<PAGE>
FILE NOS.: 33-37783
811-6229
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 17 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
AMENDMENT NO. 20 [X]
THE GOVETT FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
250 MONTGOMERY STREET, SUITE 1200
SAN FRANCISCO, CA 94104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(888) 546-8838
(REGISTRANT'S TELEPHONE NUMBER)
ALICE L. SCHULMAN
JOHN GOVETT & CO. LIMITED
250 MONTGOMERY STREET, SUITE 1200
SAN FRANCISCO, CA 94104
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
REGINA M. PISA
GOODWIN, PROCTER & HOAR LLP
ONE EXCHANGE PLACE
BOSTON, MA 02109-2881
ATTORNEYS
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as is practicable after the effective date of the Registration
Statement.
It is proposed that this filing will become effective:
[_] immediately upon filing pursuant to paragraph (b)
[_] on pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[X] on May 1, 1997 pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)
[_] on pursuant to paragraph (a)(2) of rule 485
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2(a) under the Investment Company Act of 1940, the
Registrant hereby declares that an indefinite number of its shares are being
registered under the Securities Act of 1933. A Rule 24f-2 notice for the
fiscal year ended December 31, 1996 has been filed on or before February 28,
1997.
----------------
This Registration Statement shall hereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
THE GOVETT FUNDS, INC.
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(a))
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------- -------------------------------------
PART A
<C> <C> <S>
1. Cover Page.......................... Cover Page
2. Summary of Investor Costs; Condensed Expenses; Per Share Table; Financial
Financial Information............... Highlights
3. General Description of Registrant... Multiple Classes of Shares; An
Overview of the Funds; Investment
Techniques and Policies; Investment
Risks; Other Information
4. Management of the Fund.............. Management of the Funds
5. Capital Stock and Other Securities.. Multiple Classes of Shares; How the
Funds Value Their Shares; Other
Information
6. Purchase of Securities Being
Offered............................. Multiple Classes of Shares; How to
Buy Shares; How to Make Exchanges;
Other Information
7. Redemption or Repurchase............ Multiple Classes of Shares; How to
Redeem Shares
8. Pending Legal Proceedings........... Not Applicable
PART B
9. Cover Page.......................... Cover Page
10. Table of Contents................... Contents
11. General Information & History....... About the Funds
12. Investment Objectives & Policies.... Investment Objectives and Policies;
Other Policies; Description of
Securities, Investment Policies, and
Risk Factors
13. Management of the Registrant........ Directors and Officers; Management of
the Funds
14. Control Persons & Other Services.... Directors and Officers; Management of
the Funds
15. Investment Advisory & Other
Services............................ Management of the Funds; Brokerage
Allocation
16. Brokerage Allocation................ Brokerage Allocation
17. Capital Stock & Other Securities.... Description of the Funds; Additional
Purchase, Exchange, and Redemption
Information
18. Purchase, Redemption & Pricing of
Securities Being Offered............ Additional Purchase, Exchange, and
Redemption Information
19. Tax Status.......................... Additional Distribution and Taxation
Information
20. Underwriters........................ The Funds' Distributor
21. Calculation of Performance Data..... Performance
22. Financial Statements................ Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE>
[LOGO] THE GOVETT FUNDS, INC.
Prospectus dated May 2, 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 "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 is a diversified fund which seeks long-term
capital appreciation by investing primarily in equity securities of
companies located throughout the world.
. GOVETT EMERGING MARKETS FUND is a diversified fund which seeks long-term
capital appreciation by investing primarily in equity securities of issuers
located in emerging markets.
. GOVETT SMALLER COMPANIES FUND is a diversified fund which seeks long-term
capital appreciation by investing primarily in equity securities of smaller
companies.
. GOVETT PACIFIC STRATEGY FUND is a diversified fund which seeks long-term
capital appreciation by investing primarily in equity securities of
companies located in the Pacific Rim.
. GOVETT LATIN AMERICA FUND is a non-diversified fund which seeks long-term
capital appreciation by investing primarily in equity and debt securities of
issuers located in Latin America.
. GOVETT GLOBAL INCOME FUND is a non-diversified fund which 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. You should carefully review the risks associated with
investing in a Fund.
Investors may buy shares of Govett 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 is designed to provide 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, call 1-800-821-0803, or write to the Transfer
Agent 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 COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE 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................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 8
MULTIPLE CLASSES OF SHARES ................................................. 12
AN OVERVIEW OF THE FUNDS.................................................... 14
INVESTMENT TECHNIQUES AND POLICIES ......................................... 17
INVESTMENT RISKS............................................................ 20
MANAGEMENT OF THE FUNDS..................................................... 22
ABOUT YOUR ACCOUNT
HOW TO BUY SHARES........................................................... 27
HOW TO MAKE EXCHANGES....................................................... 33
HOW TO REDEEM SHARES........................................................ 34
TELEPHONE TRANSACTIONS...................................................... 36
DIVIDENDS, CAPITAL GAINS AND TAXES.......................................... 37
OTHER INFORMATION........................................................... 39
APPENDIX A: DESCRIPTION OF DEBT RATINGS..................................... A-1
APPENDIX B: QUICK REFERENCE GUIDE........................................... B-1
APPLICATION FORM
</TABLE>
2
<PAGE>
(This page has been left blank intentionally.)
3
<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/ 4.00% 1.00% None/1/ 4.00% 1.00% None/1/ 4.00% 1.00%
Redemption Fees.............. None None None None None None None None None
Exchange Fees/2/............. None None None None None None None None None
ANNUAL OPERATING EXPENSES:
(as a percentage of
average net assets)
Management Fee............... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Distribution
and Service Fees............ 0.50% 1.00% 1.00% 0.50% 1.00% 1.00% 0.50% 1.00% 1.00%
Other Expenses (after
reduction of expenses)....... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.45% 0.45% 0.45%
Total Fund Operating Expenses
(after fee waiver and
reduction of expenses)/3/...... 2.50% 3.00% 3.00% 2.50% 3.00% 3.00% 1.95% 2.45% 2.45%
</TABLE>
The Manager has agreed to reduce its management fees, and the Manager has
agreed to pay certain Fund operating expenses, through at least December 31,
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.
- -------
1 Purchases of Class A Shares in the amount of $1 million or more are not
subject to a front-end sales charge, but redemptions of such amounts within one
year of purchase may be subject to a CDSC. See "How to Redeem Shares--CDSCs"
for an explanation of this charge.
2 Investors may make up to four exchanges per year without charge; for each
exchange in excess of four, a $7.50 processing charge will be payable to the
Shareholder Services Agent.
3 The percentages in "Other Expenses" for the Class A shares of the
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Fund, Latin America Fund, and Global Income Fund are based on
expenses incurred by those Funds during the fiscal year ended December 31, 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>
<TABLE>
<CAPTION>
PACIFIC STRATEGY FUND* LATIN AMERICA FUND* GLOBAL INCOME FUND*
---------------------------------- -------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
-------- ------------ ----------- ------- ------------ ----------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4.95% None None 4.95% None None 4.95% None None
None None None None None None None None None
None/1/ 4.00% 1.00% None/1/ 4.00% 1.00% None/1/ 4.00% 1.00%
None None None None None None None None None
None None None None None None None None None
1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.75% 0.75% 0.75%
0.50% 1.00% 1.00% 0.50% 1.00% 1.00% 0.35% 1.00% 1.00%
1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.65% 0.65% 0.65%
2.50% 3.00% 3.00% 2.50% 3.00% 3.00% 1.75% 2.40% 2.40%
</TABLE>
5
<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/4/ and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
GOVETT INTERNATIONAL GOVETT EMERGING GOVETT SMALLER
EQUITY FUND MARKETS FUND COMPANIES FUND
----------------------- ----------------------- -----------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year.................. $ 74 $ 70 $ 40 $ 74 $ 70 $ 40 $ 68 $ 65 $ 35
3 years................. 123 123 93 123 123 93 108 106 76
5 years................. 176 178 158 176 178 158 150 151 131
10 years/5/............. 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/5/............. 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/5/............. 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/5/............. 319 314 332 319 314 332 246 249 274
</TABLE>
- --------
4 The 5% annual return assumption in this example is required by SEC
regulations applicable to all mutual funds; it does not represent a projection
of the Funds' actual performance. For a detailed discussion of these matters,
investors should refer to the relevant sections of this Prospectus.
5 Ten-year figures assume conversion of Class B shares to Class A shares at
the beginning of the eighth year following date of purchase.
The above tables are not intended to reflect precisely the fees and expenses
associated with a particular person's investment in Class A, Class B and Class
C shares of the Funds. THE TABLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE FUND EXPENSES, AND ACTUAL FUND EXPENSES MAY BE GREATER OR LESSER
THAN THOSE SHOWN IN THE TABLES. Rather, the tables have been provided only to
assist investors in understanding the various costs and expenses that a
shareholder will bear, directly or indirectly, in connection with an investment
in the Funds.
6
<PAGE>
(This page has been left blank intentionally.)
7
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides condensed information concerning income and capital
changes for one Class A share of the International Equity Fund, the Emerging
Markets Fund, the Smaller Companies Fund, the Pacific Strategy Fund, the Latin
America Fund, and the Global Income Fund for the periods shown. This
information has been audited by Price Waterhouse LLP, the Funds' independent
accountants, whose unqualified report thereon appears in the Annual 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.
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 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
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993 1992(a)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 12.24 $ 13.29 $ 17.70 $ 10.72 $10.00
------- ------- ------- ------- ------
(0.13)+ (0.06)+ (0.11)+ (0.05) (0.03)
1.61 (0.98) (1.93) 8.36 0.75
------- ------- ------- ------- ------
1.48 (1.04) (2.04) 8.31 0.72
------- ------- ------- ------- ------
-- -- -- -- --
(0.06) -- -- -- --
-- (0.01) (2.33) (1.33) --
-- -- (0.04) -- --
------- ------- ------- ------- ------
(0.06) (0.01) (2.37) (1.33) --
------- ------- ------- ------- ------
$ 13.66 $ 12.24 $ 13.29 $ 17.70 $10.72
======= ======= ======= ======= ======
12.08 % (7.92)% (12.65)% 79.73 % 7.20 %
$56,814 $75,887 $76,812 $71,422 $5,625
2.38 % 2.50 % 2.50 % 2.50 % 2.50 %*
(0.62)% (0.49)% (0.77)% (0.88)% (0.49)%*
122 % 115 % 140 % 143 % 182 %
$0.0011 N/A N/A N/A N/A
2.62 % 2.78 % 2.65 % 2.52 % 7.52 %*
<CAPTION>
SMALLER COMPANIES FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993(b)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
$ 29.96 $ 19.06 $ 15.85 $ 10.00
------------ ------------ ------------ ------------
(0.44)+ (0.30)+ (0.10)+ (0.06)
(2.84) 13.32 4.47 5.91
------------ ------------ ------------ ------------
(3.28) 13.02 4.37 5.85
------------ ------------ ------------ ------------
-- -- -- --
-- -- -- --
(4.85) (2.12) (1.16) --
-- -- -- --
------------ ------------ ------------ ------------
(4.85) (2.12) (1.16) --
------------ ------------ ------------ ------------
$ 21.83 $ 29.96 $ 19.06 $ 15.85
============ ============ ============ ============
(10.87)% 69.08 % 28.74 % 58.50 %
$259,735 $517,990 $76,873 $39,681
1.81 % 1.95 % 1.95 % 1.95 %
(1.40)% (1.64)% (1.13)% (0.93)%
406 % 280 % 519 % 483 %
$ 0.0581 N/A N/A N/A
2.08 % 2.12 % 2.40 % 2.44 %
</TABLE>
9
<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>
(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.
10
<PAGE>
<TABLE>
<CAPTION>
LATIN AMERICA FUND GLOBAL INCOME FUND
-------------------------------------- ----------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994(d) 1996 1995 1994 1993 1992(a)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6.44 $ 7.89 $ 10.00 $ 8.97 $ 8.48 $ 10.16 $ 9.77 $ 10.00
------- ------- ------- ------- ------- ------- ------- -------
0.07+ (0.01)+ (0.09)+ 0.57+ 0.63+ 0.76+ 0.99 0.80
1.52 (1.44) (1.53) (0.54) 0.53 (1.67) 0.66 0.06
------- ------- ------- ------- ------- ------- ------- -------
1.59 (1.45) (1.62) 0.03 1.16 (0.91) 1.65 0.86
------- ------- ------- ------- ------- ------- ------- -------
(0.06) -- -- (0.66) (0.63) (0.24) (0.95) (0.78)
-- -- -- (0.02) (0.04) -- -- --
-- -- (0.27) -- -- -- (0.31) (0.31)
-- -- (0.22) -- -- -- -- --
-- -- -- -- -- (0.53) -- --
------- ------- ------- ------- ------- ------- ------- -------
(0.06) -- (0.49) (0.68) (0.67) (0.77) (1.26) (1.09)
------- ------- ------- ------- ------- ------- ------- -------
$ 7.97 $ 6.44 $ 7.89 $ 8.32 $ 8.97 $ 8.48 $ 10.16 $ 9.77
======= ======= ======= ======= ======= ======= ======= =======
24.10 % (18.38)% (16.94)% 0.33 % 14.11 % (9.16)% 17.64 % 8.95 %
$ 4,261 $ 4,817 $ 7,096 $20,354 $41,181 $51,691 $82,000 $34,084
2.50 % 2.50 % 2.50 %* 1.64 % 1.75 % 1.75 % 1.72 % 1.75 %*
0.54 % 0.00 % (1.06)%* 7.17 % 7.45 % 8.30 % 9.66 % 9.75 %*
150 % 127 % 185 % 236 % 249 % 701 % 328 % 378 %
$0.0005 N/A N/A N/A N/A N/A N/A N/A
6.49 % 5.66 % 3.35 %* 2.38 % 1.93 % 1.95 % 1.72 % 3.17 %*
</TABLE>
11
<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
- -----------------------------------------------------------------------------------
<C> <S> <C> <C>
Sales Charges Initial No initial sales No initial sales
sales charge. Contingent charge. CDSC of 1%
charge up deferred sales load applies to shares re-
to 4.95%, ("CDSC") of 4% to 1% deemed within first
depending applies to shares re- year following pur-
on amount deemed within the chase.
of invest- first 6 years follow-
ment. Cer- ing purchase. Convert
tain pur- to A shares at the
chases are beginning of the
eligible eighth year after
for re- purchase.
duced
sales
charges.
- -----------------------------------------------------------------------------------
12b-1 Distribution Fee 0.50% 0.75% for first 7 0.75% for all Funds.
(0.35% years for all Funds.
Global In-
come Fund)
- -----------------------------------------------------------------------------------
Service Fee None 0.25% for first 7 0.25% for all Funds.
years for all Funds.
- -----------------------------------------------------------------------------------
Suitability May be Investors should consider whether, during the
more bene- anticipated life of their investment, accumu-
ficial to lated distribution and service fees and CDSCs
investors would be less than Class A initial sales
who qual- charge and accumulated distribution and serv-
ify for ice fee, and to what extent potential higher
reduced yield of Class A shares might offset this
initial difference. Orders of $500,000 or more not
sales accepted for Class B shares. Orders of $1
charges. 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.
12
<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, 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.
13
<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, New Zealand, Netherlands, 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.
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. The Manager 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: Argentina, Brazil, Chile, Colombia, Croatia
(indirect investment only), Czech Republic, Greece, Hong Kong, Hungary, India,
Indonesia, Israel, Jordan, Lebanon, South Korea, Malaysia, Mexico, Morocco,
Pakistan, Peru, the Philippines, Poland, Portugal, Russia (indirect investment
only), Singapore, Slovakia, South Africa, Sri Lanka, Taiwan, Thailand, Turkey,
Venezuela, 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 the Manager believes
such non-convertible securities present favorable opportunities for capital
appreciation. 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 the Manager 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 NASDAQ Composite Index, excluding
its top 75 companies. Based on this policy and recent U.S. share prices, as of
the date of this Prospectus the companies in which the Fund invests typically
will have individual market capitalizations of less than $3.0 billion
14
<PAGE>
("smaller companies"). 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, 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
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 the Manager believes such non-convertible
instruments present a favorable opportunity for capital appreciation.
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 Latin
America 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, the Manager 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 over-the-counter ("OTC") markets, or
there may be no organized market for a particular security.
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.
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).
15
<PAGE>
Consequently, the Fund's ability to achieve its investment objective depends
more on the Manager'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 Germany, Austria,
Belgium, France, 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.
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, the Global Income fund may invest up to 20% of
its total assets in common and preferred stocks, and in warrants to acquire
such stocks. In addition, the 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 the
Manager 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 the
Manager) 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 the Manager). A description of these ratings is
included as Appendix A to this Prospectus. Debt securities having a BAA or BBB
rating may have speculative characteristics and may be more susceptible to
adverse economic or competitive industry conditions than higher rated debt
securities, and have been found to be more sensitive to adverse economic
downturns or individual corporate developments. The subsequent downgrade of a
debt security to a level below investment grade will not require a sale of that
security, but John Govett will consider such an event in determining whether to
continue to hold that security.
The Manager'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). The Manager may adjust the Fund's
average maturity from time to time, and may decrease or increase the maximum
maturity target. For example, if the Manager 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.
16
<PAGE>
- --------------------------------------------------------------------------------
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, income is only an incidental consideration in the Manager'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. Each Fund's investment
objective and certain investment limitations are fundamental and may not be
changed without shareholder approval. The Board of Directors may change all
other investment limitations or policies without shareholder approval. The
Statement of Additional Information includes additional detail regarding the
fundamental and operating policies.
In interpreting each Fund's investment policies, the Adviser 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.
GENERAL LIMITATIONS
The International Equity Fund, the Emerging Markets Fund, the Smaller Companies
Fund, and the Pacific Strategy Fund are diversified funds, as that term is
defined in the Investment Company Act of 1940, as amended, (the "1940 Act").
This means that these Funds (but not the Latin America and Global Income
Funds), with respect to 75% of their respective total assets, may not invest
more than 5% of each Fund's total assets in the securities of any one issuer
(excluding the U.S. Government and its agencies). 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 (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.
The Statement of Additional Information provides the full text of these
restrictions and the Funds' other investment policies. Except for those
investment restrictions designated as "fundamental," the investment policies
described in this Prospectus and in the Statement of Additional Information are
not fundamental policies and the Board of Directors may change them at any time
without shareholder approval.
17
<PAGE>
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 Funds may invest in non-
convertible debt securities when the Manager believes such non-convertible
securities present favorable opportunities for capital appreciation. At least
75% of each Fund's total assets invested in non-convertible debt 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. If the non-convertible debt securities or commercial paper
investments are unrated, the Manager must have determined them to be of
comparable quality to the required ratings for each type of investment. 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, the Manager 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, the Manager 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 the Manager may
use such temporary strategies.
HEDGING STRATEGIES. The Funds may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with the Funds' 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 the Global Income Fund may enter into, this Fund may not
position hedge with respect to a particular currency for an amount greater than
the aggregate market value (determined at the time 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
18
<PAGE>
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.
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 equities. 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.
19
<PAGE>
- --------------------------------------------------------------------------------
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.
MARKET RISK. Equity and bond markets outside the U.S. have significantly
outperformed U.S. markets from time to time. Consequently, the Manager 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. The Manager believes that these
characteristics can be expected to 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
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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."
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.
Debt securities rated BB, B, CCC, CC and C by Standard & Poor's, and Ba, B,
Caa, and C by Moody's, are generally regarded as speculative in regard to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. When the issuer s not paying interest or has gone into
default, some of these securities may be more comparable to those rated D by
Standard & Poor's or C by Moody's. A description of these ratings is included
in Appendix A. The subsequent default or reduction of credit rating will not
require a sale of a debt security, but the Manager will consider the default in
determining whether to continue to hold the security.
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
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market quotations are not available, the Manager values such securities in
accordance with procedures established by the Board of Directors. The Manager'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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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). Managing international, emerging markets and smaller
company investments is complex, and the fees for managing such funds are
generally higher than fees paid by domestic investment companies. The Manager
absorbs certain expenses, including a portion of management fees, distribution
and service fees, excess Fund expenses, and sales charges related to the sale
of Fund shares. The Funds pay all expenses not assumed by John Govett or other
persons, including but not limited to the Manager's fees, outside directors'
fees, taxes, if any; auditing, legal, custodial, transfer agent and certain
investor servicing and shareholder reporting expenses; brokerage and commission
expenses, if any; interest charges on any borrowings; costs and expenses of
accounting, bookkeeping and recordkeeping; insurance premiums; trade
association dues; fees and expenses of 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. In connection with the sale of John
Govett to Allied Irish Banks plc 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.
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.
During the fiscal period ended December 31, 1996, total operating expenses
(including management and administrative and distribution fees, but after fee
reductions and expense reimbursements) paid by the Class A shares of each of
the 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 the Global Income Fund were 1.75% of
average daily net assets, and 1.95% by the Class A shares of the Smaller
Companies Fund. Because no management fees were paid by the Funds during the
first two months of 1996, certain Funds' expenses were below their expense
caps.
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The Manager 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 the Manager's other advisory clients.
JOHN GOVETT & CO. LIMITED
The Funds are managed by John Govett & Co. Limited (the "Manager"), 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 has offices in Singapore,
Bangalore, Jersey, San Francisco, and Budapest. As of December 31, 1996, John
Govett and its subsidiaries had approximately $5.5 billion under management.
John Govett's wholly-owned by AIB Asset Management Holdings Limited, a
majority-owned subsidiary of Allied Irish Banks p.l.c. ("AIB"), the largest
bank in Ireland with assets of approximately $21 billion. AIB and its
subsidiaries provides a diverse range of banking, financial and related
services principally in Ireland, the United Kingdom, and in the United States.
The portfolio manager for the 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.
Rachael Maunder has managed the 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 UK 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 the 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 UK 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 by John Govett's
fixed income team, under the supervision of the Chief Investment Officer, with
no individual primarily responsible for making investment decisions. All team
members are employees of John Govett.
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ALLOCATION OF PORTFOLIO TRANSACTIONS
In placing orders for the Funds' portfolio transactions, the Manager seek 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. securities
exchanges or OTC markets. Consistent with the obligation to obtain best
execution, the Manager may consider research and brokerage services provided by
that broker. The Funds may pay a broker who provides brokerage and research
services to the Manager a higher commission than that charged by other brokers,
if the Manager 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 the Manager to the
Funds and to any accounts over which the Manager 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, the Manager carefully weighs
anticipated benefits of a trade against expected transaction costs and tax
consequences. The Manager 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 Fund as transfer and shareholder services agent (the
"Transfer Agent"). John Govett provides certain marketing and administrative
services pursuant to the Investment Management Agreement.
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 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 (the "NASD").
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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 A, Class B and Class C service fees are used to
compensate authorized dealers for personal service and for the maintenance of
shareholder accounts.
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 banks.
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 reimbursing the distributor for payments of commissions to
the Funds' dealers as well as for certain additional expenses related to
shareholder services and the distribution of 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.
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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.
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 fee is designed to permit an
investor to purchase such shares without the assessment of a front-end sales
charge and at the same time permit the Distributor to compensate Service
Organization with respect to such shares. In this regard, the purpose and
function of the combined CDSC and distribution and service fee are the same as
those of the initial sales charge and distribution fee for the Class A shares,
in that in both cases the sales charge and distribution charge provide for
financing distribution of fund shares.
CUSTODIAN
The Chase Manhattan Bank 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., an affiliate of the Distributor (the "Transfer Agent")
provides transfer agent, shareholder services agent, and dividend disbursement
services to the Funds.
ACCOUNTING AND ADMINISTRATION SERVICES
Chase Global Funds Services, Inc., 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 standard time) each day the 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.
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.
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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 standard 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 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 Shareholder Services
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 4:00 p.m. Eastern standard time
on any day the New York Stock Exchange is open 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 Transfer Agent 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 days of an initial
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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.
SUBSEQUENT INVESTMENTS THROUGH THE TRANSFER AGENT
After an initial investment is made and a shareholder account is established
through an authorized dealer, subsequent purchases may be made, at the
investor's option, directly through the 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 $25 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 holiday or a weekend). To participate in the Automatic Investment Plan,
investors should complete the appropriate portion of the Account Application.
An AIP may be terminated by the Shareholder Services Agent or the Funds upon 30
days' written notice, or by the participant at any time without penalty upon
written notice to the Funds or the Shareholder Services Agent.
SYSTEMATIC WITHDRAWAL PLAN
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
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<PAGE>
PUBLIC. If a shareholder is eligible for reduced or waived sales charges, as
described below, he or his 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.
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).
Or
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.
29
<PAGE>
The Distributor may also pay, to financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in Fund shares for their clients (collectively, "Service
Organizations"), a transaction fee up to the level of the reallowance permitted
to authorized dealers as described in this Prospectus.
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 shareholder's or his
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 current Fund Administrator, the
current 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 Fund
Administrator, 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.
. 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
(former affiliates of John Govett).
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
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<PAGE>
Reduced Sales Charges on Class A Shares
Participants in any of the following discount programs may obtain 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 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 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-month period. During the thirteen-month period,
the Shareholder Services 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 Shareholder Services
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.
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.
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<PAGE>
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 of purchase.
Additionally, additional 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 shareholder (as Class A, Class B, and Class C
defined in Section 72(m)(7) of the IRS Code
. Minimum required distribution from certain Class A, Class B, and Class C
IRA or retirement plan distributions
. Pursuant to Reinstatement Privilege, which See "Reinstatement Privilege" section,
may be EXERCISED ONLY ONCE for each Fund below. Amount reinvested will be subject
investment. Class B reinstatement proceeds to the same CDSC to which that amount
can only be reinvested in Class A shares. was subject prior to the redemption, and
the 12-month 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 the Funds' Class A, Class B, and Class C
systematic withdrawal plan, but limited to
12% of the initial value of the account
(annually)
</TABLE>
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.
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<PAGE>
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 Shareholder
Services 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 Kemper Cash Account Trust Money Market
Portfolio (the "Money Market Fund") may be exchanged for shares of any Fund,
without imposition of a sales charge. 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 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 Govett Fund investors who hold shares of the
Money Market Fund under this exchange privilege.
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 Transfer
Agent, to request theMoney 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 Shareholder Services 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. Investors
may make up to four exchanges during a year without charge. For each exchange
in excess of four, a $7.50 processing charge will be deducted
33
<PAGE>
from the proceeds and paid to the Fund from which the exchange is made. The
exchange fee will be waived for any exchange transmitted through Fund/SERV. A
pattern of frequent exchanges, purchases and sales may be deemed abusive by the
Manager and at its discretion can be limited by a Fund's refusal to accept
purchase and/or exchange orders from the investor. Although the Manager 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.
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 net asset value 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 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 FPS 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.
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 60
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,
34
<PAGE>
administrators, trustees, guardians and other fiduciaries. Fiduciaries should
contact FPS for further information. Redemption requests received after 4:00
p.m. Eastern Standard 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 join 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.
Or
. 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.
FPS will accept signature guarantees from all eligible firms, as defined by
Rule 17Ad-15 under the Securities Act of 1934. The Transfer Agent 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 via Fund/SERV. The Shareholder Services 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
35
<PAGE>
dollars, will speed processing. The seven-day period within which the proceeds
of the shareholder's redemption will be sent will begin when FPS 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 FPS 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 FPS as soon as possible. The shareholder's dealer may
charge a fee for handling the order.
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, 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 the
appropriate toll-free number shown in Appendix B.
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 available if the address or 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 Shareholder Services 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.
36
<PAGE>
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 Internal Revenue Code of
1986, as amended (the "Code"). Each 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
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
37
<PAGE>
form of dividends. In order to accomplish this goal, each Fund must, among
other things, distribute substantially all of its ordinary income and net
capital gains on a current basis and maintain a portfolio of investments which
satisfies certain diversification criteria.
UNITED STATES FEDERAL TAXATION OF SHAREHOLDERS
For federal income tax purposes, any income dividends which the shareholder
receives from a Fund, as well as any distributions derived from the excess of
net short-term capital gains over net long-term capital losses, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares. Distributions derived from the excess of net long-term
capital gains over net short-term capital losses are treated as long-term
capital gains regardless of the length of time the shareholder has owned the
shares of a Fund and regardless of whether the shareholder receives such
distributions in cash or in additional shares.
Certain distributions which are declared in October, November, or December but
which, for operational reasons, may not be paid to the shareholder until the
following January, may be treated for federal tax purposes as if received by
the shareholder on December 31 of the calendar year in which the distributions
are declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. All or a portion of a loss realized
upon a redemption of shares will be disallowed to the extent other shares of a
Fund are purchased (through reinvestment of dividends or otherwise) within 30
days before or after such redemption. If a shareholder receives a long-term
capital gain distribution on shares of a Fund and such shares are held for less
than six months and are sold at a loss, the portion of the loss equal to the
amount of the long-term capital gain distribution will be considered a long-
term capital loss for tax purposes.
All or a portion of the sales charge incurred in purchasing shares of a Fund
will not be included in the federal tax basis of any such shares sold within 90
days of their purchase (for the purpose of determining gain or loss upon the
sale of such shares) if the sales proceeds are reinvested in the Funds and a
sales charge that would otherwise apply to the reinvestment is reduced or
eliminated because the sales proceeds were reinvested in the Fund. The portion
of the sales charge so excluded from the tax basis of the shares sold will
equal the amount by which the sales charge that would otherwise be applicable
upon the reinvestment is reduced. Of course, any portion of such sales charge
excluded from the tax basis of the shares sold will be added to the tax basis
of the shares acquired in the reinvestment.
Each Fund will inform shareholders of the source of dividends and distributions
paid by the Fund at the time they are paid, and will promptly after the close
of each calendar year advise shareholders of the tax status for federal income
tax purposes of such dividends and distributions. Income received by the Funds
may give rise to withholding and other taxes imposed by foreign countries. If
more than 50% of the value of a Fund's assets at the close of a taxable year
consists of securities of foreign corporations, the Fund may make an election
that will permit shareholders to take a credit (or, if more advantageous, a
deduction) for foreign income taxes paid by the Fund, subject to limitations
contained in the 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
38
<PAGE>
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 Shareholder Services Agent will send a
confirmation reflecting the transaction.
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
39
<PAGE>
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.
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.
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund, and
Pacific Strategy Fund are "diversified funds" as that term is defined in the
1940 Act. Latin America Fund and Global Income Fund are "non-diversified funds"
under the 1940 Act.
PERFORMANCE INFORMATION
Each Fund may from time to time include information on its investment results
and/or comparisons of its investment results to various managed or unmanaged
indices or averages or results of other mutual funds or groups of mutual funds
in advertisements, sales literature or reports furnished to present or
prospective shareholders.
In such materials, a Fund may quote its average annual total return
("Standardized Return"). Standardized Return represents the percentage rate
reflecting the average annual change in the value of an assumed investment in
the Fund at the end of a one-year period and at the end of five- and ten-year
periods, reduced by the maximum applicable front-end sales charge imposed on
sales of Fund shares (Class A shares only). Performance information with
respect to a Fund will also reflect that any applicable CDSC has been paid. If
a one-, five- and/or ten-year period has not yet elapsed, data will be provided
as of the end of a shorter period corresponding to the life of the Fund. The
total return computation assumes the reinvestment of all dividends and capital
gain distributions at net asset value.
Standardized Returns quoted in advertising will reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per share over the
period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in the Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years.
While average annual returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's performance will not be
constant over time, but will change from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund.
The Global Income Fund may also refer in advertising and promotional materials
to its yield. A Fund's yield shows the rate of income that it earns on its
investments, expressed as a percentage of the public offering price of its
shares. The Fund calculates yield by determining the investment income it
earned from its portfolio investments for a specified thirty-day period (net of
expenses), dividing such income by the average number of shares outstanding,
and expressing the result as an annualized percentage based on the public
offering price of its shares at the end of that thirty-day
40
<PAGE>
period. Yield accounting methods differ from the methods used for other
accounting purposes; accordingly, a Fund's yield may not equal the dividend
income actually paid to investors or the income reported in its financial
statements.
In addition, a Fund may also include in advertisements, sales literature and
shareholder reports other than total return performance data ("Non-Standardized
Return"). Non-Standardized Return reflects the percentage rates of return
encompassing all elements of return (i.e., income and capital appreciation or
depreciation); and will assume reinvestment of all dividends and capital gain
distributions. Non-Standardized Return may be quoted for the same or different
periods as those for which Standardized Return is quoted; it may consist of an
aggregate or average annual percentage rate of return, actual year-by-year
rates or any combination thereof. It may or may not take sales charges into
account; a Fund's performance calculated without taking the effect of sales
charges into account will be better than such performance including the effect
of such charges.
Yield and total return are calculated separately for Class A, Class B and Class
C shares of each Fund. Class A total return figures include the maximum front-
end sales charge of 4.95%; Class B and Class C total return figures include any
applicable CDSC. Because of the differences in sales charges and distribution
charges, the total returns for each of the classes of the same Fund will
differ. Each Fund will include performance data for its Class A, Class B and
Class C shares in any advertisement or information including performance data
of the Fund.
Each Fund's performance data reflects past performance and is not necessarily
indicative of future results. A Fund's investment results will vary from time
to time depending upon market conditions, the composition of its portfolio and
its operating expenses. These factors and possible differences in calculation
methods should be considered when comparing a Fund's investment results with
those published for other mutual funds, other investment vehicles and unmanaged
indices. A Fund's results also should be considered relative to the risks
associated with its investment objectives and policies. See "Performance" in
the Statement of Additional Information.
The Company's Annual Report for the fiscal year ended December 31, 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.
41
<PAGE>
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE DEBT
RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues; Aa. Bonds which are rated Aa
are judged to be of high quality by all standards. Together with the Aaa group,
they comprise what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which made the long term risks
appear somewhat larger than in Aaa securities; A. Bonds which are rated A
possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future; Baa. Bonds which are rated Baa are
considered as medium grade obligations, i.e., they are neither highly protected
nor poorly secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated Ba have speculative elements
and their future cannot be considered to be well assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class; B. Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small; Caa. Bonds which are rated Caa are in poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest; Ca. Bonds which are rated Ca are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings; C. Bonds which are rated C are the lowest rated class of
bonds. Issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
DESCRIPTION OF STANDARD & POOR'S CORPORATION CORPORATE DEBT RATINGS
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong; AA. Debt
rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in small degree; A. Debt rated A has
a strong capacity to pay interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories; BBB. Debt rated BBB
is regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories; BB. Debt rated BB has less near-term vulnerability to
default than other speculative issues; however, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BBB-" rating; B. Debt rated B has a
greater vulnerability to default but currently has the capacity to meet
interest payments and principal repayments. Adverse business, financial or
economic conditions will likely impair capacity or willingness to pay interest
and repay principal. The "B" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BB" or "BB-" rating; CCC.
Debt rated CCC has a currently indefinable vulnerability to default, and
A-1
<PAGE>
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating; CC. Debt rated CC typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating; C. Typically
applied to debt subordinated to senior debt which is assigned an actual or
implied "CCC-" debt rating. The "C" rating may be used to cover a situation
where a bankrupcty petition has been filed, but debt service payments are
continued; D. In payment default. The "D" rating is used when interest payments
are not made on the date due even if the applicable grace period has not
expired, unless S&P believes that such payments will be made during such grace
period. The "D" rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
COMMERCIAL PAPER RATINGS
Moody's employs the designations "Prime-1" and "Prime-2" to indicate commercial
paper having the highest capacity for timely repayment. Issuers rated Prime-1
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protections; broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and well-established access to a range of financial markets and assured sources
of alternate liquidity. Issues rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained.
Standard & Poor's ratings of commercial paper are graded into four categories
ranging from "A" for the highest quality obligations to "D" for the lowest. A--
Issues assigned its highest rating are regarded as having the greatest capacity
for timely payment. Issues in this category are delineated with numbers 1 and 2
to indicate the relative degree of safety. A-1--This designation indicates that
the degree of safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety characteristics
will be denoted with a plus (+) sign designation. A-2--Capacity for timely
payments on issues with this designation is strong. However, the relative
degree of safety is not as high as for issues designated "A-1."
* * *
Ratings of debt securities represent the rating agency's opinion regarding
their quality and are not a guarantee of quality. Subsequent to its purchase by
a Fund, the rating of an issue of debt securities may be reduced below the
minimum rating required for purchase by that Fund. The Manager or Subadvisor
will consider such an event in determining whether the Fund should continue to
hold the security. Credit ratings attempt to evaluate the safety of principal
and interest payments and do not evaluate the risks of fluctuations in market
value. Also, rating agencies may fail to make timely changes in credit ratings
in response to subsequent events, so that an issuer's current financial
condition may be better or worse than the rating indicates.
A-2
<PAGE>
APPENDIX B
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' Shareholder Services 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)XXX-XXXX 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 and REDEMPTIONS, 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
INVESTMENTS BY BANK WIRE
An investor opening a new account should call (800) XXX-XXXX. 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 #I0-10-00695
For FPS Services, Inc.
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
B-1
<PAGE>
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. You will be
asked for the name of the Funds in which you wish to transact, the registered
name(s) on the account(s), the account number (s), and you will be asked to
verify the account's alternate payee or wiring instructions, if any.
B-2
<PAGE>
THE GOVETT FUNDS, INC.
GOVETT INTERNATIONAL EQUITY FUND
GOVETT EMERGING MARKETS FUND
GOVETT SMALLER COMPANIES FUND
GOVETT PACIFIC STRATEGY FUND
GOVETT LATIN AMERICA FUND
GOVETT GLOBAL INCOME FUND
TRANSFER AGENT CUSTODIAN
FPS Services, Inc. The Chase Manhattan Bank
3200 Horizon Drive 4 MetroTech Center
P. O. Box 61053 Brooklyn, New York 11245
King of Prussia, PA 19406-0903
(800) XXX-XXXX DIRECTORS
Patrick Cunneen, Chairman
DISTRIBUTOR Elliott Atamian
FPS Broker Services, Inc. Sir Victor Garland
3200 Horizon Drive James Oates
P. O. Box 61053 Frank Terzolo
King of Prussia, PA 19406-0903
(800) XXX-XXXX OFFICERS
Broker Marketing Information Brian Lee, President
(888) J-GOVETT (888-546-8838) Colin Kreidewolf, Vice
President/Treasurer
THE GOVETT FUNDS, INC. Alice Schulman, Vice
250 Montgomery Street, Suite 1200 President/Secretary
San Francisco, CA 94104 Andrew Barnett, Vice President
(888) J-GOVETT (1-888-546-8838) Peter Moffatt, Vice President
(415) 263-1865
INVESTMENT MANAGER
John Govett & Co. Limited
Shackleton House
4 Battle Bridge Lane
London SE1 2HR England
From the US call (888) J-GOVETT
(888-546-8838)
<PAGE>
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 or revisions to your existing
account.
. Please read the Prospectus carefully before investing in the Funds.
. This application may not be used to establish an IRA. For an IRA application
or any questions, please call: (800) 821-0803.
. PLEASE SIGN THIS APPLICATION ON THE LAST PAGE UNDER "SIGNATURE AND TAXPAYER
IDENTIFICATION NUMBER CERTIFICATION."
. Mail and make checks payable to: The Govett Funds, Inc.
c/o FPS Services, Inc.
P.O. Box 61503
3200 Horizon Drive
King of Prussia, PA 19406-0903
<TABLE>
<S> <C>
ACCOUNT REGISTRATION [_] New Account
[_] Revise Existing Account Number ________________________
[_] 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 _____________________________________ as Custodian for
To A Minor Custodian's Name (only one)
_____________________________________ Under the
Minor's Name (only one)
Uniform Gift/Transfer to Minors Act of ____________________
Name of State
- -
______________________________
Minor's Social Security Number
- -----------------------------------------------------------------------------------
[_] Trust or _____________________________________________________________
Qualified Plan Name of Trust or Plan
_____________________________________________________________
Name of Trustee or Custodian Trust/Plan Agreement Date
-
_____________________________________________________________
For the Benefit of Taxpayer Identification Number
- -----------------------------------------------------------------------------------
[_] Corporation, -
Partnership _____________________________________________________________
or Other Name of Entity Taxpayer Identification Number
Organization
ACCOUNT REGISTRATION ADDRESS
( )
______________________________________________________ __________________________
Street Address Business Phone Number
( )
______________________________________________________ __________________________
City State Zip Home Phone Number
FUND INVESTMENT
Minimum initial investment is $500 per Fund. Make checks payable to: The
Govett Funds, Inc.
Govett International Equity Fund $ ____________
Govett Emerging Markets Fund $ ____________
Govett Smaller Companies Fund $ ____________
Govett Pacific Strategy Fund $ ____________
Govett Latin America Fund $ ____________
Govett Global Income Fund $ ____________
TOTAL AMOUNT INVESTED $ ____________
[_] Please send information regarding the Money Market Fund
If this application relates to a broker/dealer or wire order purchase,
please provide date and confirmation number: ____________________________________
</TABLE>
<PAGE>
DIVIDENDS/CAPITAL GAINS
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
_____________________________________________________________________________
Street Address
_____________________________________________________________________________
City State ZIP
(If no third party is specified above, cash dividends/distributions will be
mailed to the Account Registration Address.)
*Please complete Section D, Systematic Withdrawal Plan, in addition to
completing address above.
ACCOUNT CONVENIENCE OPTIONS
A. Telephone Unless waived by the shareholder below, the shareholder hereby
Privilege authorizes ACCESS to accept and act upon telephone instructions
Waiver 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.
[_] I hereby waive my option to execute exchange and redemption
transactions by telephone.
- -------------------------------------------------------------------------------
B. Automatic You may start an Automatic Exchange Plan and direct any Fund to
Exchange transfer a specified amount ($25 minimum) to another Fund on a
Plan 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/Day/Year
- -------------------------------------------------------------------------------
<PAGE>
C. Letter [_] I agree to the terms of the Letter of Intent set forth in the
of Prospectus. Although I am not obliged to do so, it is my
Intent intention to invest over a 13-month period, in shares of one or
more of the Govett Funds, an aggregate at least equal to:
[_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000
(Note: For a Letter of Intent, the minimum initial investment
must equal at least 5% of the intended amount.)
- -------------------------------------------------------------------------------
D. Systematic You may start a Systematic Withdrawal Plan and direct the Fund
Withdrawal to send a specified amount ($25 minimum) to your Account
Plan Registration Address or to a specified third party on a monthly,
quarterly, semiannual or annual basis. Please refer to the
Prospectus for complete details.
[_] Please establish a Withdrawal Plan under which I will
receive payments:
[_] monthly [_] quarterly [_] semiannually [_] annually
from _________________________________________ for $_____________
Name of Fund ($25 minimum)
I would like withdrawals to begin ___/___. Checks will be mailed
Month Year
on or about the 21st day of each month.
I would like withdrawals
[_] to be directly deposited into my bank account. Please
complete Bank/Wiring section.
[_] to go to a third party. Please complete Third Party Address
section.
- -------------------------------------------------------------------------------
E. Automatic [_] I have read the terms and conditions of the Automatic
Investment Investment Plan set forth in the Prospectus. I wish to invest on
Plan a monthly basis, directly from my checking account, into the
following Fund(s). Please complete Section F, and attach a voided
check.
Please designate the amount you would like invested. (Minimum
$25 per Fund) To begin ___/___/___
Month Day Year
International Equity Fund $___________________
Pacific Strategy Fund $___________________
Emerging Markets Fund $___________________
Latin America Fund $___________________
Smaller Companies Fund $___________________
Global Income Fund $___________________
[_] I wish to increase my Automatic Investment Plan beginning ___/___
Month Year
Dollar Amount of Increase $_____________
($10 Minimum)
Percentage of Increase _____________%
(10% Minimum)
- -------------------------------------------------------------------------------
F. Bank/ Complete this portion if you are participating in the Automatic
Wiring Investment Plan, or would like dividends/capital gains
Information 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:
ATTACH
VOIDED [_] Automatic Investment Plan [_] Checking [_] Savings
CHECK [_] Systematic Withdrawal Plan [_] Telephone Redemptions
HERE [_] Dividends/Capital Gains Distributions
________________________________________________________________
Name of Shareholder's Bank
_____________________________________________ __________________
Name on Bank Account Account Number
________________________________________________________________
Authorized Signature (as shown on bank records)
<PAGE>
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.
____________________________ _______________________________________________
Dealer Name Representative's Last Name First Name M. I.
____________________________ _______________________________________________
Dealer Home Office Address Representative's Branch Office Address
____________________________ _______________________________________________
City State ZIP City State ZIP
( )_______________________ ( )__________________________________________
Telephone Number Telephone Number
____________________________ _______________________________________________
Dealer Number Representative Number
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.
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 p.l.c. ("AIB"), the parent of the AIB Group of Companies. The AIB
Group provides a diverse range of banking, financial and related services,
principally in Ireland, the United States and the United Kingdom.
A Prospectus for the Funds, dated the same date as this Statement of Additional
Information, as amended from time to time, provides the basic information that a
prospective shareholder should know before investing in the Funds. The
Prospectus is incorporated by reference herein and may be obtained without
charge by calling (800) 634-6838 or by writing to:
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.
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CONTENTS
<TABLE>
<S> <C>
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
</TABLE>
2
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<TABLE>
<S> <C>
PERFORMANCE..............................................................................35
FINANCIAL STATEMENTS.....................................................................38
</TABLE>
3
<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 p.l.c. and its subsidiaries
"Custodians"
The Chase Manhattan Bank
"Shareholder Services 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.
4
<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.
5
<PAGE>
13. Purchase commodities or commodity contracts (including futures contracts),
except that the Funds may purchase securities of issuers which invest or deal in
commodities or commodity contracts, and except that the Funds may enter into
futures and options contracts only for hedging purposes.
In order to change any restriction which is a fundamental policy, approval must
be obtained from the respective Fund's shareholders; this would require the
affirmative vote of the lesser of (i) 67% or more of the respective Fund's
outstanding voting securities that are represented at the meeting if more than
50% of the outstanding voting securities of the respective Fund are represented,
or (ii) more than 50% of the respective Fund's outstanding voting securities.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT PRIOR SHAREHOLDER APPROVAL (THEY TOO APPLY TO EACH FUND).
The Funds do not currently intend to:
(i) Engage in any reverse repurchase agreements if, as a result, more than 5%
of a Fund's net assets would be subject to reverse repurchase agreements.
(ii) Purchase or otherwise acquire any security or enter into a repurchase
agreement with respect to any security if, as a result, more than 5% of a
Fund's net assets (taken at current value) would be invested in
repurchase agreements not entitling the holder to payment of interest and
principal within seven days, or in securities that are illiquid by virtue
of legal or contractual restrictions on resale or for which there is no
readily available market.
(iii) Purchase securities of another investment company, except as permitted by
the 1940 Act and other applicable laws.
(iv) Lend assets, other than portfolio securities, to other parties, except by
purchasing debt securities and engaging in repurchase agreements.
Portfolio securities may be loaned only if continuously collateralized at
least 100% by "marking-to-market" daily. The Funds, however, do not
currently intend to lend their portfolio securities during the current
fiscal year.
(v) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the respective Fund owns an equal
amount of such securities or securities convertible or exchangeable into,
without payment of any further consideration, securities of the same
issuer as, and equal in amount to, the securities sold short ("short
sales against the box"), and unless not more than 5% of the Fund's net
assets (taken at market value) is held as collateral for such sales at
any one time.
(vi) Purchase a security if, as a result thereof, more than 5% of a Fund's net
assets would be invested in warrants or more than 2% of such Fund's net
assets will be invested in warrants which are not listed on the American
or New York Stock Exchange.
(vii) Purchase the securities of any issuer if, as a result thereof, more than
5% of the value of the total assets of the Smaller Companies Fund would
be invested in the securities of companies which, including predecessors,
have a record of less than three years' continuous operations.
(viii) Invest 25% or more of the Global Income Fund's total assets in asset-
backed securities.
The U.S. government has from time to time imposed restrictions, through taxation
and otherwise, on foreign investments by U.S. entities such as the Funds. If
such restrictions should be reinstituted for a Fund, it might become necessary
for the Fund to invest all or substantially all of its securities in U.S.
securities. In such event, the Board of Directors would reevaluate the Fund's
investment objective and policies, but would adopt any revised investment
objectives and fundamental policies only after approval by the shareholders
holding a majority (as defined in the 1940 Act) of the shares of the Fund.
6
<PAGE>
The Funds' ability to borrow money creates special risks not associated with
funds that have similar investment objectives and policies but do not have the
ability to borrow money or borrow at the same level as the Funds. Borrowings by
the Funds may have either a positive or negative effective on their respective
levels of investment income. Any investment income or gains earned from amounts
borrowed which is in excess of the interest due on and other costs of such
borrowings may cause the Funds' investment income to be greater than would
otherwise be the case. Conversely, if the investment performance of any amounts
borrowed fails to cover the interest due on and other costs of such borrowings,
the Funds' investment income will be less than would otherwise be the case.
OTHER POLICIES
The Manager generally evaluates foreign currencies on the basis of fundamental
economic criteria (e.g., relative inflation and interest rate levels and trends,
growth rate forecasts, balance of payments status and economic policies) as well
as technical and political data. If the currency in which a security is
denominated appreciates against the U.S. dollar, or (in the case of debt
securities) if interest rates decline, the dollar value of the security will
generally increase. Conversely, if other factors remain constant, a rise in
interest rates or a decline in the exchange rate of the currency will adversely
affect the value of the security expressed in dollars.
The Funds will not invest in securities denominated in a foreign currency if, at
the time of investment, such currency is not considered by the Manager or
Subadvisor to be fully exchangeable into U.S. dollars without significant legal
restriction. The Funds may purchase securities issued by the government of, or
a corporation or financial institution located in, one nation but denominated in
the currency of another nation (or in a multinational currency unit).
The Funds retain the flexibility to respond promptly to changes in market and
economic conditions. Accordingly, in the interest of preserving shareholders'
capital and consistent with the Funds' investment objectives, the Manager (or
the Subadvisor, in the case of the Smaller Companies Fund) may employ a
temporary defensive investment strategy for one or more of the Funds if the
Manager or Subadvisor determines such a strategy to be warranted. It is
impossible to predict when or for how long the Manager or Subadvisor may employ
such defensive strategies. Under a defensive strategy, the Funds may hold cash
(U.S. dollars, foreign currencies or multinational currency units) and/or invest
any portion or all of their respective assets in high quality money market
instruments. For debt obligations other than commercial paper, this includes
securities rated, at the time of purchase, at least Aa by Standard & Poor's or
AA by Moody's, or if unrated, determined to be of comparable quality by the
Manager. For commercial paper, this includes securities rated, at the time of
purchase, at least A-2 by Standard & Poor's or Prime-2 by Moody's.
Pending investment of proceeds from new sales of Fund shares or to meet their
ordinary daily cash needs, the Funds may hold cash (U.S. dollars, foreign
currencies or multinational currency units) and may invest in short-term high
quality money market instruments. Money market instruments in which the Funds
may invest include, but are not limited to, U.S. or foreign government and
agency securities, commercial paper, bank certificates of deposit, and bankers'
acceptances.
The Funds' Prospectus and this Statement of Additional Information omit certain
information contained in the Funds' Registration Statement filed with the
Securities and Exchange Commission. Copies of such information may be obtained
from the Securities and Exchange Commission upon payment of the prescribed fee.
DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS
FOREIGN SECURITIES. All of the Funds (except the Smaller Companies Fund) will
invest primarily in securities issued by companies or other issuers whose
principal activities are outside the U.S.; such investments involve significant
risks not present in U.S. investments. The Smaller Companies Fund invests in
the securities of issuers located in the U.S. and/or foreign countries. At any
point in time, all or substantially all of the Smaller Companies Fund's assets
may be invested in issuers located (1) solely in the U.S., or (2) solely in
countries other than the U.S., or (3) in the U.S. and foreign countries. The
value of securities denominated in foreign currencies and of dividends and
interest paid with respect to such securities will fluctuate based on the
relative strength of the U.S. dollar. In addition, less
7
<PAGE>
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, for 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.
8
<PAGE>
In 1995 the Latin American markets were recovering from the effects of the
devaluation of the Mexican peso at the end of 1994.
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.
9
<PAGE>
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, the Global
Income Fund may invest up to 25% of its total assets in debt securities of below
investment grade quality, and the Latin America Fund may invest up to 35% of its
total assets in such securities. Such investments involve a high degree of
risk. Debt rated BB, B, CCC, CC and C, and debt rated Ba, B, Caa, Ca and C is
regarded by Standard & Poor's and Moody's, respectively, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. For
Standard & Poor's, BB indicates the lowest degree of speculation and C the
highest degree of speculation. For Moody's, Ba indicates the lowest degree of
speculation and C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or Standard & Poor's is the lowest quality debt that is not in
default as to principal or interest, and such issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Such securities are also generally considered to be subject to greater risk than
higher quality securities with regard to a deterioration of general economic
conditions. These securities are the equivalent of high yield, high risk "junk"
bonds.
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The market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality debt
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality debt securities. Issuers of lower quality debt securities are
often highly leveraged and may not have available to them more traditional
methods of financing.
The market for lower rated debt securities may be thinner and less active than
that for higher rated securities, which can adversely affect the prices at which
these securities can be sold. If market quotations are not available, these
securities are valued in accordance with procedures established by the Board of
Directors, including the use of outside pricing services. Judgment plays a
greater role in valuing high yield debt securities than is the case for
securities for which more external sources for quotations and last sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services used by the Global Income
Fund and Latin America Fund to value their portfolio securities, and the Funds'
ability to dispose of these lower rated debt securities.
Factors having an adverse effect on the market value of lower rated debt
securities of their equivalents purchased by the Global Income Fund and Latin
America Fund will adversely affect the net asset value of those Funds. In
addition to the foregoing, such factors may include: (i) potential adverse
publicity; (ii) heightened sensitivity to general economic or political
conditions; and (iii) the likely adverse impact of a major economic recession.
The Global Income Fund and Latin America Fund may incur additional expenses to
the extent they are required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings, and the Funds may have limited
legal recourse in the event of a default. Debt securities issued by an emerging
market government can differ from debt obligations issued by private entities in
that remedies from defaults generally must be pursued in the courts of the
defaulting government, and legal recourse can therefore be significantly
diminished. Political conditions, in terms of a government's willingness to
meet the terms of its debt obligations, also are of considerable significance.
There can be no assurance that the holders of commercial bank debt may 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. The Latin America Fund may invest in "Brady Bonds," which are debt
restructurings that provide for the exchange of cash and loans for newly issued
bonds. Brady Bonds recently have been issued by the governments of Costa Rica,
Mexico, Uruguay and Venezuela, and are expected to be issued by Argentina,
Brazil and the Philippines and other emerging markets countries. Brady Bonds
may be rated below investment grade. As of the Date of this Statement of
Additional Information, the Manager is not aware of the occurrence of any
payment defaults on Brady Bonds. Investors should recognize, however, that
Brady Bonds have been issued only recently and, accordingly, do not have a long
payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the secondary market for Latin American debt. The Salomon Brothers Brady
Bond Index provides a bench-mark that can be used to compare returns of emerging
market Brady Bonds with returns in other markets, e.g. U.S. bond markets.
The Latin America Fund may invest in either collateralized or uncollateralized
Brady Bonds. U.S. dollar denominated, collateralized Brady Bonds, which may be
fixed rate par bonds or floating rate 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. The Global Income Fund may invest in mortgage securities
which are issued or guaranteed by private institutions or by the U.S.
government, its agencies or instrumentalities, collateralized by or representing
an interest in mortgages created from pools of mortgages and other asset-backed
securities. This Fund may not invest 25% or more of its total assets in asset-
backed securities.
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The mortgage securities in which the Global Income Fund invests differ from
conventional bonds in that principal is paid back over the life of the mortgage
security rather than at maturity. As a result, the holder of the mortgage
securities (i.e., the Global Income Fund) receives monthly scheduled payments of
principal and interest, and may receive unscheduled principal payments
representing prepayments on the underlying mortgages. When the holder
reinvestments the payments and any unscheduled prepayments of principal it
receives, it may receive a rate of interest which is lower than the rate on the
existing mortgage securities. For this reason, mortgage securities may be less
effective than other types of debt securities as a means of "locking in" long-
term interest rates. The market value of mortgage securities, like other U.S.
government securities, will generally vary inversely with changes in market
interest rates, declining when interest rates rise and rising when interest
rates decline.
At least 75% of such mortgage-backed securities purchased by the Global Income
Fund will be investment grade at time of purchase, or if unrated, determined to
be of comparable quality by the Manager. The subsequent downgrade of a debt
security to a level below investment grade will not require a sale of that
security, but John Govett will consider such an event in determining whether to
continue to hold that security.
In addition, to the extent mortgage securities are purchased at a premium,
mortgage foreclosures and unscheduled principal prepayments may result in some
loss of the holder's principal investment to the extent of the premium paid. If
mortgage securities are purchased at a discount, both a scheduled payment of
principal and an unscheduled prepayment of principal will increase current and
total returns and will accelerate the recognition of income which, when
distributed to Fund shareholders, will be taxable as ordinary income.
With respect to pass-through mortgage pools issued by non-governmental issuers,
there can be no assurance that the private insurers associated with such
securities, can meet their obligations under the policies. Although the market
for such non-governmentally issued or guaranteed mortgage securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. The purchase of such securities is subject to the Fund's
5% limit with respect to investment in illiquid securities.
The following paragraphs provide additional detail about various types of
mortgage-related securities in which the Global Income Fund may invest.
OPTIONS ON FOREIGN AND U.S. CURRENCIES AND SECURITIES. In an effort to reduce
the fluctuations in their respective net asset value ("NAV"), the Funds may
write covered put and call options and purchase put and call options on U.S. and
foreign currencies and securities that are traded on U.S. and foreign securities
exchanges and over-the-counter. 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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terminate an options position. The Funds will realize a profit from a closing
transaction if the price of the transaction is less than the premium received
from writing the option or is more than the premium paid to purchase the option;
the Funds will realize a loss from closing a transaction if the price of the
transaction is more than the premium received from writing the option or is less
than the premium paid to purchase the option.
The Funds may write options in connection with buy-and-write transactions, that
is, the Funds may purchase a currency or security and then write a call option
against that currency or security. The exercise price of the call will depend
upon the expected price movement of the underlying currency or security. The
exercise price of a call option may be below ("in-the-money") or equal to ("at-
the-money") or above ("out-of-the-money") the current price of the underlying
currency or security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected by
the Manager or Subadvisor that the price of the underlying currency or security
will remain flat or decline moderately during the option period. Buy-and-write
transactions using at-the-money call options may be used when it is expected by
the Manager or Subadvisor that the price of the underlying currency or security
will remain fixed or advance moderately during the option period. Buy-and-write
transactions using out-of-the-money call options may be used when the Manager or
Subadvisor expects that the premiums received from writing the call option plus
the appreciation in the market price of the underlying currency or security up
to the exercise price will be greater than the appreciation in the price of the
underlying currency or security alone. If the call options are exercised in such
transactions, a Fund's maximum gain will be the premium received by it for
writing the option, adjusted upward or downward by the difference between the
Fund's purchase price for the currency or security and the exercise price. If
the options are not exercised and the price of the underlying currency or
security declines, the amount of such decline will be mitigated by the premium
received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying currency or security rises or otherwise is above the exercise price,
the put option will expire worthless and the Fund's gain will be limited to the
premium received. If the market price of the underlying currency or security
declines or otherwise is below the exercise price, the Fund may elect to close
the position or wait for the option to be exercised and take delivery of the
currency or security at the exercise price. The Fund's return will be the
premium received from the put option minus the amount by which the market price
of the currency or security is below the exercise price. Out-of-the-money, at-
the-money, and in-the-money put options may be used by the Funds in the same
market environments that call options are used in equivalent buy-and-write
transactions.
In addition to the matters discussed in the Prospectus, shareholders should be
aware that when trading options on foreign exchanges or in the over-the-counter
market, many of the protections afforded to U.S. option exchange participants
will not be available. For example, there are no daily price fluctuation limits
in such exchanges or markets, and adverse market movements could therefore
continue to an unlimited extent over a period of time. Although the purchaser of
an option cannot lose more than the amount of the premium plus related
transaction costs, this entire amount could be lost. Moreover, the Fund as an
option writer could lose amounts substantially in excess of its initial
investment, due to the margin and collateral requirements typically associated
with such option writing. The ability of any Fund to engage in options
transactions is subject to the following limitations: (a) not more than 5% of
the net assets of the Fund may be invested in options purchased by the Fund; (b)
the obligations of the Fund under put options written by the Fund may not exceed
5% of the net assets of the Fund; and (c) the obligations of the Fund under call
options written by the Fund may not exceed 5% of the net assets of the Fund.
The staff of the Securities and Exchange Commission (SEC) has taken the position
that purchased over-the-counter ("OTC") options and the assets used as "cover"
for written OTC options are illiquid securities. However, the Funds may treat
the securities they use as cover for written OTC options as liquid provided the
Funds follow a specified procedure. The Funds may sell OTC options only to
qualified dealers who agree that the Funds may repurchase any OTC options
written for a maximum price to be calculated by a predetermined formula. In
such cases, the OTC option would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Since investments in companies whose
principal business activities are located outside of the U.S. will frequently
involve currencies of foreign countries, and since assets of a Fund may
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temporarily be held in bank deposits in foreign currencies during the completion
of investment programs, the value of the Funds' assets as measured in U.S.
dollars generally will be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Although the
Funds value their assets daily in terms of U.S. dollars, they do not intend to
convert their holdings of foreign currencies into U.S. dollars on a daily basis.
The Funds may conduct their foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into contracts to purchase or sell foreign currencies
at a future date (i.e., a forward foreign currency contract or forward
contract). Foreign currency futures contracts and options on foreign currencies
may also be used. The Funds will convert currency on a spot basis from time to
time, and shareholders should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the spread) between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Funds at one rate, while offering a lesser
rate of exchange should the Funds desire to resell that currency to the dealer.
A forward currency exchange contract ("Forward Contract") involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract, agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A Forward Contract generally has no
deposit requirement, and no commissions are charged at any stage for trades. A
Fund will cover a Forward Contract that it has sold by establishing and
maintaining with its Custodian a segregated account, consisting of cash, cash
equivalents or liquid, short-term high quality debt securities from its
portfolio.
The Funds may enter into Forward Contracts in order to fix a definite U.S.
dollar price for securities denominated in foreign currencies, in connection
with a purchase or sale of those securities. For example, if a Fund placed a
purchase order for securities denominated in Japanese Yen, it would be required
to pay for the securities with Yen on the date the transaction settles. If the
Fund has U.S. dollar-denominated cash or securities on hand, it can enter into a
Forward Contract to exchange its dollars for Yen, with the exchange taking place
on the settlement date of the security purchase order, so that the Fund would
have sufficient Yen to pay for the securities it has purchased. This type of
currency strategy is often referred to as a "transaction hedge."
The Funds may also enter into Forward Contracts to hedge securities in their
portfolios that are denominated in foreign currency against losses caused by a
decline in foreign currency values. For example, if a Fund owns securities
denominated in French Francs, and the Manager or Subadvisor anticipates a
decline in the Franc's value relative to the U.S. dollar, the Fund can enter
into a contract to exchange Francs for dollars in order to lock in the 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 CFTC, and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. The Funds may enter
into futures contracts which are based on debt securities that are backed by the
full faith and credit of the U.S. government, such as long-term U.S. Treasury
bonds, Treasury notes, GNMA modified pass-through mortgage backed securities and
three month U.S. Treasury bills. The Funds may also enter into futures
contracts which are based on bonds issued by entities other than the U.S.
government.
The Funds will not enter into Futures Contracts for speculation and will only
enter into Futures Contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal interest rate and currency Futures exchanges in the U.S. are the Board
of Trade of the City of Chicago and the Chicago Mercantile Exchange. U.S.
futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"). Futures are also exchanged in
London at the London International Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could be
used to reduce the Funds' exposure to interest rate, currency exchange rate and
stock price fluctuations, the Funds may be able to hedge their exposure 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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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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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 "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 or Subadvisor's prediction of movements in the direction of
interest rates, securities prices, or currency markets are inaccurate, the
adverse consequences to the Funds may leave the Funds in a worse position than
if such strategies were not used. Risks inherent in the use of options, foreign
currency and futures contracts and options on futures contracts include: (1)
dependence on the Manager's or Subadvisor's ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. The Funds' ability to enter into futures contracts
and options thereon is limited by the requirements of the Code for qualification
as a regulated investment company.
WARRANTS OR RIGHTS. Warrants or rights may be acquired by a Fund in connection
with other securities or separately, and provide the Fund with the right to
purchase at a later date other securities of the issuer. As a condition of its
continuing registration in a state, each Fund has undertaken that its
investments in warrants or rights, valued at the lower of cost or market, will
not exceed 5% of the value of its net assets and not more than 2% of such assets
will be invested in warrants and rights which are not listed on the American or
New York Stock Exchange. Warrants or rights acquired by a Fund in units or
attached to securities will be deemed to be without value for purpose of this
restriction. These limits are not fundamental policies of the Funds and may be
changed by the Company's Board of Directors without shareholder approval.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which the Funds
purchase a security and simultaneously commit to resell that security to the
seller at an agreed upon price on an agreed upon date within a specified number
of days (usually not more than seven) from the date of purchase. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value (at least equal to the amount
of the agreed upon resale price and marked to market daily) of the underlying
security. Repurchase agreements are considered to be loans by the Funds for
purposes of the 1940 Act. In the event of the seller's default, the Funds could
suffer a loss if the fair market value of the security "purchased" is less than
the amount paid for the security. The Manager or Subadvisor will consider the
creditworthiness of sellers before causing a Fund to enter into repurchase
agreements with them, and will review such creditworthiness periodically. In the
event of the bankruptcy of the other party to a repurchase agreement, a Fund
could experience delays in recovering either the securities or the cash lent. To
the extent that, in the meantime, the value of the securities purchased had
decreased, the Fund could experience a loss. In all cases, the Manager must find
the creditworthiness of the other party to the transaction satisfactory.
The purpose of engaging in repurchase agreements is to earn a return on
uninvested cash. The Funds may engage in a repurchase agreement with respect to
any security in which they are authorized to invest. Whether a repurchase
agreement is the purchase and sale of a security or a collateralized loan has
not been definitively established. This might become an issue in the event of
the bankruptcy of the other party to the transaction. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the underlying
securities, as well as delays and costs to the Funds in connection with
bankruptcy proceedings), it is currently the policy of the Funds to enter into
repurchase agreements only with those member banks of the Federal Reserve System
and primary dealers in U.S. government securities whose creditworthiness has
been reviewed and found satisfactory by the Manager or Subadvisor, pursuant to
policies established by the Company's Board of Directors.
The Funds may in the future wish to invest in foreign repurchase agreements.
Currently, markets for foreign repurchase agreements are in the developing stage
in various countries and it can be expected that new markets will continue to be
developed in the future. The Funds do not have any current intention of engaging
in foreign repurchase
18
<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 and the Subadvisor's performance of their respective responsibilities
in connection with the placement of portfolio transactions on behalf of the
Funds, and reviews the commissions paid by the Funds to determine whether such
commissions are reasonable in relation to what the directors believe are the
benefits to the Funds. See "Allocation of Portfolio Transactions" in the
Prospectus for information on the Funds' portfolio turnover rates.
MONEY MARKET INSTRUMENTS. As noted in the Funds' Prospectus, the Funds may, from
time to time, invest excess cash in the following "money market" securities:
U.S. Government Securities. The Funds may invest in the various types of short-
- --------------------------
term marketable securities issued by or guaranteed as to principal and interest
by the U.S. government and supported by the full faith and credit of the U.S.
Treasury. U.S. Treasury obligations differ mainly in the length of their
maturity. Treasury bills, the most frequently issued marketable government
securities, have a maturity of up to one year and are issued on a discount
basis.
U.S. Government Agency Securities. The Funds may invest in short-term U.S.
- ---------------------------------
government agency securities which are debt securities issued by government-
sponsored enterprises and federal agencies. Examples are the Federal National
Mortgage Association and the Federal Intermediate Credit Bank. Such securities
are not direct obligations of the Treasury but involve U.S. government
sponsorship or guarantees by U.S. government agencies or enterprises. Such
securities are subject to fluctuations in market value due to fluctuations in
market interest rates. Certain types of these securities are subject to
fluctuations in yield due to early prepayments on mortgages underlying such
securities. The Funds may invest in all types of U.S. government agency
securities currently outstanding or to be issued in the future.
Bank Obligations. These obligations include, but are not limited to, negotiable
- ----------------
certificates of deposit, bankers' acceptances and fixed time deposits. The Funds
will limit their investment in U.S. bank obligations to obligations of U.S.
banks (including foreign branches) which have more than $1 billion in total
assets at the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits are insured
by the Federal Deposit Insurance Corporation. The Funds will limit their
investments in foreign bank obligations to U.S. dollar denominated obligations
of foreign banks which at the time of investment (i) have more than $10 billion,
or the equivalent in other currencies, in total assets; (ii) in terms of assets
are among the 75 largest foreign banks in the world; (iii) have branches or
agencies in the U.S.; and (iv) in the opinion of the Manager or Subadvisor are
of an investment quality comparable with obligations of U.S. banks which may be
purchased by the Funds.
Fixed time deposits are obligations of U.S. banks, of foreign branches of U.S.
banks, or of foreign banks which are payable at a stated maturity date and bear
a fixed rate of interest. Generally, fixed time deposits may be withdrawn on
demand by the investor, but they may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have a market, there are no
contractual restrictions on the Funds' right to transfer a beneficial interest
in the deposit to a third party. It is the policy of each Fund not to invest in
(i) fixed time deposits subject to withdrawal penalties, other than overnight
19
<PAGE>
deposits; (ii) repurchase agreements with more than seven days to maturity; or
(iii) other illiquid securities, if in the aggregate more than 5% of the value
of its net assets would be so invested.
Obligations of foreign banks and foreign branches of U.S. banks involve somewhat
different investment risks from those affecting obligations of U.S. banks,
including the possibilities that liquidity could be impaired because of future
political and economic developments, that the obligations may be less marketable
than comparable obligations of U.S. banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions (such as foreign exchange controls) may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks, or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks differ from those applicable to U.S.
banks. In that connection, foreign banks are not subject to examination by any
U.S. government agency or instrumentality.
Short-Term Corporate Debt Instruments. The Funds may invest in commercial paper,
- -------------------------------------
which refers to short-term, unsecured promissory notes issued by U.S. and
foreign corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months.
The Funds may also invest in non-convertible corporate debt securities (e.g.,
bonds and debentures) with no more than one year remaining to maturity at the
date of settlement. Corporate debt securities with a remaining maturity of less
than one year tend to become extremely liquid and are traded as money market
securities.
The Funds' commercial paper investments at the time of purchase will be rated at
least A-2 by Standard & Poor's or Prime-2 by Moody's, or if unrated, will be of
comparable quality as determined by the Manager or Subadvisor. The Funds' short-
term investments in corporate bonds and debentures (which must have maturities
at the date of purchase of one year or less) must be rated at the time of
settlement at least AA by Standard & Poor's or Aa by Moody's. See Appendix A to
the Prospectus for information about Moody's and Standard & Poor's ratings.
DIRECTORS AND OFFICERS
The Company's Board of Directors has the responsibility for the overall
management of the Funds, including general supervision and review of their
investment activities. The Board of Directors, in turn, appoints the officers
who are responsible for administering the day-to-day operations of the Funds.
Listed below are the directors and officers of 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 77.
SIR VICTOR GARLAND (15 Wilton Place, Knightsbridge, London, SW1X 8RL) has been a
private investor since 1984, and currently serves as a director of a number of
U.K. public companies. He is 61.
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
20
<PAGE>
office of Vice Chairman of AIB Asset Management Holdings (UK). AIBIM is a
subsidiary of Allied Irish Banks p.l.c., 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.
JAMES M. OATES (c/o The Wydown Group, 60 State Street, Suite 950, Boston, MA
02109) is currently Managing Director of The Wydown Group. From 1984 to 1994 he
was President and Chief Executive Officer of Neworld Bancorp, Inc. From 1983 to
1984 Mr. Oates was President and Chief Operating Officer of Burgess & Leith, a
financial services company. From 1977 to 1983, he was President and Chief
Operating Officer of Metro Bancholding Corporation. Mr. Oates currently serves
on the Board of Directors of Massachusetts Banks Association, Savings Bank Life
Insurance Company, Phoenix Mutual Funds, Savings Bank Life Insurance Guarantee
Fund, and Investors Bank & Trust Company. 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 become a member of The
Institute of Chartered Secretaries and Administrators in England and Wales in
1986. Based in London, he is responsible for management of U.S operations. He
is 36.
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 46.
21
<PAGE>
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
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 January
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.
22
<PAGE>
The following table summarizes the above information relating to the directors
and officers of the Company, and the total compensation paid to them by the
Funds during 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.
23
<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, Position Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<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
MANAGEMENT OF THE FUNDS
Manager
- -------
John Govett & Co. Limited is the investment manager of the Funds. The initial
Investment Management Contract with respect to the International Equity Fund,
the Emerging Markets Fund and the Global Income Fund was approved by the
Company's Board of Directors (including a majority of the Directors who are not
"interested persons" of the Funds or the Manager) on November 25, 1991 and by
the initial shareholder of those Funds on November 26, 1991. The initial
Investment Management Contract with respect to the Smaller Companies Fund was
approved by the Company's Board of Directors (including a majority of the
Directors who are not "interested persons" of that Fund or the Manager) on
November 6, 1992 and by the initial shareholder of the Smaller Companies Fund on
December 28, 1992. The initial Investment Management Contract with respect to
the Pacific Strategy Fund was approved by the Company's Board of Directors
(including a majority of the Directors who are not "interested persons" of the
Funds or the Manager) on November 5, 1993, and by the initial shareholder of
that Fund on December 15, 1993. The initial Investment Management Contract with
respect to the Latin America Fund was approved by the Company's Board of
Directors (including a majority of the Directors who are not "interested
persons" of the Funds or the Manager) on March 4, 1994, and by the initial
shareholder of that Fund on March 4, 1994.
In connection with the sale on December 29, 1995 of John Govett to an affiliate
of Allied Irish Banks p.l.c., a new investment management agreement was approved
by the Board of Directors on December 11, 1995, and by the shareholders of the
Funds on February 23, 1996. The terms and conditions of the new Investment
Management Contract are identical in all respects to the Investment Management
Contract in effect prior to the sale, except for the effective and termination
dates.
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
24
<PAGE>
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.
Shareholder Services Agent
- --------------------------
FPS Services, Inc. ("FPS" or the "Shareholder Services Agent") provides the
Company and each Fund with certain services, including the following: (1)
preparation and maintenance of accounts and records for each Fund and
performance of certain related functions; and (2) provision of transfer agency
services to each Fund. These services are provided at cost plus a profit. The
Shareholder Services Agent is an affiliate of the Distributor.
Fund Administrator and Accountant
- ---------------------------------
Chase Global Services, Inc., 73 Tremont Street, Boston, MA 02108 (the "Fund
Administrator and Accountant") provides the Company with certain administration
and accounting services.
Custodians
- ----------
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
25
<PAGE>
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110, (617)
439-4390, acts as the Funds' independent accountants.
FUND COUNSEL
Goodwin, Procter & Hoar, 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.
26
<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 December 31,
1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Name and Address Fund Percentage of Outstanding Shares
of Shareholder as of January 31,1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
USNB of Oregon Cust. International Equity Fund 12.4%
FBO M.J. Murdock Charitable Trust
Attn: Mutual Funds
P. O. Box 3168
Portland, OR 97208-3168
- -----------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc.
Govett Emerging Markets
Fund 8.35% International Emerging Markets Fund 5.0%
Equity Fund 10.23%
Charles Schwab & Co., Inc.
Special Custody Account for the
Exclusive Benefit of Cusottomers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- -----------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. Latin America Fund 18.17%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Govett Latin American
Fund 8.68%
St. Elizabeth Hospital Global Income Fund 5.3%
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 Shareholder Services Agent, the Funds
pay all of their own expenses, including, without limitation, the costs and
expenses attributable to the preparation, typesetting, printing and mailing of
their proxy materials to existing shareholders, their legal expenses, and the
fees of their custodians, auditor and non-interested directors. The Funds'
Investment Management Contract with the Manager also provides that the Funds
will pay for the typesetting, printing and mailing of Prospectuses, Statements
of Additional Information and reports to existing shareholders. Other expenses
paid by the Funds include interest, taxes, brokerage commissions, and other
portfolio transactions fees and charges, the Funds' proportionate share of
insurance premiums and dues, and the costs of registering shares under federal
and state securities laws. The Funds are also responsible for such nonrecurring
expenses as may arise, including costs of litigation to which the Funds are
party and any obligations they may have to indemnify their officers and
directors with respect to such litigation.
Pursuant to the Investment Management Contract, each Fund is obligated to pay
the Manager a monthly fee computed at the close of business on the last business
day of each month equal to a monthly rate of approximately .08%, or 1% per year
(.06% monthly or .75% per year for the Global Income Fund), of the average daily
net assets of the Fund. Given the added complexities involved in managing
international and smaller company investments, this fee is higher than that paid
by most other investment companies. The Investment Management Contract also
specifies that the management fee will be reduced to the extent necessary to
comply with the most stringent expense limits prescribed by any state in which
the Funds' shares are offered for sale. The most stringent current state
restriction limits each Fund's allowable operating expenses (excluding interest,
taxes, a portion of the Fund's Rule 12b-1 distribution fees, a portion of the
Fund's custodian expenses attributable to investments in foreign securities,
brokerage commissions and extraordinary expenses such as litigation costs) in
any fiscal year to 2.5% of the first $30 million of the average daily net assets
of the Fund, 2.0% of the next $70 million of the average daily net assets of the
Fund, and 1.5% of the average daily net assets of the Fund in excess of $100
million.
During the fiscal years ending December 31, 1993, 1994, 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>
</TABLE>
28
<PAGE>
<TABLE>
<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>
29
<PAGE>
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 as to a Fund until the
second anniversary of its effective date with respect to such Fund. Thereafter,
it continues in effect for successive annual periods, provided such continuance
is specifically approved at least annually by a vote of the Company's Board of
Directors or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority of the Company's directors
who are not parties to the agreement or interested persons of any such party
(other than as directors of the Company), cast in person at a meeting called for
that purpose. The Investment Management Contract may be terminated without
penalty at any time by one or more of the Funds or by the Manager on sixty days
written notice without penalty, and will automatically terminate in the event of
its assignment, as defined in the 1940 Act.
As required by the Investment Company Act of 1940, as amended (the "1940 Act"),
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
30
<PAGE>
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. The Fund did not compensate Berkeley Capital
Management directly for services rendered to the Fund.
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
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<PAGE>
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 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
- ---------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
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.
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
33
<PAGE>
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.
34
<PAGE>
35
<PAGE>
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 Internal Revenue Code of 1986, as amended (the "Code"), which in
pertinent part defines a person as disabled if such person "is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or to be of long-continued and indefinite duration." While the
Funds do not specifically adopt the balance of Code's definition which
pertains to furnishing the Secretary of Treasury with proof as he or she
may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC.
In cases of disability or death, the CDSC may be waived when the descendent
or disabled person is either an individual shareholder or owns the shares
as a joint tenant with right of survivorship or is the beneficial owner
36
<PAGE>
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
Code; custodial accounts maintained pursuant to Section 403(b)(7) of the
Code, and pension or profit sharing plans qualified under Section 401(a) of
the Code. The charge may be waived upon the tax-free rollover or transfer
of assets to another retirement plan invested in one or more of the Funds;
in such event, as described below, the Funds will "tack" the period for
which the original shares were held on to the holding period of the shares
acquired in the transfer or rollover for purposes of determining what, if
any, CDSC is applicable in the event that such acquired shares are redeemed
following the transfer or rollover. The CDSC also will be waived on any
redemption which results from the return of an excess contribution pursuant
to Section 408(d)(4) or (5) of the Code, the return of excess deferral
amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death
or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii). In addition, the CDSC may be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).
The Funds do not currently intend to waive the CDSC for any distributions
from IRAs or other retirement plans not specifically described above.
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.
37
<PAGE>
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.
SUSPENSION OF REDEMPTION PRIVILEGE
The Funds may suspend redemption privileges or postpone the date of payment of
redemptions for more than seven days after a redemption order is received during
any period (1) when the New York Stock Exchange is closed other than customary
weekend and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the SEC; (2) when an emergency exists as defined by
the SEC, which makes it not reasonably practicable for the Funds to dispose of
securities owned by it or fairly to determine the value of its assets; or (3) as
the SEC may permit.
LETTER OF INTENT -- CLASS A SHARES
A Letter of Intent ("LOI") is not a binding obligation to purchase the indicated
amount of Class A Fund shares. During such time as Fund shares are held in
escrow under an LOI to assure payment of applicable front-end sales charges if
the indicated amount of Class A is not purchased, all dividends and capital gain
distributions on the escrowed shares will be reinvested in additional shares or
paid in cash, as specified by the shareholder. If the intended investment is not
completed within the specified 13-month period, the purchaser must remit to the
Shareholder Services Agent the difference between the front-end sales charge
actually paid and the sales charge which would have been applicable if the total
purchases of Class A shares had been made at a single time. If this amount is
not paid to the Shareholder Services Agent within 20 days after written request,
the appropriate number of escrowed shares will be redeemed by the Shareholder
Services Agent.
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<PAGE>
INDIVIDUAL RETIREMENT ACCOUNTS (IRA)
Shares of the Funds may also be purchased as the underlying investment for an
individual retirement account meeting the requirements of Section 408(a) of the
Internal Revenue Code of 1986, as amended. IRA applications are available from
securities dealers who sell Fund shares or from the Shareholder Services Agent.
CALCULATION OF NET ASSET VALUE
The Funds are open for business, and each Fund's net asset value ("NAV") is
calculated, on every day the New York Stock Exchange is open for trading. The
New York Stock Exchange is closed on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. The close of trading and the determination
of NAV will coincide with the close of business of the New York Stock Exchange
(normally considered 4:00 p.m. Eastern Time). When the New York Stock Exchange
is closed or when trading is restricted or suspended for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the SEC to merit such action, the Funds will determine NAV at the
close of business, the exact time of which will coincide with the closing of the
New York Stock Exchange. If there is such a restriction or suspension, any
shareholder may withdraw any demand for redemption or any tender of shares which
has been received by the Shareholder Services Agent during any such period, the
applicable NAV of which would but for
39
<PAGE>
such restriction or suspension be calculated as of a time during such period.
Upon such withdrawal, the Shareholder Services Agent shall return to the
shareholder the share certificates tendered, if any.
Securities listed or traded on the New York Stock Exchange or on a foreign
securities exchange ("Listed Securities") are valued at the last quoted sales
price on that exchange prior to the time when the Funds' assets are valued.
Securities listed or traded on certain foreign exchanges whose operations are
similar to the U.S. over-the-counter market are valued at the price within the
limits of the latest available current bid and asked prices deemed by the
Manager (or the Subadvisor, in the case of the Smaller Companies Fund) best to
reflect a fair value. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the spot exchange rates at 1:00 p.m. Eastern
Time or at such other rates as the Manager or Subadvisor may determine to be
appropriate in computing NAV. A security which is listed or traded on more than
one exchange is valued at the quotation on the exchange determined to be the
primary market for such security by the Manager or Subadvisor. Listed securities
that are not traded on a particular day, and securities regularly traded in the
over-the-counter market, are valued at the price within the limits of the latest
available current bid and asked prices deemed by the Manager or Subadvisor best
to reflect a fair value. In instances where the price of a security determined
above is deemed by the Manager or Subadvisor not to be representative, the
security is valued in such a manner as prescribed by the Funds' Board of
Directors to reflect the security's fair value. Because the Funds invest in
securities that are traded in foreign markets on days the Funds are not open for
business, the Funds' NAV may be significantly affected on days when shareholders
do not have access to the Funds to purchase or redeem shares. For purposes of
determining the Funds' NAV, all assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at exchange rates quoted by a
major bank. If such quotations are not available, the rate of exchange will be
determined in accordance with policies established in good faith by the Board of
Directors. The Board of Directors monitors the Funds' method of valuation on an
ongoing basis.
Long-term debt obligations are valued at the mean of representative quoted bid
and asked prices for such securities or, if such prices are not available, at
prices for securities of comparable maturity, quality and type; however, when
the Manager or Subadvisor deems it appropriate, prices obtained for the day of
valuation from a bond pricing service will be used. Short-term debt obligations
with remaining maturities in excess of 60 days are valued at the mean of
representative quoted bid and asked prices for such securities or, if such
prices are not available, such securities are valued using the prices for
securities of comparable maturity, quality, and type.
Options are valued at the last sale price on the exchange on which they are
listed, unless no sales of such options have taken place that day, in which case
they will be valued at the mean between their closing bid and asked prices. If
an option exchange closes later than 4:00 p.m. Eastern Time, the options traded
on it are valued based on the sale price, or on the mean between the bid and
asked prices, as the case may be, as of 4:00 p.m. Eastern Time. When the seller
writes a call, an amount equal to the premium received is included as an asset,
and an equivalent deferred credit is included as a liability. If a call written
by a Fund is exercised, the proceeds are increased by the premium received. If a
call expires, a Fund has a gain in the amount of the premium; if a Fund enters
into a closing purchase transaction, the Fund will have a gain or loss depending
on whether the premium was more or less than the cost of the closing
transaction. If a put held by a Fund is exercised, the amount the Fund receives
on sale of the underlying investment is reduced by the amount of the premium
paid by the Fund.
Futures are valued at the last sale price as of the close of the commodities
exchange on which they are traded, unless such exchange closes later than 4:00
p.m. Eastern Time, in which case such Futures are valued at the last sale price
as of 4:00 p.m. Eastern Time. Should the Board of Directors determine that such
price does not reflect the instrument's fair value, such instruments will be
valued at their fair market value as determined by, or in accordance with
valuation procedures and guidelines established by, the Board of Directors.
As noted in the Prospectus, the purchase and redemption prices of a Fund's
shares are based upon the Fund's net asset value ("NAV") per share of each such
class. Each Fund determines its NAV per share of each class by subtracting the
Fund's liabilities (including accrued expenses and dividends payable)
attributable to that class from its total assets (the value of the securities
the Fund holds plus cash and the value of other assets, including income accrued
but not yet received) attributable to that class and dividing the result by the
total number of shares outstanding. The NAV per share of the Fund is calculated
at the close of trading on the New York Stock Exchange (normally considered 4:00
p.m. Eastern Time) every day the Exchange is open.
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<PAGE>
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 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 b y 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. The
Global Income Fund seeks to pay monthly dividends from net investment income, if
any, which may include all or a portion of their respective net realized short-
term gains. Annual distributions of any net realized long-term gains and any
remaining short-term gains, if any, will be declared in November or December of
each year. The Funds also intend to comply with other tax rules applicable to
regulated investment companies, including a requirement that capital gains from
selling securities and certain options, futures and forward contracts held for
less than three months must constitute less than 30% of each Fund's gross income
for each fiscal year. Gains from foreign currency and foreign currency
denominated forward, futures and options contracts held less than three months
which are not directly related to the Funds' business of investing in foreign
securities are included in this 30% limitation, which may limit the Funds'
investments in such instruments.
DIVIDENDS. Gains (losses) attributable to foreign currency fluctuations are
generally taxable as ordinary income and therefore increase (decrease) dividend
income. Because the Funds invest primarily in foreign securities (including the
Smaller Companies Fund, which from time to time may invest primarily in foreign
securities), corporate shareholders
41
<PAGE>
should not expect dividends from the Funds to qualify for the dividends received
deduction. If the Funds earn qualifying dividends from U.S. corporations, they
will notify corporate shareholders annually of the percentage of the Funds'
dividends which qualify for the dividends received deduction. Dividends are
declared annually (the Global Income Fund seeks to declare monthly dividends out
of net investment income, if any). The Funds will send each shareholder a notice
promptly after the end of the calendar year describing the tax status of
dividends and capital gain distributions made during the prior year. The per
share dividend on Class B and Class C shares are expected to be lower than the
per share dividends on Class A shares as a result of the higher distribution
fees and expenses and incremental transfer agency fees applicable to Class B and
Class C shares.
CAPITAL GAINS DISTRIBUTIONS. Long-term capital gains earned by the Funds on the
sale of securities and distributed to shareholders are generally taxable as
long-term capital gains, regardless of the length of time that the shareholders
have held their shares. Under current U.S. federal income tax rules, long-term
capital gains are taxed at rates up to twenty-eight percent. If a shareholder
receives a long-term capital gain distribution on shares of a Fund and such
shares are held for less than six months and are sold at a loss, the portion of
the loss equal to the amount of the long-term capital gain distribution will be
considered a long-term capital loss for tax purposes. Short-term capital gains
distributed by the Funds are taxable to shareholders as dividends, not as
capital gains. Distributions from the short-term capital gains do not qualify
for the dividends received deduction.
FEDERAL INCOME TAX TREATMENT OF OPTIONS. Certain option transactions have
special tax implications for the Funds. Listed non-equity options, including
options on currencies, will be considered to have been closed out at the end of
the Funds' taxable year, and any gains or losses will be recognized for tax
purposes at that time. Such gains or losses will be characterized as 60% long-
term capital gain or loss and 40% short-term capital gain or loss regardless of
the holding period of the option. Gains or losses on unlisted currency options
will not be subject to this treatment and will generally result in ordinary
income or loss. In addition, losses on purchased puts and written covered calls,
excluding "qualified covered call options" on equity securities, to the extent
they do not exceed the unrealized gains on the securities or currencies covering
the options, may be subject to deferral until the securities or currencies
covering the options have been sold. The holding period of the securities
covering these options will be deemed not to begin until the option is
terminated. For securities covering a purchased put, this adjustment of the
holding period may increase the gain from sales of securities held for less than
three months. The holding period of the security covering an "in-the-money-
qualified covered call" option on an equity security will not include the period
of time the option is outstanding. Losses on written covered calls and purchased
puts on securities, excluding certain "qualified covered call" options on equity
securities, may be long-term capital losses, if the security covering the option
was held for more than twelve months prior to the writing of the option.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. Except for transactions the Funds
have identified as hedging transactions, the Funds are required for federal
income tax purposes to recognize as income for each taxable year their net
unrealized gains and losses on listed Futures Contracts as of the end of the
year, as well as those actually realized during the year. Except for
transactions in Futures Contracts which are classified as part of a "mixed
straddle," any gain or loss recognized with respect to a Futures Contract is
considered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the Futures Contract. In
the case of a Futures transaction classified as a "mixed straddle," the
recognition of losses may be deferred to a later taxable year.
Sales of Futures Contracts which are intended to hedge against a change in the
value of securities or currencies held by the Funds may affect the holding
period of such securities or currencies and, consequently, the nature of the
gain or loss on such securities or currencies upon disposition.
In order for each Fund to continue to qualify for federal income tax treatment
as a "regulated investment company" under the Code, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or certain currency positions. In addition, gains realized on
the sale or other disposition of securities or certain currency positions held
for less than three months must be limited to less than 30% of the Fund's annual
gross income. It is anticipated that any net gain realized from the closing out
of Futures
42
<PAGE>
Contracts will be considered gain from the sale of securities or currencies and
therefore be qualifying income for purposes of the 90% requirements. In order to
avoid realizing excessive gains on securities or currencies held less than three
months, the Funds may be required to defer the closing out of Futures Contracts
beyond the time when it would otherwise be advantageous to do so. It is
anticipated that unrealized gains on Futures Contracts which have been open for
less than three months as of the end of a Fund's fiscal year and which are
recognized for tax purposes, will not be considered gains on securities or
currencies held less than three months for purposes of the 30% test.
The Funds will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fiscal year) on Futures transactions. Such
distributions will be combined with distributions of capital gains realized on a
Fund's other investments and shareholders will be advised of the nature of such
distributions.
FOREIGN TAXES. Income received by the Funds may give rise to withholding and
other taxes imposed by foreign countries. If more than 50% of the value of a
Fund's assets at the close of a taxable year consists of securities of foreign
corporations, the Fund may make an election that will permit its shareholders to
take a credit (or, if more advantageous, a deduction) for foreign income taxes
paid by the Fund, subject to limitations contained in the Code. Shareholders
would then include in gross income both dividends paid to them by the Fund and
the foreign taxes paid by the Fund on its foreign investments. The Funds cannot
assure shareholders that they will be eligible for the foreign tax credit. The
Funds will advise shareholders annually of their share of any creditable foreign
taxes paid by the Funds.
The foregoing discussion and the related discussion in the Prospectus have been
prepared by management of the Company and do not purport to be a complete
description of all tax implications of an investment in the Funds. Shareholders
are advised to consult with their own tax advisors concerning the application of
foreign, federal, state, and local taxes to an investment in the Funds. Goodwin
Procter & Hoar have expressed no opinion in respect thereof.
43
<PAGE>
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 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. The Underwriting Agreement requires the Distributor to use its
best efforts to secure purchasers for shares of the Funds. Pursuant to an
agreement with the Distributor, John Govett provides certain marketing and
services for the Funds. Between December 20, 1994 and March 31, 1997,Van Kampen
American Capital Distributors, Inc. (the "Distributor") acted in this capacity.
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, the Distributor is entitled to receive a
sales charge in connection with certain sales of Fund shares. During the fiscal
year ended December 31, 1993, Govett Financial Services Limited ("Services")
the Funds' former distributor, services received front-end sales charges of
$704,654.09, after reallowances of front-end sales charges to dealers of
$384,018.63 for sales of Class A shares of the International Equity Fund,
Emerging Markets Fund, Smaller Companies Fund, and the Global Income Fund.
During the period from January 1, 1994 through October 2, 1994, Services
received sales charges of $222,723.00 after reallowances of front-end sales
charges to dealers of $6,341,249.00 for sales of Class A shares of the
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Fund, Latin America Fund, and Global Income Fund. During the
period from October 3, 1994 through December 31, 1994, Van Kampen American
Capital received sales charges of $163,601.00 after reallowances of front-end
sales charges to dealers of $847,100.00 for sales of Class A shares of the
International Equity Fund, Emerging Markets Fund, Smaller Companies Fund,
Pacific Strategy Fund, Latin America Fund, and Global Income Fund. These sales
charges also include charges applicable to the Govett Developing Markets Bond
Fund, which was open for investments during 1994 but which was closed to new
investment on February 1, 1995 and was merged into the Global Income Fund on
June 29, 1995. During the fiscal year ended December 31, 1995, the Distributor
received sales charges of $3,699,507.00 after reallowances of front-end sales
charges to dealers of $20,922,480.00 for Class A shares of the International
Equity Fund, Emerging Markets Fund, Smaller Companies Fund, Pacific Strategy
Fund, Latin America Fund, and Global Income Fund. 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 the International Equity Fund, Emerging Markets Fund, Smaller
Companies Fund, Pacific Strategy Fund, Latin America Fund, and Global Income
Fund.
Rule 12b-1 adopted by the SEC under the Investment Company Act of 1940 permits
an investment company to directly or indirectly pay expenses associated with the
distribution of its shares ("distribution expenses") in accordance with a plan
adopted by the investment Company's Board of Directors and approved by its
shareholders. Pursuant to such Rule, the Company's Board of Directors, and the
shareholders of each class of each Fund, have adopted three Distribution Plans
hereinafter referred to as the "Class A Plan," the "Class B Plan," and the
"Class C Plan" and together as the "Plans." Under the Class A Plan, each Fund
pays a distribution fee to the Distributor at an annual rate of 0.50%
44
<PAGE>
(0.35% for the Global Income Fund) of each Fund's aggregate average daily net
assets attributable to its Class A shares. Under the Class B Plan and the Class
C Plan, each Fund pays a distribution and service fee to the Distributor at an
annual rate of 1% of the Fund's aggregate average daily net assets attributable
to its Class B shares and Class C shares. During the period from January 1, 1994
through October 2, 1994, Govett Financial Services Limited, the Funds' former
distributor, was entitled to receive distribution fees from the International
Equity Fund, Emerging Markets Fund, Smaller Companies Fund, the Global Income
Fund, the Pacific Strategy Fund (from inception), and the Latin America Fund
with respect to their Class A shares in the amounts of $139,291, $300,038,
$138,948, $204,218, $85,171, and $24,092, respectively. During the period from
October 3, 1994 through December 31, 1994, the Distributor was entitled to
receive distribution fees from the International Equity Fund, Emerging Markets
Fund, Smaller Companies Fund, Pacific Strategy Fund, Latin America Fund and the
Global Income Fund with respect to their Class A shares in the amounts of
$43,548, $118,548, $69,981, $19,052, $12,501, and $50,717, respectively. During
the period from January 1, 1995 through December 31, 1995, the Distributor was
entitled to receive distribution fees from the International Equity Fund,
Emerging Markets Fund, Smaller Companies Fund, Pacific Strategy Fund, Latin
America Fund and the Global Income Fund with respect to their Class A shares in
the amounts of $156,106, $374,718, $1,601,106, $59,626, $23,877 and $158,798,
respectively. During the period from January 1, 1996 through December 31, 1996,
the Distributor was entitled to receive distribution fees from the International
Equity Fund, Emerging Markets Fund, Smaller Companies Fund, Pacific Strategy
Fund, Latin America Fund and the Global Income Fund with respect to their Class
A shares in the amounts of $140,462, $392,612, $1,889,748,$40,672, $33,405 and
$105,247, respectively.
The Plans are deemed by the Staff of the Securities and Exchange Commission (the
"SEC") to be "compensation plans" because payments made are not tied directly to
actual expenses incurred, and the Distributor is given discretion concerning
what expenses are payable under the Plans. The fees received by the Distributor
pursuant to the Plans may exceed or, particularly in the early years of the
Funds, be less than the estimated direct and indirect costs incurred by the
Distributor in providing its services under the Plans and its Underwriting
Agreement with the Funds. If the fees received exceed expenses incurred, the
Distributor may be deemed to have received a "profit" to the extent of such
excess. For example, if the Distributor pays $1 for distribution expenses and
receives $2 under the Class A Plan, the $1 difference could be said to be a
profit for the Distributor. If the fees received are less than expenses
incurred, the Plans do not carry over any excess costs over fees to a subsequent
annual period.
Under the Plans, the Distributor receives distribution fees from the Funds at
the annual rates described in the Prospectus as compensation for providing
services and incurring expenses in the distribution of Fund shares. Such
expenditures may include payment of (1) commissions to certain financial
institutions (which may include banks), securities dealers and other industry
professionals (collectively, "Service Organizations") for providing distribution
assistance or services to clients which purchase shares of the Funds, (2) out-
of-pocket expenses of printing and distributing prospectuses and annual and
semiannual shareholder reports to other than existing shareholders, (3) out-of-
pocket and overhead expenses for preparing, printing and distributing
advertising material and sales literature, (4) expenses for promotional
incentives to securities dealers and financial and industry professionals, and
(5) advertising and promotional expenses, including conducting and organizing
sales seminars, marketing support salaries and bonuses, and travel-related
expenses.
The distribution and service fees attributable to Class B shares or Class C
shares are designed to permit an investor to purchase such shares without the
assessment of a front-end sales charge and at the same time permit the
Distributor to compensate Service Organizations with respect to such shares. In
this regard, the purpose and function of the combined CDSC and distribution and
service fees are the same as those of the initial sales charge and distribution
fee with respect to the Class A shares of the Funds in that in both cases the
sales charge and distribution charge provide for the financing of the
distribution of the Funds' shares.
As required by Rule 12b-1 under the Investment Company Act, each Plan and the
forms of servicing agreements and selling agreements were approved by the
Company's Board of Directors, including a majority of the Directors who are not
interested persons (as defined in the Investment Company Act) of the Company and
who have no direct or indirect financial interest in the operation of any of the
Plans or in any agreements related to a Plan (the "Independent Directors"). In
approving each Plan in accordance with the requirements of Rule 12b-1, the
Directors determined that there is a reasonable likelihood that each Plan will
benefit the Funds and their respective shareholders. Information with respect
to distribution revenues and expenses is presented to the Directors each year
for their consideration in
45
<PAGE>
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 prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, the Distributor believes that the
Glass-Steagall Act should not preclude a bank from performing shareholder
support, servicing and recordkeeping functions. The Distributor intends to
engage banks to perform only such functions with respect to the Funds. However,
changes in federal or state statutes and regulations pertaining to the
permissible activities of banks and their affiliates or subsidiaries, as well as
further judicial or administrative decisions or interpretations, could prevent a
bank from continuing to perform all or a part of the contemplated services. If a
bank were prohibited from so acting, the Company's Board of Directors would
consider what actions, if any, would be necessary to continue to provide
efficient and effective shareholder services. In such event, changes in the
operation of the Funds might occur, including possible termination of any
automatic investment or redemption or other services then provided by the bank.
It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. The Funds may execute
transactions with and purchase securities issued by depository institutions that
receive payments under the Plans. No preference will be shown in the selection
of Fund investments for the securities of such depository institutions.
PERFORMANCE
As noted in the Prospectus, the Funds may from time to time quote various
performance figures to illustrate the Funds' past performance. They may also
occasionally cite statistics to reflect the volatility or risk of their
portfolios.
A Fund's "Standardized Return," as referred to in the Prospectus (see
"Performance Information") is calculated as follows: Standardized Return ("T")
is computed by using the value at the end of the period ("V") of a hypothetical
initial investment of $1,000 ("P") over a period of years ("n") according to the
following formula as required by the SEC: P(1 + T)/n/=EV (the ending redeemable
value of initial investment). The following assumptions will be reflected in
computations made in accordance with this formula: (1) deduction of the maximum
front-end sales charge of 4.95% from the $1,000 initial investment (Class A
shares only); (2) reinvestment of dividends and distributions at net asset value
on the reinvestment date determined by the Company's Board of Directors; (3) a
complete redemption at the end of any period illustrated, and (4) deduction of
any applicable CDSC. The Standardized Returns of the Class A shares of the
following Funds for the periods indicated are:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
International Emerging Smaller 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%
- ----------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 n/a -21.04% n/a
- ----------------------------------------------------------------------------------------------
1/1/94 - 12/31/94 -12.98% -16.97% 22.31% -16.44% 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>
47
<PAGE>
"Non-Standardized Return," as referred to in the Prospectus, is calculated for a
specified period of time by assuming the investment of $1,000 in Fund shares and
further assuming the reinvestment of all dividends and distributions made to
Fund shareholders in additional Fund shares at their net asset value. Percentage
rates of return are then calculated by comparing this assumed initial investment
to the value of the hypothetical account at the end of the period for which the
Non-Standardized Return is quoted. The Funds do not take sales charges into
account in calculating Non-Standardized Return, and the inclusion of such
charges would reduce such return.
Current yield ("YIELD") is computed by dividing the difference between dividends
and interest earned during a one-month period ("a") and expenses accrued for the
period (net of reimbursements) ("b") by the product of the average daily number
of shares outstanding during the period that were entitled to receive dividends
("c") and the maximum offering price per share on the last day of the period
("d") according to the following formula as required by the SEC:
YIELD = 2[(a-b + 1)/6/ - 1]
---
cd
The YIELD of the Class A shares of the Global Income Fund for the one month
period ended December 31, 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 agencies
of the U.S. government (excluding mortgage backed securities), and all public,
fixed rate, non-convertible investment grade domestic corporate debt rated at
least Aa by Moody's Investors Service or AA by Standard & Poor's, or, in the
case of bonds not rated by Moody's or Standard & Poor's, BBB by Fitch Investors
Service (excluding Collateralized Mortgage Obligations).
48
<PAGE>
(3) Average of Savings Accounts, which is a measure of all kinds of savings
deposits, including longer-term certificates (based on figures supplied by the
U.S. League of Savings Institutions). Savings accounts offer a guaranteed rate
of return on principal, but no opportunity for capital growth. During a portion
of the period, the maximum rates paid on some savings deposits were fixed by
law.
(4) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g., food,
clothing, shelter, fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
(5) Data and mutual fund rankings and comparisons published or prepared by
Lipper Analytical Data Services, Inc. ("Lipper"), Morningstar Inc.
("Morningstar"), Micropal, Inc. ("Micropal"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Company Services ("Wiesenberger") and/or other
companies that rank or compare mutual funds by overall performance, investment
objectives, assets, expense levels, periods of existence and/or other factors.
In this regard, each Fund may be compared to its "peer group" as defined by
Lipper, Morningstar, Micropal, CDA, Wiesenberger and/or other firms, as
applicable or to specific funds or groups of funds within or without such peer
group.
(6) Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and a GNP-weighted index, beginning in 1975. The
returns are broken down by local market and currency.
(7) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(8) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500 of the
largest publicly traded stocks in the U.S., and Russell 2000 Index, NASDAQ
Composite Index and the Wilshire 500 Stock Index, which are recognized indices
composed of capitalization-weighted average share prices of smaller company
stocks.
(9) Salomon Brothers Broad Investment Grade Index, which is a widely used
index composed of U.S. domestic government, corporate, and mortgage-backed fixed
income securities.
(10) Dow Jones Industrial Average.
(11) Financial News Composite Index.
(12) Morgan Stanley Capital International World Indices, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far East
Index ("EAFE Index"). The EAFE Index is an unmanaged index of more than 800
companies located in Europe, Australia and the Far East.
(13) International Finance Corporation (IFC) Emerging Markets Data Base
which provides detailed statistics on bond and stock markets in developing
countries.
(14) J.P. Morgan & Co. Bond Indices, including, among others, the J.P.
Morgan Traded Government Bond Index which is an index composed of liquid non-
U.S. fixed income securities based on market weightings and currency since 1986.
(15) Chemical Emerging Markets Debt Index.
(16) Morgan Stanley Capital International Latin America Emerging Market
Indices, including the Morgan Stanley Emerging Markets Free Latin America Index
(which excludes securities issued by Mexican banks and securities companies
which cannot be purchased by foreigners) and the Morgan Stanley Emerging Markets
Global Latin America Index. Both indices include 60% of the market
capitalization of the following countries: Argentina, Brazil, Chile, and
Mexico. The indices are weighted by market capitalization and are calculated
without dividends reinvested.
49
<PAGE>
(17) International Financial Corporation ("IFC") Latin American Indices
which include 60% of the market capitalization in the covered countries and are
market weighted. One index includes reinvestment of dividends and one does not.
(18) MSCI Pacific Index (which includes Japan).
(18) Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith,
Inc.; Bear Stearns & Co., Inc.; Morgan Stanley; and Ibbottson Associates may be
used, as well as information provided by the Federal Reserve Board. In addition,
performance rankings and ratings reported periodically in national financial
publications, including but not limited to Money Magazine, Forbes, Business
Week, The Wall Street Journal and Barron's may also be used.
The Funds may, from time to time, publish information describing a Funds'
largest holdings, country weightings, and sector allocations. The Funds may
also publish information concerning the average maturity of bond holdings in a
Fund.
FINANCIAL STATEMENTS
Audited financial statements for the fiscal year ended December 31, 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. to
obtain a free copy.
50
<PAGE>
THE GOVETT FUNDS, INC.
PART C TO FORM N-1A DATED MAY 1, 1997
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
The following audited financial statements for the 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 series of
Registrant are incorporated in Part B by this reference to such
Funds' Annual Report to Shareholders for the year ended December
31, 1996:
Schedule of Investments as of December 31, 1996; Statement of
Assets and Liabilities as of December 31, 1996; Statement of
Operations for the year ended December 31, 1996; Statements of
Changes in Net Assets for the years or indicated periods, ended
December 31, 1996. Financial Highlights (For A Share Outstanding
Throughout the years or indicated periods Ending December 31,
1996, December 31, 1995, December 31, 1994, December 31, 1993 and
December 31, 1992); related Notes to Financial Statements; and
the Report of the Independent Certified Public Accountants.
(b) Exhibits
1a. Articles of Amendment and Restatement(3)
1b. Articles Supplementary(3)
2. By-Laws (3)
3. Voting Trust Agreement (Not Applicable)
4. Specimen Share Certificate (To be provided by amendment)
5a. Investment Management Contract (3)
6a. Underwriting Agreement (Agreement with New Underwriter to be
provided by amendment)
6b. Form of Soliciting Dealer Agreement (1)
6c. Form of Multi-Class Selling Group Agreement
6d. Form of Soliciting Financial Institution Sales Contract (To be
provided by amendment)
7. Copy of Bonus, Profit Sharing, etc. (Not Applicable)
8. Global Custody Agreement (2)
9. Transfer Agency Agreement (Agreement with New Transfer
Agent to be provided by amendment)
10. Opinion and Consent of Counsel (2)
11. Opinion and Consent of Independent Public Accountants
12. All Financial Statements Omitted from Item 23 (Not Applicable)
13. Investment Intent Letter (2)
1
<PAGE>
14. Copy of Model Plan Used in Establishment of Any
Retirement Plan (1)
15a. Class A Distribution and Service Plan Pursuant to Rule 12b-1 (3)
15b. Class B Distribution and Service Plan Pursuant to Rule 12b-1 (3)
15c. Class C Distribution and Service Plan Pursuant to Rule 12b-1 (3)
16. Schedule of Computation of Each Performance Quotation
17. Financial Data Schedule
18. Rule 18f-3 Plan (not applicable)
19. Power of Attorney
(1) Incorporated by reference to like-numbered exhibits filed with Pre-
Effective Amendment No. 2 to this Registration Statement on September
23, 1991.
(2) Incorporated by reference to like-numbered exhibits filed with Pre-
Effective Amendment No. 3 to this Registration Statement on December
19, 1991.
(3) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 16 to this Registration Statement on April 24,
1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following information is provided for Class A Shares only. AS OF
THE DATE OF THIS AMENDMENT, B AND C SHARES HAVE NOT BEEN OFFERED TO THE
PUBLIC.
<TABLE>
<CAPTION>
Class A Shares Number of Recordholders
-------------- as of January 31, 1997
-----------------------
<S> <C>
International Equity Fund 3,362
Emerging Markets Fund 9,017
Smaller Companies Fund 46,780
Pacific Strategy Fund 963
Latin America Fund 841
Global Income Fund 1,984
</TABLE>
ITEM 27. INDEMNIFICATION
Article VIII of the Registrant's Articles of Incorporation provides as
follows:
"Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Registrant shall have
any liability to the Registrant or its shareholders for damages. This
limitation on liability applies to events occurring at the time a
person serves as a director
2
<PAGE>
or officer of the Registrant whether or not such person is a director
or officer at the time of any proceeding in which liability is
asserted.
"Section 2. The Registrant shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses
to its officers to the same extent as its directors and to such
further extent as is consistent with law. The Board of Directors may
by Bylaw, resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to the
fullest extent permitted by the Maryland General Corporation Law.
"Section 3. No provision of this Article shall be effective to protect
or purport to protect any director or officer of the Registrant
against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
"Section 4. References to the Maryland General Corporation Law in this
Article are to the law as from time to time amended. No further
amendment to the Articles of Incorporation of the Registrant shall
decrease, but may expand, any right of any person under this Article
based on any event, omission or preceding prior to such amendment."
Article VII of the Registrant's Bylaws also provide for
indemnification by the Registrant of its officers and directors and
others to the fullest extent permitted by Maryland law and the
Investment Company Act of 1940. The Bylaws also provide for the
advance of certain expenses incurred by such persons under certain
circumstances.
"Section 11 of the Investment Management Contract filed as Exhibit 5
to this Registration Statement provides that John Govett & Co. Limited
(the "Manager") shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Registrant or any of
its portfolios in connection with the matters to which the contract
relates, except for losses resulting from the willful misfeasance, bad
faith or gross negligence of the Manager in the performance of its
duties or from reckless disregard by the Manager of its obligations
and duties under the contract.
Registrant also participates in a policy of insurance which insures
Registrant, the Manager and Distributor, and their respective present,
past and future directors, partners, officers, trustees and employees
against liability incurred on account of any breach of duty, neglect,
error, misstatement, misleading statement, omission or other wrongful
act done or attempted by any insured (each a "Wrongful Act") in
connection with the management and operation of Registrant, or the
provision of investment advisory or distribution services to or on
behalf of Registrant, but excluding losses incurred by reason of
actual
3
<PAGE>
fraud, dishonesty, criminal or malicious acts or omissions
finally adjudicated. No coverage is provided for any Wrongful Act
committed with knowledge that it was a Wrongful Act.
The Underwriting Agreement between Registrant and FPS Broker
Services, Inc., (the "Distributor") filed as Exhibit 6a to this
Registration Statement provides that Registrant shall indemnify the
Distributor against any and all claims, demands, liabilities and
expenses which the Distributor may incur under the Securities Act (as
defined below), at common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in any
registration statement or prospectus of Registrant, or any omission to
state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to Registrant in connection therewith by or on behalf of the
Distributor.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") may be
permitted to directors and officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification by Registrant is against
public policy as expressed in the Securities Act, and therefore may be
unenforceable. In the event that a claim for such indemnification
(except insofar as it provides for the payment by Registrant of
expenses incurred or paid by a director, officer or controlling person
in the successful defense of any action, suit or proceeding) is
asserted against Registrant by any director, officer or controlling
person and the Securities and Exchange Commission is still of the same
opinion, Registrant will, unless in the opinion of its counsel the
matter has been settled by a controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act, and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
John Govett & Co. Limited ("John Govett") serves as investment manager
to all of the series of the Registrant. A description of the directors
and officers of John Govett, and other required information, is
included in John Govett's Form ADV and schedules thereto, as amended,
which is on file at the SEC (File No. 801-34730). John Govett's Form
ADV, as amended, is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITER
4
<PAGE>
5
<PAGE>
6
<PAGE>
7
<PAGE>
8
<PAGE>
9
<PAGE>
10
<PAGE>
FPS Broker Services, Inc. ("FPSB"), the principal underwriter for the
Registrant's securities, currently acts as principal underwriter for the
following entities:
29a. Chicago Trust Funds
Fairport Funds
First Mutual Funds
Focus Trust, Inc.
IAA Trust Mutual Funds
Matthews International Funds
McM Funds
Polynous Trust
Sage/Tso Trust
Smith Breeden Series Fund
Smith Breeden Short Duration U.S. Government Fund
Smith Breeden Trust
The Stratton Funds, Inc.
The Japan Alpha Fund
Stratton Growth Fund, Inc.
11
<PAGE>
Stratton Monthly Dividend Shares, Inc.
The Timothy Plan
29b. The table below sets forth certain information as to the
Underwriter's Directors, Officers and Control Persons:
<TABLE>
<CAPTION>
Position Position and
Name and Principal and Offices Offices with
Business Address with Underwriter Registrant
----------------- ---------------- ------------
<S> <C> <C>
Kenneth J. Kempf Director and None
3200 Horizon Drive President
P.O. Box 61503
King of Prussia, PA 19406-0903
Lynne M. Cannon Vice President None
3200 Horizon Drive and Principal
P.O. Box 61503
King of Prussia, PA 19406-0903
Rocky C. Cavalieri Director and None
3200 Horizon Drive Vice President
P.O. Box 61503
King of Prussia, PA 19406-0903
Gerald J. Holland Director, Senior None
3200 Horizon Drive Vice President
P.O. Box 61503 and Principal
King of Prussia, PA 19406-0903
Joseph M. O'Donnell, Esq. Director and None
3200 Horizon Drive Vice President
P.O. Box 61503
King of Prussia, PA 19406-0903
Sandra L. Adams Assistant Vice None
3200 Horizon Drive President and
P.O. Box 61503 Principal
King of Prussia, PA 19406-0903
Mary P. Efstration Secretary None
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
John H. Leven Treasurer None
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
</TABLE>
12
<PAGE>
James W. Stratton may be considered a control person of the
Underwriter due to his direct or indirect ownership of FPS Services,
Inc., the parent of the underwriter
29c. Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records required to be maintained by Rule 31a-1(b)(4)
under the Investment Company Act of 1940 will be maintained by the
Registrant at 250 Montgomery Street, Suite 1200, San Francisco,
California 94104. Pursuant to Rule 31a-3 under the 1940 Act, all other
records required by Rule 31a-1 will be maintained at one or more of
the following offices:
Name/Address
------------
John Govett & Co. Limited (Manager)
Shackleton House
4 Battle Bridge Lane
London SE1 2HR England
The Chase Manhattan Bank (Global Custodian)
4 Chase Metro Tech Center
Brooklyn, NY 11245
13
<PAGE>
Chase Global Funds Services Company, Inc. (Fund Accounting/Administration)
73 Tremont Street, 11/th/ Floor
Boston, MA 02108
FPS Broker Services, Inc.(Distributor/Transfer Agent)
3200 Horizon Drive
King of Prussia, PA 19406-0903
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus for a
series of Registrant is delivered with a copy of Registrant's most recent annual
report to shareholders with respect to such series, upon request and without
charge.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for the effectiveness of this Registration Statement pursuant
to Rule 485 (b) under the Securities Act of 1933, and has duly caused this
Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of San Francisco, State of
California, on the 1/st/ day of May, 1997
THE GOVETT FUNDS, INC.
/s/ Brian M. Lee
----------------------------
Brian M. Lee, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Elliott L. Atamian *
- -------------------------
Elliott L. Atamian Director May 1, 1997
/s/ Patrick Cunneen_____*
- -------------------------
Patrick Cunneen Chairman, Director May 1, 1997
/s/ Sir Victor Garland *
- -------------------------
Sir Victor Garland Director May 1, 1997
/s/ Colin J. Kreidewolf
- -------------------------
Colin J. Kreidewolf Treasurer May 1, 1997
(Principal Financial and
Accounting Officer)
/s/ Brian M. Lee
- -------------------------
Brian M. Lee President May 1, 1997
/s/ James M. Oates *
- -------------------------
James M. Oates Director May 1, 1997
</TABLE>
15
<PAGE>
/s/ Frank Terzolo *
- -------------------------
Frank R. Terzolo Director May 1, 1997
* By /s/ Alice L. Schulman May 1, 1997
----------------------------------------------
Alice L. Schulman, Attorney In Fact
16
<PAGE>
Exhibit 6c
THE GOVETT FUNDS, INC.
SELLING GROUP AGREEMENT
As principal underwriter and distributor of the Govett International Equity
Fund series, Govett Emerging Market Fund series, Govett Smaller Companies Fund
series, Govett Pacific Strategy Fund series, Govett Latin America Fund series,
Govett Global Income Fund series, and any future series (individually a "Fund"
and together the "Funds") of The Govett Fund, Inc. (the "Fund Group"), FPS
Broker Services, Inc. invite you to participate in the distribution of the
shares of the Funds (the "Shares") subject to the following terms:
1. You are to offer and sell the Shares only at the public offering price
(current net asset value plus any applicable sales charge) described in the
applicable current prospectus of the Funds, as supplemented or amended from
time to time and in full accord with all Federal and state securities laws
and the rules and regulations promulgated thereunder, and the rules of the
National Association of Securities Dealers, Inc. ("NASD"). You agree to
act only as principal in such transactions or as agent for your customer,
and you shall not have authority to act as agent for the Funds, the Fund
Group or for us in any respect. All orders for shares are subject to
acceptance by us and become effective only upon confirmation by the
applicable Fund or its shareholder servicing agency (the "Transfer and
Shareholder Services Agent"). No conditional orders for Shares will be
accepted. The procedures relating to orders for Shares and the handling
thereof will be subject to the Funds' description thereof set forth in the
Prospectus and Statement of Additional Information (each as defined below)
and to written instructions released by us from time to time.
2. Remittance for each such order, if made by check, should be payable to the
applicable Fund and promptly delivered to the Transfer and Shareholder
Services Agent at the address appearing on the face of the confirmation of
such order. (Remittance for orders for Shares to be purchased through an
individual retirement account, as described in each Prospectus, should be
payable by check to the applicable Fund). Payment must be received by the
Transfer and Shareholder Services Agent within three (3) business days (or
such shorter period as may hereafter be required by law or regulation)
after acceptance and confirmation of your order, otherwise we reserve the
right, without notice, to cancel the sale, in which event you will be held
responsible for any loss to the applicable Fund, or to us. You agree to
provide us with written notice of any application by you to any regulatory
authority for any extension of the time for such payment prior to your
submission of such application.
3. (a) For your services hereunder, you will receive a dealer concession
("Dealer Concession") from us as determined in the manner provided in the
then-current Prospectus of the applicable Fund. There is no Dealer
Concession on Shares purchased through the reinvestment of dividends or
distributions or on Shares purchased at net asset value. The Dealer
Concession is subject to change from time to time, and orders placed
<PAGE>
Exhibit 6c
after the date of any such change shall be subject to the Dealer Concession
in effect at the time the order is received by the Transfer and Shareholder
Service Agent. Upon the purchase of Shares pursuant to a Letter of Intent
or Right of Accumulation (as set forth in the Prospectus and Statement of
Additional Information), you will promptly return to us any excess of the
Dealer Concession previously allowed or paid to you over that allowable
with respect to such later purchase. Unless you advise us to the contrary
at the time of transmitting a purchase order, we will consider that the
investor owns no other Shares and is not entitled to any lower sale charge
than that accorded to a single transaction in the amount of the purchase
order.
(b) To the extent you provide distribution, marketing and other services to
the Funds which have distribution plans (as described in the Prospectus or
Statement of Additional Information) in effect under Rule 12b-1 under the
1940 Act (the "12b-1 Plans"), in connection with the promotion of the sale
of Shares and the retention of assets by such Funds, including furnishing
services and assistance to your customers who invest in or own Shares of
such Funds and including, but not limited to, answering routine inquiries
regarding such Funds and assisting in changing distribution options,
account designations and addresses, we shall pay you quarterly, in
accordance with the then prevailing guidelines, a portion of the fee (the
"Distribution Fee") paid by such Fund pursuant to the applicable 12b-1
Plan, as set forth below ("Additional Compensation"). Such Additional
Compensation shall be payable only with respect to Shares which are owned
of record by your firm as nominee of your customers or which are owned by
those customers of your firm whose records, as maintained by the Funds or
their agents, designate your firm as the customers' dealer of record.
Subject to the provisions of the 12b-1 Plans, as in effect from time to
time, the Additional Compensation shall be computed at the following rates,
and for each calendar quarter shall be based on the average daily net asset
value of the Shares of each Fund that remain outstanding during such
period, subject to such computation and accrual:
Additional Compensation Rate for
All Funds except the Global Income Fund: 0.40%
------
Additional Compensation Rate for
Global Income Fund: 0.25%
Payment of such Additional Compensation to you shall be made within thirty
(30) days after the close of each quarter for which such Additional
Compensation is payable. If the amount of the Additional Compensation
based upon the value of any customer's account is less than $1.00 for any
Fund for any quarter, such Additional Compensation will not be paid. If
the aggregate Additional Compensation, exclusive of Additional Compensation
not paid under the preceding sentence, for all your customer accounts is
less than $15.00 for all Funds for any quarter, such Additional
Compensation will not be paid. In addition (i) you shall not be paid such
Additional Compensation until we are in receipt of the
<PAGE>
Exhibit 6c
Distribution Fee described in that Fund's Prospectus for the period in
which you provide the services described above; and (ii) our liability to
you for the payment of such quarterly Additional Compensation is limited
solely to your pro rata proceeds of that Fund's Distribution Fee. The
provisions of this paragraph may be terminated with respect to any Fund in
accordance with the provisions of Rule 12b-1 under the 1940 Act, and
thereafter no such Additional Compensation will be paid to you.
Where payment is due you hereunder, we agree to send checks for the Dealer
Concession and Additional Compensation to your address as it appears on our
records. You must notify us of address changes and promptly negotiate such
checks. Any such check that remains outstanding for twelve (12) months
shall be void and the obligation represented thereby shall be extinguished.
4. You agree:
(a) that you will purchase Shares only from us or from your customers;
(b) that you will purchase Shares from us only for the purpose of covering
purchase orders already received by you or for your own bona fide
investment; and
(c) that you will not directly or indirectly withhold orders for the
purchase of Shares, purchase Shares in anticipation of orders, or
accept conditional orders.
5. If any shares sold to you under the terms of this Agreement are repurchased
by a Fund or by us for the account of a Fund, or are tendered for
redemption, within three (3) business days (or such shorter period as may
hereafter be required by law or regulation) after the date of the
confirmation of the original purchase by you, you shall forthwith refund to
us the full amount of any compensation you received on such sale.
6. Shares sold to you hereunder shall not be issued in certificate form except
upon written request by you or your customer and only when payment therefor
and proper and complete registration or transfer instructions have been
received by the applicable Fund.
7. If the customer's account with a Fund is established without the customer
signing the application form, you represent that the instructions relating
to the registration and options selected which are furnished to such Fund
(whether on the application form, in some other document, or orally) are
duly authorized in accordance with the customer's instructions, and you
agree to indemnify the Funds, the Fund Group, the Transfer and Shareholder
Services Agent and us for any loss, liability, and expenses resulting from
acting upon such instructions.
8. In consideration of your representations, warranties and covenants set
forth below, we have agreed that representatives of your firm may effect
the following transactions,
<PAGE>
Exhibit 6c
subject to certain restrictions, by telephone or in writing: (1) changes in
the distribution options selected by their brokerage customers with respect
to their Fund accounts; (2) changes in the addresses of record of their
brokerage customers with respect to their fund accounts; (3) changes in
Automatic Investment Plan options of their brokerage customers with respect
to their Fund accounts; (4) changes to the Systematic Withdrawal Plan
options of their brokerage customers with respect to their Fund accounts
which do not change the name of the recipient; and (5) general account
maintenance.
You hereby represent and warrant that any and all representatives of your
firm or your correspondents who give written or telephone instructions
hereunder respecting a customer's Fund account, or who execute wire orders
through the National Securities Clearing Corporation's Fund/SERV system
("Fund/SERV") with respect to such account, will at all times have full and
valid written authority from such customer to give such instructions or to
execute such orders, and you agree that upon our request you will furnish
us with evidence of such authority in your possession. You further agree
to indemnify and hold harmless FPS Broker Services, Inc., the Fund Group
and the Funds' Transfer Agent, and their respective affiliates, officers,
directors, employees and agents, from and against any liability, claims,
loss, damages, settlements, costs and expenses, including, without
limitation, defense costs and attorneys' fees suffered or incurred by any
of them in connection with or arising directly or indirectly out of the
effectuation of any instructions from any representative of your firm or
your correspondents respecting a Fund account contemplated hereunder or in
connection by any representative of your firm or wire orders respecting
Shares through Fund/SERV, including, without limitation, any unauthorized
or fraudulent instructions or orders. You further agree that the Fund
Group and the Transfer and Shareholder Services Agent each is an express
third-party beneficiary of your representations, warranties and covenants
set forth herein, and that such representations, warranties and covenants
shall survive the termination of our Selling Group Agreement with you.
9. You agree that you will not give any information concerning Shares to any
person except for information contained in the current Prospectus, as
amended or supplemented from time to time (the "Prospectus"), the current
Statement of Additional Information for the Funds, as amended or
supplemented from time to time (the "Statement of Additional Information"),
and in sales literature prepared by us to supplement the Prospectus and
Statement of Additional Information ("Sales Literature"). In purchasing
Shares from us, you shall rely solely on the representations contained in
the Prospectus and the Statement of Additional Information. We will
furnish you with a reasonable quantity of copies of the Prospectus,
Statement of Additional Information, Sales Literature, and copies of
amendments and supplements thereto. You agree that if and when we supply
you with copies of any supplements to any Prospectus and Statement of
Additional Information, you will affix copies of such supplements to copies
of the applicable Prospectus and Statement of Additional Information
already in your possession, and that thereafter you will distribute such
Prospectus and Statement of Additional Information only if they
<PAGE>
Exhibit 6c
contain such supplements. You further agree that you will accept orders of
Shares of Funds covered by such Prospectus or Statement of Additional
Information only from persons to whom you have previously provided a copy
of the Prospectus and Statement of Additional Information containing such
supplements.
In the event you elect to use Sales Literature, you agree that such
literature shall not be used in connection with the solicitation of Shares
unless accompanied or preceded by the relevant Prospectus as then currently
in effect and as it may be amended or supplemented in the future.
10. Each party hereto represents that it is a member of the NASD or, if a
foreign dealer, agrees to be bound by the rules and regulations of the
NASD. Each party hereto agrees to notify the other immediately should it
cease to be a member of the NASD. Each party agrees that this Agreement
shall terminate automatically on the date such party ceases to be a member
of the NASD. It is further agreed that all rules or regulations of the
NASD now in effect or hereafter adopted, which are binding upon
underwriters and dealers in the distribution of the securities of open-end
investment companies, shall be deemed to be part of this Agreement to the
same extent as if set forth in full herein.
11. You agree that you will in all respects duly conform with all federal and
state laws and regulations applicable to the offer and sale of Shares, and
will, to the maximum extent permitted by applicable law, indemnify and hold
harmless FPS Broker Services, Inc., each Fund, the Fund Group, and the
officers, directors, employees, agents and affiliates of FPS Broker
Services, Inc., from any liability, claims, loss, damage, costs,
settlements and expenses on account of any act or omission by you, your
representatives, agents or sub-agents in connection with any orders or
solicitation or orders of Shares by you, your representatives, agents or
sub-agents. You agree to offer and sell Shares only in the states and
other jurisdictions in which we have indicated in writing that such offers
and sales can be made and in which you have determined that such offers and
sales can legally be made and in which you are legally qualified and
permitted to so act. If you effect a telephone redemption or telephone
exchange of any Shares on behalf of your customer, you hereby indemnify
each Fund, the Fund Group, and the Transfer and Shareholder Services Agent
against any loss, injury, damage, expense, or liability as a result of
acting or relying upon your telephone instructions and information.
12. We reserve the right in our discretion and without notice to you to suspend
the operation of this Agreement or to suspend or modify the terms of any
offering of Shares made by the Prospectus. Moreover, either party to this
Agreement may cancel the same by giving written notice to the other.
13. This Agreement shall be governed by and construed in accordance with the
laws of the State of California and shall be binding upon both parties
hereto when signed by us and accepted by you in the space provided below.
This Agreement shall not be applicable to
<PAGE>
Exhibit 6c
sales of the Shares in any state in which such Shares are not qualified for
sale.
14. This Agreement cannot be amended or modified expect in writing, duly
executed by the authorized representatives of all of the parties to this
Agreement.
15. If any party to this Agreement seeks to enforce its rights under this
Agreement by legal proceedings or otherwise, the non-prevailing party shall
pay all costs and expenses incurred by the prevailing party, including,
without limitation, all reasonable attorneys' fees.
16. This Agreement may be signed in any number of counterparts with the same
effect as if the signatures to each counterpart were upon a single
instrument. All counterparts shall be considered an original of this
Agreement.
17. If any provision of this Agreement is held to be unenforceable for any
reason, it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the parties to the extent possible. In any event,
all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent possible.
18. All notices, requests, demands and other communications required by, or
made in connection with, this Agreement shall be in writing and shall be
deemed to have been duly given on the date of delivery, if delivered in
person, or three (3) days after mailing if mailed by certified or
registered mail, postage prepaid, return receipt requested, addressed, if
to you, as set forth on the signature page of this Agreement, or, if to us,
as follows:
FPS Broker Services, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
Attention: General Counsel
19. You acknowledge by our execution hereof that all payments by any Fund to us
under its 12b-1 Plans and all payments by Fund shareholders of sales
charges shall be paid in accordance with Article III, Section 26 of the
Rules of Fair Practice of the NASD, as such Section may change from time to
time ("Section 26"), including, without limitation, the limitations set
forth in Section 26 on the maximum asset-based sales charges (as defined in
Section 26) payable with respect to Shares. Accordingly, it is agreed that
to the extent the fees payable to us under a 12b-1 Plan with respect to a
Fund or the sales charges payable by a Fund shareholder for the purchase of
Fund shares are reduced or prohibited by the operation of Section 26, or
payments to you hereunder of the Dealer Concession or Additional
Compensation, as the case may be, will likewise be reduced or will cease.
You further agree that we shall be obligated to pay you a Dealer Concession
or
<PAGE>
Exhibit 6c
Additional Compensation hereunder only if and to the extent we actually
receive a fee from such Fund pursuant to its 12b-1 Plan or a sales charge
from such shareholder, as the case may be. You also agree to remit promptly
to us any Dealer Concession or Additional Compensation paid to you that we
subsequently determine was paid in connection with 12b-1 Plan fees or sales
charges paid to us in violation of Section 26.
Very truly yours, FPS BROKER SERVICES, INC.
ACCEPTED:
______________________________________
Authorized Signature
By: Gerald Holland
Title: Vice President, FPS Broker Services, Inc.
______________________________________ ______________________________
Signature Date
______________________________________
Print Name and Title of Signatory
______________________________________
Print Name of Firm
______________________________________
Address
______________________________________
Address
______________________________________
______________________________________
Tax ID Number of Firm
______________________________________
Telephone/Facsimile Number
Please return both signed copies to FPS Broker Services, Inc., 3200 Horizon
Drive King of Prussia, PA 19406.
<PAGE>
Exhibit 6c
351557.c3
1/24/97
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 17 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 21, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 Annual
Report to Shareholders of The Govett Funds, Inc., which are also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "Management of the Funds" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 24, 1997
<PAGE>
Schedule or Computation of Performance Quotations
Govett International Equity Portfolio
Exhibit 16
1. Average Annual Return (As of December 31, 1996)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year 01/07/92
-------- ---------------
P = $1,000 P = $1,000
T = 6.490% T = 9.670%
N = 1 years N = 4.99 years
ERV = $1,065 ERV = $1,585
<PAGE>
Schedule or Computation of Performance Quotations
Govett Emerging Markets Portfolio
Exhibit 16
1. Average Annual Return (As of December 31, 1996)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year 01/07/92
-------- ---------------
P = $1,000 P = $1,000
T = 6.530% T = 10.730%
N = 1 years N = 4.99 years
ERV = $1,065 ERV = $1,663
<PAGE>
Schedule or Computation of Performance Quotations
Govett Smaller Companies Portfolio
Exhibit 16
1. Average Annual Return (As of December 31, 1996)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year 01/01/93
-------- ---------------
P = $1,000 P = $1,000
T = -15.280% T = 30.540%
N = 1 years N = 4 years
ERV = $847 ERV = $2,904
<PAGE>
Schedule or Computation of Performance Quotations
Govett Pacific Strategy Portfolio
Exhibit 16
1. Average Annual Return (As of December 31, 1996)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year 01/01/94
-------- ---------------
P = $1,000 P = $1,000
T = 3.910% T = -3.940%
N = 1 years N = 3 years
ERV = $1,039 ERV = $886
<PAGE>
Schedule or Computation of Performance Quotations
Govett Latin America Portfolio
Exhibit 16
1. Average Annual Return (As of December 31, 1996)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year 03/07/94
-------- ---------------
P = $1,000 P = $1,000
T = 17.960% T = -7.330%
N = 1 years N = 2.82 years
ERV = $1,180 ERV = $807
<PAGE>
Schedule or Computation of Performance Quotations
Govett Global Income Portfolio
Exhibit 16
1. Average Annual Return (As of December 31, 1996)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year 01/07/92
-------- ---------------
P = $1,000 P = $1,000
T = -4.630% T = 4.770%
N = 1 years N = 4.99 years
ERV = $954 ERV = $1,262
2. Yield (30 days ending December 31, 1996)
Yield = 2[((a-b)/(c* d)+1)/6/-1]
Where: a = dividends and interest paid during the period
b = expenses accrued during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
a = $106,989
b = $29,084
c = 2,506,819
d = $8.75
Yield= 4.30%
<PAGE>
Schedule or Computation of Performance Quotations
Govett Global Income Portfolio
Exhibit 16
SEC Yield (30 days ending December 31, 1996)
FORMULA
Yield = 2[((a-b)/(c* d)+1)/6/-1]
a = dividends and interest paid during the period
b = expenses accrued during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
CALCULATION
a = $106,989
b = $29,084
c = 2,506,819
d = $8.75
Yield= 4.30%
<PAGE>
Exhibit 19
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alice L. Schulman and Regina Pisa, Esq.,
and each of them, his true and lawful attorney-in-fact and agent and either one
acting alone or together shall have full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of The Govett Funds, Inc., and
any and all amendments (including pre-effective and post-effective amendments)
thereto and to file the same, with any and all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as she might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent my lawfully do or cause to be done by virtue hereof.
Dated: November 15, 1996 /s/ Patrick K. Cunneen
Patrick K. Cunneen
Dated: November 15, 1996 /s/ Brian M. Lee
Brian M. Lee
Dated: November 15, 1996 /s/ Colin Kreidewolf
Colin Kreidewolf
Dated: November 15, 1996 /s/ Victor Garland
Sir Victor Garland
Dated: November 15, 1996 /s/ Frank R. Terzolo
Frank R. Terzolo
Dated: November 15, 1996 /s/ Elliott L. Atamian
Elliott L. Atamian
Dated: November 15, 1996 /s/ James M. Oates
James M. Oates
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000869698
<NAME> THE GOVETT FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> GOVETT INTERNATIONAL EQUITY FUND
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<INVESTMENTS-AT-VALUE> 25,472
<RECEIVABLES> 262
<ASSETS-OTHER> 1,445
<OTHER-ITEMS-ASSETS> 0
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<SENIOR-LONG-TERM-DEBT> 670
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<ACCUMULATED-NII-CURRENT> (203)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 423
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,720
<NET-ASSETS> 25,822
<DIVIDEND-INCOME> 381
<INTEREST-INCOME> 15
<OTHER-INCOME> 0
<EXPENSES-NET> (693)
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<APPREC-INCREASE-CURRENT> 373
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (447)
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<INTEREST-EXPENSE> 23
<GROSS-EXPENSE> 1,041
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<PER-SHARE-NAV-BEGIN> 11.27
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<PER-SHARE-NAV-END> 11.19
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000869698
<NAME> THE GOVETT FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> GOVETT EMERGING MARKETS FUND
</SERIES>
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<NET-INVESTMENT-INCOME> (483)
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<NET-CHANGE-IN-ASSETS> (19,073)
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<GROSS-EXPENSE> 2,195
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<PAGE>
<ARTICLE> 6
<CIK> 0000869698
<NAME> THE GOVETT FUNDS, INC.
<SERIES>
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</SERIES>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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<INVESTMENTS-AT-COST> 251,127
<INVESTMENTS-AT-VALUE> 254,718
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<PAID-IN-CAPITAL-COMMON> 268,990
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,591
<NET-ASSETS> 259,735
<DIVIDEND-INCOME> 100
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<EXPENSES-NET> (6,828)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000869698
<NAME> THE GOVETT FUNDS, INC.
<SERIES>
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<NAME> GOVETT PACIFIC STRATEGY FUND
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<TABLE> <S> <C>
<PAGE>
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<NAME> THE GOVETT FUNDS, INC.
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</TABLE>
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<PAGE>
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<NAME> THE GOVETT FUNDS, INC.
<SERIES>
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