File No. 33-58755 CIK #896976
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549-1004
POST-EFFECTIVE AMENDMENT NO. 3 TO FORM S-6
For Registration under the Securities Act of 1933 of
Securities of Unit Investment Trusts Registered on
Form N-8B-2
VAN KAMPEN AMERICAN CAPITAL EQUITY OPPORTUNITY TRUST, SERIES 14
(Exact Name of Trust)
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
(Exact Name of Depositor)
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Complete address of Depositor's principal executive offices)
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC. CHAPMAN AND CUTLER
Attention: Don G. Powell Attention: Mark J. Kneedy
One Parkview Plaza 111 West Monroe Street
Oakbrook Terrace, Illinois 60181 Chicago, Illinois 60603
(Name and complete address of agents for service)
( X ) Check if it is proposed that this filing will become effective on
April 24, 1998 pursuant to paragraph (b) of Rule 485.
VAN KAMPEN AMERICAN CAPITAL EQUITY OPPORTUNITY TRUST, SERIES 14
Govett Smaller Companies Fund and Treasury Trust, Series 1
PROSPECTUS PART ONE
NOTE: Part One of this Prospectus may not be distributed unless accompanied by
Part Two. Please retain both parts of this Prospectus for future reference.
THE TRUST
The Van Kampen American Capital Equity Opportunity Trust, Series 14 (the "
Fund" ) is comprised of one unit investment trust, Govett Smaller Companies
Fund and Treasury Trust, Series 1 (the "Trust" or "Govett Smaller
Companies Fund and Treasury Trust" ). The Govett Smaller Companies Fund and
Treasury Trust offers investors the opportunity to purchase Units representing
proportionate interests in "zero coupon" U.S. Treasury obligations and
shares of Govett Smaller Companies Fund (the "Fund" or "Fund
Shares" ). The Fund is an open-end management investment company, commonly
known as a mutual fund. Unless terminated earlier, each Trust will terminate
on August 15, 2007 and any securities then held will, within a reasonable time
thereafter, be liquidated or distributed by the Trustee. Any Securities
liquidated at termination will be sold at the then current market value for
such Securities; therefore, the amount distributable in cash to a Unitholder
upon termination may be more or less than the amount such Unitholder paid for
his Units.
PUBLIC OFFERING PRICE
The Public Offering Price per Unit of the Trust is equal to the net asset
value of the Fund Shares plus the aggregate bid price of the Treasury
Obligations in the secondary market plus or minus cash, if any, in the Capital
and Income Accounts, divided by the number of Units outstanding, plus the
applicable sales charge. See "Summary of Essential Financial
Information."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is April 24, 1998
Van Kampen American Capital
GOVETT SMALLER COMPANIES FUND AND TREASURY TRUST, SERIES 1
Van Kampen American Capital Equity Opportunity Trust, Series 14
Summary of Essential Financial Information
As of March 5, 1998
Sponsor: Van Kampen American Capital Distributors, Inc.
Evaluator: American Portfolio Evaluation Services
(A division of an affiliate of the Sponsor)
Trustee: The Bank of New York
<TABLE>
<CAPTION>
Govett
Smaller
Companies
Fund and
Treasury
Trust
-------------
<S> <C>
General Information
Aggregate Maturity Value of Treasury Obligations..................................................... $ 2,200,000
Aggregate Number of Shares of Govett Smaller Companies Fund ......................................... 73,693
Number of Units...................................................................................... 348,794
Fractional Undivided Interest in Trust per Unit...................................................... 1/348,794
Public Offering Price:
Aggregate Value of Securities in Portfolio <F1>..................................................... $ 3,635,488
Aggregate Value Securities per Unit (including accumulated dividends)............................... $ 10.37
Sales charge 4.3% (4.493% of Aggregate Value of Securities excluding principal cash per Unit)<F3>... $ .46
Public Offering Price per Unit <F2><F3>............................................................. $ 10.83
Redemption Price per Unit............................................................................ $ 10.37
Secondary Market Repurchase Price per Unit........................................................... $ 10.37
Excess of Public Offering Price per Unit over Redemption Price per Unit.............................. $ .46
</TABLE>
Evaluations for purpose of sale, purchase or redemption of Units
are made as of 4:00 P.M. Eastern time on days of trading on the
New York Stock Exchange next following receipt of an order for a
sale or purchase of Units or receipt by The Bank of New York of
Units tendered for redemption.
<TABLE>
<CAPTION>
<S> <C>
Date of Deposit................................................May 24, 1995
Mandatory Termination Date.....................................August 15, 2007
Estimated Govett Smaller Companies Fund Annual Expenses <F4>...$.005 per Unit
Trustee's Annual Fee...........................................$.005 per Unit
Estimated Annual Organizational Expenses <F5>..................$.0301 per Unit
Record Date....................................................As soon as practicable after the Fund's ex-dividend date.
Distribution Date..............................................As soon as practicable after the Fund's distribution date.
- ----------
<F1>The shares of the Fund are valued at their net asset value. The Treasury
Obligations are valued at their aggregate bid side evaluation. Because the
Fund Shares may from time to time under certain circumstances be sold or Trust
Units may be redeemed, there is no guarantee that the value of each Unit over
the life of the Trust or at the Trust's termination will be equal to the
Aggregate Value of Securities per Unit as stated above. However, due to the
inclusion of the Treasury Obligations in the Trust's portfolio, Unitholders
who hold their Units until maturity will receive at least $11.00 per Unit
(which is the value upon maturity of the Treasury Obligations.)
<F2>Anyone ordering Units will have added to the Public Offering Price a pro rata
share of any cash in the Income and Capital Accounts.
<F3>Effective on each June 1, commencing June 1, 1996, the secondary sales charge
will decrease by .3 of 1% to a minimum sales charge of 1.5%. See "Public
Offering-Offering Price" in Part One.
<F4>Estimated Govett Smaller Companies Fund Expenses represent the intrinsic cost
to each Unit due to the underlying costs associated with the Govett Smaller
Companies Fund and are based upon the net asset value of that number of Govett
Smaller Companies Fund Shares per Unit multiplied by the Fund's Annual
Operating Expenses less rebated 12b-1 fees. See "Trust Portfolio--Fund
Expenses."
<F5>The Trust (and therefore Unitholders) will bear all or a portion of its
organizational costs (including costs of preparing the registration statement,
the trust indenture and other closing documents, registering Units with the
Securities and Exchange Commission and states, the initial audit of the Trust
portfolio and the initial fees and expenses of the Trustee but not including
the expenses incurred in the preparation and printing of brochures and other
advertising materials and any other selling expenses) as is common for mutual
funds. Total organizational expenses will be amortized over a five year
period. See "Expenses of the Trust" in Part Two and "Statements of
Condition" in Part One. Historically, the sponsors of unit investment
trusts have paid all the costs of establishing such trusts.
</TABLE>
PORTFOLIO
The Van Kampen American Capital Equity Opportunity Trust, Series 14 consists
of one unit investment trust, Govett Smaller Companies Fund and Treasury Trust
Series 1. The Smaller Companies Fund and Treasury Trust offers investors the
opportunity to purchase units representing proportionate interests in "Zero
Coupon" U.S. Treasury obligations and shares of Govett Smaller Companies Fund.
PER UNIT INFORMATION
<TABLE>
<CAPTION>
1995(1) 1996 1997
------------ ----------- -----------
<S> <C> <C>
Net asset value per Unit at beginning of period.................................$ 9.51 $ 11.54 $ 10.10
============ =========== ===========
Net asset value per Unit at end of period.......................................$ 11.54 $ 10.10 $ 10.12
============ =========== ===========
Distributions to Unitholders of investment income ..............................$ 0.61 $ 0.64 $ (0.01)
============ =========== ===========
Unrealized appreciation (depreciation) of Securities
(per Unit outstanding at end of period)... .....................................$ 1.10 $ (2.78) $ 0.61
============ =========== ===========
(1) Units outstanding at end of period.......................................... 863,764 637,877 386,388
</TABLE>
- ----------
(1)For the period from May 24, 1995 (date of deposit) through December 31, 1995.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen American Capital Distributors, Inc.
and the Unitholders of Van Kampen American Capital Equity Opportunity Trust,
Series 14 (Govett Smaller Companies Fund and Treasury Trust):
We have audited the accompanying statements of condition (including the
analyses of net assets) and the related portfolio of Van Kampen American Capital
Equity Opportunity Trust, Series 14 (Govett Smaller Companies Fund and Treasury
Trust) as of December 31, 1997, and the related statements of operations and
changes in net assets for the period from May 24, 1995 (date of deposit) through
December 31, 1995 and the years ended December 31, 1996 and 1997. These
statements are the responsibility of the Trustee and the Sponsor. Our
responsibility is to express an opinion on such statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1997 by correspondence with the
Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee and the Sponsor, as well as evaluating
the overall financial statement presentation. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Van Kampen American Capital
Equity Opportunity Trust, Series 14 (Govett Smaller Companies Fund and Treasury
Trust) as of December 31, 1997, and the related statements of operations and
changes in net assets for the period from May 24, 1995 (date of deposit) through
December 31, 1995 and the years ended December 31, 1996 and 1997, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
March 13, 1998
<TABLE>
VAN KAMPEN AMERICAN CAPITAL EQUITY OPPORTUNITY TRUST
SERIES 14
Statements of Condition
December 31, 1997
<CAPTION>
Govett
Smaller
Companies
Fund and
Treasury
Trust
--------------
<S> <C>
Trust property
Securities at market value, (cost $4,525,347) (note 1)................................ $ 3,940,162
Organizational costs (note 1)......................................................... 25,597
--------------
$ 3,965,759
==============
Liabilities and interest to Unitholders
Cash overdraft........................................................................ $ 53,967
Interest to Unitholders............................................................... 3,911,792
--------------
$ 3,965,759
==============
Analyses of Net Assets
Interest of Unitholders (386,388 Units of fractional undivided interest outstanding)
Cost to original investors of 1,240,000 Units (note 1)................................ $ 13,202,000
Less initial underwriting commission (note 3)......................................... 653,007
--------------
12,548,993
Less redemption of 853,612 Units...................................................... 9,251,115
--------------
3,297,878
Undistributed net investment income
Net investment income................................................................. 1,634,162
Less distributions to Unitholders..................................................... 997,654
--------------
636,508
Realized gain (loss) on Security sale or redemption................................... 562,591
Unrealized appreciation (depreciation) of Securities (note 2)......................... (585,185)
Distributions to Unitholders of Security sale or redemption proceeds.................. --
--------------
Net asset value to Unitholders........................................................ $ 3,911,792
==============
Net asset value per Unit (386,388 Units outstanding)................................... $ 10.12
==============
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
GOVETT SMALLER COMPANIES FUND AND TREASURY TRUST, SERIES 1
Statements of Operations
Period from May 24, 1995 (date of deposit) through December 31, 1995
and years ended December 31, 1996 and 1997
<CAPTION>
1995 1996 1997
------------- --------------- ---------------
<S> <C> <C>
Investment income
Dividend Income..................................................... $ 483,213 $ 539,369 $ --
Interest income..................................................... 172,851 337,315 144,456
-------------- --------------- ---------------
656,064 876,684 144,456
Expenses.............................................................
Trustee fees and expenses........................................... 3,090 6,678 5,911
Organizational fees................................................. 8,050 10,168 9,145
------------- --------------- ---------------
Total expenses...................................................... 11,140 16,846 15,056
------------- --------------- ---------------
Net investment income............................................... 644,924 859,838 129,400
Realized gain (loss) from Securities sale or redemption
Proceeds............................................................ 3,765,905 2,905,003 2,569,951
Cost................................................................ 3,263,228 2,509,802 2,905,238
------------- --------------- ---------------
Realized gain (loss)................................................ 502,677 395,201 (335,287)
Net change in unrealized appreciation (depreciation) of Securities... 950,947 (1,773,545) 237,413
------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS......$ 2,098,548 $ (518,506) $ 31,526
============= =============== ===============
</TABLE>
<TABLE>
Statements of Changes in Net Assets
Period from May 24, 1995 (date of deposit) through December 31, 1995
and years ended December 31, 1996 and 1997
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income..........................................................$ 644,924 $ 859,838 $ 129,400
Realized gain (loss) on Securities sale or redemption.......................... 502,677 395,201 (335,287)
Net change in unrealized appreciation (depreciation) of Securities............. 950,947 (1,773,545) 237,413
--------------- --------------- ---------------
Net increase (decrease) in net assets resulting from operations................ 2,098,548 (518,506) 31,526
Distributions to Unitholders from:
Net investment income.......................................................... (487,497) (515,912) 5,755
Securities sale or redemption proceeds......................................... -- -- --
Redemption of Units (3,763,036) (2,922,635) (2,565,444)
--------------- --------------- ---------------
Total increase (decrease)...................................................... (2,151,985) (3,957,053) (2,528,163)
Net asset value to Unitholders
Beginning of period............................................................ 1,901,133 9,963,854 6,439,955
Additional Securities purchased from proceeds of Unit Sales.................... 10,214,706 433,154
--------------- --------------- ---------------
End of period (including undistributed net investment income of
$157,427 $501,353, and $636,508 respectively)................................. $ 9,963,854 $ 6,439,955 $ 3,911,792
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
GOVETT SMALLER COMPANIES FUND AND TREASURY TRUST, SERIES 1
PORTFOLIO as of December 31, 1997
<CAPTION>
Valuation of Securities
Number at December 31,
of Net Asset Value 1997
Shares Name of Issuer Per Share (Note 1)
- ---------- -------------------------------- --------------------- ----------------------------
<S> <C> <C> <C>
80,827 Govett Smaller Companies Fund $ 19.0900 $ 1,542,987
80,827
==========
</TABLE>
<TABLE>
<CAPTION>
Maturity
Value Name of Issuer and Title of Security
- ------------ ---------------------------------------------------------------------------------
<S> <C> <C>
$ 4,190,000 "Zero Coupon" U.S. Treasury bonds maturing August 15, 2007 2,397,175
============ ------------
$ 3,940,162
============
</TABLE>
The accompanying notes are an integral part of these statements.
VAN KAMPEN AMERICAN CAPITAL EQUITY OPPORTUNITY TRUST SERIES 14
Notes to Financial Statements
December 31, 1995, 1996 and 1997
- --------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation - Fund Shares are valued at the net asset value as of the
Evaluation Time. Treasury obligations are valued at the closing bid price.
Security Cost - The original cost to the Trust of the Fund Shares was based,
on the net asset value as of the Evaluation Time. The original cost of the
Treasury obligations was based on the offering side evaluation as determined
by Interactive Data Corporation. In each case, the costs were determined on
the day of the various Dates of Deposit.
Unit Valuation - The redemption price per Unit is the pro rata share of each
Unit based upon (1) the cash on hand in the Trust or monies in the process of
being collected, (2) the Securities in the Trust based on the value as
described in Note 1 and (3) accumulated dividends thereon, less accrued
expenses of the Trust, if any.
Federal Income Taxes - Each Unitholder is considered to be the owner of a pro
rata portion of the Trust and, accordingly, no provision has been made for
Federal Income Taxes.
Distributions to Unitholders of the Trust's taxable income will be taxable as
ordinary or capital gain income to Unitholders.
Other - The financial statements are presented on the accrual basis of
accounting. Any realized gains or losses from securities transactions are
reported on an identified cost basis. Since the date of deposit undistributed
net investment income includes $654,622 of accreted interest.
Organizational Costs - The Trust will bear all or a portion of its
organizational costs, which will be deferred and amortized over the life of
the Trust.
NOTE 2 - PORTFOLIO
Unrealized Appreciation and Depreciation - An analysis of net unrealized
appreciation (depreciation) at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Govett Smaller
Companies
Fund and
Treasury Trust
-------------------
Unrealized Appreciation $ 50,565
Unrealized Depreciation (635,750)
-------------------
$ (585,185)
===================
</TABLE>
NOTE 3 - OTHER
Marketability - Although it is not obligated to do so, the Sponsor intends to
maintain a market for Units and to continuously offer to purchase Units at
prices, subject to change at any time, based upon the value of the Securities
in the portfolio of the Trust valued as described in Note 1, plus accumulated
dividends to the date of settlement. If the supply of Units exceeds demand, or
for other business reasons, the Sponsor may discontinue purchases of Units at
such prices. In the event that a market is not maintained for the Units, a
Unitholder desiring to dispose of his Units may be able to do so only by
tendering such Units to the Trustee for redemption at the redemption price.
Cost to Investors - The cost to original investors was based on the underlying
value of the Securities per Unit on the date of an investor's purchase, plus a
sales charge of 4.9% of the public offering price which is equivalent to
5.152% of the aggregate offering price of the Securities. The secondary market
cost to investors is based on the determination of the underlying value of the
Securities per Unit on the date of an investor's purchase plus a sales charge
of 4.9% of the public offering price which is 5.152% of the underlying value
of the Securities. Effective on each June 1, commencing June 1, 1996, the
secondary sales charge will decrease by .3 of 1% to a minimum sales charge of
1.5%.
NOTE 4 - REDEMPTION OF UNITS
During the periods ended December 31, 1995, 1996, and 1997 336,236 Units,
265,887 Units and 251,489 Units, respectively, were presented for
redemption.
VAN KAMPEN AMERICAN CAPITAL
VAN KAMPEN AMERICAN CAPITAL EQUITY OPPORTUNITY TRUST, SERIES 14
GOVETT SMALLER COMPANIES FUND AND TREASURY TRUST, SERIES 1
PROSPECTUS PART TWO
THE FUND. Van Kampen American Capital Equity Opportunity Trust, Series 14 is
comprised of one unit investment trust, Govett Smaller Companies Fund and
Treasury Trust, Series 1 (the "Smaller Companies Fund and Treasury Trust" or
"Trust"). The Smaller Companies Fund and Treasury Trust offers investors the
opportunity to purchase Units representing proportionate interests in "zero
coupon" U.S. Treasury obligations and shares of Govett Smaller Companies Fund
(the "Fund" or "Fund Shares"). The Fund is an open-end management investment
company, commonly known as a mutual fund. Unless terminated earlier, the Trust
will terminate on August 15, 2007 (the "Mandatory Termination Date") and any
securities then held will, within a reasonable time thereafter, be liquidated or
distributed by the Trustee. Any Securities liquidated at termination will be
sold at the then current market value for such Securities; therefore, the amount
distributable in cash to a Unitholder upon termination may be more or less than
the amount such Unitholder paid for his or her Units.
OBJECTIVES OF THE TRUST. The objectives of the Smaller Companies Fund and
Treasury Trust are to provide the potential for long-term capital appreciation
by investing in shares of Govett Smaller Companies Fund and to protect
Unitholders' capital by investing a portion of its portfolio in "zero coupon"
U.S. Treasury obligations ("Treasury Obligations"). Collectively, the Treasury
Obligations and the Fund Shares are referred to herein as the "Securities." See
"Portfolio" in Part One. The Treasury Obligations in the Smaller Companies Fund
and Treasury Trust evidence the right to receive a fixed payment at a future
date from the U.S. Government and are backed by the full faith and credit of the
U.S. Government. The guarantee of the U.S. Government does not apply to the
market value of the Treasury Obligations or the Units of the Smaller Companies
Fund and Treasury Trust, whose net asset value will fluctuate and may be worth
more or less than a purchaser's acquisition cost. It is anticipated that upon
maturity the Treasury Obligations will represent an amount per Unit of at least
$11.00. The Fund seeks to achieve its long-term capital appreciation objective
by investing primarily in equity securities of smaller domestic and foreign
companies. There is, of course, no guarantee that the objectives of the Trust
will be achieved.
PUBLIC OFFERING PRICE. The Public Offering Price of the Trust includes the
net asset value of the Fund Shares, the aggregate bid price of the Treasury
Obligations, the applicable sales charge described herein, and cash, if any, in
the Income and Capital Accounts held or owned by the Trust. The minimum purchase
is 500 Units (100 Units for a tax-sheltered retirement plan). See "Public
Offering."
PRINCIPAL PROTECTION. The Smaller Companies Fund and Treasury Trust has been
organized so that purchasers of Units should receive, at the termination of the
Smaller Companies Fund and Treasury Trust, an amount per Unit at least equal to
$11.00 (which is equal to the per Unit value upon maturity of the Treasury
Obligations), even if the Smaller Companies Fund and Treasury Trust never paid a
dividend and the value of the Fund Shares were to decrease to zero, which the
Sponsor considers highly unlikely. This feature of the Smaller Companies Fund
and Treasury Trust provides Unitholders who purchase Units at the price of
$11.00 or less per Unit and who hold such Units until the termination of the
Trust with total principal protection, including any sales charges paid,
although they might forego any earnings on the amount invested. To the extent
that Units are purchased at a price less than $11.00 per Unit, this feature may
also provide a potential for capital appreciation. As a result of the volatile
nature of the market for "zero coupon" U.S. Treasury Obligations, Units sold or
redeemed prior to maturity will fluctuate in price, and the underlying Treasury
Obligations may be valued at a price greater or less than their value as of the
Initial Date of Deposit. Unitholders disposing of their Units prior to the
maturity of the Trust may receive more or less than $11.00 per Unit, depending
on market conditions on the date Units are sold or redeemed.
Units of the Trust are not deposits or obligations of, or guaranteed or
endorsed by, any bank and are not federally insured or otherwise protected by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency and involve investment risk, including the possible loss of
principal.
NOTE: THIS PROSPECTUS MAY BE USED ONLY WHEN ACCOMPANIED BY PART ONE. BOTH
PARTS OF THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE. THIS
PROSPECTUS IS DATED AS OF THE DATE OF THE PROSPECTUS PART I ACCOMPANYING THIS
PROSPECTUS PART II.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Treasury Obligations deposited in the Smaller Companies Fund and Treasury
Trust will mature on August 15, 2007. The Treasury Obligations have a maturity
value greater than the aggregate Public Offering Price (which includes the sales
charge) of the Units of the Smaller Companies Fund and Treasury Trust on the
Initial Date of Deposit; however, the value of the Treasury Obligations may
fluctuate before maturity due to fluctuations in interest rates. The Fund Shares
deposited in the Trust's portfolio have no fixed maturity date and the value of
these underlying Fund Shares will fluctuate with changes in the values of stocks
in general and with changes in the conditions and performance of the specific
Securities owned by the Fund. See "Trust Portfolio."
DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS. Distributions of net income, if
any, other than amortized discount, will be made at least annually.
Distributions of realized capital gains, if any, received by the Trust, will be
made whenever the Fund makes such a distribution. INCOME WITH RESPECT TO THE
AMORTIZATION OF ORIGINAL ISSUE DISCOUNT ON THE TREASURY OBLIGATIONS IN THE
SMALLER COMPANIES FUND AND TREASURY TRUST WILL NOT BE DISTRIBUTED CURRENTLY,
ALTHOUGH UNITHOLDERS WILL BE SUBJECT TO INCOME TAX AT ORDINARY INCOME RATES AS
IF A DISTRIBUTION HAD OCCURRED. Any distribution of income and/or capital gains
will be net of the expenses of the Trust. See "Federal Taxation." Additionally,
upon termination of the Trust, the Trustee will distribute, upon surrender of
Units for redemption, to each Unitholder his pro rata share of the Trust's
assets, less expenses, in the manner set forth under "Rights of
Unitholders--Distributions of Income and Capital."
SECONDARY MARKET FOR UNITS. After the initial offering period, although not
obligated to do so, the Sponsor intends to maintain a market for Units of the
Trust and offer to repurchase such Units at prices which are based on the net
asset value of the Fund Shares plus the bid side evaluation of the Treasury
Obligations, plus or minus cash, if any, in the Capital and Income Accounts of
the Trust. If a secondary market is not maintained, a Unitholder may redeem
Units through redemption at prices based upon the net asset value of the Fund
Shares in the Trust plus the aggregate bid price of the Treasury Obligations,
plus or minus a pro rata share of cash, if any, in the Capital and Income
Accounts of the Trust. See "Rights of Unitholders--Redemption of Units."
TERMINATION. Commencing on the Mandatory Termination Date, Fund Shares will
begin to be sold in connection with the termination of the Trust. The Sponsor
will determine the manner, timing and execution of the sale of the Fund Shares.
Written notice of any termination of the Trust specifying the time or times at
which Unitholders may surrender their certificates for cancellation shall be
given by the Trustee to each Unitholder at his or her address appearing on the
registration books of the Trust maintained by the Trustee. At least 30 days
prior to the Mandatory Termination Date the Trustee will provide written notice
thereof to all Unitholders and will include with such notice a form to enable
Unitholders to elect a distribution of Fund Shares if the termination value of
such Unitholder's Units is at least $500, rather than to receive payment in cash
for such Unitholder's pro rata share of the amounts realized upon the
disposition by the Trustee of the Fund Shares. Unitholders eligible for such a
distribution may also elect to have their pro rata portion of the proceeds
received upon the maturity of the Treasury Obligations reinvested without a
sales charge into Fund Shares. All Unitholders not electing such option will
receive cash representing their pro rata portion of the Treasury Obligations. To
be effective, the election form, together with surrendered certificates, if
issued, and other documentation required by the Trustee, must be returned to the
Trustee at least five business days prior to the Mandatory Termination Date.
Unitholders not electing a distribution of Fund Shares will receive a cash
distribution from the sale of the remaining Securities within a reasonable time
after the Trust is terminated. See "Trust Administration--Amendment or
Termination."
REINVESTMENT OPTION. Unitholders of any Van Kampen American Capital-sponsored
unit investment trust may utilize their redemption or termination proceeds to
purchase units of any other Van Kampen American Capital trust in the initial
offering period accepting rollover investments subject to a reduced sales charge
to the extent stated in the related prospectus (which may be deferred in certain
cases). Unitholders also have the opportunity to have their distributions
reinvested into an open-end, management investment company as described herein.
See "Rights of Unitholders--Reinvestment Option."
RISK FACTORS. An investment in the Trust should be made with an understanding
of the risks associated therewith, including, among other factors, the possible
deterioration of either the Securities which make up the Trust or the general
condition of the stock market, volatile interest rates, economic recession,
currency exchange fluctuations, foreign withholding, and differences between
domestic and foreign legal, auditing, brokerage and economic standards. The
Trust is not actively managed and Securities will not be sold by the Trust to
take advantage of market fluctuations or changes in anticipated rates of
appreciation. See "Risk Factors."
THE TRUST
Van Kampen American Capital Equity Opportunity Trust, Series 14 is comprised
of one unit investment trust, Govett Smaller Companies Fund and Treasury Trust,
Series 1. The Trust was created under the laws of the State of New York pursuant
to a Trust Indenture and Agreement (the "Trust Agreement"), among Van Kampen
American Capital Distributors, Inc., as Sponsor, American Portfolio Evaluation
Services, a division of Van Kampen American Capital Investment Advisory Corp.,
as Evaluator, and The Bank of New York, as Trustee.
The Govett Smaller Companies Fund and Treasury Trust may be an appropriate
medium for investors who desire to participate in a portfolio of mutual fund
shares and zero-coupon U.S. Treasury obligations. Diversification of assets in
the Trust will not eliminate the risk of loss always inherent in the ownership
of securities. For a breakdown of the portfolio see "Trust Portfolio."
On the Initial Date of Deposit, the Sponsor deposited with the Trustee the
Securities including delivery statements relating to contracts for the purchase
of certain such Securities and an irrevocable letter of credit or cash issued by
a financial institution in the amount required for such purchases. Thereafter,
the Trustee, in exchange for such Securities (and contracts) so deposited,
delivered to the Sponsor documentation evidencing the ownership of Units of the
Govett Smaller Companies Fund and Treasury Trust. Unless otherwise terminated as
provided in the Trust Agreement, the Trust will terminate on the Mandatory
Termination Date, and Securities then held will within a reasonable time
thereafter be liquidated or distributed by the Trustee.
Each Unit of the Trust represents an undivided interest in the Trust. To the
extent that any Units are redeemed by the Trustee the fractional undivided
interest in the Trust represented by each unredeemed Unit will increase although
the actual interest in the Trust represented by such fraction will remain
unchanged. Units will remain outstanding until redeemed upon tender to the
Trustee by Unitholders, which may include the Sponsor, or until the termination
of the Trust Agreement.
OBJECTIVES AND SECURITIES SELECTION
The objectives of the Smaller Companies Fund and Treasury Trust are to
protect Unitholders' capital and provide investors with the potential for
long-term capital appreciation. The portfolio is described under "Trust
Portfolio" herein and "Portfolio" in Part One. An investor will be subjected to
taxation on the dividend income received from the Trust and on gains from the
sale or liquidation of Securities (see "Federal Taxation"). Investors should be
aware that there is not any guarantee that the objectives of the Trust will be
achieved because the market value of the Securities can be affected by a variety
of factors. Fund Shares may be especially susceptible to general stock market
movements and to volatile increases and decreases of value as market confidence
in and perceptions of the underlying issuers change. Investors should be aware
that there can be no assurance that the value of the underlying Securities will
increase or that the issuers of the Fund Shares will make distributions. The
Trust, however, has been organized so that investors would receive, at
termination, an amount per Unit at least equal to $11.00 (which is equal to the
per Unit value upon maturity of the Treasury Obligations), even if the Trust
never paid a distribution and the value of the Fund Shares were to decrease to
zero, which the Sponsor considers highly unlikely. Any distributions of income
will generally depend upon the declaration of dividends by the Fund and the
declaration of any dividends depends upon several factors including the
financial condition of the Fund and general economic conditions.
In seeking this objective, the Sponsor also considered the ability of the
Equity Securities to outpace inflation. While inflation is currently relatively
low, the United States has historically experienced periods of double-digit
inflation. While the prices of equity securities will fluctuate, over time
equity securities have outperformed the rate of inflation, and other less risky
investments, such as government bonds and U.S. Treasury bills. Historically, the
most dynamic phase of growth for most companies occurs when they are in their
emerging growth stage, when they are young and relatively unknown. Past
performance is, however, no guarantee of future results.
In selecting Securities for the Smaller Companies Fund and Treasury Trust,
the following factors, among others, were considered: (a) for the portion of the
Securities that are Fund Shares, the Sponsor selected shares of Govett Smaller
Companies Fund, a mutual fund which seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies located throughout
the world, and (b) for the portion of the Securities that are Treasury
Obligations, the evidence of the right to receive a fixed payment at a future
date from the U.S. Government, backed by the full faith and credit of the U.S.
Government.
Investors should be aware that the Trust is not a "managed" fund and as a
result the adverse financial condition of the Fund will not result in its
elimination from the portfolio except under extraordinary circumstances (see
"Trust Administration--Portfolio Administration"). In addition, Securities will
not be sold by the Trust to take advantage of market fluctuations or changes in
anticipated rates of appreciation. Investors should note in particular that the
Securities were selected by the Sponsor as of the date the Securities were
purchased by the Trust. The Trust may continue to purchase or hold Securities
originally selected through this process even though the evaluation of the
attractiveness of the Securities may have changed and, if the evaluation were
performed again at that time, the Securities would not be selected for the
Trust.
TRUST PORTFOLIO
The Smaller Companies Fund and Treasury Trust consists of (a) shares of
Govett Smaller Companies Fund and (b) zero-coupon U.S. Treasury Obligations.
FUND SHARES. The portfolio of the Trust contains shares of Govett Smaller
Companies Fund.
Govett Smaller Companies Fund is included in The Govett Funds, Inc. (the
"Company"), an open-end management investment company. Govett Smaller Companies
Fund seeks long-term capital appreciation by investing primarily in equity
securities of smaller companies.
The Fund is authorized to issue three distinct classes of shares ("Class A
shares", "Class B shares" and "Class C shares"). Each class of shares may be
purchased by investors at a price equal to the net asset value of the Fund per
share, plus the respective sales charge. The Trust has purchased Class A shares
for deposit herein and any reference to Fund Shares in this prospectus shall
refer to Class A shares.
The Fund's investment manager is John Govett & Co. Limited ("John Govett" or
the "Manager"), a United Kingdom corporation and an affiliate of Allied Irish
Banks plc ("AIB") the parent of the AIB Group of Companies.
On December 7, 1995, an agreement was signed to sell John Govett & Co.
Limited ("John Govett"), the investment manager of the The Govett Funds, Inc.
(the "Funds"), to John Govett Holding Limited, a newly-formed, majority-owned
subsidiary of the AIB Group of Companies of Dublin, Ireland ("AIB"), in a stock
sale that closed on December 29, 1995.
In connection with the sale, the Directors of The Govett Funds approved a new
investment management agreement with John Govett, under its new ownership, for
all the Funds. No change in the portfolio management of any Govett Fund or in
the advisory fees paid by the Funds occurred as a result of the Sale. The new
agreement is described in a Proxy Statement dated January 13, 1996, which was
mailed to all shareholders in connection with the shareholder meeting. The
shareholders of The Govett Funds approved the new management agreement on
February 23, 1996.
On March 9, 1997, the Board terminated an Investment Subadvisory Agreement
between John Govett and Berkeley Capital Management with respect to investment
advice provided to the Smaller Companies Fund. John Govett assumed full
day-to-day responsibility for the management of this Fund effective January 9,
1997.
Termination of that agreement did not affect the expenses of the Govett Smaller
Companies Fund.
Additional information concerning Govett Smaller Companies Fund appears in
"Trust Portfolio--Govett Smaller Companies Fund Summary." This Prospectus sets
forth concisely information about the Fund that a prospective investor should
know before investing. A Fund Prospectus and a Statement of Additional
Information about the Fund have been filed with the Securities and Exchange
Commission (the "Commission") and are available, upon request and without
charge, by writing to The Govett Funds, Inc., c/o FPS Services, Inc. (the Fund's
"Distributor"), 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA
19406-0903, or by calling (800) 821-0803. The Fund's Statement of Additional
Information, which is incorporated in its entirety by reference in the Fund's
prospectus, contains more detailed information about the Fund and its
management, including more complete information as to certain risk factors.
TREASURY OBLIGATIONS. The Treasury Obligations deposited in the Smaller
Companies Fund and Treasury Trust consist of U.S. Treasury bonds which have been
stripped of their unmatured interest coupons. The Treasury Obligations evidence
the right to receive a fixed payment at a future date from the U.S. Government
and are backed by the full faith and credit of the U.S. Government. Treasury
Obligations are purchased at a deep discount because the buyer obtains only the
right to a fixed payment at a fixed date in the future and does not receive any
periodic interest payments. The effect of owning deep discount bonds which do
not make current interest payments (such as the Treasury Obligations) is that a
fixed yield is earned not only on the original investment, but also, in effect,
on all earnings during the life of the discount obligation. This implicit
reinvestment of earnings at the same rate eliminates the risk of being unable to
reinvest the income on such obligations at a rate as high as the implicit yield
on the discount obligation, but at the same time eliminates the holder's ability
to reinvest at higher rates in the future. For this reason, the Treasury
Obligations are subject to substantially greater price fluctuations during
periods of changing interest rates than are securities of comparable quality
which make regular interest payments. The effect of being able to acquire the
Treasury Obligations at a lower price is to permit more of the Trust's portfolio
to be invested in Fund Shares.
GENERAL. The Trust consists of the Securities listed under "Portfolio" in
Part One as may continue to be held from time to time in the Trust and any
additional Securities acquired and held by the Trust pursuant to the provisions
of the Trust Agreement together with cash held in the Income and Capital
Accounts. Neither the Sponsor nor the Trustee shall be liable in any way for any
failure in any of the Securities. However, should any contract for the purchase
of any of the Securities initially deposited hereunder fail, the Sponsor will,
unless substantially all of the moneys held in the Trust to cover such purchase
are reinvested in substitute Securities in accordance with the Trust Agreement,
refund the cash and sales charge attributable to such failed contract to all
Unitholders on the next distribution date.
Because certain of the Fund Shares from time to time may be sold under
certain circumstances described herein, and because the proceeds from such
events will be distributed to Unitholders and will not be reinvested, no
assurance can be given that the Trust will retain for any length of time its
present size and composition. Although the portfolio is not managed, the Sponsor
may instruct the Trustee to sell Fund Shares under certain limited
circumstances. See "Trust Administration--Portfolio Administration."Fund Shares,
however, will not be sold by the Trust to take advantage of market fluctuations
or changes in anticipated rates of appreciation or depreciation.
Unitholders will be unable to dispose of any of the Fund Shares as such and
will not be able to vote the Fund Shares. As the holder of the Fund Shares, the
Trustee will have the right to vote all of the voting stocks in the Trust and
will vote such stocks in accordance with the instructions of the Sponsor.
Actions required to be taken with respect to the Treasury Obligations will be in
accordance with the instructions of the Sponsor.
The following section provides a brief description of the Govett Smaller
Companies Fund, specifically its relationship with the Trust. More specific
information regarding Govett Smaller Companies Fund can be obtained from the
Prospectus and Statement of Additional Information prepared therefor as
described above.
GOVETT SMALLER COMPANIES FUND SUMMARY
The operating expenses and maximum transaction expenses expected to be
associated with an investment in the Fund are reflected in the following tables:
GOVETT SMALLER COMPANIES FUND
--------------------------------
CLASS A
SHARES
-------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as a percentage
of offering price)1 4.95%
Maximum Sales Charge Imposed on Dividend Reinvestments None
Maximum Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever is less)2 None
Redemption Fees None
Exchange Fees None
ANNUAL OPERATING EXPENSES: (as a percentage of average net assets)
Management Fee 1.00%
12b-1 Distribution and Service Fees3 0.50%
Other Expenses (after reduction of expenses)2 0.45%
Total Fund Operating Expenses (after fee waiver and reduction
of expenses)2 1.95%
The Fund's Manager has agreed to reduce its management fees, and 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.
EXAMPLES:
Assuming the current fee waivers and expenses limitations remain in effect,
an investor would pay the following expenses on a $1,000 investment in Fund
Shares assuming (1) 5% annual return4 and (2) redemption at the end of each time
period:
GOVETT SMALLER COMPANIES FUND
----------------------------
CLASS A SHARES
--------------
1 year $ 68
3 years 108
5 years 150
10 years 266
An investor would pay the following expenses on the same investment assuming
no redemption:
GOVETT SMALLER COMPANIES FUND
-----------------------------
CLASS A SHARES
--------------
1 year $ 68
3 years 108
5 years 150
10 years 266
------------------------
(1) There is no sales charge payable upon the purchase of the Fund Shares
deposited in the Trust. However, the maximum sales charge on the Units, and
therefore indirectly on the Fund Shares is 4.9% during both the initial offering
period and in the secondary market.
(2) The percentage in "Other Expenses" for the Class A shares of the Smaller
Companies Fund is based on expenses incurred by the Fund during the fiscal year
ended December 31, 1996 after fee waivers and expense reimbursements by the
Manager and the former distributor to such Fund. Absent such waivers and
reimbursements, "Total Fund Operating Expenses" as a percentage of net assets
for the Class A shares of the Smaller Companies Fund would have been 2.08% for
the fiscal year ended December 31, 1996. See "Summary of Essential Information"
for a description of estimated fees and expenses charged per Unit.
(3) Effectively, there are no 12b-1 fees on Fund Shares held in the Trust.
However, Unitholders who acquire shares of the Fund through an In Kind
Distribution upon redemption or at the Trust's termination will begin to incur
12b-1 fees at such time as shares are acquired.
(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 Fund's actual performance. For a detailed discussion of these matters,
investors should refer to the relevant sections of this Prospectus.
The above tables are not intended to reflect precisely the fees and expenses
associated with a particular person's investment in Class A shares of the Fund.
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 Fund shareholder will bear,
directly or indirectly, in connection with an investment in the Fund.
FINANCIAL HIGHLIGHTS. The table below provides condensed information
concerning income and capital changes for one Class A share of the Govett
Smaller Companies Fund for the periods shown. The information has been audited
by the Fund's independent accountants, whose unqualified report thereon appears
in the Annual Report to Shareholders of the Fund for each period shown below.
The financial statements and related notes of the Govett Smaller Companies Fund
contained in such Annual Report (and no other portion of such Report) are
incorporated by reference into the Fund's Prospectus.
<TABLE>
<CAPTION>
GOVETT SMALLER COMPANIES FUND
---------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993(A)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 29.96 $ 19.06 $ 15.85 $ 10.00
----------- ----------- ----------- ------------
Income from investment operations:
Net investment income (loss) (0.44)+ (0.30)+ (0.10)+ (0.06)
Net realized and unrealized gain (loss) on investments (2.84) 13.32 4.47 5.91
----------- ----------- ----------- ------------
Total from investment operations (3.28) 13.02 4.37 5.85
----------- ----------- ----------- ------------
Less distributions to shareholders:
From net investment income -- -- -- --
From net realized gains (4.85) (2.12) (1.16) --
----------- ----------- ----------- ------------
Total distributions (4.85) (2.12) (1.16) --
----------- ----------- ----------- ------------
Net asset value, end of period $ 21.83 $ 29.96 $ 19.06 $ 15.85
=========== =========== =========== ============
Total return* (10.87)% 69.08% 28.74% 58.50%
Ratios/supplemental data:
Net assets, end of period (000's) $ 259,735 $ 517,990 $ 76,873 $ 39,681
Net expenses to average daily net assets (note A) 1.81% 1.95% 1.95% 1.95%
Net investment income (loss) to average daily net assets (1.40)% (1.64)% (1.13)% (0.93)%
Portfolio turnover rate 406% 280% 519% 483%
Average commission rate** $ 0.0581 N/A N/A N/A
-------------------------
Note A: John Govett & Co. Limited waived a portion of its management fees and
Govett Financial Services Limited, a former distributor of the Fund, reimbursed
a portion of the other operating expenses of the Fund for the years ended
December 31, 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 Fund. Without the waiver and
reimbursement of expenses, the expense ratios as a percentage of average net
assets for the periods indicated would have been:
</TABLE>
Expenses 2.08% 2.12% 2.40% 2.44%
(a) Commencement of Operations was January 1, 1993. *Total return
calculations exclude front-end sales load.
**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.
+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).
OBJECTIVES AND INVESTMENT POLICIES OF THE FUND. Govett Smaller Companies Fund
is a diversified series of The Govett Funds, Inc. which seeks long-term capital
appreciation by investing primarily in equity securities of smaller companies.
Although no single Fund provides a complete or balanced investment program,
investors may use the Fund as part of a comprehensive program to meet their
long-term needs. Although the Fund may receive current income from dividends,
interest and other sources, income is only an incidental consideration in the
Manager's selection of the Fund's investments. Of course, there can be no
assurance that the Fund will meet its investment objective. The Fund's net asset
value fluctuates as the value of its portfolio securities fluctuates.
The Fund seeks long-term capital appreciation by investing primarily in
equity securities of those smaller companies that the Manager believes may be
the industry leaders of tomorrow. The Fund selects its portfolio investments
primarily from among U.S. and foreign companies with individual market
capitalizations which would, at the time of purchase, place them in the same
size range as companies included in the Russell 2000 Index. Based on this policy
and recent U.S. share prices, the companies in which the Fund invests typically
will have individual market capitalizations of less than $3.0 billion.
Foreign smaller companies may have lower market capitalization, depending upon
the country and the industry.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in smaller companies including foreign smaller companies, and at
least 80% of its total assets in common stocks. The Fund may also invest up to
20% of its total assets in other types of securities with equity characteristics
such as preferred stocks, convertible securities, warrants, units, and rights.
Under normal market conditions, the Fund will not invest more than 35% of its
total assets in the 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.
In interpreting the Fund's investment policies, the Manager adheres to the
following definitions:
(a) Whenever an investment policy or limitation states a maximum percentage
or the 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.
(b) 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.
(c) The term "indirect investment only," when referenced to a particular
country, means that the Fund will invest only in securities of issuers domiciled
or organized in that country which are purchased and sold on an exchange or in
an over-the-counter market located outside of that country.
General Limitations. The Fund is a diversified fund, as defined in the 1940
Act. This means that the Fund, with respect to 75% of its total assets, may not
invest more than 5% of its total assets in the securities of any one issuer
(excluding the U.S. Government and its agencies).
The Fund may not borrow money or mortgage or pledge any of its assets, except
that the 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. The Fund may not purchase
securities when its borrowings exceed 5% of its total assets. The Fund may not
make loans if, as a result, more than 33 1/3% of its 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.
The Fund may not 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, the Fund may not invest more
than 5% of its respective net assets in securities restricted as to resale or in
illiquid securities, and the Fund may not purchase a security if, as a result,
more than 5% of the Fund's net assets would be invested in warrants not listed
on the American Stock Exchange or the New York Stock Exchange.
The Statement of Additional Information provides the full text of these
restrictions and the Fund's other investment policies. Except for the Fund's
investment objective and those investment restrictions designated as
"fundamental," which only may be changed with shareholder approval, the
investment policies described in the Fund's Prospectus and in the Statement of
Additional Information are not fundamental policies and may be changed at any
time by the Company's Board of Directors.
INVESTMENT TECHNIQUES. Depositary Receipts. The Fund may invest in sponsored
and unsponsored American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") Global Depositary Receipts ("GDRs") and other 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, available information concerning the issuer may not be
as readily available or as current as for sponsored depositary instruments, and
the prices may be more volatile than if they were sponsored by the issuers of
the underlying securities.
Investment in Debt Securities and Commercial Paper. The Fund may invest in
debt obligations convertible into equity securities. The Fund 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 the Fund's total assets invested in non-convertible debt securities other
than commercial paper must 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
instruments are unrated, the Manager must have determined them to be of
comparable quality to the required ratings for each type of investment. The
subsequent downgrade of a debt security to a level below the investment grade
required for the Fund will not require a sale of that security, but the Manager
of the Fund will consider such an event in determining whether to hold that
security. A description of these ratings is included in Appendix A to the Fund's
Prospectus.
Temporary Strategies. Pending investment of proceeds from sale of Fund Shares
to meet ordinary daily cash needs and to retain the flexibility to respond
promptly to changes in market and economic conditions, the Fund's Manager may
use temporary defensive strategies. Under such a strategy, the Fund may hold
cash (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.
Hedging Strategies. The Fund may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with the Fund's 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 the Fund will not place more than 5% of its net assets at risk in any one
of these transactions or securities.
Repurchase Agreements. The 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
sub-custodian), segregated from other Fund assets. In segregating such assets,
the Fund's custodian either places them in a segregated account or separately
identifies them and makes them unavailable for investment by the Fund.
Investment in Other Investment Companies. Emerging and developing markets
countries often limit foreign investments in equity securities of issuers
located in such countries. As a result, the Fund may be able to invest in such
countries solely or primarily through open- or closed-end investment companies.
In accordance with the 1940 Act, the 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 Fund may not
invest in any investment company managed by the Fund's Manager or any of its
affiliates. Investments in investment companies may involve a duplication of
certain expenses, such as management and administrative expenses.
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, the Manager 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 the
Manager in London; and on-site visits portfolio managers. The Manager also
maintains local contacts in many of the countries where it invests.
Market Risk. Equity and bond markets outside of 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 investments
than would be available from investing solely in U.S. securities. Nevertheless,
the 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 the 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 the 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 the
Fund's investments, the value of dividends and interest earned by the 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 the 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 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 the
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 the 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 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.
Interest Rate and Credit Risk. The value of fixed income securities held by
the Fund generally fluctuates inversely with interest rate movements.
Liquidity Risk. If the Fund invests in sovereign debt obligations, if may
have difficulty disposing of and valuing them because there may be a limited
trading market for the securities. If reliable market quotations are not
available, 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 Fund's ability to dispose of them. Because
there may be no liquid secondary market for many of these securities, the Fund
anticipates 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.
MANAGEMENT OF THE FUND. 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 the
Fund. Under the Investment Management Contract, and subject to such policies as
the Board of Directors may establish, John Govett provides the Fund with
day-to-day management services and makes investment decisions on their behalf in
accordance with the Fund's investment policies.
Subject to the supervision of the Board, John Govett also oversees the Fund's
operations. For these investment management and administrative services, the
Fund pays fees monthly to John Govett based upon the average net assets of the
Fund, 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 the Fund. Overseeing
international, emerging markets and smaller company investments is complex, and
the fees for servicing such funds are generally higher than fees paid by
domestic investment companies. John Govett absorbs certain expenses, including a
portion of management fees, service fees and excess Fund expenses. The Fund pays
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 Fund's operations
plus any extraordinary and non-recurring expenses.
On January 8, 1997, the Board of Directors voted to terminate an Investment
Subadvisory Agreement with Berkeley Capital Management, regarding the day-to-day
investment management of the Smaller Companies Fund. Effective January 9, 1997,
John Govett assumed full investment management control of the Fund. Fees paid by
the Smaller Companies Fund were unaffected by that termination.
During the fiscal year ended December 31, 1996, the total operating expenses
(including management and administrative and distribution fees, but after fee
reductions and expense reimbursements) paid by the Class A shares of the Fund
was 1.95% of the Fund's average daily net assets. In connection with the sale of
John Govett to Allied Irish Banks plc ("AIB") at the end of 1995, between
January 1, 1996 and February 23, 1996, the Fund paid no fees to John Govett
under the Investment Management Agreement. Because no management fees were paid
by the Fund during the first two months of 1996, expenses were lower than they
otherwise might have been if management fees had been paid.
John Govett permits investment and 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 Fund
or to John Govett's other advisory clients.
John Govett & Co. Limited. The Fund is managed by John Govett & Co. Limited
("John Govett"), a United Kingdom-based investment manager which began managing
money in the 1920s and has developed special expertise in investing in emerging
markets and smaller companies worldwide. John Govett's headquarters are at
Shackleton House, 4 Battle Bridge Lane, London SE1 2HR, England, and it has
offices in Singapore, Bangalore, Jersey, San Francisco, and Budapest. As of
March 31, 1997, John Govett and its subsidiaries had approximately $6.1 billion
under management. John Govett is wholly-owned by AIB Asset Management Holdings
Limited ("AIB AMH"), a majority-owned subsidiary of AIB, the largest bank in
Ireland with assets of approximately $21 billion. AIB and its subsidiaries
provide a diverse range of banking, financial and related services principally
in Ireland, the United Kingdom, and in the United States. An officer of AIB AMH,
Mr. Patrick Cunneen, is a Director of the Company.
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.
Allocation of Portfolio Transactions. In placing orders for the Fund's
portfolio transactions, the Manager seeks best execution, analyzing such factors
as price, size of order, difficulty of execution and the operational
capabilities of the brokerage firm involved. Commissions on trades made through
foreign securities exchanges or over-the-counter markets typically are fixed and
higher than those made through United States securities exchanges or
over-the-counter markets. Consistent with the obligation to obtain best
execution, the Manager may consider research and brokerage services provided by
that broker. The Fund 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
Fund and to any accounts over which the Manager exercises investment discretion.
Portfolio Turnover. The frequency of portfolio transactions, the "portfolio
turnover rate", will vary 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 Fund's portfolio. The portfolio
turnover rate of the Fund for the period from January 1, 1996 through December
31, 1996 was 406%. The Fund's portfolio turnover rate reflects market conditions
affecting the economies the Fund invests in. The Fund's portfolio turnover rate
also reflects portfolio repositioning undertaken following the change in
portfolio manager in January, 1996, and higher redemption rates.
Distribution Arrangements. FPS Broker Services, Inc. (the "Distributor") is
the Fund's statutory distributor and principal underwriter. FPS Services, Inc.,
and affiliate of the Distributor, serves the Fund as transfer and shareholder
services agent (the "Transfer Agent").
From time to time, programs may be implemented under which a broker, dealer
or financial intermediary's sales force may be eligible to win nominal awards
for certain sales efforts or under which certain reallowances (not exceeding the
total applicable sales charges on the sales generated by the broker, dealer or
financial intermediary) may be paid to such entities. Other programs provide,
among other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Fund. The Distributor may from time
to time, pursuant to objective criteria established by it, 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
sales of shares of the Fund. Any such programs will not change the price an
investor will pay for shares or the amount that the Fund will receive from such
a sale. No such programs or additional compensation will be offered to the
extent that they are prohibited by the laws of any state or any self-regulatory
agency with jurisdiction over the Distributor, such as the National Association
of Securities Dealers, Inc. (the "NASD").
Distribution Plans. Rule 12b-1 adopted by the SEC under the 1940 Act permits
a mutual fund to directly or indirectly pay expenses associated with the
distribution of its shares ("distribution expenses") in accordance with a plan
adopted by the Fund's Board of Directors and approved by its shareholders.
Pursuant to Rule 12b-1, the Board of Directors and the shareholders of each
class of the 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 Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD Rules") applicable to mutual fund
sales charges. Only the Class A Plan is applicable to the Trust. The NASD Rules
regulate the distribution and service charges that the Fund may impose on a
class of shares. There is no service fee paid under the Class A Plan.
Under the Class A Plan, the Fund pays an ongoing distribution fee to the
Distributor at an annual rate of 0.50% of the Fund's aggregate average daily net
assets attributable to its Class A shares.
The Class A Plan allows the Fund to compensate the Distributor for services
provided and expenses incurred in the distribution of Class A shares, including
advertising expenses and printing costs (e.g., sales materials used to offer
Class A shares to the public). The Distributor may reallow all or a portion of
the payments received under the Plan to third parties, including securities
dealers, and banks ("Service Organizations"), for rendering shareholder support
and administrative services. John Govett, pursuant to a Sub-Administration
Agreement, provides certain services to the Distributor, including as a Service
Organization, under the Class A Plan.
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 the
Fund may not be increased to more than 0.50% of the Fund's average daily net
assets attributable to Class A shares without prior approval of the Class A
shareholders.
At present, the Board of Directors has approved payments under the Class A
Plan for the purpose of compensating the Distributor for payments of commissions
to the Fund's dealers as well as for certain additional expenses related to
shareholder services and the distribution of Class A shares (including payments
for travel, telephone, and overhead expenses related to distribution), subject
to the overall percentage limitations described above.
The Rule 12b-1 fees imposed on Fund Shares held in the Trust are rebated to
the Trust and are used to reduce expenses of the Trust resulting in increased
distributions to Unitholders. Unitholders who acquire shares of the Fund through
an In Kind Distribution pursuant to a redemption request or at the Trust's
termination will begin to incur Rule 12b-1 fees at such time as shares are
acquired.
Custodians. The Chase Manhattan Bank (the "Custodian") serves as the Fund's
global custodian. Hong Kong and Shanghai Banking Corporation, Taipei, Taiwan,
provides custody services for Fund assets held in Taiwan.
Transfer Agent. FPS Services, Inc., (the "Transfer Agent"), an affiliate of
the Distributor, provides transfer agent, shareholder services agent, and
dividend disbursement services to the Fund.
Accounting and Administration Services. Chase Global Funds Services Company,
an affiliate of the Fund's custodian, provides the Fund with administration and
accounting services.
HOW THE FUND VALUES ITS SHARES. At the close of regular trading on the New
York Stock Exchange (usually 4:00 p.m. Eastern Time) each day the New York Stock
Exchange is open, the 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. 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 cost and a debt security originally purchased
with a maturity in excess of 60 days, which currently has a maturity of 60 days
or less, is valued at the market or fair value of the security on the 61st day
prior to maturity (each as adjusted for amortization of premium or discount)
rather than at current market value. All other securities and assets are valued
at fair value following procedures approved by the Board of Directors.
Foreign securities may trade on days or at times other than those days and
times when the New York Stock Exchange is open. The prices of foreign securities
quoted in foreign currencies are translated into United States dollars at 1:00
pm. 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 United States dollar affect the 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 the 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 the 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
Fund's Board of Directors.
DIVIDENDS, CAPITAL GAINS AND TAXES. The Fund will annually distribute
substantially all of its net investment income and net realized capital gains.
The annual distribution and/or dividend, if any, will be declared in November or
December of each year. Distributions from net investment income, if any, are
expected to be small. Distributions from capital gains are made after applying
any available loss carryovers and other adjustments permitted under the IRS
Code. The Fund may make additional dividend or capital gain distributions as
required to comply with certain distribution requirements under the IRS Code.
United States Federal Taxation of the Fund. The Fund intends to qualify as a
"regulated investment company" under Subchapter M of the Code for federal income
tax purposes and to meet all other requirements that are necessary for it (but
not its shareholders) to be exempt from federal taxes on income and gains paid
to shareholders in the form of dividends. In order to accomplish this goal, the
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 the 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 the 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 the 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 the 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 the
Fund will not be included in the federal tax basis of any such shares sold
within 90 days of their purchase (for the purpose of determining gain or loss
upon the sale of such shares) if the sales proceeds are reinvested in the Fund
and a sales charge that would otherwise apply to the reinvestment is reduced or
eliminated because the sales proceeds were reinvested in the Fund. The portion
of the sales charge so excluded from the tax basis of the shares sold will equal
the amount by which the sales charge that would otherwise be applicable upon the
reinvestment is reduced. Of course, any portion of such sales charge excluded
from the tax basis of the shares sold will be added to the tax basis of the
shares acquired in the reinvestment.
The Fund will inform shareholders (which includes the Trust) 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 Fund may give rise to withholding and other taxes imposed
by foreign countries. If more than 50% of the value of the 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 Fund cannot assure shareholders that
they will be eligible for the foreign tax credit. The Fund will advise
shareholders annually of their share of any creditable foreign taxes paid by the
Fund.
The Fund will be required to report to the Internal Revenue Service ("IRS")
any taxable dividend or other reportable payment (including share redemption
proceeds). The Fund will also be required to withhold 31% of any such payments
made to individuals and other non-exempt shareholders who have not provided a
correct taxpayer identification number and made certain required certifications
that appear in the account application provided with the Fund's prospectus. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Fund 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 the 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 the Fund.
More detailed information regarding taxation of shareholders and taxation of the
Fund can be found in the Fund's 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 Fund. 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 Fund. The foregoing discussion of federal income
taxation relates only to the Fund. For a discussion of tax implications relating
to the Trust see "Federal Taxation."
OTHER INFORMATION. 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. From time to time, the Board of Directors may, in
its discretion, establish additional funds and issue additional classes of
shares. Shares of the Fund 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.
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 the Fund when the matter affects the
specific interest of the Fund only, such as approval of the Fund's investment
management arrangements. On other matters, the shares of all the Funds will be
voted in the aggregate, such as the election of the Board of Directors or
ratification of the Board's selection of independent auditors. Fund Shares held
in the Trust will be voted by the Trustee.
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 shareholders meeting. The Bylaws require that the Company assist
shareholders in calling such a meeting.
Pursuant to the Articles of Incorporation, the 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 the Fund and is entitled to such
dividends and distributions out of the income earned and gains realized on the
Fund's assets as may be declared by the Board of Directors.
Performance Information. The 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, the 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 the Fund will also reflect that any applicable contingent deferred sales
charge has been paid. If a one-, five- and/or ten-year period has not yet
elapsed, data will be provided as of the end of a shorter period corresponding
to the life of the Fund. The standardized Return computation assumes the
reinvestment of all dividends and capital gain distributions at net asset value.
In addition, the 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; the 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.
The Fund's performance data reflects past performance and is not necessarily
indicative of future results. The 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 the Fund's investment results with
those published for other mutual funds, other investment vehicles and unmanaged
indices. The 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 Fund. This Annual Report is
available from the Sponsor without charge upon request.
FEDERAL TAXATION
The following is a general discussion of certain of the federal income tax
consequences of the purchase, ownership and disposition of the Units. The
summary is limited to investors who hold the Units as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986 (the "Code"). Unitholders should consult their
tax advisers in determining the federal, state, local and any other tax
consequences of the purchase, ownership and disposition of Units in the Trust.
For purposes of the following discussion and opinions, it is assumed that the
Fund Shares represent shares in an entity treated as a regulated investment
company for federal income tax purposes.
In the opinion of Chapman and Cutler, special counsel for the Sponsor, under
existing law:
1. The Trust is not an association taxable as a corporation for federal
income tax purposes; each Unitholder will be treated as the owner of a pro rata
portion of each of the assets of the Trust under the Code; and the income of the
Trust will be treated as income of the Unitholders thereof under the Code. Each
Unitholder will be considered to have received his pro rata share of income
derived from the Trust asset when such income is considered to be received by
the Trust.
2. Each Unitholder will have a taxable event when the Trust disposes of a
Security (whether by sale, exchange, liquidation, redemption or otherwise) or
upon the sale or redemption of Units by such Unitholder (except to the extent an
in-kind distribution of stock is received by a Unitholder as described below).
The price a Unitholder pays for his or her Units is allocated among his or her
pro rata portion of each Security held by the Trust (in proportion to the fair
market values thereof on the valuation date closest to the date the Unitholder
purchases his or her Units) in order to determine his or her initial tax basis
(before adjustment for accrual of original issue discount) for his or her pro
rata portion of each Security held by the Trust. It should be noted that certain
legislative proposals have been made which could affect the calculation of basis
for Unitholders holding securities that are substantially identical to the
Securities. Unitholders should consult their own tax advisors with regard to
calculation of basis. The Treasury Obligations are treated as stripped bonds and
are treated as bonds issued at an original issue discount as of the date a
Unitholder purchases his or her Units. Because the Treasury Obligations
represent interests in "stripped" U.S. Treasury bonds, a Unitholder's initial
cost for his or her pro rata portion of each Treasury Obligation held by the
Trust (determined at the time he acquires his Units, in the manner described
above) is generally treated as its "purchase price" by the Unitholder. Original
issue discount is effectively treated as interest for federal income tax
purposes and the amount of original issue discount in this case is generally the
difference between the bond's purchase price and its stated redemption price at
maturity. A Unitholder will be required to include in gross income for each
taxable year the sum of his or her daily portions of original issue discount
attributable to the Treasury Obligations held by the Trust as such original
issue discount accrues and will, in general, be subject to federal income tax
with respect to the total amount of such original issue discount that accrues
for such year even though the income is not distributed to the Unitholders
during such year to the extent it is not less than a "de minimis" amount as
determined under Treasury Regulations relating to stripped bonds. To the extent
the amount of such discount is less than the respective "de minimis" amount,
such discount is generally treated as zero. In general, original issue discount
accrues daily under a constant interest rate method which takes into account the
semi-annual compounding of accrued interest. In the case of the Treasury
Obligations, this method will generally result in an increasing amount of income
to the Unitholders each year. Unitholders should consult their tax advisers
regarding the federal income tax consequences and accretion of original issue
discount. For federal income tax purposes, a Unitholder's pro rata portion of
dividends (other than designated capital gain dividends as discussed below) as
defined by Section 316 of the Code, paid with respect to a Fund Share held by
the Trust is taxable as ordinary income to the extent of such Fund's current and
accumulated "earnings and profits". A Unitholder's pro rata portion of dividends
paid on such Fund Share which exceed such current and accumulated earnings and
profits will first reduce a Unitholder's tax basis in such Fund Share, and to
the extent that such dividends exceed a Unitholder's tax basis in such Fund
Share shall generally be treated as capital gain. In general, the holding period
for such capital gain will be determined by the period of time a Unitholder has
held his or her Units for more than one year.
3. A Unitholder's portion of gain, if any, upon the sale or redemption of
Units or the disposition of Securities held by the Trust will generally be
considered a capital gain except in the case of a dealer. A Unitholder's portion
of loss, if any, upon the sale or redemption of Units or the disposition of
Securities held by the Trust will generally be considered a capital loss (except
in the case of a dealer or a financial institution) and, in general, will be
long-term if the Unitholder has held his or her Units for more than one year.
Unitholders should consult their tax advisers regarding the recognition of such
capital gains and losses for federal income tax purposes.
DIVIDENDS RECEIVED DEDUCTION. Distributions on the Fund Shares which are
taxable as ordinary income to the Unitholders will constitute dividends for
federal income tax purposes. To the extent dividends received by the Fund are
attributable to foreign corporations, a corporation that owns Units will not be
entitled to the dividends received deduction with respect to the pro rata
portion of such dividends, since the dividends received deduction is generally
available only with respect to dividends paid by domestic corporations. However,
to the extent dividends received by the Fund are from United States corporations
(other than real estate investment trusts) and are designated by the Fund as
being eligible for the dividends received deduction, distributions received by
corporate Unitholders (other than corporate Unitholders such as "S" corporations
which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as accumulated
earnings tax and personal holding corporation tax) with respect to Fund Shares
attributable to such dividends may qualify for the 70% dividends received
deduction, subject to limitations otherwise applicable to the availability of
the deduction. It should be noted that various legislative proposals that would
affect the dividends received deduction have been introduced. Unitholders should
consult with their tax advisors with respect to the limitations on and possible
modifications to the dividends received deductions.
RECOGNITION OF TAXABLE GAIN OR LOSS UPON DISPOSITION OF SECURITIES BY A TRUST
OR DISPOSITION OF UNITS. Because Unitholders are deemed to directly own a pro
rata portion of the Fund Shares as discussed above, Unitholders are advised to
read the discussion of tax consequences for the Fund set forth under "Trust
Portfolio" above. Distributions declared by the Fund on Fund Shares in October,
November or December that are held by the Trust and paid during the following
January will be treated as having been received by Unitholders on December 31 in
the year such distributions were declared. Distributions of the Fund's net
capital gain which the Fund properly designates as capital gain dividends will
be taxable to the Unitholders as long-term capital gains regardless of how long
a person has been a Unitholder. If a Unitholder holds his or her Units for six
months or less or if the Trust holds shares of the Fund for six months or less,
any loss incurred by a Unitholder related to the disposition of the Fund Shares
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributions received (or deemed to have been received) with
respect to such shares. For taxpayers other than corporations, net capital gain
(which is defined as net long-term capital gain over net short-term capital loss
for the taxable year) is subject to a maximum marginal stated tax rate of either
28% or 20%, depending upon the holding periods of the capital assets. Capital
loss is long-term if the holding period for the asset is more than one year, and
is short-term if the holding period for the asset is one year or less.
Generally, capital gains realized from assets held for more than one year but
not more than 18 months are taxed at a maximum marginal stated tax rate of 28%
and capital gains realized from assets (with certain exclusions) held for more
than 18 months are taxed at a maximum marginal stated tax rate of 20% (10% in
the case of certain taxpayers in the lowest tax bracket). Further, capital gains
realized from assets held for one year or less are taxed at the same rates as
ordinary income. Legislation is currently pending that provides the appropriate
methodology that should be applied in netting the realized capital gains and
losses. Such legislation is proposed to be effective retroactively for tax years
ending after May 6, 1997. Note, however, that the 1997 Act provides that the
application of the rules described above in the case of pass-through entities,
such as the Fund shares will be prescribed in future Treasury Regulations.
Accordingly, Unit holders should consult their own tax advisers as to the tax
rate applicable to capital gain dividends from the Fund.
The Taxpayer Relief Act of 1997 (the "1997 Act") includes provisions that
treat certain transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g., short sales, offsetting notional principal
contracts, futures or forward contracts, or similar transactions) as
constructive sales for purposes of recognition of gain (but not loss) and for
purposes of determining the holding period. Unit holders should consult their
own tax advisors with regard to any such constructive sales rules.
In addition, it should be noted that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
"conversion transactions" effective for transactions entered into after April
30, 1993. Unitholders and prospective investors should consult with their tax
advisers regarding the potential effect of this provision on their investment in
Units. If the Unitholder disposes of a Unit, he is deemed thereby to have
disposed of his entire pro rata interest in all assets of the Trust involved
including his pro rata portion of all the Securities represented by that Unit.
Legislative proposals have been made that would treat certain transactions
designed to reduce or eliminate risk of loss and opportunities for gain as
constructive sales for purposes of recognition of gain (but not loss).
Unitholders should consult their own tax advisors with regard to any such
constructive sales rules.
LIMITATIONS ON DEDUCTIBILITY OF TRUST EXPENSES BY UNITHOLDERS. Each
Unitholder's pro rata share of each expense paid by the Trust is deductible by
the Unitholder to the same extent as though the expense had been paid directly
by him. It should be noted that as a result of the Tax Reform Act of 1986,
certain miscellaneous itemized deductions, such as investment expenses, tax
return preparation fees and employee business expenses will be deductible by an
individual only to the extent they exceed 2% of such individual's adjusted gross
income. Unitholders may be required to treat some or all of the expenses of the
Trust as miscellaneous itemized deductions subject to this limitation.
SPECIAL TAX CONSEQUENCES OF IN KIND DISTRIBUTIONS UPON REDEMPTION OF UNITS OR
TERMINATION OF THE TRUST. As discussed in "Rights of Unitholders--Redemption of
Units", under certain circumstances a Unitholder tendering Units for redemption
may request an In Kind Distribution. A Unitholder may also under certain
circumstances request an In Kind Distribution upon the termination of the Trust.
See "Rights of Unitholders--Redemption of Units." Treasury Obligations will not
be distributed to a Unitholder as part of an In Kind Distribution. The tax
consequences relating to the sale of Treasury Obligations are discussed above.
As previously discussed, prior to the redemption of Units or the termination of
the Trust, a Unitholder is considered as owning a pro rata portion of each of
the Trust assets for federal income tax purposes. The receipt of an In Kind
Distribution will result in a Unitholder receiving an undivided interest in
whole shares of the Fund plus, possibly, cash.
The potential tax consequences that may occur under an In Kind Distribution
with respect to each Fund Share will depend on whether or not a Unitholder
receives cash in addition to Fund Shares. A Unitholder will not recognize gain
or loss with respect to Fund Shares if a Unitholder only receives shares of the
Fund in exchange for his or her pro rata portion in each share of the Fund held
by the Trust. However, if a Unitholder also receives cash in exchange for a
fractional share of the Fund, such Unitholder will generally recognize gain or
loss based upon the difference between the amount of cash received by the
Unitholder and his tax basis in such fractional share of the Fund. Because a
Unitholder will receive cash in exchange for his or her pro rata portion in each
Treasury Obligation held by the Trust, such Unitholder will generally recognize
gain or loss based upon the difference between the amount of cash received by
the Unitholder and his tax basis in such Treasury Obligation, regardless of
whether the Unitholder reinvests the cash relating to the Treasury Obligations
into additional Fund Shares.
Because the Trust will own many Securities, a Unitholder who requests an In
Kind Distribution will have to analyze the tax consequences with respect to each
Security owned by the Trust. The amount of taxable gain (or loss) recognized
upon such exchange will generally equal the sum of the gain (or loss) recognized
under the rules described above by such Unitholder with respect to each Security
owned by the Trust. Unitholders who request an In Kind Distribution are advised
to consult their tax advisers in this regard.
GENERAL. If more than 50% of the value of the total assets of the Fund
consist of stock or securities in foreign corporations, the Fund may elect to
pass through to its shareholders the foreign income and similar taxes paid by
the Fund in order to enable such shareholders to take a credit (or deduction)
for foreign income taxes paid by the Fund. If such an election is made,
Unitholders of the Trust, because they are deemed to own a pro rata portion of
the Fund Shares held by the Trust, as described above, must include in their
gross income, for Federal income tax purposes, both their portion of dividends
received by the Trust from the Fund, and also their portion of the amount which
the Fund deems to be the Trust's portion of foreign income taxes paid with
respect to, or withheld from, dividends, interest or other income of the Fund
from its foreign investments. Unitholders may then subtract from their Federal
income tax the amount of the foreign tax credit with respect to such taxes
withheld, or else treat such foreign taxes as deductions from gross income;
however, as in the case of investors receiving income directly from foreign
sources, the above described tax credit or deduction is subject to certain
limitations.
Unitholders should consult their tax advisers regarding this election and its
consequences to them.
The foregoing discussion relates only to the tax treatment of United States
Unit holders ("U.S. Unit holders") with regard to Federal and certain aspects of
New York State and City income taxes. Unit holders may be subject to taxation in
New York or in other jurisdictions and should consult their own tax advisers in
this regard. As used herein, the term "U.S. Unit holder" means an owner of a
Unit in the Trust that (a) is (i) for United States Federal income tax purposes
a citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) an estate or trust the income of
which is subject to United States Federal income taxation regardless of its
source or (b) does not qualify as a U.S. Unit holder in paragraph (a) but whose
income from a Unit is effectively connected with such Unit holder's conduct of a
United States trade or business. The term also includes certain former citizens
of the United States whose income and gain on the Units will be taxable.
Each Unitholder will be requested to provide the Unitholder's taxpayer
identification number to the Trustee and to certify that the Unitholder has not
been notified that payments to the Unitholder are subject to back-up
withholding. If the proper taxpayer identification number and appropriate
certification are not provided when requested, distributions by the Trust to
such Unitholder (including amounts received upon the redemption of Units) will
be subject to back-up withholding. Distributions by the Trust will generally be
subject to United States income taxation and withholding in the case of Units
held by non-resident alien individuals, foreign corporations or other non-United
States persons (accrual of original issue discount on the Treasury Obligations
may not be subject to taxation or withholding provided certain requirements are
met). Such persons should consult their tax advisers.
Unitholders will be notified annually of the amounts of original issue
discount, dividend income and long-term capital gains distributions includable
in the Unitholder's gross income and amounts of Trust expenses which may be
claimed as itemized deductions.
Dividend income, long-term capital gains and accrual of original issue
discount may also be subject to state and local taxes. Foreign investors may be
subject to different Federal income tax consequences than those described above.
Investors should consult their tax advisers for specific information on the tax
consequences of particular types of distributions.
Unitholders desiring to purchase Units for tax-deferred plans and IRAs should
consult their broker-dealers for details on establishing such accounts. Units
may also be purchased by persons who already have self-directed plans
established.
In the opinion of special counsel to the Trust for New York tax matters, the
Trust is not an association taxable as a corporation and the income of the Trust
will be treated as the income of the Unitholders under the existing income tax
laws of the State and City of New York.
TRUST OPERATING EXPENSES
COMPENSATION OF SPONSOR AND EVALUATOR. Neither the Sponsor nor the Evaluator
will receive any fees in connection with its activities relating to the Trust.
The Sponsor will receive sales commissions and may realize other profits (or
losses) in connection with the sale of Units and the deposit of the Securities
as described under "Public Offering--Sponsor Compensation".
TRUSTEE'S FEE. For its services the Trustee will receive the annual per Unit
fee from the Trust set forth under "Summary of Essential Financial Information"
in Part One (which amount is based on the number of Units outstanding on January
1 of each year for which such compensation relates). The Trustee's fees are
payable in monthly installments on or before the tenth day of each month from
the Income Account to the extent funds are available and then from the Capital
Account. The Trustee benefits to the extent there are funds for future
distributions, payment of expenses and redemptions in the Capital and Income
Accounts since these Accounts are non-interest bearing and the amounts earned by
the Trustee are retained by the Trustee. Part of the Trustee's compensation for
its services to the Trust is expected to result from the use of these funds.
Such fees may be increased without approval of the Unitholders by amounts not
exceeding proportionate increases under the category "All Services Less Rent of
Shelter" in the Consumer Price Index published by the United States Department
of Labor or, if such category is no longer published, in a comparable category.
For a discussion of the services rendered by the Trustee pursuant to its
obligations under the Trust Agreement, see "Rights of Unitholders--Reports
Provided" and "Trust Administration."
MISCELLANEOUS EXPENSES. Expenses incurred in establishing the Trust,
including the cost of the initial preparation of documents relating to the Trust
(including the Prospectus, Trust Agreement and certificates), federal and state
registration fees, the initial fees and expenses of the Trustee, legal and
accounting expenses, payment of closing fees and any other out-of-pocket
expenses, will be paid by the Trust and amortized over the first five years of
the Trust. The following additional charges are or may be incurred by the Trust:
(a) normal expenses (including the cost of mailing reports to Unitholders)
incurred in connection with the operation of the Trust, (b) fees of the Trustee
for extraordinary services, (c) expenses of the Trustee (including legal and
auditing expenses) and of counsel designated by the Sponsor, (d) various
governmental charges, (e) expenses and costs of any action taken by the Trustee
to protect the Trust and the rights and interests of Unitholders, (f)
indemnification of the Trustee for any loss, liability or expenses incurred in
the administration of the Trust without negligence, bad faith or wilful
misconduct on its part and (g) expenditures incurred in contacting Unitholders
upon termination of the Trust.
The fees and expenses set forth herein are payable out of the Trust. When
such fees and expenses are paid by or owing to the Trustee, they are secured by
a lien on the Trust's portfolio. Since the Fund Shares consist primarily of
common stock and the income stream produced by dividend payments is
unpredictable, the Sponsor cannot provide any assurance that Fund distributions
will be sufficient to meet any or all expenses of the Trust. Rule 12b-1 fees
imposed on Fund Shares held in the Trust are rebated to the Trust, deposited in
the Income Account and are used to pay expenses of the Trust. If the balances in
the Income and Capital Accounts are insufficient to provide for amounts payable
by the Trust, the Trustee has the power to sell Fund Shares (but not Treasury
Obligations) to pay such amounts. These sales may result in capital gains or
losses to Unitholders. See "Federal Taxation."
PUBLIC OFFERING
GENERAL. Units are offered at the Public Offering Price. The secondary market
Public Offering Price is based on the net asset value of the Fund Shares, the
aggregate bid side evaluation of the Treasury Obligations, an applicable sales
charge (which will be reduced by .3 of 1% on each June 1, commencing June1,
1996, to a minimum sales charge of 1.5%), and cash, if any, in the Income and
Capital Accounts held or owned by the Trust.
Any sales charge reduction will primarily be the responsibility of the
selling broker, dealer or agent.
Employees, officers and directors (including their spouses, children,
grandchildren, parents, grandparents, siblings, mothers-in-law, fathers-in-law,
sons-in-law, daughters-in-law and trustees, custodians or fiduciaries for the
benefit of such persons) of Van Kampen American Capital Distributors, Inc. and
its affiliates, dealers and their affiliates, and vendors providing services to
the Sponsor may purchase Units at the Public Offering Price less the applicable
dealer concession.
OFFERING PRICE. The Public Offering Price of the Units will vary from the
amounts stated under "Summary of Essential Financial Information" in Part One in
accordance with fluctuations in the prices of the underlying Securities in the
Trust.
As indicated above, the price of the Units was established by adding to the
determination of the aggregate underlying value of the Securities an amount
initially equal to 5.152% of such value and dividing the sum so obtained by the
number of Units outstanding. The Public Offering Price shall include the
proportionate share of any cash held in the Income and Capital Accounts. This
computation produced a gross underwriting profit initially equal to 4.9% of the
Public Offering Price. The Evaluator will appraise or cause to be appraised
daily the value of the underlying Securities as of the Evaluation Time on days
the New York Stock Exchange is open and will adjust the Public Offering Price of
the Units commensurate with such valuation. Such Public Offering Price will be
effective for all orders received prior to the Evaluation Time on each such day.
Orders received by the Trustee or the Sponsor for purchases, sales or
redemptions after that time, or on a day when the New York Stock Exchange is
closed, will be held until the next determination of price. Effective on each
June 1 commencing June 1, 1996, such sales charge will be reduced by .3 of 1% to
a minimum sales charge of 1.5%.
The value of the Fund Shares is determined on each business day based on the
last available net asset value calculation on or immediately prior to the
Evaluation Time on the day the valuation is made. The Treasury Obligations will
be valued at their net bid prices. If bid prices are not available for the
Treasury Obligations, then such evaluations will be based on (1) bid prices for
comparable securities, (2) by determining the value of the Treasury Obligations
on the bid side of the market by appraisal or (3) by any combination of the
above. The offering price of the Treasury Obligations may be expected to be
greater than the bid price of the Treasury Obligations by less than 2%.
In offering the Units to the public, neither the Sponsor nor any
broker-dealers are recommending any of the individual Securities in the Trust
but rather the entire pool of Securities, taken as a whole, which are
represented by the Units.
UNIT DISTRIBUTION. Units will be distributed to the public by the Sponsor,
broker-dealers and others at the Public Offering Price. Units repurchased in the
secondary market, if any, may be offered by this Prospectus at the secondary
market Public Offering Price in the manner described above.
The Sponsor has qualified the Units for sale in a number of states. Any
discount provided to investors will be borne by the selling dealer or agent as
indicated under "General" above. For secondary market transactions, the
broker-dealer concession or agency commission will amount to 70% of the sales
charge applicable to the transaction.
Certain commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sales charge (equal to the agency
commission referred to above) is retained by or remitted to the banks. Under the
Glass-Steagall Act, banks are prohibited from underwriting Trust Units; however,
the Glass-Steagall Act does permit certain agency transactions and the banking
regulators have not indicated that these particular agency transactions are not
permitted under such Act. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
To facilitate the handling of transactions, sales of Units shall normally be
limited to transactions involving a minimum of 500 Units (100 Units for a
tax-sheltered retirement plan). The Sponsor reserves the right to reject, in
whole or in part, any order for the purchase of Units and to change the amount
of the concession or agency commission to dealers and others from time to time.
Broker-dealers of the Trust, banks and/or others are eligible to participate
in a program in which such firms receive from the Sponsor a nominal award for
each of their representatives who have sold a minimum number of units of unit
investment trusts created by the Sponsor during a specified time period. In
addition, at various times the Sponsor may implement other programs under which
the sales forces of brokers, dealers, banks and/or others may be eligible to win
other nominal awards for certain sales efforts, or under which the Sponsor will
reallow to any such brokers, dealers, banks and/or others that sponsor sales
contests or recognition programs conforming to criteria established by the
Sponsor, or participate in sales programs sponsored by the Sponsor, an amount
not exceeding the total applicable sales charge on the sales generated by such
persons at the public offering price during such programs. Also, the Sponsor in
its discretion may from time to time pursuant to objective criteria established
by the Sponsor pay fees to qualifying brokers, dealers, banks and/or others for
certain services or activities which are primarily intended to result in sales
of Units of the Trust. Such payments are made by the Sponsor out of its own
assets, and not out of the assets of the Trust. These programs will not change
the price Unitholders pay for their Units or the amount that the Trust will
receive from the Units sold. Approximately every eighteen months the Sponsor
holds a business seminar which is open to brokers and dealers that sell units of
trusts it sponsors. The Sponsor pays substantially all costs associated with the
seminar, excluding travel costs. Each broker and dealer is invited to send a
certain number of representatives based on the gross number of units such firm
sells during a designated time period.
SPONSOR COMPENSATION. The Sponsor will receive a gross sales commission
initially equal to 4.9% of the Public Offering Price of the Units (equivalent to
5.152% of the net amount invested), less any reduced sales charge (as described
under "General" above). Any discount provided to investors will be borne by the
selling broker, dealer or agent as indicated under "General" above.
In addition, the Sponsor realized a profit or sustained a loss, as the case
may be, as a result of the difference between the price paid for the Treasury
Obligations by the Sponsor and the cost of such Treasury Obligations to the
Trust on the Initial Date of Deposit as well as on subsequent deposits. Although
the Sponsor is not currently the Fund's distributor, The Sponsor has
participated as distributor of Govett Smaller Companies Fund. The Sponsor
further realized additional profit or loss during the initial offering period as
a result of the possible fluctuations in the market value of the Securities in
the Trust after a date of deposit, since all proceeds received from purchasers
of Units (excluding dealer concessions and agency commissions allowed, if any)
will be retained by the Sponsor.
A person will become owner of the Units on the date of settlement provided
payment has been received. Cash, if any, made available to the Sponsor prior to
the date of settlement for the purchase of Units may be used in the Sponsor's
business and may be deemed to be a benefit to the Sponsor, subject to the
limitations of the Securities Exchange Act of 1934.
As stated under "Public Market" below, the Sponsor intends to maintain a
secondary market for Units of the Trust. In so maintaining a market, the Sponsor
will also realize profits or sustain losses in the amount of any difference
between the price at which Units are purchased and the price at which Units are
resold (which price includes the applicable sales charge). In addition, the
Sponsor will also realize profits or sustain losses resulting from a redemption
of such repurchased Units at a price above or below the purchase price for such
Units, respectively.
PUBLIC MARKET. Although not obligated to do so, the Sponsor intends to
maintain a market for the Units offered hereby and offer continuously to
purchase Units at prices, subject to change at any time, based upon the net
asset value of the Fund Shares in the Trust plus the aggregate bid price of the
Treasury Obligations. If the supply of Units exceeds demand or if some other
business reason warrants it, the Sponsor may either discontinue all purchases of
Units or discontinue purchases of Units at such prices. In the event that a
market is not maintained for the Units and the Unitholder cannot find another
purchaser, a Unitholder desiring to dispose of his or her Units may be able to
dispose of such Units only by tendering them to the Trustee for redemption at
the Redemption Price. See "Rights of Unitholders--Redemption of Units." A
Unitholder who wishes to dispose of his or her Units should inquire of his or
her broker as to current market prices in order to determine whether there is in
existence any price in excess of the Redemption Price and, if so, the amount
thereof.
TAX-SHELTERED RETIREMENT PLANS. Units of the Trust are available for purchase
in connection with certain types of tax-sheltered retirement plans, including
Individual Retirement Accounts for the individuals, Simplified Employee Pension
Plans for employees, qualified plans for self-employed individuals, and
qualified corporate pension and profit sharing plans for employees. The purchase
of Units of the Trust may be limited by the plans' provisions and does not
itself establish such plans. The minimum purchase in connection with a
tax-sheltered retirement plan is 100 Units.
RIGHTS OF UNITHOLDERS
CERTIFICATES. The Trustee is authorized to treat as the record owner of Units
that person who is registered as such owner on the books of the Trustee.
Ownership of Units of the Trust will be evidenced by certificates unless a
Unitholder or the Unitholder's registered broker-dealer makes a written request
to the Trustee that ownership be in book entry form. Units are transferable by
making a written request to the Trustee and, in the case of Units evidenced by a
certificate, by presentation and surrender of such certificate to the Trustee
properly endorsed or accompanied by a written instrument or instruments of
transfer. A Unitholder must sign such written request, and such certificate or
transfer instrument, exactly as his or her name appears on the records of the
Trustee, and on the face of the certificate with the signature guaranteed by a
participant in the Securities Transfer Agents Medallion Program ("STAMP") or
such other signature guarantee program in addition to, or in substitution for,
STAMP, as may be accepted by the Trustee. In certain instances the Trustee may
require additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority. Certificates will be issued in denominations of one Unit
or any whole multiple thereof.
Although no such charge is now made or contemplated, the Trustee may require
a Unitholder to pay a reasonable fee for each certificate reissued or
transferred and to pay any governmental charge that may be imposed in connection
with each such transfer or interchange. Destroyed, stolen, mutilated or lost
certificates will be replaced upon delivery to the Trustee of satisfactory
indemnity, evidence of ownership and payment of expenses incurred. Mutilated
certificates must be surrendered to the Trustee for replacement.
DISTRIBUTIONS OF INCOME AND CAPITAL. Any distributions of dividends received
by the Trust with respect to the Fund Shares therein are credited by the Trustee
to the Income Account. Other receipts (e.g., capital gains, any capital gain
dividends, proceeds from the sale of Securities, return of principal, etc.) are
credited to the Capital Account of the Trust.
The Trustee will distribute any net income other than accreted interest
received with respect to any of the Securities in the Trust on or about the
Distribution Dates to Unitholders of record on the preceding Record Dates. See
"Summary of Essential Financial Information" in Part One. Proceeds received on
the sale of any Securities in the Trust, to the extent not used to meet
redemptions of Units or pay expenses, will be distributed annually on the
Distribution Date to Unitholders of record on the preceding Record Date. Income
with respect to the original issue discount on the Treasury Obligations will not
be distributed currently, although Unitholders in the Trust will be subject to
federal income tax as if a distribution had occurred. See "Federal Taxation."
Proceeds received from the disposition of any of the Securities after a record
date and prior to the following distribution date will be held in the Capital
Account and not distributed until the next distribution date applicable to such
Capital Account. The Trustee is not required to pay interest on funds held in
the Capital or Income Accounts (but may itself earn interest thereon and
therefore benefits from the use of such funds).
The distribution to Unitholders as of each record date will be made on the
following distribution date or shortly thereafter and shall consist of each
Unitholder's pro rata share of the cash in the Income Account after deducting
estimated expenses. Because distributions are not received by the Trust at a
constant rate throughout the year, such distributions to Unitholders, if any,
are expected to fluctuate from distribution to distribution. Persons who
purchase Units will commence receiving distributions only after such person
becomes a record owner. Notification to the Trustee of the transfer of Units is
the responsibility of the purchaser, but in the normal course of business such
notice is provided by the selling broker-dealer.
On a monthly basis, the Trustee will deduct from the Income Account and, to
the extent funds are not sufficient therein, from the Capital Account amounts
necessary to pay the daily accrued expenses of the Trust (as determined on the
basis set forth under Operating Expenses"). The Trustee also may withdraw from
said accounts such amounts, if any, as it deems necessary to establish a reserve
for any governmental charges payable out of the Trust. Amounts so withdrawn
shall not be considered a part of the Trust's assets until such time as the
Trustee shall return all or any part of such amounts to the appropriate
accounts. In addition, the Trustee may withdraw from the Income and Capital
Accounts such amounts as may be necessary to cover redemptions of Units.
REINVESTMENT OPTION. Unitholders of all unit investment trusts sponsored by
Van Kampen American Capital Distributors, Inc., may elect to have each
distribution of interest income, capital gains, and/or principal on their Units
automatically reinvested in Class A shares of certain Van Kampen American
Capital or Morgan Stanley mutual funds which are registered in the Unitholder's
state of residence. Such mutual funds are hereinafter collectively referred to
as the "Reinvestment Funds".
Each Reinvestment Fund has investment objectives which differ in certain
respects from those of the Trusts. The prospectus relating to each Reinvestment
Fund describes the investment policies of such fund and sets forth the
procedures to follow to commence reinvestment. A Unitholder may obtain a
prospectus for the respective Reinvestment Funds from Van Kampen American
Capital Distributors, Inc. at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Texas residents who desire to reinvest may request that a broker-dealer
registered in Texas send the prospectus relating to the respective fund.
After becoming a participant in a reinvestment plan, each distribution of
interest income, capital gains and/or principal on the participant's Units will,
on the applicable distribution date, automatically be applied, as directed by
such person, as of such distribution date by the Trustee to purchase shares (or
fractions thereof) of the applicable Reinvestment Fund at a net asset value as
computed as of the close of trading on the New York Stock Exchange on such date.
Unitholders with an existing Guaranteed Reinvestment Option (GRO) Program
account (whereby a sales charge is imposed on distribution reinvestments) may
transfer their existing account into a new GRO account which allows purchases of
Reinvestment Fund shares at net asset value as described above.
Confirmations of all reinvestments by a Unitholder into a Reinvestment Fund
will be mailed to the Unitholder by such Reinvestment Fund. A participant may at
any time prior to five days preceding the next succeeding distribution date, by
so notifying the Trustee in writing, elect to terminate his or her reinvestment
plan and receive future distributions of his or her Units in cash. There will be
no charge or other penalty for such termination. Each Reinvestment Fund, its
sponsor and investment adviser shall have the right to suspend or terminate at
any time the reinvestment plan relating to such fund.
REPORTS PROVIDED. The Trustee shall furnish Unitholders in connection with
each distribution a statement of the amount of income and the amount of other
receipts (received since the preceding distribution), if any, being distributed,
expressed in each case as a dollar amount representing the pro rata share of
each Unit outstanding. For as long as the Sponsor deems it to be in the best
interest of the Unitholders, the accounts of the Trust shall be audited, not
less frequently than annually, by independent certified public accountants, and
the report of such accountants shall be furnished by the Trustee to Unitholders
upon request. Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each person who at any time during the
calendar year was a registered Unitholder a statement (i) as to the Income
Account: income received (including amortization of original issue discount with
respect to the Treasury Obligations), deductions for applicable taxes and for
fees and expenses of the Trust, for redemptions of Units, if any, and the
balance remaining after such distributions and deductions, expressed in each
case both as a total dollar amount and as a dollar amount representing the pro
rata share of each Unit outstanding on the last business day of such calendar
year; (I) as to the Capital Account: the dates of disposition of any Securities
(other than pursuant to In Kind Distributions) and the net proceeds received
therefrom, deductions for payment of applicable taxes, fees and expenses of the
Trust held for distribution to Unitholders of record as of a date prior to the
determination and the balance remaining after such distributions and deductions
expressed both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (iii) a list of the Securities held and the number of Units
outstanding on the last business day of such calendar year; (iv) the Redemption
Price per Unit based upon the last computation thereof made during such calendar
year; and (v) amounts actually distributed during such calendar year from the
Income and Capital Accounts, separately stated, expressed as total dollar
amounts.
In order to comply with federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Securities in the Trust furnished to it by the Evaluator.
REDEMPTION OF UNITS. A Unitholder may redeem all or a portion of his or her
Units by tender to the Trustee at its Unit Investment Trust Division, 101
Barclay Street, 20th Floor, New York, New York 10286 and, in the case of Units
evidenced by a certificate, by tendering such certificate to the Trustee, duly
endorsed or accompanied by proper instruments of transfer with signature
guaranteed (or by providing satisfactory indemnity, as in connection with lost,
stolen or destroyed certificates) and by payment of applicable governmental
charges, if any. No redemption fee will be charged. On the third business day
following such tender, the Unitholder will be entitled to receive in cash
(unless the redeeming Unitholder elects an In Kind Distribution as indicated
below) an amount for each Unit equal to the Redemption Price per Unit next
computed after receipt by the Trustee of such tender of Units. The "date of
tender" is deemed to be the date on which Units are received by the Trustee,
except that as regards Units received after the Evaluation Time the date of
tender is the next day on which such Exchange is open for trading and such Units
will be deemed to have been tendered to the Trustee on such day for redemption
at the redemption price computed on that day.
The Trustee is empowered to sell Securities in order to make funds available
for redemption if funds are not otherwise available in the Capital and Income
Accounts to meet redemptions. The Securities to be sold will be selected by the
Trustee from those designated on a current list provided by the Supervisor for
this purpose. Units so redeemed shall be cancelled.
Unitholders tendering Units with a redemption value at least equal to $500
for redemption may request from the Trustee in lieu of a cash redemption a
distribution in kind ("In Kind Distributions") of an amount and value of
Securities per Unit equal to the Redemption Price per Unit as determined as of
the evaluation next following the tender. An In Kind Distribution on redemption
of Units will be made by the Trustee through the distribution of the Fund Shares
in book-entry form to the account of the Unitholder's bank or broker-dealer at
Depository Trust Company. The tendering Unitholder will receive his pro rata
number of Fund Shares comprising the portfolio. Unitholders may also elect to
have the pro rata portion of the Treasury Obligations to which such tendering
Unitholder is entitled reinvested without a sales charge into Fund Shares.
Unitholders not electing to have their pro rata portion of the Treasury
Obligations reinvested into Fund Shares will receive cash from the Capital
Account equal to the pro rata portion of the Treasury Obligations to which the
tendering Unitholder is entitled. In implementing these redemption procedures,
the Trustee shall make any adjustments necessary to reflect differences between
the Redemption Price of the Securities distributed in kind as of the date of
tender. If funds in the Capital Account are insufficient to cover the required
cash distribution to the tendering Unitholder, the Trustee may sell Securities
according to the criteria discussed above.
To the extent that Securities are redeemed in kind or sold, the size of the
Trust will be, and the diversity of the Trust may be, reduced. Sales may be
required at a time when Securities would not otherwise be sold and may result in
lower prices than might otherwise be realized. The price received upon
redemption may be more or less than the amount paid by the Unitholder depending
on the value of the Securities in the portfolio at the time of redemption.
Special federal income tax consequences will result if a Unitholder requests an
In Kind Distribution. See "Federal Taxation."
The Redemption Price per Unit (as well as the secondary market Public
Offering Price) will be determined on the basis of the net asset value of the
Fund Shares in the Trust plus the aggregate bid price of the Treasury
Obligations, plus or minus cash, if any, in the Income and Capital Accounts.
While the Trustee has the power to determine the Redemption Price per Unit when
Units are tendered for redemption, such authority has been delegated to the
Evaluator which determines the price per Unit on a daily basis. The Redemption
Price per Unit is the pro rata share of each Unit in the Trust determined on the
basis of (i) the cash on hand in the Trust, (ii) the value of the Securities in
the Trust and (iii) dividends or other distributions receivable on the Fund
Shares trading ex-dividend as of the date of computation, less (a) amounts
representing taxes or other governmental charges payable out of the Trust and
(b) the accrued expenses of the Trust. See "Public Offering--Offering Price" for
a description of the method of evaluating the Fund Shares and Treasury
Obligations.
As stated above, the Trustee may sell Securities to cover redemptions. When
Securities are sold, the size of the Trust will be, and the diversity of the
Trust may be, reduced. Such sales may be required at a time when Securities
would not otherwise be sold and might result in lower prices than might
otherwise be realized.
The right of redemption may be suspended and payment postponed for any period
during which the New York Stock Exchange is closed, other than for customary
weekend and holiday closings, or any period during which the Securities and
Exchange Commission determines that trading on that Exchange is restricted or an
emergency exists, as a result of which disposal or evaluation of the Securities
in the Trust is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit.
TRUST ADMINISTRATION
SPONSOR PURCHASES OF UNITS. The Trustee shall notify the Sponsor of any
tender of Units for redemption. If the Sponsor's bid in the secondary market at
that time equals or exceeds the Redemption Price per Unit, it may purchase such
Units by notifying the Trustee before the close of business on the next
succeeding business day and by making payment therefor to the Unitholder not
later than the day on which the Units would otherwise have been redeemed by the
Trustee. Units held by the Sponsor may be tendered to the Trustee for redemption
as any other Units.
The offering price of any Units acquired by the Sponsor will be in accord
with the Public Offering Price described in the then currently effective
prospectus describing such Units. Any profit resulting from the resale of such
Units will belong to the Sponsor which likewise will bear any loss resulting
from a lower offering or redemption price subsequent to its acquisition of such
Units.
PORTFOLIO ADMINISTRATION. The portfolio of the Trust is not "managed" by the
Sponsor, Supervisor or the Trustee; their activities described herein are
governed solely by the provisions of the Trust Agreement. Traditional methods of
investment management for a managed fund (such as the Fund) typically involve
frequent changes in a portfolio of securities on the basis of economic,
financial and market analysis. While the Trust will not be managed, the Trust
Agreement provides that the Sponsor may (but need not) direct the Trustee to
dispose of Fund Shares in the event that the Fund defaults in the payment of a
distribution that has been declared, that any action or proceeding has been
instituted restraining the payment of distributions or there exists any legal
question or impediment affecting such Fund, that the Fund has breached a
covenant which would affect the payments of distributions, or otherwise impair
the sound investment character of the Fund, or that the price of the Fund Shares
have declined to such an extent or other such credit factors exist so that in
the opinion of the Sponsor, the retention of the Fund Shares would be
detrimental to the Trust. Treasury Obligations may be sold by the Trustee only
pursuant to the liquidation of the Trust or to meet redemption requests.
Proceeds from the sale of Securities (or any securities or other property
received by the Trust in exchange for Fund Shares) are credited to the Capital
Account for distribution to Unitholders or to meet redemptions.
As indicated under "Rights of Unitholders--Redemption of Units" above, the
Trustee may also sell Securities designated by the Supervisor, or if not so
directed, in its own discretion, for the purpose of redeeming Units of the Trust
tendered for redemption and the payment of expenses; provided, however, that in
the case of Securities sold for such purposes, Treasury Obligations may only be
sold if the Smaller Companies Fund and Treasury Trust is assured of retaining a
sufficient principal amount of Treasury Obligations to provide funds upon
maturity of the Trust at least equal to $11.00 per Unit. Treasury Obligations
may not be sold by the Trustee to meet expenses of the Smaller Companies Fund
and Treasury Trust.
AMENDMENT OR TERMINATION. The Trust Agreement may be amended by the Trustee
and the Sponsor without the consent of any of the Unitholders (1) to cure any
ambiguity or to correct or supplement any provision thereof which may be
defective or inconsistent, or (2) to make such other provisions as shall not
adversely affect the Unitholders (as determined in good faith by the Sponsor and
the Trustee), provided, however, that the Trust Agreement may not be amended to
increase the number of Units (other than as provided in the Trust Agreement).
The Trust Agreement may also be amended in any respect by the Trustee and
Sponsor, or any of the provisions thereof may be waived, with the consent of the
holders of 51% of the Units then outstanding, provided that no such amendment or
waiver will reduce the interest in the Trust of any Unitholder without the
consent of such Unitholder or reduce the percentage of Units required to consent
to any such amendment or waiver without the consent of all Unitholders. The
Trustee shall advise the Unitholders of any amendment promptly after execution
thereof.
A Trust may be liquidated at any time by consent of Unitholders representing
66 2/3% of the Units of the Smaller Companies Fund and Treasury Trust then
outstanding, or by the Trustee if the net asset value of the Trust is less than
$500,000 unless the net asset value of the Trust deposits has exceeded
$15,000,000, then the Trust Agreement may be terminated if the net asset of the
Trust is less than $3,000,000. The Trust Agreement will terminate upon the sale
or other disposition of the last Security held thereunder, but in no event will
it continue beyond the Mandatory Termination Date stated under "Summary of
Essential Financial Information" in Part One.
Commencing on the Mandatory Termination Date, Fund Shares will begin to be
sold in connection with the termination of the Trust. The Sponsor will determine
the manner, timing and execution of the sales of the Fund Shares. Written notice
of any termination specifying the time or times at which Unitholders may
surrender their certificates for cancellation, if any are then issued and
outstanding, shall be given by the Trustee to each Unitholder so holding a
certificate at his or her address appearing on the registration books of the
Trust maintained by the Trustee. At least 30 days before the Mandatory
Termination Date the Trustee will provide written notice thereof to all
Unitholders and will include with such notice a form to enable Unitholders
owning Units with a termination value at least equal to $500 to request an In
Kind Distribution rather than payment in cash upon the termination of the
related Trust. To be effective, this request must be returned to the Trustee at
least five business days prior to the Mandatory Termination Date. On the
Mandatory Termination Date (or on the next business day thereafter if a holiday)
the Trustee will deliver each requesting Unitholder's pro rata number of Fund
Shares to the account of the broker-dealer or bank designated by the Unitholder
at Depository Trust Company. Unitholders may also elect to have the pro rata
portion of the proceeds received upon the maturity of the Treasury Obligations
reinvested without a sales charge into Fund Shares. Unitholders not electing to
reinvest the proceeds received from the Treasury Obligations will be paid their
pro rata portion of the Treasury Obligations in cash. Unitholders owning Units
with a termination value of less than $500 and those not requesting an In Kind
Distribution will receive a cash distribution from the sale of the remaining
Securities within a reasonable time following the Mandatory Termination Date.
Regardless of the distribution involved, the Trustee will deduct from the funds
of the Trust any accrued costs, expenses, advances or indemnities provided by
the Trust Agreement, including estimated compensation of the Trustee, costs of
liquidation and any amounts required as a reserve to provide for payment of any
applicable taxes or other governmental charges. Any sale of Securities in the
Trust upon termination may result in a lower amount than might otherwise be
realized if such sale were not required at such time. The Trustee will then
distribute to each Unitholder his pro rata share of the balance of the Income
and Capital Accounts.
Within 60 days of the final distribution Unitholders will be furnished a
final distribution statement, in substantially the same form as the annual
distribution statement, of the amount distributable. At such time as the Trustee
in its sole discretion will determine that any amounts held in reserve are no
longer necessary, it will make distribution thereof to Unitholders in the same
manner.
LIMITATIONS ON LIABILITIES. The Sponsor, the Evaluator, the Supervisor and
the Trustee shall be under no liability to Unitholders for taking any action or
for refraining from taking any action in good faith pursuant to the Trust
Agreement, or for errors in judgment, but shall be liable only for their own
willful misfeasance, bad faith or negligence (gross negligence in the case of
the Sponsor, Evaluator and Supervisor) in the performance of their duties or by
reason of their reckless disregard of their obligations and duties hereunder.
The Trustee shall not be liable for depreciation or loss incurred by reason of
the sale by the Trustee of any of the Securities. In the event of the failure of
the Sponsor to act under the Trust Agreement, the Trustee may act thereunder and
shall not be liable for any action taken by it in good faith under the Trust
Agreement.
The Trustee shall not be liable for any taxes or other governmental charges
imposed upon or in respect of the Securities or upon the interest thereon or
upon it as Trustee under the Trust Agreement or upon or in respect of the Trust
which the Trustee may be required to pay under any present or future law of the
United States of America or of any other taxing authority having jurisdiction.
In addition, the Trust Agreement contains other customary provisions limiting
the liability of the Trustee.
The Trustee, Sponsor, Supervisor and Unitholders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the accuracy
thereof. Determinations by the Evaluator under the Trust Agreement shall be made
in good faith upon the basis of the best information available to it, provided,
however, that the Evaluator shall be under no liability to the Trustee, Sponsor,
Supervisor or Unitholders for errors in judgment. This provision shall not
protect the Evaluator in any case of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
SPONSOR. Van Kampen American Capital Distributors, Inc., a Delaware
corporation, is the Sponsor of the Trust. The Sponsor is an indirect subsidiary
of VK/AC Holding, Inc. VK/AC Holding, Inc. is a wholly owned subsidiary of MSAM
Holdings II, Inc., which in turn is a wholly owned subsidiary of Morgan Stanley,
Dean Witter, Discover & Co. ("MSDWD").
MSDWD is a global financial services firm with a market capitalization of
more than $21 billion which was created by the merger of Morgan Stanley Group
Inc. with and into Dean Witter, Discover & Co. on May 31, 1997. MSDWD, together
with various of its directly and indirectly owned subsidiaries, is engaged in a
wide range of financial services through three primary businesses: securities,
asset management and credit services. These principal businesses include
securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; global custody, securities clearance services and securities lending;
and credit card services. As of June 2, 1997, MSDWD, together with its
affiliated investment advisory companies, had approximately $270 billion of
assets under management, supervision or fiduciary advice.
Van Kampen American Capital Distributors, Inc. specializes in the
underwriting and distribution of unit investment trusts and mutual funds with
roots in money management dating back to 1926. The Sponsor is a member of the
National Association of Securities Dealers, Inc. and has offices at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181, (630) 684-6000 and 2800 Post Oak
Boulevard, Houston, Texas 77056, (713) 993-0500. It maintains a branch office in
Philadelphia and has regional representatives in Atlanta, Dallas, Los Angeles,
New York, San Francisco and Seattle. As of November 30, 1996, the total
stockholders' equity of Van Kampen American Capital Distributors, Inc. was
$129,451,000 (unaudited). (This paragraph relates only to the Sponsor and not to
the Trusts or to any other Series thereof. The information is included herein
only for the purpose of informing investors as to the financial responsibility
of the Sponsor and its ability to carry out its contractual obligations. More
detailed financial information will be made available by the Sponsor upon
request.)
As of September 30, 1997, the Sponsor and its Van Kampen American Capital
affiliates managed or supervised approximately $65.3 billion of investment
products, of which over $10.85 billion is invested in municipal securities. The
Sponsor and its Van Kampen American Capital affiliates managed $54 billion of
assets, consisting of $34.3 billion for 55 open-end mutual funds (of which 45
are distributed by Van Kampen American Capital Distributors, Inc.) $14.2 billion
for 37 closed-end funds and $5.5 billion for 106 institutional accounts. The
Sponsor has also deposited approximately $26 billion of unit investment trusts.
All of Van Kampen American Capital's open-end funds, closed-ended funds and unit
investment trusts are professionally distributed by leading financial firms
nationwide. Based on cumulative assets deposited, the Sponsor believes that it
is the largest sponsor of insured municipal unit investment trusts, primarily
through the success of its Insured Municipals Income Trust(R) or the IM-IT(R)
trust. The Sponsor also provides surveillance and evaluation services at cost
for approximately $13 billion of unit investment trust assets outstanding. Since
1976, the Sponsor has serviced over two million investor accounts, opened
through retail distribution firms.
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement or become incapable of acting or shall become bankrupt or its affairs
are taken over by public authorities, then the Trustee may (i) appoint a
successor Sponsor at rates of compensation deemed by the Trustee to be
reasonable and not exceeding amounts prescribed by the Securities and Exchange
Commission, (ii) terminate the Trust Agreement and liquidate the Trusts as
provided therein or (iii) continue to act as Trustee without terminating the
Trust Agreement.
TRUSTEE. The Trustee is The Bank of New York, a trust company organized under
the laws of New York. The Bank of New York has its offices at 101 Barclay
Street, New York, New York 10286 (800) 221-7668. The Bank of New York is subject
to supervision and examination by the Superintendent of Banks of the State of
New York and the Board of Governors of the Federal Reserve System, and its
deposits are insured by the Federal Deposit Insurance Corporation to the extent
permitted by law.
The duties of the Trustee are primarily ministerial in nature. It did not
participate in the selection of Securities for the Trust portfolio.
In accordance with the Trust Agreement, the Trustee shall keep proper books
of record and account of all transactions at its office for the Trust. Such
records shall include the name and address of, and the number of Units of the
Trust held by, every Unitholder of the Fund. Such books and records shall be
open to inspection by any Unitholder at all reasonable times during the usual
business hours. The Trustee shall make such annual or other reports as may from
time to time be required under any applicable state or federal statute, rule or
regulation (see "Rights of Unitholders--Reports Provided"). The Trustee is
required to keep a certified copy or duplicate original of the Trust Agreement
on file in its office available for inspection at all reasonable times during
the usual business hours by any Unitholder, together with a current list of the
Securities held in the Trust.
Under the Trust Agreement, the Trustee or any successor trustee may resign
and be discharged of its responsibilities created by the Trust Agreement by
executing an instrument in writing and filing the same with the Sponsor. The
Trustee or successor trustee must mail a copy of the notice of resignation to
all Unitholders then of record, not less than 60 days before the date specified
in such notice when such resignation is to take effect. The Sponsor upon
receiving notice of such resignation is obligated to appoint a successor trustee
promptly. If, upon such resignation, no successor trustee has been appointed and
has accepted the appointment within 30 days after notification, the retiring
Trustee may apply to a court of competent jurisdiction for the appointment of a
successor. The Sponsor may remove the Trustee and appoint a successor trustee as
provided in the Trust Agreement at any time with or without cause. Notice of
such removal and appointment shall be mailed to each Unitholder by the Sponsor.
Upon execution of a written acceptance of such appointment by such successor
trustee, all the rights, powers, duties and obligations of the original trustee
shall vest in the successor. The resignation or removal of a Trustee becomes
effective only when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which a Trustee shall be a party, shall be the successor trustee. The Trustee
must be a banking corporation organized under the laws of the United States or
any state and having at all times an aggregate capital, surplus and undivided
profits of not less than $5,000,000.
OTHER MATTERS
LEGAL OPINIONS. The legality of the Units offered hereby has been passed upon
by Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, as
counsel for the Sponsor. Winston & Strawn has acted as counsel for the Trustee.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTS. The statement of condition and the
related securities portfolio included in this Prospectus have been audited by
Grant Thornton LLP, independent certified public accountants, as set forth in
their report in this Prospectus, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
No person is authorized to give any information or to make any representations
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the Trust,
the Sponsor or dealers. This Prospectus does not constitute an offer to sell, or
a solicitation of any offer to buy, securities in any state to any persons to
whom it is not lawful to make such offer in such state.
Table of Contents Page
----------------- ------
The Trust 2
Objectives and Securities Selection 2
Trust Portfolio 3
Federal Taxation 11
Trust Operating Expenses 13
Public Offering 13
Rights of Unitholders 15
Trust Administration 16
Other Matters 18
This Prospectus contains information concerning the Fund and the Sponsor, but
does not contain all of the information set forth in the registration statements
and exhibits relating thereto, which the Fund has filed with the Securities and
Exchange Commission, Washington, D.C. under the Securities Act of 1933 and the
Investment Company Act of 1940, and to which reference is hereby made.
VAN KAMPEN AMERICAN CAPITAL
EQUITY OPPORTUNITY TRUST,
SERIES 14
PROSPECTUS
PART TWO
Govett Smaller Companies Fund
and Treasury Trust, Series 1
NOTE: THIS PROSPECTUS MAY BE USED ONLY WHEN
ACCOMPANIED BY PART ONE. BOTH PARTS OF THIS
PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
DATED AS OF THE DATE OF THE PROSPECTUS PART ONE
ACCOMPANYING THIS PROSPECTUS PART TWO.
------ A Wealth of Knowledge oA Knowledge of Wealthsm ------
VAN KAMPEN AMERICAN CAPITAL
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
Please retain this Prospectus for future reference.
CONTENTS OF POST-EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statement comprises the
following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Van Kampen American Capital Equity Opportunity Trust, Series 14, certifies that
it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment to its Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in the City of Chicago and State of Illinois
on the 24th day of April, 1998.
VAN KAMPEN AMERICAN CAPITAL EQUITY OPPORTUNITY TRUST, SERIES 14
(Registrant)
By VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
(Depositor)
By: Gina Costello
Assistant Secretary
(SEAL)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below on April 24, 1998 by the
following persons who constitute a majority of the Board of Directors of Van
Kampen American Capital Distributors, Inc.:
SIGNATURE TITLE
Don G. Powell Chairman and Chief )
Executive Officer )
John H. Zimmerman President and Chief Operating )
Officer )
Ronald A. Nyberg Executive Vice President and )
General Counsel )
William R. Rybak Senior Vice President and )
Chief Financial Officer )
Gina Costello_______
(Atttorney in Fact)*
____________________
* An executed copy of each of the related powers of attorney was filed with
the Securities and Exchange Commission in connection with the Registration
Statement on Form S-6 of Van Kampen American Capital Equity Opportunity Trust,
Series 64 (File No. 333-33087) and Van Kampen American Capital Equity
Opportunity Trust, Series 87 (File No. 333-44581) and the same are hereby
incorporated herein by this reference.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 13, 1998 accompanying the financial
statements of Van Kampen American Capital Equity Opportunity Trust, Series 14 as
of December 31, 1997, and for the period then ended, contained in this
Post-Effective Amendment No. 3 to Form S-6.
We consent to the use of the aforementioned report in the Post-Effective
Amendment and to the use of our name as it appears under the caption "Auditors".
Grant THORNTON LLP
Chicago, Illinois
April 24, 1998
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