruments, and prices may be more volatile than if
they were sponsored by the issuers of the underlying securities.

INVESTMENT IN DEBT SECURITIES AND COMMERCIAL PAPER. For Latin America and
Global Income Funds' policies on investing in debt and commercial paper, see
the "Overview" section for each Fund, above.

International Equity, Emerging Markets, Smaller Companies Fund and Pacific
Strategy Funds may invest in debt obligations convertible into equity
securities. These four Funds may invest in non-convertible debt securities when
John Govett believes such non-convertible securities present favorable
opportunities for capital appreciation. At least 75% of these four of each
Fund's total assets invested in non-convertible debt

22
<PAGE>

securities other than commercial paper must be rated, at the time of purchase,
at least A by Standard & Poor's or Moody's. These four Funds' 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.

With respect to all Funds, if the non-convertible debt securities or commercial
paper investments are unrated, John Govett must have determined them to be of
comparable quality to the required ratings for each type of investment. The
subsequent downgrade of a debt security to a level below the investment grade
required for the Fund will not require a sale of that security, but John Govett
will consider such an event in determining whether to hold that security. A
description of these ratings is included as Appendix A to this Prospectus.

TEMPORARY STRATEGIES. Pending investment of proceeds from sale of Fund shares
to meet ordinary daily cash needs and to retain flexibility to respond promptly
to changes in market and economic conditions, John Govett may use temporary
defensive strategies. Under such a strategy, a Fund may hold cash (either U.S.
dollars, foreign currencies or multinational currency units), and/or invest any
portion or all of its assets in short-term high quality money market
instruments. For debt obligations other than commercial paper, such instruments
must be rated, at the time of purchase, at least AAA by Standard & Poor's or
Aaa by Moody's. For commercial paper, such investments must be rated, at the
time of purchase, at least A-2 by Standard & Poor's or Prime-2 by Moody's. If
such investments are unrated, John Govett must have determined that they are of
comparable quality to the required ratings for each type of investment. It is
impossible to predict when or for how long John Govett may use such temporary
strategies.

HEDGING STRATEGIES. Each Fund may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with its investments, although there can be no assurance that such efforts will
succeed. Among the types of transactions which may be used are: 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. It is currently intended
that no Fund, except Global Income Fund, will place more than 5% of its net
assets at risk in any one of these transactions or securities. Global Income
Fund may invest significantly more than 5% in forward currency contracts.
However, although there is no limit on the number of forward currency contracts
Global Income Fund may enter into, this Fund may not position hedge with
respect to a particular currency for an amount greater than the

23
<PAGE>

aggregate market value (determined at the time the sale of any foreign currency
is made) of the securities held in its portfolio denominated or quoted in, or
currently convertible into, such currency.

SECURITY FORWARD COMMITMENTS. Global Income Fund may buy or sell "when issued"
or "delayed delivery" securities (collectively called "Forward Commitments").
Forward Commitments occur when a fund buys or sells securities with payment and
delivery taking place in the future (typically a month or more after the deal
is struck). The price is fixed on the date of the commitment, and the seller
continues to accrue interest on the securities 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.

A Forward Commitment may either be settled according to its original terms, or
it may be resold or repurchased on or before the settlement date, if John
Govett deems it advisable to do so. When engaging in Forward Commitments, a
Fund relies on the other party to complete the transaction. If the other party
fails to do so, the Fund may lose a purchase or sale opportunity that could be
more advantageous than alternative opportunities at the time of the failure.

The risk to the investor is the difference between the purchase price and the
current marked-to-market price. To minimize this risk, for each Forward
Commitment purchase, Global Income Fund maintains appropriate liquid
securities, or cash, in a segregated account (which is marked to market daily)
with the Fund's custodian. The aggregate amount of this account must be equal
to the amount of the commitment as long as the purchase obligation 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 effect of interest
rate changes on the Fund's net asset value.

A Forward Commitment sale 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 is for cross-hedging if it is not covered but
is designed to 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 other appropriate
liquid securities, 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 foregoes or
reduces the potential for gain and loss in the holding which is being hedged.

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<PAGE>

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. Therefore, repurchase agreements are
collateralized, in an amount at least equal to the current 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 at the Fund's
custodian (or designated subcustodian), 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 makes them unavailable for
investment by the Fund. Each Fund may also invest in overnight time deposits
placed at competitive interest rates with creditworthy banks, including the
Funds' global custodian.

INVESTMENTS IN OTHER INVESTMENT COMPANIES. Emerging and developing markets
countries often limit foreign investments in equity securities of issuers
located in such countries. As a result, the Funds may be able to invest in such
countries solely or primarily through open- or closed-end investment companies.
In accordance with the 1940 Act, a Fund may invest up to 5% of its total assets
in any one investment company, and up to 10% of its total assets in the
aggregate in shares of other investment companies, 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 may not
invest in any investment companies managed by John Govett or any of its
affiliates. Investments in investment companies may involve a duplication of
certain expenses, such as management and administrative expenses.

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INVESTMENT RISKS

The quality and quantity of historic economic and securities market data is, in
many foreign and emerging markets, limited, and many foreign markets are
inherently more volatile than the U.S. securities markets. Using its more than
seventy years of experience investing in these markets, John Govett has
developed a three-part monitoring process involving review and analysis of
overall market information; investigation of candidate companies through
written materials; visits by company representatives to John Govett in London;
and on-site visits by portfolio managers. John Govett also maintains local
contacts in many of the countries where it invests.

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<PAGE>

MARKET RISK. Equity and bond markets outside the U.S. have significantly
outperformed U.S. markets from time to time. Consequently, John Govett believes
that investments in foreign securities may provide greater long-term investment
returns than would be available from investing solely in U.S. securities.
Nevertheless, each Fund's portfolio is subject to market risk--the possibility
that stock prices will decline over short, or even extended, periods--to a
greater degree than domestic investments, as a result of a variety of factors
that can affect stock prices.

For example, there may be less information publicly available about foreign
companies, and less government regulation and supervision of foreign stock
exchanges, securities dealers and publicly traded companies than is available
about comparable U.S. entities. Accounting, auditing and financial reporting
standards, practices and requirements are not uniform and may be less rigorous
than U.S. standards. Securities of some foreign companies are less liquid, and
their prices are more volatile, than securities of comparable U.S. companies.
Trading settlement practices in some markets may be slower or less frequent
than in the U.S., which could affect liquidity of a Fund's portfolio. Trading
practices abroad may offer less protection to investors. In some foreign
countries expropriation, nationalization of issuers or confiscatory taxation is
a risk. Foreign government limits on removal of securities, property or other
assets may affect a Fund's investments. Political or social instability,
including war or other armed conflict, or diplomatic developments also could
affect U.S. investors.

CURRENCY RISK. International investors are also exposed to currency risk, if
the U.S. dollar value of securities denominated in other currencies is
adversely affected by exchange rate movements. Currency risk could affect the
value of a Fund's investments, the value of dividends and interest earned by a
Fund, and gains which may be realized.

FOREIGN TAXATION. Some foreign governments levy brokerage taxes, increasing the
cost of securities subject to the tax and reducing the realized gain (or
increasing the realized loss) on such securities when they are sold. Foreign
governments may withhold taxes from dividends or interest paid (typically at a
rate between 10% and 35% of the gross amount paid). Such taxes lower a Fund's
net asset value.

Economic structures and political systems in emerging or developing markets are
generally less diverse, mature and stable compared to more developed countries.
Historically, emerging markets have been more volatile than the markets of more
mature economies, and from time to time they have provided higher rates of
return as well as greater risks to investors. John Govett believes that these
characteristics can be expected to

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<PAGE>

continue in the future. In particular, in the countries of the former "Eastern
Bloc" the lack of a historical capital market structure or market-oriented
economy, together with the possible reversal of recent favorable economic,
political and social developments in some of those countries, pose greater
risks than those associated with the more developed, market-oriented Western
European countries.

INVESTING IN EMERGING MARKETS. The risks of investing in foreign securities are
intensified if the investments are in emerging or developing markets. In
general, these markets may offer special investment opportunities because their
securities markets, industries and capital structure are growing rapidly, but
investments in these countries involve special risks not present in the U.S. or
in mature foreign markets, such as Germany or the United Kingdom, for example.
Settlement of securities trades may be subject to extended delays, so that a
Fund may not receive securities purchased or the proceeds of sales of
securities on a timely basis. Emerging markets generally have smaller, less
developed trading markets and exchanges, which may affect liquidity, so that
the Fund may not be able to dispose of those securities quickly and at a
reasonable price. These markets may also experience greater volatility, which
can materially affect the value of a Fund's portfolio holdings and, therefore,
its net asset value per share. Emerging market countries may have relatively
unstable governments. In such environments the risk of nationalization of
businesses or of prohibitions on repatriation of assets is greater than in more
stable, developed political and economic circumstances. The economy of a
developing market country may be predominantly based on only a few industries,
and it may be highly vulnerable to changes in local or global trade conditions.
The legal and accounting systems, and mechanisms for protecting property
rights, may not be as well developed as those in more mature economies. In
addition, some emerging markets countries have general or industry-specific
restrictions on foreign ownership may limit or eliminate the Fund's
opportunities to acquire desirable securities.

INVESTING IN SMALLER COMPANIES. Shares of the Smaller Companies Fund may be
appropriate for an investor who is willing and able to assume the risks
associated with investing in "small cap" companies. The smaller companies in
which the Fund invests often have rates of sales, earnings, and share price
appreciation that exceed those of larger companies. However, such companies
also often have limited product lines, markets or financial resources. Stocks
of smaller companies may have limited marketability and typically experience
greater price volatility than stocks of larger companies. The Fund's share
price will reflect this volatility. See also "An Overview of the Funds--Smaller
Companies Fund."

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<PAGE>

INTEREST RATE AND CREDIT RISK. The value of fixed income securities held by the
Funds generally fluctuates inversely with interest rate movements. Global
Income Fund and Latin America Fund normally invest in a number of issuers;
however, each is a "non-diversified" series and may invest more than 5% of
their assets in the securities of one issuer. Consequently, each Fund may
experience greater interest rate and credit risk with respect to its portfolio
than funds which are more broadly diversified.

Latin America Fund and Global Income Fund may each invest in debt securities
rated below investment grade. These securities may be the equivalent of high
yield, high risk "junk bonds." Such investments have greater potential for
default or price change than higher quality securities due to changes in the
issuer's creditworthiness, economic downturns or interest rate increases. The
issuer may be unable or unwilling to repay principal or interest when due, and
a Fund may incur additional expenses if it is required to seek recovery
following a default in the payment of principal or interest on its holdings. In
addition, remedies from defaults on debt securities issued by emerging market
governments generally must be pursued in the courts of the defaulting
government, and legal recourse can therefore be significantly diminished.

LIQUIDITY RISK. Funds which may invest in sovereign debt obligations may have
difficulty disposing of and valuing them because there may be a limited trading
market for the securities. If reliable market quotations are not available,
John Govett values such securities in accordance with procedures established by
the Board of Directors. John Govett's judgment and credit analysis plays a
greater role in valuing high yield debt securities compared to securities for
which 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 may
be no liquid secondary market for many of these securities, these Funds
anticipate the 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.

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<PAGE>

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MANAGEMENT OF THE FUNDS

Under the provisions of the Articles of Incorporation of the Company and the
laws of Maryland, the Board of Directors is responsible for overseeing the
conduct of the Company's business and the activities of each Fund. Under the
Investment Management Contract, and subject to such policies as the Board may
establish, John Govett provides the Funds with day-to-day management services
and makes investment decisions on their behalf in accordance with each Fund's
respective investment policies.

Subject to the supervision of the Board, 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
Funds, 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). Overseeing international, emerging markets and smaller
company investments is complex, and the fees for servicing such funds are
generally higher than fees paid by domestic investment companies. John Govett
absorbs certain expenses, including a portion of management fees, service fees
and excess Fund expenses. The Funds pay all expenses not assumed by John Govett
or other persons, including but not limited to John Govett'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 complying with federal and 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.

On January 8, 1997, the Board of Directors voted to terminate an Investment
Subadvisory Agreement with Berkeley Capital Management, regarding the day-to-
day investment management of Smaller Companies Fund. Effective January 9, 1997,
John Govett assumed full investment management control of that Fund. Fees paid
by the Smaller Companies Fund were unaffected by that termination.

During the fiscal period ended December 31, 1996, total operating expenses
(including management and administrative and distribution fees,

29
<PAGE>

but after fee reductions and expense reimbursements) paid by the Class A shares
of each of International Equity Fund, Emerging Markets Fund, Pacific Strategy
Fund, and Latin America Fund were 2.50% of each Fund's average daily net
assets. The same fees paid by Class A shares of Global Income Fund were 1.75%
of average daily net assets, and 1.95% by the Class A shares of Smaller
Companies Fund. In connection with the sale of John Govett to Allied Irish
Banks plc ("AIB") at the end of 1995, between January 1, 1996 and February 23,
1996 the Funds paid no fees to John Govett under the Investment Management
Agreement. Because no management fees were paid by the Funds during the first
two months of 1996, expenses were lower than they otherwise might have been if
management fees had been paid.

John Govett permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires investment and other personnel to
conduct their personal investment activities in a manner that is not
detrimental to the Funds or to John Govett's other advisory clients.

JOHN GOVETT & CO. LIMITED

The Funds are managed by John Govett & Co. Limited ("John Govett"), a U.K.-
based investment manager which began managing money in the 1920s and has
developed special expertise in investing in emerging markets and smaller
companies worldwide. John Govett's headquarters are at Shackleton House, 4
Battle Bridge Lane, London SE1 2HR, England, and it has offices in Singapore,
Bangalore, Jersey, San Francisco, and Budapest. As of March 31, 1997, John
Govett and its subsidiaries had approximately $6.1 billion under management.
John Govett is wholly-owned by AIB Asset Management Holdings Limited
("AIBAMH"), a majority-owned subsidiary of AIB, the largest bank in Ireland
with assets of approximately $21 billion. AIB and its subsidiaries provide a
diverse range of banking, financial and related services principally in
Ireland, the United Kingdom, and in the United States. An officer of AIBAMH,
Mr. Patrick Cunneen, is a Director of the Company.

The portfolio manager for International Equity Fund is Peter Kysel. Mr. Kysel
is a director of John Govett and is a senior member of its international team.
He graduated from Prague University in business economics and politics. Prior
to joining John Govett as a fund manager and director in 1994, he was managing
director of the Investment Banking Division at Komercni Banka AS in Prague. He
has also served as Director of International Investments for Lloyds Merchant
Bank Ltd in London and as a Director of Touche Remnant Holdings' trust unit. He
assumed full responsibility for managing this Fund in January, 1997.

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<PAGE>

Rachael Maunder has managed Emerging Markets Fund since its inception in 1992.
She graduated in economics and politics from Bath University and joined INVESCO
MIM as a graduate trainee in the U.K. pension fund department. She moved to the
international investment team in 1986, managing a range of global equity
accounts for U.S. institutional clients and was in charge of that firm's global
emerging markets investment funds. She joined John Govett in 1991.

Gareth Watts assumed responsibility for Smaller Companies Fund in January,
1997. Prior to that time he managed International Equity Fund, for which he was
responsible since its inception in 1992. Since joining John Govett as a
Director in 1988, Mr. Watts has managed all of John Govett's offshore funds
investing in U.S. equities. After graduating in statistics from the University
of Wales, he worked for the U.K. firm of Legal and General as a U.S. fund
manager for five years. He moved to Morgan Grenfell in 1983, where he managed
both North American and international funds. In 1986 he joined Scrimgeour
Vickers Asset Management as a senior fund manager in charge of all overseas
assets.

Peter Robson has managed the Pacific Strategy Fund since its inception in 1994.
He joined John Govett as a Director in 1990, after managing U.K. unit trusts
and Far Eastern investments at BZW Investment Management. He graduated in
engineering from Oxford University and was commissioned into the 1st Queen's
Dragoon Guards of the British Army in 1985.

Caroline Lane, a Director of John Govett, has managed the Latin America Fund
since its inception in 1994. She has been with John Govett since 1990. She
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.

Since September, 1996, Global Income Fund has been managed under the
supervision of the Chief Investment Officer, with no individual primarily
responsible for making investment decisions.The fixed income team utilizes
information provided by members of the fixed income team of Allied Irish Bank
Investment Management Limited, an affiliate of John Govett. All individuals
involved are either employees of John Govett or have dual employee status
between the two companies.

ALLOCATION OF PORTFOLIO TRANSACTIONS

In placing orders for the Funds' portfolio transactions, John Govett seeks best
execution, analyzing such factors as price, size or order, difficulty of
execution and the operational capabilities of the brokerage firm involved.
Commissions on trades through foreign securities exchanges or OTC markets
typically are fixed and higher than those made through U.S.

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<PAGE>

securities exchanges or OTC markets. Consistent with the obligation to obtain
best execution, John Govett may consider research and brokerage services
provided by that broker. The Funds may pay a broker who provides brokerage and
research services to John Govett a higher commission than that charged by other
brokers if John Govett determines in good faith that the amount of the
commission is reasonable in relation to the value of those services, either in
terms of the particular transaction or of the overall responsibility of John
Govett to the Funds and to any accounts over which John Govett exercises
investment discretion.

PORTFOLIO TURNOVER

The frequency of portfolio transactions--the "portfolio turnover rate"--varies
from year to year depending on market conditions. Because a high annual
turnover rate (over 100%) increases transaction costs and may lead to capital
gains which are subject to federal taxation, John Govett carefully weighs
anticipated benefits of a trade against expected transaction costs and tax
consequences. John Govett does not engage in short-term trading except when
necessary to prudently manage the Funds' portfolios. The portfolio turnover
rates for the period from January 1, 1996 through December 31, 1996 were:
International Equity Fund--84%; Emerging Markets Fund--122%; Smaller Companies
Fund--406%; Pacific Strategy Fund--170%; Latin America Fund--150%; and Global
Income Fund--236%. Each Fund's portfolio turnover rate reflects market
conditions affecting the economies that Fund invests in. Smaller Companies
Fund's portfolio turnover rate also reflects portfolio repositioning undertaken
following the change in portfolio manager in January, 1996, and higher
redemption rates. Pacific Strategy and Latin America Funds have also been
affected by redemptions that occurred during the year.

DISTRIBUTION ARRANGEMENTS

FPS Broker Services, Inc. (the "Distributor") is the Funds' statutory
distributor and principal underwriter. FPS Services, Inc., an affiliate of the
Distributor, serves the Funds as transfer and shareholder services agent (the
"Transfer Agent").

From time to time programs may be implemented 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 certain reallowances (not exceeding the
total applicable sales charges on the sales generated by the broker, dealer or
financial intermediary) may be paid to

32
<PAGE>

such entities. Other programs provide, among other things and subject to
certain conditions, for certain favorable distribution arrangements for shares
of the Funds. The Distributor may, from time to time, pursuant to objective
criteria it establishes, pay fees to, and sponsor seminars for, qualifying
brokers, dealers, or financial intermediaries for certain services or
activities which are primarily intended to result in the sale of Fund shares.
Any such 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 National Association of Securities Dealers, Inc.
(the "NASD").

DISTRIBUTION PLANS

Rule 12b-1 adopted by the SEC under the 1940 Act permits a mutual fund to
directly or indirectly pay expenses associated with distributing its shares
("distribution expenses") in accordance with a plan adopted by the Funds' Board
of Directors and approved by its shareholders. Pursuant to Rule 12b-1, the
Board of Directors and the shareholders of each class of each Fund have adopted
three Distribution Plans referred to in this Prospectus as the "Class A Plan,"
the "Class B Plan," and the "Class C Plan." ONLY CLASS A SHARES ARE CURRENTLY
OFFERED TO THE GENERAL PUBLIC. Each distribution plan complies with the NASD
Rules of Fair Practice applicable to mutual fund sales charges. These rules
regulate the distribution and service charges that the Funds may impose on a
class of shares. The Class B and Class C service fees are used to compensate
authorized dealers for personal service and for the maintenance of shareholder
accounts. There is no service fee paid under the Class A Plan.

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 the
Distributor an ongoing distribution fee of 0.75%, and an ongoing service fee of
0.25%, of the Fund's aggregate average daily net assets attributable to its
Class B and Class C shares to reimburse the Distributor for service fees it
pays to authorized dealers, and for its distribution costs.

Each Plan allows the Funds to compensate the Distributor for services provided
and expenses incurred in the distribution of Fund shares, including advertising
expenses and printing costs (e.g., sales materials used to offer shares to the
public). The Distributor may reallow all or a portion of the payments received
under the Plan to third parties, including

33
<PAGE>

securities dealers, and banks ("Service Organizations"), for rendering
shareholder support and administrative services. John Govett, pursuant to a
Sub-Administration Agreement, provides certain services to the Distributor,
including as a Service Organization under each of the three Plans.

If the Class A Plan is terminated, 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 Global Income Fund) without prior
approval of the Class A and Class B shareholders. At present, the Board of
Directors has approved payments under the Class A, Class B and Class C Plans
for the purpose of compensating 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 shares of the respective Class
(including payments for travel, telephone, and overhead expenses related to
distribution), subject to the overall percentage limitations described above.

The Class B and Class C Plans provide that the Distributor may use 0.25% of the
net assets of the respective Class B or Class C (i) to compensate certain
financial institutions, which may include banks, securities dealer, and other
industry professionals (collectively "Service Organizations") for providing
distribution assistance or services with respect to the Class B or C shares;
(ii) to otherwise promote the sale of Fund shares, including personal services
and/or maintenance of shareholder accounts. 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
distribution services. Expenditures for such services may include payment of
(i) front-end commissions of up to 4% of the purchase price of Class B shares;
(ii) front-end commissions of up to 0.75% of the purchase price of Class C
shares 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.

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 a Plan,
resulting in a profit or loss for the Distributor. The Distributor may use
payments made to it by a Fund under a Distribution Plan 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.

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<PAGE>

The Directors determined that there was a reasonable likelihood that the
Distribution Plans would benefit the Funds and their shareholders. Information
about distribution revenues and expenses is provided to the Directors each
year, in connection with their consideration of continuing the Distribution
Plans. In this review, the Directors take into account expenses incurred in
connection with distributing 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 Class B and Class C distribution and service fees are designed to permit
an investor to purchase such shares without the assessment of a front-end
sales charge and at the same time to permit the Distributor to compensate any
Service Organization as permitted by the Class B Plan or Class C Plan, as the
case may be. 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 for the Class A shares, that is provide for financing
distribution of fund shares.

CUSTODIANS

The Chase Manhattan Bank (the "Custodian") serves as the Funds' global
custodian. Hong Kong and Shanghai Banking Corporation, Taipei, Taiwan,
provides custody services for Fund assets held in Taiwan.

TRANSFER AGENT

FPS Services, Inc., (the "Transfer Agent"), an affiliate of the Distributor,
provides transfer agent, shareholder services agent, and dividend disbursement
services to the Funds.

ACCOUNTING AND ADMINISTRATION SERVICES

Chase Global Funds Services Company, an affiliate of the Funds' custodian,
provides the Funds with administration and accounting services.

HOW THE FUNDS VALUE THEIR SHARES

When share price is determined

At the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. Eastern Time) each day the New York Stock Exchange is open, each Fund
calculates its net asset value per share (the "NAV") of each class by dividing
the total value of the assets (securities plus cash or other assets, including
interest and dividends accrued but not yet received), attributable to the
class, less total liabilities attributable to the class, by the total number
of shares of the class outstanding.

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<PAGE>

How share price is determined

All securities traded on an exchange are valued at the last sale quotation on
the exchange prior to the time of valuation. Securities for which market
quotations are readily available are stated at market value. Short-term
investments maturing in 60 days or less are valued using amortized cost, which
the Board of Directors has determined approximates market value. Amortized cost
valuation means that a debt security with a maturity in excess of 60 days,
which currently has a maturity of 60 days or less, is valued at the market 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 fair value following procedures
approved by the Board of Directors.

Foreign securities may trade on days or at times other than those days and
times when the New York Stock Exchange is open. The prices of foreign
securities quoted in foreign currencies are translated into U.S. dollars at
1:00 p.m. Eastern time at the exchange rates in effect at that time, or at such
other rates as the Manager may determine to be appropriate. As a result,
currency fluctuations in relation to the U.S. dollar may affect a Fund's net
asset value per share even though there has been no change in the market value
of portfolio holdings. In addition, because of time zone differences foreign
exchanges and markets may close before the New York Stock Exchange closes.
However, events affecting market values which may occur between the earlier
closing of a foreign exchange and the closing of the New York Stock Exchange
may not be reflected in that day's computation of a Fund's net asset value. If
an event materially affecting the value of a portfolio holding occurs during
such period and the Manager becomes aware of it, then the holding will be
valued at fair value as determined in good faith, according to procedures
adopted by the Board of Directors.

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ABOUT YOUR ACCOUNT

HOW TO BUY SHARES

Shares of each of the Funds are offered continuously at the NAV per share
determined for each Fund as of the close of the regular trading session of the
New York Stock Exchange (currently 4:00 p.m. Eastern Time), following receipt
by the Transfer Agent of a purchase order in proper form plus, in the case of
the Class A shares of each Fund, an initial sales charge imposed at the time of
purchase, or subject to contingent deferred

36
<PAGE>

sales charge upon redemption in the case of Class B and Class C shares, and
certain redemptions in the case of Class A shares. AN UNSPECIFIED PURCHASE
ORDER WILL BE CONSIDERED AN ORDER FOR CLASS A SHARES. AT PRESENT, ONLY CLASS A
SHARES ARE AVAILABLE TO THE GENERAL PUBLIC.

Shares may be purchased through brokers, investment advisers and other
financial intermediaries ("authorized dealers") which have selling group
agreements with the Distributor, or directly through the Transfer Agent.
Authorized dealers may charge a fee for effecting transactions. Completed
applications should be sent to the Transfer Agent at the address shown in the
Services Guide in Appendix B to this Prospectus. 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
reserve the right to refuse to accept any purchase order, and to suspend the
offering of shares for a period of time. Prospective investors and shareholders
may call 800-821-0803 for additional information about their accounts or the
Funds.

INITIAL PURCHASES THROUGH AUTHORIZED DEALERS

Orders received by an authorized dealer before the New York Stock Exchange has
closed for a particular day will be executed at the public offering price
determined on that day, provided that the authorized dealer transmits the order
to the Transfer Agent by 5:00 p.m. Eastern Time on that day. Authorized dealers
are responsible for timely transmission of orders to the Transfer Agent. The
sales agreements between the Distributor and the authorized dealers provide
that all orders are subject to acceptance by the Funds, which retains the right
to reject any order.

INITIAL PURCHASES THROUGH THE TRANSFER AGENT

Investors may open an account directly through the Transfer Agent by mailing a
check to cover the purchase price, together with a completed, signed
application and a check made out to the specific Fund, to the address shown in
Appendix B. In such cases, the sales charge is paid to the Distributor. Third
party checks will not be accepted in payment for Fund shares. Shares may also
be purchased through the Transfer Agent by bank wire, provided that within
seven (7) days of an initial investment, the Transfer Agent has received an
executed account application showing the investor's taxpayer identification
number. Bank wire purchases are effected at the next computed public offering
price after the wire is received. A wire investment is considered received when
the Transfer Agent has been notified that the wire has been credited to a Fund.
The investor is responsible for providing prior telephone notice to the
Transfer Agent that a wire is being sent. The Transfer Agent will provide an
account number which should be referenced on the wire instructions.

37
<PAGE>

SUBSEQUENT INVESTMENTS THROUGH THE TRANSFER AGENT

After an initial investment is made and a shareholder account is established
through an authorized dealer, subsequent purchases of $25 or more may be made,
at the investor's option, directly through the Transfer Agent. Investors should
use the investment stub located at the bottom of the Shareholder Statement Form
or, if one is not available, a check made payable to the specific Fund should
be sent to the Transfer Agent at the address indicated in Appendix B. Any check
for additional shares sent directly to the Transfer Agent should reference the
account number to which the money should be credited.

CERTIFICATES

In the interest of economy and convenience, the Funds do not issue certificates
unless a shareholder or his or her authorized dealer submits a written request
to the Transfer Agent. Shareholders who do not receive certificates have the
same rights as if certificates had been issued to them. Redemptions by
shareholders who hold certificates may take longer than redemptions of non-
certificated shares, because physical delivery and processing of the
certificates is necessary. The Funds and the Distributor recommend that
shareholders refrain from requesting certificates.

DIRECTED DIVIDENDS

A shareholder may elect on the Account Application to have his or her dividends
from one Fund paid to a third party or invested in shares of the same class of
another series of the Funds, provided that an existing account in such other
Fund is maintained by the shareholder. 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 NAV as of the payable date of the distribution.

AUTOMATIC INVESTMENT PLAN

Investors may buy shares of a Fund through the Automatic Investment Plan
("AIP"), which allows an investor to specify an amount at least $100 initially,
and $25 thereafter, per Fund to be invested on a regular basis. The specified
amount will be transferred directly from the investor's bank for investment
into the designated Fund(s) on the designated investment day. These transfers
are processed on the 10th, 15th and 20th of each month (or on the next business
day if the designated day falls on a

38
<PAGE>

holiday or a weekend). To participate in the AIP, investors should complete the
appropriate portion of the Account Application. An AIP may be terminated by the
Transfer 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 Transfer
Agent.

SYSTEMATIC WITHDRAWAL PLAN

See "How to Redeem Shares," below.

SALES CHARGES

Investments in each Fund are subject to initial sales charges or to contingent
deferred sales charges ("CDSCs"), depending upon the class of shares. ONLY
CLASS A SHARES ARE CURRENTLY OFFERED TO THE PUBLIC. If a shareholder is
eligible for reduced or waived sales charges, as described below, the
shareholder or his or her dealer must communicate the circumstances to the
Transfer Agent so that a reduction or waiver may be applied.

CLASS A SHARES

The following table states the total front-end sales charges and dealer
concessions applicable to certain Class A share purchases. Dealer concessions
represent the amount of any sales charges reallowed by the Distributor to
authorized dealers selling Class A shares. ONLY CLASS A SHARES ARE CURRENTLY
OFFERED TO THE GENERAL PUBLIC.

<TABLE>
<CAPTION>
SALES CHARGE
AS A PERCENTAGE OF
------------------- AMOUNT OF SALES CHARGE
AMOUNT OF PURCHASES AT OFFERING NET REALLOWED TO DEALERS
PUBLIC OFFERING PRICE PRICE INVESTMENT AS A % OF 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>

** Commissions will be paid 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.
Quantity purchases of Class A shares of $1 million or more may be subject to
a CDSC. See "How to Redeem Shares CDSCs," below.

39
<PAGE>

Aggregating shares to determine "Amount of Purchase"

The following purchases of Class A shares may be aggregated for the purposes of
determining the "Amount of Purchase". It is the shareholder's or his or her
dealer's responsibility to communicate the circumstances so that the transfer
agent can properly identify account records:

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).

d) Purchases made concurrently by certain fiduciary entities (such as
investment advisors, bank trust departments and bank custodians) for the
account of clients.

In addition to the reallowances from the applicable public offering price
described in this Prospectus, 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 substantially all of the sales charges
may be deemed to be underwriters for the purposes of the Securities Act of
1933.

The Distributor may also pay any Service Organization a transaction fee up to
the level of the reallowance permitted to authorized dealers as described in
this Prospectus.

40
<PAGE>

Waivers of Front-end Sales Charges on Class A shares

The Funds sell Class A shares at net asset value without imposition of sales
charges to the following classes of investors. It is a shareholder's or his or
her dealer's responsibility to communicate the circumstances to the Transfer
Agent so that the account records can be properly identified:

. Current or retired trustees, directors or employees of funds advised by
John Govett or any of its affiliated companies, or of any subadvisor to any
such fund (including their families and beneficial accounts).

. Current or retired directors, trustees, officers, and employees of John
Govett and its affiliated companies, the Transfer Agent, the Distributor,
and companies affiliated with John Govett.

. Shareholders who purchased shares of any of the Funds at net asset value as
a result of their affiliation with the prior distributor or Transfer Agent,
or any of their affiliated companies, and who have maintained their
investment in such shares.

. Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor, and
their spouses and minor children 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. 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. 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 that 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 occurred no more than 30 days prior to the
purchase of Fund shares.

. Investment accounts managed by John Govett or its affiliated companies.
John Govett and its affiliates will waive fees on any such account to
ensure that clients do not pay duplicate fees.

41
<PAGE>

. Purchases made by or on behalf of participants in employee benefit,
retirement or pension plans with North American Trust Company or persons
who have purchased annuity contracts with London Pacific Life & Annuity
Company (each a former affiliate of John Govett).

The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.

Reduced Sales Charges on Class A Shares

Investors who agree to purchase a certain dollar amount of Fund shares, or who
already have purchased certain dollar amounts of Fund shares, may qualify for
reduced sales charge rates. These programs allow an investor to receive a
reduced offering price based on the assets held or pledged by the investor. The
term "investor" refers to (1) an individual, (2) an individual and spouse
purchasing shares of a Fund for their own account or for the trust or custodial
accounts of their minor children, or (3) a fiduciary purchasing for any one
trust, estate or fiduciary account, including employee benefit plans of a
single employer.

LETTER OF INTENT ("LOI"). An investor may execute a Letter of Intent (which is
part of the Account Application provided in this Prospectus) which indicates an
aggregate investment amount he or she intends to invest in the Class A shares
of a Fund in the following thirteen (13) months. The sales charge applicable to
that aggregate amount then becomes the applicable sales charge on all Class A
shares purchased concurrently with the execution of the LOI and in the thirteen
(13) months following that execution. If an investor signs an LOI within 90
days of a prior Class A purchase, that purchase may be included under the LOI,
and an appropriate adjustment, if any, with respect to the sales charges paid
for the prior purchase will be made, based on the then-current NAV(s) of the
relevant Funds. Registered investment advisors, trust companies, and bank trust
departments may be eligible to receive commissions on certain LOI purchases.
The investor will be required to pay the difference between the reduced sales
charges and the sales charges applicable to the purchases actually made if the
total amount does not equal the total amount of Class A shares covered by the
LOI at the end of the thirteen (13) month period. During the thirteen (13)
month period, the Transfer Agent will hold in escrow Class A shares having a
value equal to 5% of the amount specified in the LOI. These shares remain in
the investor's name but are subject to redemption by the Transfer Agent to
assure any necessary payment of a higher applicable sales charge. Any dividends
accrued on the escrowed shares will accrue to the shareholder's account.

42
<PAGE>

RIGHT OF ACCUMULATION. Investors are permitted to purchase Class A shares 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 qualify for the Right of
Accumulation privilege, investors must, at the time of purchase, give their
authorized dealer, the Shareholder Services Agent or the Distributor sufficient
information to permit confirmation that they qualify.

CLASS B AND CLASS C SHARES

CDSCs

Investors may pay a CDSC on redemptions of Class B shares within 6 years of
purchase. Investors who redeem Class C shares within the first year of purchase
are subject to a CDSC of 1%. In both cases, the CDSC is charged as a percentage
of the dollar amount subject to the charge, and is based on an amount equal to
the current market value or the cost of the Class B or Class C shares being
redeemed, whichever is less. Thus, no CDSC is imposed on increases in net asset
value above the initial purchase price. No CDSC is charged on shares purchased
through reinvestment of dividends or capital gains distributions on Class B
shares, or on certain redemptions under a Systematic Withdrawal Plan, as
described below. The calculation is determined in the manner that results in
the lowest possible rate being charged. For purposes of determining the number
of years from the time of any payment for the purchase of the shares, all
payments during a month are aggregated and deemed to have been made on the last
day of that month.

The schedule of CDSCs for Class B shares is:

<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 and Eighth............................................ 0%
</TABLE>

A commission or transaction fee equal to 4% of the purchase amount will be paid
to authorized dealers and other Service Organizations at the time

43
<PAGE>

of purchase. Additionally, promotional incentives may be offered, in the form
of cash or other compensation, to Service Organizations selling Class B shares.

For class C shares, 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 of up
to 0.75% of the average daily net asset value of each Fund's Class C shares.
Additional promotional incentives, in the form of cash or other compensation,
may be paid to Service Organizations that sell Class C shares of the Funds.

Waiver of CDSCs

CDSCs are waived under the following circumstances. See also the section on
"Reinstatement Privilege", below.

<TABLE>
<C> <S> <C>
CONDITION FOR WAIVER APPLIES TO:
-------------------- -----------
. Death or disability of the Class A, Class B, and Class C
shareholder (as defined in
Section 72(m)(7) of the IRS
Code
. Minimum required distribution Class A, Class B, and Class C
from certain IRA or retirement
plan distributions
. Pursuant to Reinstatement See "Reinstatement Privilege"
Privilege, which may be section, below. Amount
EXERCISED ONLY ONCE for each reinvested will be subject to
Fund investment. Class B the same CDSC to which that
reinstatement proceeds can only amount was subject prior to the
be reinvested in Class A redemption, and the 12-month
shares. CDSC period will continue to
run from the original
reinvestment date, extended by
the number of days between the
redemption and reinvestment
dates.
. Redemptions made pursuant to Class A, Class B, and Class C
the Funds' systematic
withdrawal plan, but limited to
12% of the initial value of the
account (annually)
</TABLE>

44
<PAGE>

REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who 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. Any 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 will be made at the NAV (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. The redemption is a taxable event, but some or all
of the 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 investor's
responsibility or the responsibility of his broker to notify the Transfer Agent
of the investor's intent to exercise the reinstatement privilege. Reinstatement
at NAV is also offered to participants and eligible retirement plans held or
administered by Semper Trust Company for repayment of principal (and interest)
on their borrowings on such plans. The Funds may modify or terminate the
reinstatement privilege at any time upon notice to shareholders.

- --------------------------------------------------------------------------------

HOW TO MAKE EXCHANGES

Generally, shareholders may exchange shares of one class of any Fund for shares
of the same class of any other Fund, based upon their respective NAVs, without
imposition of any sales charges provided that the account holder remains the
same. Certain authorized dealers may be charged a fee for handling exchanges.
If investors do not surrender all of their shares in an exchange, the remaining
balance in the account after the exchange must be at least $500, or the Fund
may automatically redeem the account in full as described in "How to Redeem
Shares," below.

MONEY MARKET FUND. Shares of the Zurich Kemper Cash Account Trust Money Market
Portfolio (the "Money Market Fund") may be exchanged for shares of any Fund.
The sales charge will be imposed if the shareholder's initial investment in the
Govett Funds, Inc. is a purchase of Money Market Fund shares. The Money Market
Fund is not a series of the Funds, but is available as an exchange vehicle for
Fund shareholders. Shares of one class cannot be exchanged for shares of
another class, and the account registration and type of account must remain the
same (that is, retirement or non-retirement account). Thus, Class B shares
exchanged

45
<PAGE>

into the Money Market Fund will be exchanged for Class B shares of the
designated Govett Fund registered identically for the same type of account.
Checkwriting privileges are not available for Fund investors who hold shares of
the Money Market Fund. The exchange privilege pertaining to the Money Market
Fund does not constitute an offering or recommendation of the shares of that
Fund by Govett Funds or John Govett. Investors should obtain and read the
current prospectus for any fund into which they want to invest and carefully
consider that fund's investment objectives.

CLASS A SHARES SUBJECT TO A CDSC AND CLASS B AND C SHARES MAY BE EXCHANGED INTO
THE MONEY MARKET FUND. HOWEVER, THESE SHARES DO NOT "AGE" WHILE INVESTED IN THE
MONEY MARKET FUND. Investors interested in making an exchange for shares of the
Money Market Fund should write or call their authorized dealer or the
Distributor, to request the Money Market Fund prospectus.

EXCHANGES BY TELEPHONE. Exchange orders effected by telephone should be
directed to the Transfer Agent at the address shown in Appendix B.

AUTOMATIC EXCHANGE PLAN. Investors may exchange Fund shares through the
Automatic Exchange Plan. Both accounts must be of the same type and class. To
participate in this plan, investors should complete the appropriate portion of
the Account Application, and should contact the Transfer Agent for more
information. There is a $25 minimum for an existing account and $100 minimum
for establishing a new account. These transactions are effected on the 25th of
each month. If the 25th falls on a weekend or a holiday, the transaction will
be effected on the next business day.

EXCHANGES BY MAIL. Exchange orders effected by mail should be sent to the
investor's authorized dealer or the Transfer Agent at the address set forth in
Appendix B.

FREQUENT EXCHANGES. As a general principle, purchases, redemptions and
exchanges of Fund shares should be made for investment purposes only. A pattern
of frequent exchanges, purchases and sales may be deemed abusive by John Govett
and at its discretion can be limited by a Fund's refusal to accept purchase
and/or exchange orders from the investor. Although John Govett will consider
all factors it deems relevant in determining whether a pattern of frequent
purchases, redemptions and or exchanges by a particular investor is abusive and
not in the best interests of a Fund or its shareholders, as a general policy a
pattern of more than one purchase-sale transaction during any 30-day period
with respect to any particular Fund may be deemed abusive.

46
<PAGE>

EXCHANGES OF CLASS B AND C SHARES. For purposes of computing the CDSC that
would be payable if the new shares were redeemed, the CDSC is based on the
holding period requirements of the original Fund, and the holding period for
the original shares is added to the holding period of the new shares.

- --------------------------------------------------------------------------------

HOW TO REDEEM SHARES

GENERAL INFORMATION

You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the NAV next computed after your properly completed and
authorized redemption request is received, less any applicable sales charges.
Shareholders with accounts at authorized dealers may redeem shares through the
dealer or directly through the Transfer Agent. IF THE SHARES ARE HELD IN THE
DEALER'S "STREET NAME," THE REDEMPTION MUST BE MADE THROUGH THE DEALER. Please
refer also to the "Reinstatement Privilege" section above.

Once your shares are redeemed, the proceeds will normally be sent to you the
next business day, if all redemption instructions described below are followed
and all documentation is received by the Transfer Agent. If making immediate
payment could affect a Fund adversely, it may take up to seven (7) days (or
such shorter period as may be required by law or regulation) to pay you.

Shareholders requesting redemptions via bank wire should allow two (2) business
days from the time the redemption request is accepted by the Transfer Agent for
the proceeds to be deposited in the bank. A $9.00 processing fee will be
deducted from the proceeds of redemptions wired from the Funds.

The Funds may withhold redeeming a shareholder's account until they are
reasonably satisfied that investments initially made by check have been
collected (which may take up to 15 days from the date the Transfer Agent
received 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 described in the Statement of Additional
Information, redemptions may also be paid in securities or other assets of the
redeeming Fund.

47
<PAGE>

Each Fund may automatically redeem the shares of any shareholder who does not
maintain at least $500 in the account. Automatic redemption will not occur if
the account's value falls below $500 due to fluctuations in the value of the
Fund's portfolio holding. The proceeds from such a redemption will be mailed to
the shareholder's address of record. A shareholder will receive at least 30
days' prior written notice that their account will be closed unless they make
an additional investment to bring their account to the minimum. Any applicable
CDSC will be deducted from the proceeds of this redemption.

Redemption requests may be transmitted to the Transfer Agent by telephone or by
mail, as described in Appendix B. Supporting documentation may be required from
corporations, executors, administrators, trustees, guardians and other
fiduciaries. Fiduciaries should contact the Transfer Agent for further
information. Redemption requests received after 4:00 p.m. Eastern Time will be
honored at the NAV (less any applicable CDSC) calculated on the next business
day (i.e., the next day the New York Stock Exchange is open).

A SIGNATURE GUARANTEE by a bank or trust company, broker-dealer, credit union,
national securities exchange, registered securities association, clearing
agency, savings and loan association or federal savings bank is required under
the following circumstances:

. The shareholder wishes to redeem $50,000 or more.

. The proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account.

. 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.

. The Transfer Agent believes 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
conflicting 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 registered owner; (e) the Fund determines that joint owners
who are married to each other are separated or involved in divorce
proceedings, or (f) the authority of a representative of a corporation,
partnership, association or other entity has not been established to the
Fund's satisfaction.

. The proceeds are to be sent to the shareholder's address of record and that
address has changed within the preceding 60 days.

48
<PAGE>

. The shareholder requests that the proceeds be sent directly to a bank,
savings and loan, credit union, or brokerage firm account that has not been
predesignated in the "Bank Wiring Information" section of the Account
Application.

The Transfer Agent will accept signature guarantees from all eligible firms, as
defined by Rule 17Ad-15 under the Securities Act of 1934. The Fund reserves the
right to waive signature guarantees, and to request additional information,
under certain circumstances.

When shares to be redeemed are represented by a SHARE CERTIFICATE, the
certificate must accompany the redemption request, together with a share
assignment form signed by the registered shareholders EXACTLY as the account is
registered, with signature guarantees as described above. For their own
protection, shareholders should send the share certificate and assignment form
in separate envelopes.

REDEMPTIONS THROUGH AUTHORIZED DEALERS

Shareholders with accounts at authorized dealers may submit redemption requests
to the dealers. Orders received from securities dealers must be at least $500,
unless submitted through Fund/SERV. The Transfer Agent Agent accepts redemption
requests by telephone on any business day from 9:00 a.m. to 5:00 p.m. Eastern
Time, from dealers with have a dealer agreement with the Distributor or from
other qualified brokers, provided that the dealer has received the request
prior to 4:00 p.m. Eastern Time. This is known as a repurchase. However, EVEN
AFTER RECEIPT OF A REPURCHASE ORDER FROM A DEALER, THE FUNDS STILL REQUIRE A
SIGNED LETTER FROM THE SHAREHOLDER CONTAINING REDEMPTION INSTRUCTIONS AND ALL
OTHER DOCUMENTS REQUIRED FOR DIRECT REDEMPTION REQUESTS, AS STATED ABOVE. The
shareholder's letter should refer to the Fund involved, the account from which
the redemption is to be made, the fact that the repurchase was ordered through
a dealer, and the dealer's name. Details of the dealer-ordered trade, such as
the trade date, confirmation number, and the amount of shares or dollars, will
speed processing. The seven-day period within which the proceeds of the
shareholder's redemption will be sent will begin when the Transfer Agent
receives all documents required to complete (or "settle") the repurchase in
proper form. The redemption proceeds will not earn dividends or interest during
the time between receipt of by the Transfer Agent of the dealer's repurchase
order and the date the redemption is processed after all necessary documents
have been received. It is therefore in the shareholder's best interest to have
all required documentation completed and forwarded to the the Transfer Agent as
soon as possible. The shareholder's dealer may charge a fee for handling the
order.

49
<PAGE>

SYSTEMATIC WITHDRAWAL PLAN

A Systematic Withdrawal Plan is available to shareholders whose accounts total
$5,000 or more. Under the Systematic Withdrawal Plan, the Transfer Agent will
make specified monthly, quarterly, semi-annual or annual payments to a
designated party of any amount selected (minimum of $25). The withdrawal will
occur on the 25th of each month, or on the first business day following the
25th if the 25th is not a normal business day on the New York Stock Exchange.
Changes concerning the Systematic Withdrawal Plan must be received by the
Transfer Agent at least two weeks prior to the next scheduled withdrawal. No
CDSC is assessed on withdrawals under this Plan up to an annual total of 10% of
the value of the shareholder's account. The Funds reserve the right to change
the terms and conditions of the Systematic Withdrawal Plan and the ability to
offer it. For further information about the Systematic Withdrawal Plan, its
requirements and its tax consequences, call the Transfer Agent at 800-821-0803.

Class B and C shareholders who establish a Systematic Withdrawal Plan may
redeem up to 12% annually of the shareholder's amount invested without
incurring a CDSC. "Amount invested" for these purposes means the amount of the
shareholder's investment in the Class B or Class C shares on the date the plan
for that class is established.

- --------------------------------------------------------------------------------

TELEPHONE TRANSACTIONS

Unless the Telephone Privilege is waived by the shareholder (by completing the
appropriate section of the Account Application), he or she may effect exchange,
redemption and certain types of account maintenance transactions by telephone.
The Telephone Privilege authorizes the Funds, the Transfer Agent and the
Distributor to act on instructions by telephone to exchange, redeem and
generally to maintain the account for which the Telephone Privilege applies. A
shareholder may give exchange instructions to the Transfer Agent by calling
800-821-0803.

Shareholders who have retirement accounts with the Funds or hold certificated
shares may not redeem by telephone. The Telephone Privilege permits redemptions
of up to $50,000 per day if the proceeds are to be paid by check. Amounts of at
least $1,000 up to $1 million may be redeemed daily by bank 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

50
<PAGE>

available if the address of record has been changed within the thirty days
prior to a telephone redemption request. Proceeds from redemptions are expected
to be wired on the next business day following the date of the redemption. The
Funds reserve the right to terminate, limit or otherwise modify the Telephone
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 Funds, the Distributor, nor
the Transfer Agent will be liable for following telephone instructions it
reasonably believes to be genuine. The Funds, the Distributor, or the Transfer
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, CAPITAL GAINS AND TAXES

DIVIDENDS AND CAPITAL GAINS

International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Fund and Latin America Fund will distribute annually
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.

Global Income Fund seeks to declare dividends daily and to pay dividends
monthly from net investment income, if any. Such distributions may include all
or a portion of the Fund's 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.

Distributions from capital gains are made after applying any available loss
carryovers and other adjustments permitted under the IRS Code. Each

51
<PAGE>

Fund may make additional dividend or capital gain distributions as required to
comply with certain distribution requirements under the IRS Code.

DIVIDENDS AND CAPITAL GAINS PAYMENT OPTIONS

Shareholders may choose from four 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.

. Receive income dividends and capital gains distributions in cash.

Unless you designate otherwise in 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 can change your distribution option by notifying the Transfer Agent 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 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 Code 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

52
<PAGE>

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 Fund 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, 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

53
<PAGE>

foreign income taxes paid by the Fund, subject to limitations contained in the
Code. 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--such as an additional investment, redemption, exchange or payment of a
dividend or distribution--the Transfer Agent will send a confirmation
reflecting the transaction. Quarterly account statements will be sent for all
Funds. In addition, monthly statements will be provided for Global Income Fund.

54
<PAGE>

After the end of the Funds' fiscal year on December 31 and half-year on June
30, shareholders will receive an annual and semi-annual report, respectively.
These reports list securities held by each Fund and include financial
statements for each Fund.

The federal income tax status of Fund distributions to shareholders is reported
to each shareholder shortly after the end of each calendar on Form 1099-DIV.

ORGANIZATION

The Govett Funds, Inc. is a Maryland corporation formed in 1990. It currently
is registered with the SEC as an open-end management company. Each Fund
corresponds to a distinct investment portfolio and a distinct series of shares.
From time to time the Board of Directors may, in its discretion, establish
additional funds and issue additional classes of shares. Shares of the Funds
are entitled to one vote per share (with proportional voting for fractional
shares) and are freely 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 CLASS A SHARES ARE AVAILABLE TO
THE GENERAL PUBLIC. Each class represents interest in the assets of each Fund
and has identical voting, dividend, liquidation and other rights on the same
terms and conditions, except that expenses related to distributing each class
are borne solely by that class, and each class has exclusive voting rights
regarding provisions of distribution plan which pertains to that class. The
Funds rely on an order issued by the SEC to issue and sell multiple classes of
shares representing interests in the Funds' portfolios.

The Company 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 are voted by a Fund when the matter affects the specific
interest of that Fund only, such as approval of a Fund's investment management
arrangements. On other matters, the shares of all of the Funds will be voted in
the aggregate on other matters, such as election of the Board of Directors or
ratification of the Board's selection of independent auditors.

A Director may be removed upon a majority vote of the shareholders qualified to
vote in the election. Shareholders holding 10% of the outstanding shares may
call a shareholder meeting. The Bylaws require that the Company assist
shareholders in calling such a meeting.

55
<PAGE>

Pursuant to the Articles of Incorporation, each Fund may issue up to 250
million shares. Each share 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 that Fund, and is
entitled to such dividends and distributions out of the income earned and gains
realized on that Fund's assets 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
Standardized Return computation assumes the reinvestment of all dividends and
capital gain distributions at net asset value.

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.

56
<PAGE>

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.

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, 1996
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.

EFFECT OF BANKING LAWS

The Glass-Steagall Act and other banking laws and regulations (the "Banking
Laws") presently prohibit member banks of the Federal Reserve System or their
non-bank affiliates (the "Member Banks") from sponsoring, organizing,
controlling or distributing shares of registered

57
<PAGE>

open-end investment companies, such as the Funds. Under the Banking Laws,
however, a Member Bank may act as an investment adviser, transfer agent,
administrator or custodian to a registered open-end investment company, and it
also may act as agent in connection with the purchase of shares of such an
investment company upon certain customer orders. John Govett, as an affiliate
of First National Bank of Maryland, whose parent company, First Maryland
Bankcorp, is a wholly-owned subsidiary of AIB, is subject to compliance with
the Banking Laws.

Changes to the Banking Laws or future judicial or administrative decisions
could result in John Govett being prevented from continuing to perform services
required under its investment advisory agreement with the Company or the Sub-
Administration Agreement with the Distributor. If John Govett were prevented
from continuing to provide services called for under either agreement, it is
expected that the Board of Directors would identify, and ask the Funds'
shareholders to approve, a new investment adviser. If this were to occur, the
Board of Directors would seek to take action so that no shareholder of any Fund
would suffer any adverse consequences.

58
<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.

A-1
<PAGE>

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 Standard & Poor's 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.

A-2
<PAGE>

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. John Govett 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-3
<PAGE>

APPENDIX B

ADVISOR AND SHAREHOLDER SERVICES REFERENCE GUIDE

Shareholders are encouraged to place purchase, exchange and redemption orders
through their securities dealers. Shareholders may place orders directly
through the Funds' Transfer Agent. Mail transactions sent by overnight private
mail service should always be sent to the address shown in "Transactions by
Mail." Failure to follow this instruction is likely to result in a delay in
effecting your transaction.

ADVISOR SERVICES

Financial advisors may call (800) 634-6838 to reach the Broker Service Desk.
For additional information about the Funds, Advisors are invited to call (888)
J-GOVETT (888-546-8388).

TRANSACTIONS BY MAIL
For NEW ACCOUNTS, send the completed Account Application with a check to:

The Govett Funds, Inc.
c/o FPS Services, Inc.
P. O. Box 61503
3200 Horizon Drive
King of Prussia, PA 19406

For SUBSEQUENT INVESTMENTS, send a letter stating the Fund's name, the name(s)
of the shareholder(s) in whose name(s) the account is registered, and the
account number, together with a check for each subsequent investment, to:

The Govett Funds, Inc.
c/o FPS Services, Inc.
P. O. Box 412797
Kansas City, MO 64141-2797

B-1
<PAGE>

INVESTMENTS BY BANK WIRE

An investor opening a new account should call (800) 821-0803. 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
stated under "Investments by Mail." Wire instructions must state the Fund's
name, the name(s) of the shareholder(s) in whose name(s) the account is
registered, and the account number. Bank wires should be sent through the
Federal Reserve Wire System to:

United Missouri Bank KC, N.A.

ABA #10-10-00695
For FPS Services, Inc.

Bank Account #9870370719
FBO Govett Fund
Shareholder Name and Account Number

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 the exchange, the name(s) of the
shareholder(s) in whose name(s) the account is registered, and the account
number, to:

The Govett Funds, Inc.
c/o FPS Services, Inc.
P.O. Box 61503
3200 Horizon Drive
King of Prussia, PA 19406

TELEPHONE TRANSACTIONS

If you completed the Telephone Privilege section of the Account Application, to
effect exchanges and redemptions call the Funds at (800) 821-0803.

B-2
<PAGE>

GOVETT FUNDS, INC.
ACCOUNT APPLICATION

WE PLACE GREAT EMPHASIS ON SERVICE. IF YOU HAVE ANY QUESTIONS ABOUT THIS
APPLICATION FORM, PLEASE FEEL FREE TO CALL THE GOVETT FUNDS AT (800) 821-0803.

GENERAL INSTRUCTIONS

. This application may be used for a new 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., C/O FPS SERVICES,
INC., P.O. BOX 61503, 3200 HORIZON DRIVE, KING OF PRUSSIA, PA 19406-0903.

[_] New Account
ACCOUNT REGISTRATION

[_] 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.

- -------------------------------------------------------------------------------

[_] Gift/Transfer To A Minor
_____________________________________________ as Custodian for
Custodian's Name (only one)

-- --

__________________________________________________________

Minor's Name (only one)
Minor's Social Security Number

Under the Uniform Gift/Transfer to Minors Act of ________
Name of State

- -------------------------------------------------------------------------------

[_] 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 ______________________________________________________________

Name of Entity Taxpayer Identification Number

or Other
Organization
ACCOUNT REGISTRATION ADDRESS
_______________________________________________________________________________

Street Address

___________________________________________________________________________

City_____________________State______________________Zip

( )( _________________________________________________________________)

Business Phone NumberHome Phone Number
FUND INVESTMENT
Minimum initial investment is $500 per Fund. Make checks payable to: The
Govett Funds, Inc.
<TABLE>
<S> <C>
Govett International Equity Fund
(102) $ ____________
Govett Emerging Markets Fund (103) $ ____________
Govett Smaller Companies Fund (104) $ ____________
Govett Pacific Strategy Fund (105) $ ____________
</TABLE>
<TABLE>
<S> <C>
Govett Latin America Fund (106) $ ____________
Govett Global Income Fund (101) $ ____________
Cash Account Trust Money Market Fund
(107) $ ____________
Total Amount Invested $ ____________
</TABLE>

If this application relates to a broker/dealer or wire order purchase,
please provide date and confirmation number: ___________________________

DIVIDENDS/CAPITAL GAINS
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 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.

THIRD PARTY ADDRESS
I would like [_] duplicate confirmation statements [_] cash
dividends/distributions and/or [_] systematic withdrawals* to be mailed to
the following third party:
________________________________
___________________________________________ ( )
Name
Phone Number
_____________________________________________________________________________
(If no third party is specified above, cash dividends/distributions will be
mailed to the Account Registration Address.)

*Please complete Section E, Systematic Withdrawal Plan, in addition to
completing address above.

ACCOUNT CONVENIENCE OPTIONS

Unless waived by the shareholder below, the shareholder hereby
authorizes FPS Services, Inc. to accept and act upon telephone
instructions regarding shareholder's Fund account(s). By my
signature herein, I certify that I have read and understand the
conditions of the Telephone Privilege set forth in the Telephone
Transactions section of this Prospectus.
A.Telephone Privilege Waiver

[_]No, I do not want to execute exchange and redemption
transactions by telephone.

- -------------------------------------------------------------------------------

B.Automatic Exchange Plan
You may start an Automatic Exchange Plan and direct any Fund to
transfer a specified amount ($25 minimum) to another Fund on a
monthly or quarterly basis.

[_]Please establish an Exchange Plan under which I will transfer
$ monthly.
($25 minimum)
to ______________________________________________________________
Name of Fund

I would like transfers to begin _________________________________

Month/Year
<PAGE>

- -------------------------------------------------------------------------------

[_]I agree to the terms of the Letter of Intent set forth in the
Prospectus. Although I am not obliged to do so, it is my
intention to invest over a 13-month period, in shares of one or
more of Govett Funds, an aggregate at least equal to:
C.Letter of Intent

[_] $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.)

- -------------------------------------------------------------------------------

[_]I currently have investment(s) in Govett Funds which may
qualify me for a reduced sales charge on my purchase of Class A
shares. My account numbers are:

D. Rights ofAccumulation

Fund NameAccount Number$ Amount

- -------------------------------------------------------------------------------

You may start a Systematic Withdrawal Plan and direct the Fund
to send a specified amount ($25 minimum) to your Account
Registration Address or to a specified third party on a monthly,
quarterly, semiannual or annual basis. Please refer to the
Prospectus for complete details.
E.Systematic Withdrawal Plan

[_] 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 25th 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.

- -------------------------------------------------------------------------------

[_]I have read the terms and conditions of the Automatic
Investment Plan set forth in the Prospectus. I wish to invest
on a monthly basis, directly from my checking account, into
the following Fund(s). Please complete Section G, and ATTACH A
VOIDED CHECK.
F.Automatic Investment Plan

Please designate the amount you would like invested. (Minimum
$25 per Fund) To begin / 10th, 15th, or 20th/
MonthDayYear
<TABLE>
<S> <C> <C> <C>
International Equity Fund $ Latin America Fund $
Emerging Markets Fund $ Global Income Fund $
Smaller Companies Fund $ Money Market Fund $
Pacific Strategy Fund $
</TABLE>

- -------------------------------------------------------------------------------

G.Bank/ Complete this portion if you are participating in the Automatic
Wiring Investment Plan, or would like dividends/capital gains
distributions, telephone redemptions or systematic withdrawals
to be automatically deposited to your bank. YOU MUST ATTACH A
VOIDED CHECK TO PARTICIPATE. CHECK THOSE THAT APPLY:
Information ATTACHVOIDEDCHECKHERE

[_] Automatic Investment Plan [_] Checking [_] Savings
[_] Systematic Withdrawal Plan [_] Telephone Redemptions
[_] Dividends/Capital Gains Distributions

_________________________________________________________________
Name of Shareholder's Bank
Name on Bank
Account

_________________________________________________________________
Account Number
Authorized Signature (as
shown on bank records)

BROKER/DEALER INFORMATION (To be completed by your representative, if
applicable)
We hereby submit this application for the purchase of shares in accordance
with the terms of our Selling Agreement with FPS Broker Services, Inc. and
with the Prospectus and Statement of Additional Information. We agree to
notify FPS of any purchases made under a Letter of Intent or Right of
Accumulation.

_____________________ _________________ _____________________________
Firm Name Branch Office # Rep/Advisor Name and Number_

______________________________________________________________________________
Street Address City State Zip

( ) _________________________________ ( )_________________________________
Telephone Number Fax Number

TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
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:
.

SIGNATURE
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. THE INTERNAL REVENUE SERVICE DOES NOT
REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACK UP WITHHOLDING.

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 Date
<PAGE>

THE GOVETT FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1997
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 plc ("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) 821-0803 or by writing to:

The Govett Funds, Inc.
c/o FPS Services, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903

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

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 ...................................................... 25

DESCRIPTION OF THE FUNDS .................................................. 26

ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION ................. 27

ADDITIONAL DISTRIBUTION AND TAXATION INFORMATION .......................... 31

THE FUNDS' DISTRIBUTOR .................................................... 33

PERFORMANCE ............................................................... 35

FINANCIAL STATEMENTS ...................................................... 38

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

"FPS" or the "Distributor"
FPS Broker Services, Inc.

"AIB Group"
Allied Irish Banks plc and its subsidiaries

"Custodians"
The Chase Manhattan Bank
Hong Kong and Shanghai Banking Corporation (Taiwan only)

"Transfer Agent"
FPS 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:

1. 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.

2. 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.

3. Purchase securities of another investment company, except as permitted by the
1940 Act and other applicable laws.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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

John Govett 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 John Govett 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, John Govett may
employ a temporary defensive investment strategy for one or more of the Funds if
John Govett determines such a strategy to be warranted. It is impossible to
predict when or for how long John Govett 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 Corporation ("Standard &
Poors") or Aa by Moody's Investor Services, Inc. ("Moody's"), or if unrated,
determined to be of comparable quality by John Govett. 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 ("SEC"). Copies of such information may be
obtained from the SEC 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

6
<PAGE>

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 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 EMERGING MARKETS CONSIDERATIONS

As stated in the Prospectus, investing in emerging markets countries presents
special risks that do not affect investments in the U.S. or in mature economies
of developed markets, for example Western Europe. This section briefly outlines
some of the risk factors that pertain particularly to some of the major
developing market regions.

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.

7
<PAGE>

In the PACIFIC RIM, it is unknown how the Hong Kong economy will be affected the
return of political control to China, although a period of uncertainty is not
unlikely, nor is it known how this change will affect other Pacific Rim
economies.

AFRICAN political and economic development has been tumultuous. Certain
countries, such as South Africa and Zimbabwe, have economic sectors, such as
mining and banking, that are sufficiently mature to permit direct investment. In
other countries, such as Kenya and Ghana, investment risks posed by political
uncertainty outweigh the potential opportunities presented by the more developed
sectors.
Similarly, the Middle Eastern economies remain volatile.

In the former Communist bloc countries of RUSSIA, CENTRAL and EASTERN EUROPE the
political democratization that began in 1989 has led to radical economic
reforms. While these reforms released vigorous competitive forces, the roots of
market economic behavior are not equally well-established in each country, and
continued economic growth in these countries depends in part on their
integration into the community of developed nations. Investing in these
countries involves the risk that securities may be relatively illiquid and may
trade only on regional stock exchanges. In addition, the lack of effective
environmental controls in heavy industry in this region led to serious,
widespread pollution of the air and of ground and water resources. The
legislative framework for liability for this pollution has not been established,
and such liability could ultimately have a significant adverse effect on a
company's performance. Diverse criminal groups in certain of these countries
often succeed in extorting protection money from businesses. Commercial
activities are often impossible without bribing government executives, and a
company's management may be bribed or otherwise pressured into defrauding their
company.

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 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, multilaterial 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, Global Income
Fund may invest up to 25% of its total assets in debt securities of below
investment grade quality, and 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

8
<PAGE>

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 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 of their equivalents purchased by 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.
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 no 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. 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 markets countries. Brady Bonds may
be rated below investment grade. As of the Date of this Statement of Additional
Information, John Govett 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. U.S. bond markets.

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 discounts 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. 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.

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The mortgage securities in which 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., 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 Global Income Fund
will be investment grade at time of purchase, or if unrated, determined to be of
comparable quality by John Govett. 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. 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

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<PAGE>

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
John Govett 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 John Govett
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 John Govett 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 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 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

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<PAGE>

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 John Govett 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 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.

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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 Commodity Futures Trading Commission ("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 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 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

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<PAGE>

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.

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,

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<PAGE>

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.

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 "IRS 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

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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 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 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 IRS 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 amount paid for the security. The Manager 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, 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

16
<PAGE>

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 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. 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 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.

17
<PAGE>

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. 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 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 L. 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 1972 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 78.

PATRICK CUNNEEN (c/o Allied Irish Bank IM, AIB Investment House, Percy Place,
Dublin, Ireland 4) graduated from University College, Dublin with a Bachelor of
Commerce degree in 1967. He joined Allied Irish Bank Investment Managers Limited
("AIBIM") as Managing Director in 1991 and currently holds the office of Vice
Chairman of AIB Asset Management Holdings (UK). AIBIM is a subsidiary of Allied
Irish Banks plc, the majority owner of John Govett. Prior to joining AIBIM, Mr.
Cunneen was Managing Director of New Ireland Assurance Company Limited, where he
had been since 1972. He has been a member of the Society of Investment Analyst
since 1974, and is a former Chairman of the Irish Association of Investment
Managers. He is 51.

18
<PAGE>

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 62.

JAMES M. OATES (c/o IBEX Capital Management, 60 State Street, Suite 950, Boston,
MA 02109) is currently Managing Director of The Wydown Group and Chairman of
IBEX Capital Markets, LLC. His present Board affiliations include: Blue Cross
and Blue Shield of New Hampshire, Director; Phoenix Mutual Funds, Director,
Member of the Audit Committee; Phoenix Duff & Phelps,, Director, Chairman of the
Compensation Committee; Govett Worldwide Opportunity Funds, Director, Member of
the Audit Committee; Investors Bank & Trust, Director, Member of Executive
Committee, Chairman of the Compensation Committee; Investor Financial Services
Corp., Director; Member of the Executive Committee, Chairman of the Compensation
Committee, and Member of the Nominating Committee; Plymouth Rubber Company,
Director; Stifel Financial, Director, and Member of Compensation, Audit and
Finance Committees; Emerson Investment Management, Inc., Director and Member of
the Executive Committee; Massachusetts Housing Partnership, Director;
Massachusetts General Hospital, Member of the Corporation; Middlesex School
(Concord, MA), President of the Board of Trustees; Chief Executive Organization,
Member. He is 49.

FRANK R. TERZOLO (C.R.T. Strategies, 3420 East Shea Boulevard, Suite 200,
Phoenix, AZ 85028) is presently President and Chief Executive Office of C.R.T.
Strategies, a company that designs and implements charitable remainder trusts.
From 1989 to 1996 he was President and Chief Executive Officer of Ameritrust
Network, Inc., which also designed and implemented 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 Company, a financial services company. He is 63.

OFFICERS

BRIAN M. LEE, (c/o John Govett & Co. Limited, Shackleton House, 4 Battle Bridge
Lane, London SE1 2HR, England) 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 in the U.S. to as Chief Financial Officer of an insurance
company affiliate of John Govett. Currently, as Managing Director, Operations,
he is responsible for the financial control, compliance and administrative
functions. He is 38.

COLIN KREIDEWOLF, (c/o John Govett & Co. Limited, Shackleton House, 4 Battle
Bridge Lane, London SE1 2HR, England) Vice President and Treasurer of the
Company, joined John Govett & Co. Limited 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 management of U.K. and U.S. retail funds
reporting functions at John Govett. He is 37.

ALICE L. SCHULMAN, (c/o John Govett & Co. Limited, 250 Montgomery Street, Suite
1200, San Francisco, CA 94104) is Vice President and Secretary of the Company,
and Vice President/Administration of John Govett & Co. Limited. From 1993 until
she joined Berkeley Capital Management in 1994, Ms. Schulman was the 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 and administration functions at McKesson
Corporation and Kaiser Aluminum Corporation. She is 47.

ANDREW BARNETT, (c/o John Govett & Co. Limited, Shackleton House, 4 Battle
Bridge Lane, London SE1 2HR, England)Vice President of the Company, joined John
Govett in 1987. Mr. Barnett graduated from Manchester University in 1970 with a
BA (Hons) in History, Economics and Politics. In 1974 he became a member of the

19
<PAGE>

Institute of Chartered Accountants in England and Wales. Mr. Barnett was
appointed Operations Director in 1991. He is 48.

PETER J. MOFFATT, (c/o John Govett & Co. Limited, Shackleton House, 4 Battle
Bridge Lane, London SE1 2HR, England)Vice President of the Company, is Director
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 JP
Morgan before joining John Govett in 1990. He is 50.

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.

Directors not affiliated with the Manager are paid fees of $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. Each member of
the Committee on Administration, which is comprised of all of the independent
directors, is compensated 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 31,
1997 affiliates of the Funds held less than 1% of the total outstanding shares
of each 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.

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 1996. 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 1996.

20
<PAGE>

<TABLE>
<CAPTION>
- -------------- -------------- -------------- --------------- -------------- -------------- --------------- ----------------
Aggregate Aggregate Aggregate Aggregate Aggregate Aggregate Total
Compensation Compensation Compensation Compensation Compensation Compensation Compensation
from from from from from from From
International Emerging Smaller Pacific Latin Global Funds*
Equity Markets Companies Strategy America Income
Name, Age, Fund Fund Fund Fund Fund Fund
Position
- -------------- -------------- -------------- --------------- -------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Elliott L. Atamian $3,929.63 $4,533.84 $8,215.04 $3,687.40 $3,708.08 $3,926.01 $28,000.00
Age 77
Director
- -------------- -------------- -------------- --------------- -------------- -------------- --------------- ----------------
Patrick K.Cunneen N/A N/A N/A N/A N/A N/A N/A
Age 51
Chairman and
Director
- -------------- -------------- -------------- --------------- -------------- -------------- --------------- ----------------
Sir Victor Garland $3,792.44 $4,372.46 $7,906.45 $3,559.94 $3,579.77 $3,788.94 $27,000.00
Age 61
Director
- -------------- -------------- -------------- --------------- -------------- -------------- --------------- ----------------
James M. Oates $3,792.44 $4,372.46 $7,906.45 $3,559.94 $3,579.77 $3,788.94 $27,000.00
Age 49
Director
- -------------- -------------- -------------- --------------- -------------- -------------- --------------- ----------------
Frank R. Terzolo $3,792.44 $4,372.46 $7,906.45 $3,559.94 $3,579.77 $3,788.94 $27,000.00
Age 63
Director
- -------------- -------------- -------------- --------------- -------------- -------------- --------------- ----------------
</TABLE>

* based on fiscal year ending December 31, 1996

21
<PAGE>

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 plc, 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.

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.

Transfer Agent
- --------------

FPS Services, Inc. ("FPS" or the "Transfer 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 Transfer Agent is an
affiliate of the Distributor.

Fund Administrator and Accountant
- ---------------------------------

Chase Global Funds Services Company, Inc., 73 Tremont Street, Boston, MA 02108
(the "Fund Administrator and Accountant") provides the Company with certain
administration and accounting services.

Custodians
- ----------

22
<PAGE>

The Chase Manhattan Bank, 4 MetroTech Center, Brooklyn, NY 11245 (the
"Custodian") is the Funds' global custodian. Hong Kong and Shanghai Banking
Corporation, Taipei, Taiwan, provides custody for the Funds' assets held in
Taiwan.

The Custodian and the Fund Administrator and Accountant do not participate in
decisions relating to the purchase and sale of portfolio securities. These
entities 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 Custodian also acts as custodian 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 Custodian charges custody fees
which are believed to be competitive within the industry.

Independent Accountant
- ----------------------

Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110, acts as
the Funds' independent accountants.

Fund Counsel
- ------------

Goodwin, Procter & Hoar LLP, One Exchange Place, Boston, MA 02109-2881, serves
as Fund counsel. The validity of the shares of the Funds offered pursuant to
this Prospectus and Statement of Additional Information will be passed upon by
Goodwin, Procter & Hoar LLP.

23
<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 as of March 31,
1997:
<TABLE>
<CAPTION>

- --------------------------------------- -------------------------------------- --------------------------------------
Name and Address Fund Percentage of Outstanding Shares
of Shareholder as of March 31,1997
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
USNB of Oregon Cust. International Equity Fund 13%
FBO M.J. Murdock Charitable Trust
Attn: Mutual Funds
P. O. Box 3168
Portland, OR 97208-3168
- --------------------------------------- -------------------------------------- --------------------------------------

Charles Schwab & Co., Inc. Emerging Markets Fund 7.0%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------- -------------------------------------- --------------------------------------
Charles Schwab & Co., Inc. Latin America Fund 18%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------- -------------------------------------- --------------------------------------
St. Elizabeth Hospital Global Income Fund 7%
1501 Hartford
P. O. Box 7501
Lafayette, IN 47904-2126
- --------------------------------------- -------------------------------------- --------------------------------------
</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 Transfer 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

24
<PAGE>

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, 1995, and 1996 the
Manager was entitled to receive management fees as follows:
<TABLE>
<CAPTION>
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
FUND 1993 1994 1995 1996
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
International Equity $297,543 $ 365,679 $ 302,657 238,566
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
Emerging Markets $367,125 $ 837,173 $ 745,285 652,671
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
Smaller Companies $159,139 $ 417,857 $3,173,782 3,144,746
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
Pacific Strategy n/a $ 208,445 $ 118,565 62,037
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
Latin America n/a $ 73,186 $ 47,489 56,499
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
Global Income $630,526 $ 546,289 $ 338,596 180,905
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
</TABLE>

Of these fees, the Manager waived the following amounts:
<TABLE>
<CAPTION>
- -------------------------------------- ---------------- ----------------- ---------------- -----------------
FUND 1993 1994 1995 1996
- -------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
International Equity $44,847 $ 86,528 $76,145 174,141
- -------------------------------------- ---------------- ----------------- ---------------- -----------------
Emerging Markets $6,939 $121,674 $207,496 137,788
- -------------------------------------- ---------------- ----------------- ---------------- -----------------
Smaller Companies $ 77,394 $190,035 $559,632 1,022,796
- -------------------------------------- ---------------- ----------------- ---------------- -----------------
Pacific Strategy n/a $ 32,472 $133,040 316,924
- -------------------------------------- ---------------- ----------------- ---------------- -----------------
Latin America n/a $ 61,909 $150,934 262,753
- -------------------------------------- ---------------- ----------------- ---------------- -----------------
Global Income -0- $148,986 $80,573 218,527
- -------------------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>

The Investment Management Contract remains in effect 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.

As required by the 1940 Act, as amended, the Investment Management Agreement in
effect prior to the sale of John Govett to AIB terminated automatically when the
sale closed, as the sale constituted an "assignment" under the 1940 Act. John
Govett agreed that it would not 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 it's parent company, also
agreed with the Company that each will be responsible to the Company for any
failure during the interim period to provide services or to honor all of the
terms and conditions of the current agreement.

An Investment Subadvisory Agreement between John Govett and Berkeley Capital
Management with respect to investment advice provided to the Smaller Companies
Fund terminated on March 9, 1997, pursuant to a vote of the Board of Directors.
John Govett assumed full day-to-day responsibility for the management of this
Fund effective January 9, 1997. Termination of that agreement did not affect the
expenses of Smaller Companies Fund.

25
<PAGE>

Under arrangements with Van Kampen American Capital, the prior Distributor, the
Manager, the distributor, and certain of the distributor's affiliates shared
management fees, distribution and service fees, excess Fund expenses, and sales
charges related to the sale of Fund shares.

BROKERAGE ALLOCATION

Under the Funds' Investment Management Contract, the selection of securities
dealers to execute transactions in the portfolios of the Funds is made by the
Manager in accordance with criteria set forth in the Prospectus, the Investment
Management Contract, and policies adopted by the Funds' Board of Directors. The
following procedures followed by the Manager for the International Equity Fund,
Emerging Markets Fund, Smaller Companies Fund, Pacific Strategy Fund, Latin
America Fund, and Global Income 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.

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

26
<PAGE>

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, 1995 and 1996
were:
<TABLE>
<CAPTION>
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
FUND 1993 1994 1995 1996
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
International Equity $ 436,772 $ 518,373 $ 203,906 $ 161,651
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
Emerging Markets $ 722,702 $1,145,847 $ 763,407 $ 939,277
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
Smaller Companies $ 69,494 $ 383,985 $ 1,098,810 $1,166,106
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
Pacific Strategy n/a $ 541,681 $ 202,580 $ 214,836
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
Latin America n/a $ 139,205 $ 53,126 $ 77,244
- ------------------------------------- ----------------- ----------------- ---------------- -----------------
Global Income $ 26,486 $ 429 n/a 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.

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.

27
<PAGE>

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

Please see the section in the Prospectus entitled "About Your Account" for
general information and explanations about how to purchase, redeem and exchange
shares of the Funds, including information about sales charges and special
shareholder services such the telephone privilege, systematic withdrawal plans,
and automatic investment plans. The information included in this Statement of
Additional information supplements the information included in the Prospectus.

Multiple Classes of Shares

Each Fund has designated three classes of shares. At present, Class B and Class
C shares are not available for purchase by the general public.

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.
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.

Waiver of CDSCs. CDSCs may be waived under the following circumstances:

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 IRS 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 IRS 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.

28
<PAGE>

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
determination of disability. This waiver of the CDSC applies to a total
or partial redemption.

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 IRS Code; custodial accounts maintained pursuant to Section
403(b)(7) of the IRS Code, and pension or profit sharing plans
qualified under Section 401(a) of the IRS 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 IRS Code, the
return of excess deferral amounts pursuant to IRS Code Section
401(k)(8) or 402(g)(2), or from the death or disability of the employee
(see IRS 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 IRS 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.

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 Semper Trust
Company for repayment of principal (and interest) on their borrowings
on such plans.

REDEMPTION BY MANAGER. The Funds may waive CDSCs when a total or
partial redemption is made by the Manager with respect to its
investments in a Fund.

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.

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.

29
<PAGE>

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
Transfer 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
Transfer Agent within 20 days after written request, the appropriate number of
escrowed shares will be redeemed by the Transfer Agent.

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
IRS Code of 1986, as amended. IRA applications are available from securities
dealers who sell Fund shares or from the Transfer 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 Transfer 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 Transfer 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 best to reflect a fair value. Foreign securities quoted in foreign
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 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. 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 best to reflect a
fair value. In instances where the price of a security determined above is
deemed by the Manager not to be representative, the security is valued in such a

30
<PAGE>

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 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 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.

RESTRICTIONS ON TIMED EXCHANGES

With regard to accounts that are administered by market timing services ("Timing
Firms") to purchase or redeem shares based on changing economic and market
conditions ("Timing Accounts"), the Funds reserve the right to refuse any new
timing arrangements, as well as any new purchases (as opposed to exchanges) of
Fund shares from Timing Firms. The Funds also reserve the right to temporarily
or permanently terminate the exchange privilege or to reject any specific
purchase order for any person whose transactions seem to follow a timing pattern
who (i) makes an exchange request

31
<PAGE>

out of a Fund within two weeks of an earlier exchange request out of such fund,
or (ii) makes ore than two exchanges out of a Fund per calendar quarter, or
(iii) exchanges shares equal in value to at least $5 million, or more than 1/4
of 1% of a Fund's net assets. Accounts under common ownership or control,
including accounts administered so as to redeem or purchase shares based upon
certain predetermined market indicators, will be aggregated for purposes of the
exchange limits.

Each Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person or group if, in the Manager's judgment, a
Fund would be unable to invest effectively in accordance with its investment
object and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if a Fund receives
or anticipates simultaneous orders affecting significant portions of the Fund's
assets. In particular, a pattern of exchanges that coincide with a "market
timing" strategy may be disruptive to a Fund and therefore may be refused.

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.
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
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 (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

32
<PAGE>

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 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 IRS 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.

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 IRS 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

33
<PAGE>

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. Goodwin
Procter & Hoar LLP have expressed no opinion in respect thereof.

THE FUNDS' DISTRIBUTOR

UNDERWRITING AGREEMENT / 12B-1 DISTRIBUTION PLANS

Pursuant to an Underwriting Agreement that is subject to annual renewal,
effective April 1, 1997, FPS Broker Services, Inc. (the "Distributor") acts as
statutory 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. Capital Distributors, Inc. was the Funds'
distributor.

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 continues 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 and the previous underwriting agreements
between the Funds and former distributors, the Distributor is, and former
distributors have been, 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") a former distributor of Fund
shares, 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 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 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 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. During the fiscal year ended
December 31, 1996, the Distributor received sales charges of $494,920.00 after
reallowances of front-end sales charges to dealers of $3,891,506.00 for Class A
shares of International Equity Fund, Emerging Markets Fund, Smaller Companies
Fund, Pacific Strategy Fund, Latin America Fund, and Global Income Fund.

34
<PAGE>

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
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 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, Global Income Fund, Pacific Strategy Fund
(from inception), and 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,
Van Kampen American Capital was entitled to receive distribution fees from
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Fund, Latin America Fund and 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, Van Kampen American Capital was entitled to receive
distribution fees from International Equity Fund, Emerging Markets Fund, Smaller
Companies Fund, Pacific Strategy Fund, Latin America Fund and 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. During the period from
January 1, 1996 through December 31, 1996, Van Kampen American Capital was
entitled to receive distribution fees from International Equity Fund, Emerging
Markets Fund, Smaller Companies Fund, Pacific Strategy Fund, Latin America Fund
and Global Income Fund with respect to their Class A shares in the amounts of
$140,462, $392,612, $1,889,748,$40,672, $33,405 and $105,247, respectively.

The Plans are deemed by the Staff of 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, securities dealers and other industry professionals (collectively,
"Service Organizations") for providing services on behalf 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.

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<PAGE>

As required by Rule 12b-1 under the 1940 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 1940 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.

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 generally prohibits banks and their affiliates 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, applicable
precedents do 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

36
<PAGE>

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 Pacific Latin Global
Equity Markets Companies Strategy America Income
Fund Fund Fund Fund Fund Fund
- ----------------- --------------- ---------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1/1/96 - 12/31/96 6.49% 6.53% -15.28% 3.91% 17.96% -4.63%

- ----------------- ---------------- --------------- ---------------- ---------------- --------------- ----------------
1/1/95 - 12/31/95 5.51% -12.46% 60.73% -7.78% -22.41% 8.48%

- ----------------- ---------------- --------------- ---------------- ---------------- --------------- ----------------
3/7/94 - 12/31/94 n/a n/a n/a -16.44% -21.04% n/a

- ----------------- ---------------- --------------- ---------------- ---------------- --------------- ----------------
1/1/94 - 12/31/94 -12.98% -16.97% 22.31% n/a n/a -13.66%

- ----------------- ---------------- --------------- ---------------- ---------------- --------------- ----------------
1/1/93 - 12/31/93 46.85% 70.83% 50.65% n/a n/a 11.79%

- ----------------- ---------------- --------------- ---------------- ---------------- --------------- ----------------
1/7/92 - 12/31/92 18.10% 35.72% n/a n/a n/a 10.47%

- ----------------- ---------------- --------------- ---------------- ---------------- --------------- ----------------
</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 Global Income Fund for the one month period
ended December 31, 1996 was 4.30%.

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

37
<PAGE>

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 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).

(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.

38
<PAGE>

(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.

(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) MSCI Pacific Index (which includes Japan).

(19) 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, 1996 for the
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Fund, Latin America Fund, and Global Income Fund are included
in those Funds' Annual Report to Shareholders dated December 31, 1996. 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 the Funds c/o FPS Services, Inc., 3200
Horizon Drive, King of Prussia, PA 19406, to obtain a free copy.