1
File Nos: 33-37783
811-6229
As filed with the Securities and Exchange Commission on May 9, 2000
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 26
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 29
THE GOVETT FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
(Address of Principal Executive Offices)
800-731-1755
(Registrant's Telephone Number)
Colin Kreidewolf
AIB Govett, Inc.
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
(Name and Address of Agent for Service)
Copy to:
Regina M. Pisa, P.C.
Goodwin, Procter & Hoar LLP
One Exchange Place
Boston, MA 02109-2881
Approximate date of proposed sale to the public:
As soon as is practicable after the effective date of the Registration
Statement.
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)
[ ] on pursuant to paragraph (a)(2) of rule 485
---------------
This Registration Statement shall hereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933.
================================================================================
2
The Securities and Exchange Commission
has not approved or disapproved these
securities or determined whether this
prospectus is accurate or complete.
Anyone who tells you differently is
committing a crime.
Class A Retail Shares
Institutional Class Shares
PROSPECTUS
May 1, 2000
Govett Emerging Markets Equity Fund
Govett Smaller Companies Fund
Govett International Smaller Companies Fund
Govett International Equity Fund
Govett Global Income Fund
3
CONTENTS
ABOUT THE FUNDS
- ----------------------------------------------
Emerging Markets Equity Fund 4 A fund-by-fund look at goals,
strategies, risks and expenses.
Smaller Companies Fund 6
International Smaller Companies Fund 8
International Equity Fund 10
Global Income Fund 12
OTHER INFORMATION ABOUT
THE FUNDS' INVESTMENTS 14
MANAGEMENT OF THE FUNDS 15
PRICING OF FUND SHARES 15
DISTRIBUTION ARRANGEMENTS 16
ABOUT YOUR ACCOUNT
- ----------------------------------------------
Eligible Investors 17 Policies and instructions for
opening, maintaining and closing
How to Buy Shares 17 an account in any fund.
How to Exchange Shares 18
How to Redeem Shares 19
Telephone Transactions 20
Dividends, Capital Gains & Taxes 20
FINANCIAL HIGHLIGHTS 22
A QUICK REFERENCE GUIDE 29
FOR MORE INFORMATION back cover
4
ABOUT THE FUNDS
Emerging Markets Equity Fund
Fundamental Investment Goal
The fund seeks long-term capital appreciation by investing primarily in equity
securities of companies located in emerging markets.
Principal Investment Strategies
Normally, the fund invests at least 65% of its total assets in common stocks and
other equity securities of issuers located in at least three emerging market
countries. The Investment Manager uses the World Bank's classification system to
determine the potential universe of emerging markets. The fund may invest in
issuers of any size.
The Investment Manager applies a blend of "top-down" and "bottom-up"
decision-making in selecting fund investments. It first looks at trends in the
global economy and attempts to identify countries and sectors that offer high
growth potential. Then it uses extensive research and analysis to select stocks
in those countries and sectors with attractive valuations and good growth
potential.
Principal Risks of Investing in the Fund
Since the fund invests primarily in common stocks, the major risks are those of
stock investing, including periods of little or no growth and sudden declines in
value.
Investments in foreign markets expose the fund's investments to additional risks
including the following:
o Political instability;
o Significant or rapid changes in currency exchange rates;
o Foreign exchange restrictions;
o Inaccurate or incomplete financial information resulting from less strict
securities market regulations and accounting standards.
These risks are increased to the extent the fund invests in emerging markets.
The fund invests primarily in emerging markets.
Securities of smaller companies tend to experience more price volatility than
securities of larger companies. Generally, smaller companies have more limited
product lines and markets than larger companies. On the other hand, larger
companies generally do not offer the potential for capital appreciation as do
well-managed smaller companies.
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
may lose money by investing in the fund.
Fund Performance
The bar chart and table shown below provide an illustration of the risks of
investing in the fund.
The bar chart shows changes in performance of the fund's Class A Retail shares
from year to year over the life of the fund. The chart does not reflect any
sales charge that you may be required to pay upon redemption or exchange of the
fund's shares. Any sales charge would reduce your return.
Year-by-year total return as of 12/31 of each year:
[GRAPHIC OMITTED - DATA POINTS AS FOLLOWS:]
1993 79.73
1994 -12.65
1995 -7.84
1996 12.08
1997 -10.40
1998 -34.18
1999 70.10
During the period shown in the bar chart, the highest quarterly return was
35.00% (for the quarter ended December 31, 1999) and the lowest quarterly return
was -20.90% (for the quarter ended September 30, 1998).
The table shows how average annual returns for the fund's shares for one year,
five years, and the life of fund compare to those of the Morgan Stanley Capital
International ("MSCI") Emerging Markets Index.
Average annual total return as of 12/31/99:
Since
1 Year 5 Year inception
- -------------------------------------------------------------------
Class A (start 1/7/92) 70.10% 0.72% 7.21%
Class I(1) 70.10% 0.72% 7.21%
MSCI Emerging
Markets Index 68.90% 1.55% 8.27%
4
5
The MSCI Emerging Markets Index is an unmanaged index that represents the
general performance of equity markets in emerging markets. You cannot invest
directly in the index.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Fees
(fees paid directly from your investment)
Class A
&Class I
- --------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of offering price) None
Maximum sales charge (load) imposed on re-invested
dividends (as a percentage of offering price) None
Redemption fee (as a percentage of amount redeemed) 1.00%(2)
Exchange fee (as percentage of amount exchanged) 1.00%(2)
Maximum account fee None
Annual fund operating expenses
(expenses that are deducted from fund assets)
Class A Class I
- ------------------------------------------------------------------------
Management fees 1.00% 1.00%
Distribution & service (12b-1) fees 0.35% 0.00%
Other expenses 2.96% 2.96%
----- -----
Total annual fund operating expenses(3) 4.31% 3.96%
Fee waiver & expense reimbursement (2.46)% (2.46)%
----- -----
Net operating expenses(3) 1.85% 1.50%
===== =====
Example
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds.
o The example assumes that:
o You invest $10,000 in the fund for the time periods indicated;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
o You redeem your shares at the end of each of the periods indicated.
Years 1 3 5 10
- ---------------------------------------------------------------
Class A $ 188 $ 582 $1,001 $2,169
Class I $ 153 $ 474 $ 818 $1,791
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
1 As of December 31, 1999, the Institutional Class shares had not been sold
to the public. Thus, performance figures presented are for Class A Retail.
Because Class A Retail and Institutional Class shares have different
expense structures, average annual returns for Institutional Class shares
may differ from the returns for Class A Retail shares.
2 Class A Retail and Institutional Class shares purchased after September 30,
1998 are subject to a redemption fee of 1% on shares sold within six months
of purchase, and shares of either class purchased after December 31, 1998
are subject to an exchange fee of 1% on shares exchanged within six months
of purchase.
3 The figures presented in this table are based on the gross expenses
incurred by Class A Retail shares of the fund during the year ended
December 31, 1999. During that year, the Investment Manager paid or
reimbursed the fund for certain operating expenses. The actual total
operating expenses paid by the fund with respect to Class A Retail shares
for 1999 were 1.85% of average daily net assets. The Institutional Class
shares had not been sold to the public as of December 31, 1999. For the
2000 fiscal year, the Investment Manager has agreed to pay and reimburse
certain operating expenses to limit total annual operating expenses to
1.85% of average daily net assets for Class A Retail shares and to 1.50% of
average daily net assets for Institutional Class shares.
5
6
Smaller Companies Fund
Fundamental Investment Goal
The fund seeks long-term capital appreciation by investing primarily in equity
securities of smaller companies.
Principal Investment Strategies
Normally, this fund will invest at least 65% of its total assets in common
stocks and other equity securities of smaller companies. For this fund, a
smaller company is a company with a market capitalization no greater than $3
billion when the fund makes the initial investment. Also, a smaller company may
be located anywhere in the world, including the U.S.
The Investment Manager applies a blend of "top-down" and "bottom-up" decision
making in selecting fund investments. Bottom-up, it focuses on market position,
money generation, profit margins, business strategy, and management to pick
stocks. Top-down, rigorous country and industry reviews attempt to focus the
fund in areas offering high growth potential.
Principal Risks of Investing in the Fund
Since the fund invests primarily in common stocks, the major risks are those of
stock investing, including periods of little or no growth and sudden declines in
value.
Investments in foreign markets expose the fund's investments to additional risks
including the following:
o Political instability;
o Significant or rapid changes in currency exchange rates;
o Foreign exchange restrictions;
o Inaccurate or incomplete financial information resulting from less strict
securities market regulations and accounting standards.
These risks are increased to the extent the fund invests in emerging markets.
The fund may invest in emerging markets.
Securities of smaller companies tend to experience more price volatility than
securities of larger companies. Generally, smaller companies have more limited
product lines and markets than larger companies, even though they also tend to
have potential for greater capital appreciation.
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
may lose money by investing in the fund.
Fund Performance
The bar chart and table shown below provide an illustration of the risks of
investing in the fund.
The bar chart shows changes in performance of the fund's Class A Retail shares
from year to year over the life of the fund. The chart does not reflect any
sales charge that you may be required to pay upon redemption or exchange of the
fund's shares. Any sales charge would reduce your return.
Year-by-year total return as of 12/31 of each year:
[GRAPHIC OMITTED - DATA POINTS AS FOLLOWS:]
1993 58.50
1994 28.68
1995 69.13
1996 -10.62
1997 -12.55
1998 -11.73
1999 70.27
During the period shown in the bar chart, the highest quarterly return was
20.28% (for the quarter ended September 30, 1997) and the lowest quarterly
return was -32.60% (for the quarter ended September 30, 1998).
The table shows how the average annual returns for the fund's shares for one
year, five years, and the life of fund compared to those of the Russell 2000
Index.
Average annual total return as of 12/31/99:
Since
1 Year 5 Year inception
- ---------------------------------------------------------------------
Class A (start 1/1/93) 70.27% 14.72% 22.12%
Class I(1) 70.27% 14.72% 22.12%
Russell 2000
Index 68.90% 1.55% 8.27%
The Russell 2000 Index is an unmanaged index that represents the general
performance of U.S. smaller companies primarily those with market capitalization
of less than $500 million. You cannot invest directly in the index.
6
7
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Fees
(fees paid directly from your investment)
Class A
&Class I
- --------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of offering price) None
Maximum sales charge (load) imposed on re-invested
dividends (as a percentage of offering price) None
Redemption fee (as a percentage of amount redeemed) 1.00%(2)
Exchange fee (as percentage of amount exchanged) 1.00%(2)
Maximum account fee None
Annual fund operating expenses
(expenses that are deducted from fund assets)
Class A Class I
- -----------------------------------------------------------------------
Management fees 1.00% 1.00%
Distribution & service (12b-1) fees 0.35% 0.00%
Other expenses 1.81% 1.81%
----- -----
Total annual fund operating expenses(2) 3.16% 2.81%
Fee waiver & expense reimbursement (0.81)% (0.81)%
----- -----
Net operating expenses(2) 2.35% 2.00%
===== =====
Example
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds.
The example assumes that:
o You invest $10,000 in the fund for the time periods indicated;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
o You redeem your shares at the end of each of the periods indicated.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
Years 1 3 5 10
- -----------------------------------------------------------------
Class A $ 238 $ 733 $1,255 $2,686
Class I $ 203 $ 627 $1,078 $2,327
1 As of December 31, 1999, the Institutional Class shares had not been sold
to the public. Thus, performance figures presented are for Class A Retail
shares. Because Class A Retail and Institutional Class shares have
different expense structures, average annual returns for Institutional
Class shares may differ from the returns for Class A Retail shares.
2 Class A Retail and Institutional Class shares purchased after September 30,
1998 are subject to a redemption fee of 1% on shares sold within six months
of purchase, and shares of either class purchased after December 31, 1998
are subject to an exchange fee of 1% on shares exchanged within six months
of purchase.
3 The figures presented in this table are based on the gross expenses
incurred by Class A Retail shares of the fund during the year ended
December 31, 1999. During that year, the Investment Manager paid or
reimbursed the fund for certain operating expenses. The actual total
operating expenses paid by the fund with respect to Class A Retail shares
for 1999 were 2.35% of average daily net assets. The Institutional Class
shares had not been sold to the public as of December 31, 1999. For the
1999 fiscal year, the Investment Manager has agreed to pay and reimburse
certain operating expenses to limit total annual operating expenses to
2.35% of average daily net assets for Class A Retail shares and to 2.00% of
average daily net assets for Institutional Class shares.
7
8
International Smaller Companies Fund
Fundamental Investment Goal
The fund seeks long-term capital appreciation by investing primarily in equity
securities of smaller companies located throughout the world.
Principal Investment Strategies
Normally, the fund invests at least 65% of its total assets in common stocks and
other equity securities of smaller companies located in at least three countries
other than the U.S. For this fund, a smaller company is a company with a market
capitalization no greater than $3 billion when the fund makes the initial
investment.
The Investment Manager applies a blend of "top-down" and "bottom-up" decision
making in selecting fund investments. Bottom-up, it focuses on market position,
money generation, profit margins, business strategy, and management to pick
stocks. Top-down, rigorous country and industry reviews attempt to focus the
fund in areas offering high growth potential.
Principal Risks of Investing in the Fund
Since the fund invests primarily in common stocks, the major risks are those of
stock investing, including periods of little or no growth and sudden declines in
value.
Investments in foreign markets expose the fund's investments to additional risks
including the following:
o Political instability;
o Significant or rapid changes in currency exchange rates;
o Foreign exchange restrictions;
o Inaccurate or incomplete financial information resulting from less strict
securities market regulations and accounting standards.
These risks are increased to the extent the fund invests in emerging markets.
The fund may invest in emerging markets.
Securities of smaller companies tend to experience more price volatility than
securities of larger companies. Generally, smaller companies have more limited
product lines and markets than large companies, even though they also tend to
have potential for greater capital appreciation.
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
may lose money by investing in the fund.
Fund Performance
The bar chart and table shown below provide an illustration of the risks of
investing in the fund.
The bar chart shows changes in performance of the fund's Class I Institutional
shares from year to year over the life of the fund. The chart does not reflect
any sales charge that you may be required to pay upon redemption or exchange of
the fund's shares. Any sales charge would reduce your return.
Year-by-year total return as of 12/31 of each year:
[GRAPHIC OMITTED - DATA POINTS AS FOLLOWS:]
1993
1994
1995
1996
1997
1998
1999 55.51
During the period shown in the bar chart, the highest quarterly return was
21.98% (for the quarter ended December 31, 1999) and the lowest quarterly return
was 7.68% (for the quarter ended September 30, 1999).
The table shows how the average annual returns for the fund's shares for one
year, and the life of fund compared to those of the MSCI World Small Cap ex US
Index.
Average annual total return as of 12/31/99:
Since
1 Year inception
- ---------------------------------------------------------
Class A (start 5/25/99) 42.49% 42.49%
Class I (start 1/1/99) 55.51% 55.51%
MSCI World Small
Cap ex US Index 18.39% 18.39%
The MSCI World Small Cap ex US Index is an unmanaged index that represents the
general performance of International. smaller companies primarily those with
market capitalization of less than $500 million. You cannot invest directly in
the index.
8
9
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Fees
(fees paid directly from your investment)
Class A
&Class I
- --------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of offering price) None
Maximum sales charge (load) imposed on re-invested
dividends (as a percentage of offering price) None
Redemption fee (as a percentage of amount redeemed) 1.00%(1)
Exchange fee (as percentage of amount exchanged) 1.00%(1)
Maximum account fee None
Annual fund operating expenses
(expenses that are deducted from fund assets)
Class A Class I
- ------------------------------------------------------------------------
Management fees 1.00% 1.00%
Distribution & service (12b-1) fees 0.35% 0.00%
Other expenses 14.12% 14.47%
------- -------
Total annual fund operating expenses(2) 15.47% 15.47%
ee waiver & expense reimbursement (13.62)% (13.97)%
------- -------
Net operating expenses(2) 1.85% 1.50%
======= =======
Example
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds The example assumes that:
o You invest $10,000 in the fund for the time periods indicated;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
o You redeem your shares at the end of each of the periods indicated.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
Years 1 3 5 10
- ----------------------------------------------------------------
Class A $ 188 $ 582 $1,001 $2,169
Class I $ 153 $ 474 $ 818 $1,791
1 Class A Retail and Institutional Class shares purchased after September 30,
1998 are subject to a redemption fee of 1% on shares sold within six months
of purchase, and shares of either class purchased after December 31, 1998
are subject to an exchange fee of 1% on shares exchanged within six months
of purchase.
2 The Institutional Class was funded on December 31, 1998. Thus, the figures
presented in this table are based on expenses for fiscal 1999. For the 2000
fiscal year, the Investment Manager has contracted with the fund to pay and
reimburse certain operating expenses to limit total annual operating
expenses to 1.85% of average daily net assets for Class A Retail shares and
to 1.50% of average daily net assets for Institutional Class shares.
9
10
International Equity Fund
Fundamental Investment Goal
The fund seeks long-term capital appreciation by investing primarily in equity
securities of companies located throughout the world.
Principal Investment Strategies
Normally, the fund invests at least 65% of its total assets in common stocks and
other equity securities of issuers located in at least three countries other
than the U.S. The fund may invest in issuers of any size.
The Investment Manager applies a blend of "top-down" and "bottom-up" decision
making in selecting fund investments. It first looks at trends in the global
economy and attempts to identify countries and sectors that offer high growth
potential. Then it uses extensive research and analysis to select stocks in
those countries and sectors with attractive valuations and good growth
potential.
Principal Risks of Investing in the Fund
Since the fund invests primarily in common stocks, the major risks are those of
stock investing, including periods of little or no growth and sudden declines in
value.
Investments in foreign markets expose the fund's investments to additional risks
including the following:
o Political instability;
o Significant or rapid changes in currency exchange rates;
o Foreign exchange restrictions;
o Inaccurate or incomplete financial information resulting from less strict
securities market regulations and accounting standards.
These risks are increased to the extent the fund invests in emerging markets.
The fund may invest in emerging markets.
Securities of smaller companies tend to experience more price volatility than
securities of larger companies. Generally, smaller companies have more limited
product lines and markets than larger companies. On the other hand, larger
companies generally do not offer the potential for capital appreciation as do
well-managed smaller companies.
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
may lose money by investing in the fund.
Fund Performance
The bar chart and table shown below provide an illustration of the risks of
investing in the fund.
The bar chart shows changes in performance of the fund's Class A Retail shares
from year to year over the life of the fund. The chart does not reflect any
sales charge that you may be required to pay upon redemption or exchange of the
fund's shares. Any sales charge would reduce your return.
Year-by-year total return as of 12/31 of each year:
[GRAPHIC OMITTED - DATA POINTS AS FOLLOWS:]
1993 54.50
1994 -8.44
1995 11.01
1996 12.13
1997 -0.71
1998 19.12
1999 27.95
During the period shown in the bar chart, the highest quarterly return was
18.73% (for the quarter ended December 31, 1998) and the lowest quarterly return
was -13.86% (for the quarter ended September 30, 1998).
The table shows how average annual returns for the fund's shares for one year,
five years, and the life of fund compare to those of the MSCI Europe Australia
Far East ("EAFE") Index and the MSCI EAFE + Emerging Markets ("EAFE+EMG").
Average annual total return as of 12/31/99:
Since
1 Year 5 Year inception
- ------------------------------------------------------------------------
Class A (start 1/7/92) 27.95% 13.50% 12.28%
Class I(1)(start 7/24/98) 28.25% 13.50% 12.28%
MSCI EAFE
+EMG Index 31.03% 11.82% 10.88%
MSCI EAFE
Index 27.29% 13.15% 11.28%
The MSCI EAFE Index is an unmanaged index that represents the general
performance of international equity markets, without consideration of emerging
markets. The MSCI EAFE+EMG is an unmanaged index that represents the general
performance of international equity markets including emerging markets. The fund
has selected the MSCI EAFE+EMG Index as its comparison as the index's
10
11
investment objectives, including emerging markets, are more similar to the
fund's objectives. You cannot invest directly in the index.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Fees
(fees paid directly from your investment)
Class A
&Class I
- --------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of offering price) None
Maximum sales charge (load) imposed on re-invested
dividends (as a percentage of offering price) None
Redemption fee (as a percentage of amount redeemed) 1.00%(1)
Exchange fee (as percentage of amount exchanged) 1.00%(1)
Maximum account fee None
Annual fund operating expenses
(expenses that are deducted from fund assets)
Class A Class I
- -------------------------------------------------------------------------
Management fees 1.00% 1.00%
Distribution & service (12b-1) fees 0.35% 0.00%
Other expenses 1.99% 1.98%
----- -----
Total annual fund operating expenses(2) 3.34% 2.98%
Fee waiver & expense reimbursement (0.99)% (0.98)%
----- -----
Net operating expenses(2) 2.35% 2.00%
===== =====
Example
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds.
The example assumes that:
o You invest $10,000 in the fund for the time periods indicated;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
o You redeem your shares at the end of each of the periods indicated.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
Years 1 3 5 10
- ----------------------------------------------------------------
Class A $ 238 $ 733 $1,255 $2,686
Class I $ 203 $ 627 $1,078 $2,327
1 Class A Retail and Institutional Class shares are purchased after September
30, 1998 are subject to a redemption fee of 1% on shares sold within six
months of purchase, and shares of either class purchased after December 31,
1998 are subject to an exchange fee of 1% on shares exchanged within six
months of purchase.
2 The figures presented in this table are based on the gross expenses
incurred by Class A Retail shares of the fund during the year ended
December 31, 1999. During that year, the Investment Manager paid or
reimbursed the fund for certain operating expenses. The actual total
operating expenses paid by the fund with respect to Class A Retail shares
for 1999 were 2.35% and 2.00% of average daily net assets, respectively.
For the 2000 fiscal year, the Investment Manager has agreed to pay and
reimburse certain operating expenses to limit total annual operating
expenses to 2.35% of average daily net assets for Class A Retail shares and
to 2.00% of average daily net assets for Institutional Class shares.
11
12
Global Income Fund
Fundamental Investment Goal
The fund seeks high current income, consistent with preservation of capital, by
investing primarily in debt securities. Its secondary goal is capital
appreciation.
Principal Investment Strategies
Normally, the fund invests at least 65% of its total assets in debt securities
of issuers located in at least three different countries, which may include the
U.S. The fund may not invest more than 40% of its total assets in any one
country, other than the U.S.
The Investment Manager applies a "top-down" approach making country allocations
and taking yield curve positions based on its view of worldwide economic and
interest rate movements. Within those allocations, the choices between
Government Bonds and Corporate Bonds, and then industries for Corporate Bonds,
are chosen based on relative risk and value, with particular instruments
selected to achieve the desired duration for the fund. The desired duration of
the fund is determined by the view of the worldwide economic cycle and
prospective interest rate movements.
Principal Risks of Investing in the Fund
Since the fund invests primarily in debt securities, the major risks are those
of debt investing, including sudden rises in interest rates causing reductions
in the value of the fund's debt holdings. They may also include sudden economic
disruptions in one or more markets causing issuers to default on debt payments
to the fund.
Investments in foreign markets expose the fund's investments to additional risks
including the following:
o Political instability;
o Significant or rapid changes in currency exchange rates;
o Foreign exchange restrictions;
o Inaccurate or incomplete financial information resulting from less strict
securities market regulations and accounting standards.
These risks are increased to the extent the fund invests in emerging markets.
The fund may invest in emerging markets.
Global Income Fund is not a "diversified company" as defined in the Investment
Company Act of 1940. As a result, this fund may invest in a smaller number of
issuers than diversified mutual funds, which exposes Global Income Fund to a
greater risk of loss from its investments in any one company.
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
may lose money by investing in the fund.
Fund Performance
The bar chart and table shown below provide an illustration of the risks of
investing in the fund.
The bar chart shows changes in performance of the fund's Class A Retail shares
from year to year over the life of the fund. The chart does not reflect any
sales charge that you may be required to pay upon redemption or exchange of the
fund's shares. Any sales charge would reduce your return.
Year-by-year total return as of 12/31 of each year:
[GRAPHIC OMITTED - DATA POINTS AS FOLLOWS:]
1993 17.67
1994 -9.16
1995 14.11
1996 0.34
1997 -0.35
1998 7.65
1999 -8.06
During the period shown in the bar chart, the highest quarterly return was 5.95%
(for the quarter ended June 30, 1992) and the lowest quarterly return was -5.62%
(for the quarter ended March 31, 1994).
The table shows how average annual returns for the fund's shares for one year,
five years, and the life of fund compare to those of the Salomon Brothers World
Government Bond Index.
Average annual total return as of 12/31/99:
Since
1 Year 5 Year inception
- --------------------------------------------------------------------
Class A (start 1/7/92) -8.06% 2.41% 3.48%
Class I(1) -8.06% 2.41% 3.48%
Salomon Brothers World
Government Bond Index -4.24% 0.06% 6.62%
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The Index is an unmanaged index that represents the general performance of
government bonds in major bond markets. You cannot invest directly in the index.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Fees
(fees paid directly from your investment)
Class A
&Class I
- --------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of offering price) None
Maximum sales charge (load) imposed on re-invested
dividends (as a percentage of offering price) None
Redemption fee (as a percentage of amount redeemed) 1.00%(2)
Exchange fee (as percentage of amount exchanged) 1.00%(2)
Maximum account fee None
Annual fund operating expenses
(expenses that are deducted from fund assets)
Class A Class I
- -----------------------------------------------------------------------
Management fees 0.75% 0.75%
Distribution & service (12b-1) fees 0.35% 0.00%
Other expenses 3.41% 3.41%
----- -----
Total annual fund operating expenses(3) 4.51% 4.16%
Fee waiver & expense reimbursement (2.16)% (2.16)%
----- -----
Net operating expenses(3) 2.35% 2.00%
===== =====
Example
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds.
The example assumes that:
o You invest $10,000 in the fund for the time periods indicated;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
o You redeem your shares at the end of each of the periods indicated.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
Years 1 3 5 10
- ----------------------------------------------------------------
Class A $ 238 $ 733 $1,255 $2,686
Class I $ 203 $ 627 $1,078 $2,327
1 As of December 31, 1999, the Institutional Class shares had not been sold
to the public. Thus, performance figures presented are for Class A Retail
shares. Because Class A Retail and Institutional Class shares have
different expense structures, average annual returns for Institutional
Class shares may differ from the returns for Class A Retail shares.
2 Class A Retail and Institutional Class shares purchased after September 30,
1998 are subject to a redemption fee of 1% on shares sold within six months
of purchase, and shares of either class purchased after December 31, 1998
are subject to an exchange fee of 1% on shares exchanged within six months
of purchase.
3 The figures presented in this table are based on the gross expenses
incurred by Class A Retail shares of the fund during the year ended
December 31, 1999. During that year, the Investment Manager paid or
reimbursed the fund for certain operating expenses. The actual total
operating expenses paid by the fund with respect to Class A Retail shares
for 1999 were 1.75% of average daily net assets. The Institutional Class
shares had not been sold to the public as of December 31, 1999. For the
2000 fiscal year, the Investment Manager has agreed to pay and reimburse
certain operating expenses to limit total annual operating expenses to
2.35% of average daily net assets for Class A Retail shares and to 2.00% of
average daily net assets for Institutional Class shares.
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Other Information about the Funds' Investments
The following provides additional information about the funds' investments.
Equity Securities. Each fund may invest in equity securities (for the Global
Income Fund, up to 20% of its total assets). Equity securities include common
stocks, preferred stocks, depository receipts, rights, and warrants.
Debt Securities. Each fund may invest in debt securities. Debt securities
include supranational, government or sovereign, or non-convertible corporate
bonds, notes, debentures, certificates of deposit, commercial paper, bankers'
acceptances, and fixed-time deposits.
Global Income Fund shall invest at least 75% of its total assets invested in
debt securities that are investment grade at time of purchase. Investment grade
means long-term debt securities that are rated at least in the Baa major rating
category by Moody's or at least in the BBB major rating category by Standard &
Poor's and short-term debt securities that are rated at least in the Prime-2
major rating category by Moody's or at least in the A-2 major rating category by
Standard & Poor's. Unrated debt securities determined by the Investment Manager
to be of comparable quality also are considered to be investment grade
securities.
Global Income Fund may invest up to 25% of its total assets in debt securities
rated below investment grade. These securities may be similar to high yield,
high risk bonds or "junk bonds," which generally have a greater potential than
higher quality securities for default of payments of principal or interest. The
prices of these bonds tend to be more volatile than the prices of higher quality
bonds, especially if there are changes in the issuer's credit-worthiness or
economic downturns or interest rate increases. A fund may incur additional
expenses if it is required to seek recovery following a default in payment of
principal or interest. In addition, remedies for defaults on debt securities
issued by emerging market governments generally must be pursued in the courts of
the defaulting government, and adequate legal recourse may be significantly
diminished.
Interest Rate and Credit Risk. The value of fixed-income securities generally
fluctuates inversely with interest rate movements. Thus, anything that affects
interest rates generally will affect the price of fund shares.
Sovereign Debt Obligations. Funds which invest in sovereign debt obligations may
have difficulty disposing of and valuing them because there may be a limited
trading market for them. Adverse publicity and changing investor perceptions
also may affect the value of these securities and the funds' ability to dispose
of them.
Other types of Investments. Each fund may invest up to 35% of its total assets
in other types of equity securities, such as equity securities of companies
located in other countries or regions, in debt securities convertible into
equity securities, and in non-convertible debt securities.
Restricted and Illiquid Securities. Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
In addition, some foreign securities may have restrictions on transfers within
the U.S. or to U.S. persons. Owning a larger percentage of restricted or
illiquid securities could hamper a fund's ability to meet redemptions.
Hedging Strategies. Each fund may, but is not required to, use hedging
strategies to try to reduce the level of risk normally associated with its
investments. The types of transactions the funds may use include foreign
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, interest rate or currency futures and options, and securities
futures and options.
Portfolio Turnover. The frequency of portfolio transactions varies from year to
year depending on market conditions. A high annual turnover rate increases
transaction costs, which could reduce a fund's performance. It also may lead to
the realization and distribution of higher capital gains to you, which could
increase your tax liability. The Investment Manager generally does not engage in
short-term trading.
Temporary Defensive Strategies. Each fund may depart from its principal
investment strategies to respond to adverse changes in market and economic
conditions. By taking a defensive position, a fund may not achieve its principal
investment objective.
The complete details of the funds' investment restrictions and other investment
policies are described in the Statement of Additional Information.
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15
Management of the Funds
AIB Govett, Inc. ("AIB Govett" or "Investment Manager"), 250 Montgomery Street,
Suite 1200, San Francisco, CA 94104, is the investment adviser for the funds and
provides the funds with day-to-day management services and makes, or supervises
any sub-adviser who makes, investment decisions on the funds' behalf in
accordance with each fund's investment policies. AIB Govett is a wholly-owned
subsidiary of AIB Asset Management Holdings Limited ("AIBAMH") which is a
majority-owned subsidiary of Allied Irish Banks, plc ("AIB"). AIB is the largest
bank in the Republic of Ireland, with assets of approximately $64 billion as of
December 31, 1999. AIBAMH had approximately $17.0 billion in assets under
management as of December 31, 1999. AIB Govett serves as investment sub-adviser
to two other U.S. mutual fund portfolios.
AIB Govett Asset Management Limited ("AIB Govett London"), Shackleton House, 4
Battle Bridge Lane, London, England SE1 2HR serves as sub-adviser to all funds.
A money manager since the 1920s, it has developed special expertise in investing
in emerging markets and smaller companies worldwide. AIB Govett London had, as
of December 31, 1999, approximately $5.3 billion under management, primarily in
non-U.S. funds.
John Murray and Eileen Fitzpatrick, Joint Chief Investment Officers and
Directors of AIB Govett, are Managing Director of Investments of AIB Govett
London and Chief Investment Officer of AIB Investment Managers Limited
("AIBIM"), respectively. AIBIM is also a wholly-owned subsidiary of AIBAMH based
in Dublin.
Mr. Murray graduated with a BA in finance and business studies from the
University of the South Bank. Prior to joining AIB Govett London as a Director
in 1994, he was a Director at Henderson Administration from 1990, most recently
responsible for managing pension funds in excess of (pound)400m. He also served
as a fund manager at Crown Financial Management and as Head of Research at
Provident Life.
Ms. Fitzpatrick holds a Ph.D. in Science from University College, Dublin. After
two years with a Dublin-based fund management organization, she jointed AIBIM in
1998. She became Head of International Equities and Associate Director in 1993.
Ms. Fitzpatrick moved to NCB Stockbrokers and then, in 1995, to Goodbody
Stockbrokers (an affiliate of AIB), where she was Head of International Equities
Sales Division. In 1996, she rejoined AIBIM as Deputy Investment Director and
was appointed Investment Director in January 1997.
Portfolio Management. AIB Govett and AIB Govett London are part of a broad
network of offices worldwide, with principal offices located in London, Dublin,
San Francisco, and Singapore. These offices are supported by a global network of
investment/research offices in Baltimore, Budapest, Rio de Janeiro, and Poznan.
Each fund is managed by a portfolio management team under the supervision of the
Managing Director of Investments of AIB Govett London. Each team's investment
process is based on interaction among regional specialist desks. The Global
Investment Policy Committee, consisting of the Chief Investment Officers of the
principal offices, sets overall investment policies and strategy for AIB Govett
group and coordinates implementation in accordance with each fund's investment
objectives, policies, and regulatory requirements. With this structure, the firm
seeks consistent implementation of process and continuity of investment
management staff for each fund.
Investment Advisory Fees. The funds pay AIB Govett a monthly fee, as determined
at the close of each business day during the month, at an annual rate of 1% of
average daily net assets of each fund (0.75% for Global Income Fund), for
providing investment management and administrative services to the funds. In
accordance with the Sub-advisory Agreement, AIB Govett pays AIB Govett London
sub-advisory fees from the fees it receives from the funds. The funds are not
responsible for the payment of the sub-advisory fee to AIB Govett London.
Pricing of Fund Shares
When share price is determined. Each fund calculates its net asset value per
share ("NAV") at the close of regular trading on the New York Stock Exchange
(usually 4:00 p.m. Eastern Time) each day the New York Stock Exchange is open.
Each fund calculates the NAV of each class by dividing the total value of the
assets (securities plus cash and 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. Exchange rates for securities quoted in foreign currencies are
determined at 1:00 p.m. Eastern Time.
How share price is determined. All assets except debt securities maturing in
less than 60 days are valued at market value. Debt securities maturing in 60
days or less are valued using amortized cost. Assets are valued at fair value
when market prices for those assets are unavailable or when the Board of
Directors determines that market prices for those assets are no longer accurate.
15
16
Foreign securities may trade on days or at times other than those days and times
when the New York Stock Exchange is open. Thus, the value of portfolio
securities, and as a result, each fund's NAV, may change on days when
shareholders will be unable to purchase or redeem fund shares.
Distribution Arrangements
Distribution Plan. Rule 12b-1 was adopted by the SEC under the 1940 Act, and it
permits a mutual fund to pay expenses associated with distributing its shares.
Each fund has adopted a plan in accordance with Rule 12b-1, which pertains only
to Class A Retail shares and which is referred to in this prospectus as the
"Class A Plan".
Under the Class A Plan, each fund pays an ongoing distribution fee to the
Distributor at an annual rate of 0.35% of each fund's aggregate average daily
net assets attributable to its Class A Retail shares. There is no service fee
paid under the Class A Plan.
16
17
ABOUT YOUR ACCOUNT
Eligible Investors
Class A Retail Shares
The Class A Retail shares are available for purchase by any interested party who
meets the investment minimum.
Institutional Class Shares
Shares of the Institutional Class are available for purchase only by or through:
(a) retirement, profit-sharing, 401(k), and other tax-exempt employee benefit
plans, including rollover individual retirement plans from such plans;
(b) institutional advisory accounts of AIB Govett or its affiliates, as well as
subsidiaries and related employee benefit plans and certain rollover
individual retirement accounts from institutional advisory accounts;
(c) registered investment advisers and financial institutions, including banks
and trust companies (each an "Adviser") investing on behalf of clients that
are institutions or high net-worth individuals having at least $250,000
under management by the Adviser;
(d) shareholders of any mutual fund advised by AIB Govett or one or more of its
affiliates and which is being merged into or having its assets acquired by
a series of the funds; and
(e) Institutional Class shareholders.
How to Buy Shares
Shares of each of the funds are offered continuously at NAV determined for each
fund as of the close of the regular trading session of the New York Stock
Exchange (usually 4:00 p.m. Eastern Time). An unspecified purchase order will be
considered an order for Class A Retail shares.
Each purchase of shares for each fund must meet the following minimum amounts:
Initial Subsequent
Class A Retail Shares Purchase Purchasers
- --------------------------------------------------------------------------------
Second Stage Shareholders (you became, and remain,
a shareholder of any fund on or after January 1, 1998)
Regular Account $5,000 $1,000
IRA $2,000 $1,000
Automatic Investment $5,000 $ 100
First Stage Shareholders (you became, and remain,
a shareholder prior to January 1, 1998)
Regular Account $ 500 $ 25
IRA $ 500 $ 25
Automatic Investment $ 100 $ 25
(invest on the 10th, 15th, or 20th of each month)
Institutional Class Shares
- --------------------------------------------------------------------------------
Regular Account $25,000 no minimum
Opening Your Account
If you are not currently a shareholder of any fund, you may open an account
directly with the funds, through a broker, or through an employer-sponsored plan
which permits purchases of fund shares. In each case, you must complete, sign
and submit an application.
IRA and other retirement accounts require a special application. For an
application or assistance with any questions about your IRA or retirement
account, please call 800-821-0803.
The funds reserve the right to reject any purchase order and to suspend the
offering of new shares.
Purchases Directly From The Funds
You may open an account directly with the funds by sending your completed,
signed application and payment to the address for Transactions by Mail shown in
the Quick Reference Guide at the end of this prospectus.
Your payment may be made by check, sent by mail to the same address as the
application, or by wire. If payment is made by wire, you must contact the funds
prior to sending the wire to receive an account number to be referenced when
sending your payment as directed in Payments by Bank Wire in the Quick Reference
Guide at the end of this prospectus. Generally, if you are purchasing shares by
wire, the funds will give you seven (7) days to send a signed, completed
application before processing your order.
Purchases Through Brokers
Shares may be purchased through brokers-dealers, investment advisors, and other
financial intermediaries. If the broker has a selling agreement with the funds'
distributor, it is an "authorized dealer".
17
18
Generally, a complete order received by a broker before 4:00 p.m. Eastern Time
will be purchased at the NAV calculated at the close of that business day. An
order received by a broker on or after 4:00 p.m. that day generally will be
purchased at the NAV calculated at the close of the next business day. Brokers
may charge a fee for processing a purchase order.
Employer-Sponsored Plans
Purchases made on behalf of participants in an employer-sponsored retirement
plan are made in accordance with directions provided by the employer. Employees
should contact their employer for details.
Subsequent Investments
If you currently are a shareholder of any fund (other than through an
employer-sponsored plan), you may purchase additional shares of that fund or
invest in a new fund directly from the funds, even if you originally purchased
fund shares through a broker. All subsequent purchases must be in the name of
the shareholder exactly as it appears on your current account.
To purchase additional shares directly from the funds, complete the investment
stub located on the Shareholder Statement or send the funds a letter stating the
fund whose shares you want to purchase, your account number, and the exact name
on the account.
You also may make your request through a broker or employer-sponsored plan. In
either case, please contact your broker or plan sponsor.
How to Exchange Shares
Generally, shares may be exchanged from one class of a fund for the same class
of another fund, based upon their respective NAV's, provided the account
registration remains the same. Exchanges may be subject to an exchange fee. For
investors who do not request a full exchange, the remaining balance must be a
minimum of $500. Otherwise, the fund may automatically redeem the account in
full. The funds may suspend, terminate or amend the terms of the exchange
privilege upon 60-days' written notice to shareholders.
Exchanges Directly With The Funds
If you have the telephone privilege, you may make exchanges by telephone by
calling the funds at 800-821-0803. To exchange fund shares by mail, send
complete instructions, including the name of the funds which shares are to be
exchanged in and out of, the amount to be exchanged, your account number, and
the exact name as shown on the account, to the funds at the address shown in
Transactions by Mail in the Quick Reference Guide at the end of this prospectus.
Exchanges Through Brokers
You may make exchange requests through your broker. Some brokers may charge a
fee for handling exchanges. If shares are held in broker's "street name", the
exchange must be made through the broker. Please contact your broker for
details.
Employer-Sponsored Plans
Exchange requests made on behalf of participants in an employer-sponsored
retirement plan are made in accordance with directions provided by the employer.
Employees should contact their employer for details.
Exchange Fee
Shares purchased after January 1, 1999 are subject to a 1% fee on shares
exchanged within six month of purchase. The fee is calculated on the value of
the shares when they are exchanged out of the fund. All shares purchased prior
to this date are not subject to the 1% exchange fee. The shares held the longest
would be considered exchanged first. The Investment Manager may waive this fee
under certain arrangements.
Money Market Fund
As a service to fund shareholders, the funds permit shareholders to exchange
their fund shares for shares of Zurich Kemper Cash Account Trust Money Market
Portfolio (the "Money Market Fund"), a money market fund, and back again.
Shareholders that exchange shares of one class into shares of the Money Market
Fund will receive shares in the same class when they exchange Money Market Fund
shares back into fund shares. All exchanges into and out of the Money Market
Fund are subject to all provisions concerning exchanges, including fund minimum
account balances and exchanges fees. Check writing privileges are not available
with the Money Market Fund.
The Money Market Fund is not a series of The Govett Funds, Inc. and neither the
funds nor AIB Govett is offering or recommending the purchase of shares of the
Money Market Fund. Before you exchange your fund shares into shares of the Money
Market Fund, please call 800-821-0803 or your broker for a prospectus and read
it carefully.
Automatic Exchange Plan
Investors in Class A Retail shares may exchange fund shares of one fund for
Class A Retail shares of another fund through the Automatic Exchange Plan. To
participate in this plan, complete the appropriate portion of the Class A Retail
Shares Account Application or contact the funds for more information. The
exchange fee is waived for participants in the Automatic Exchange Plan.
Frequent Exchanges
A fund may refuse to accept purchase and/or exchange orders from an investor who
has engaged in more than one purchase/sale transaction during any 30-day period
with respect to any particular fund.
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How to Redeem Shares
You may redeem all or a portion of your shares on any day the fund is open for
business. Redemption requests received prior to 4:00 p.m. Eastern Time, will be
computed at that day's closing NAV, less any redemption fees. Requests received
after 4:00 p.m. Eastern Time, will be processed on the next day a fund is open
for business. Any certificates representing fund shares being sold must be
returned with your redemption request.
In general, redemption requests in good order are normally processed within
seven business days. Class A Retail share redemptions via bank wire will be
charged a $9.00 processing fee, which is deducted from the proceeds of the sale.
The funds may withhold redeeming a shareholder's account until they are
reasonably satisfied the checks used to pay for investments in one or more funds
have been collected. Also, redemptions may be suspended or payment dates
postponed when the New York Stock Exchange is closed, for any reason other than
its customary weekend or holidays.
Additional documentation may be required from corporations, executors,
administrators, trustees, guardians and other fiduciaries. Please contact the
funds for further information.
Redemptions Directly From The Fund
If you have the telephone privilege, you may call 800-821-0803 to make
redemptions by telephone. If you hold share certificates or an IRA or other
retirement account, you may not redeem by telephone.
To redeem by mail, you may send a letter to the funds stating the fund and the
number of shares to be redeemed, the account number, the exact name of the
shareholder as on the account registration, and where the redemption proceeds
are to be sent. In certain circumstances, a signature guarantee may be required.
Send your request by mail to the funds at the address shown in Transactions by
Mail in the Quick Reference Guide at the end of this prospectus.
Redemptions Through Brokers
If your account is with a broker, you may submit redemption requests to the
broker. Generally, your redemption requests must be received by the broker prior
to 4:00 p.m. Eastern Time.
However, even after receipt of a redemption order from a broker, the funds still
require a signed letter from the shareholder containing redemption instructions,
any share certificates and any other documents that may be required. The broker
may charge a fee for handling the order.
If the shares are held in the broker's "street name," the redemption must be
made through the broker.
Employer-Sponsored Plans
Redemption for participants in an employer-sponsored retirement plan are done in
accordance with directions provided by the employer. Employees should contact
their employer for details.
Automatic Redemption
The fund may automatically redeem shares from an account that does not maintain
a minimum balance of $500. Automatic redemption will not occur if the account's
value falls below $500 due to market fluctuations. The proceeds from such a
redemption will be mailed to the shareholder's address of record. You will
receive at least 30 days' prior notice to bring your account to at least the
minimum.
Signature Guarantee
An original signature guarantee from eligible institutions including most banks,
trust companies, and securities dealers (but not notaries public) is required
for some redemptions to help protect against fraud. These circumstances include
the following:
o amounts of $50,000 or more by written request.
o payment to someone other than the registered account owner.
o request to send proceeds to a different address or payee.
o payment to your address of record if the address has changed with the
preceding 30 days.
Please call the funds to ensure that your signature guarantee will be processed
correctly.
Systematic Withdrawal Plan
A Systematic Withdrawal Plan ("SWP") is available for Class A Retail
shareholders whose accounts meet the minimum account balance. Under the SWP,
specified monthly, quarterly, semi-annual or annual payments of any amount at or
above the minimum payment amount will be made to a designated party.
Minimum Minimum
Class A Retail Shares Account Balance Payment
- --------------------------------------------------------------------------------
Second Stage Shareholders (you became a shareholder
of any fund on or after January 1, 1998)
Systematic Withdrawal $50,000 $100
(completed on the 25th of each month)
First Stage Shareholders (you became a shareholder
prior to January 1, 1998)
Systematic Withdrawal $5,000 $25
(completed on the 25th of each month)
Institutional Class Shares
- --------------------------------------------------------------------------------
Systematic Withdrawal not available
19
20
Changes to your SWP must be received at least two weeks prior to the next
scheduled withdrawal. The funds reserve the right to change the terms and
conditions of the SWP and the ability to offer it. For further information,
please call 800-821-0803.
Short-term Redemption Fee
To discourage short-term trading, fund shares purchased after September 1, 1998
are subject to a 1% redemption fee on the value redeemed if sold within six
months of the original purchase. The fee is paid to the fund.
The fee is not imposed on shares acquired through the reinvestment of dividends
or capital gains distributions. The Investment Manager may waive this fee under
certain arrangements.
The oldest shares (from which a redemption or exchange has not already been
effected) will be assumed to be redeemed first for purposes of calculating the
fee.
Example:
Bought - 500 shares at $10/share 12 months ago
600 shares at $12/share 4 months ago
Situation 1
Sell today - 400 shares at $15/share
Pay no redemption fee - all shares from first purchase and have been held
more than 6 months
Situation 2
Sell today - 600 shares at $15/share
Pay redemption fee of $15 - 500 shares from first purchase held more than 6
months but 100 shares from second purchase have not
Waiver of Short-term Redemption Fee
The redemption fee is waived under the following circumstances:
o Death or disability of the shareholder (as defined in Section 72(m)(7) of
the Internal Revenue Code, as amended).
o Minimum required distributions from certain IRA or retirement plan
distributions.
o Redemptions made pursuant to a SWP for Class A Retail shares, but limited
to 10% of the initial value of the account annually for Class A.
Telephone Transactions
The Telephone Privilege authorizes the funds, the transfer agent, and the
distributor to act on instructions by telephone to exchange, redeem and
generally to maintain the account for which the Telephone Privilege applies
provided that:
o redemption proceeds are payable to the shareholder(s) of record
o redemptions proceeds are to be sent to the address of record for the
account or wired directly to your predesignated bank account and
o your address of record has not changed in the previous 30 days.
You may call 800-821-0803 to give instructions provided you did not waive the
Telephone Privilege on the Account Application.
The funds reserve the right to terminate, limit or otherwise modify the
Telephone Privilege at any time without prior notice. Shareholders who have IRA
or other retirement accounts, employer-sponsored accounts with the funds or hold
shares in certificates may not redeem by telephone.
For the protection of all parties, reasonable procedures are employed to confirm
the authenticity of telephone instructions, including recording telephone
transactions and mailing confirmation statements to the address of record. If
reasonable procedures are followed, neither the funds, the distributor, nor the
transfer agent will be liable for following telephone instructions believed to
be genuine.
Dividends, Capital Gains, and Taxes
Dividend and Capital Gains
All of the funds, except the Global Income Fund, will distribute at least
annually substantially all of their net investment income and net realized
capital gains. Distributions from net investment income, if any, are expected to
be minimal. Global Income Fund seeks to declare daily dividends and to pay
dividends monthly from investment income, if any. Such distributions may include
all or a portion of the fund's net realized short-term gains. At least annually,
distributions of any net realized or remaining gains will be declared.
Each fund may make additional dividend or capital gain distributions as required
to comply with certain distribution requirements under the Internal Revenue
Code.
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Dividends and Capital Gains Payment Options
You may choose one of four options:
o Reinvest all income dividends and capital gains distributions in additional
fund shares.
o Receive income dividends in cash and reinvest capital gains distributions
in additional fund shares
o Receive capital gains distributions in cash and reinvest income dividends
in additional fund shares.
o Receive income dividends and capital gains distributions in cash.
You may change your distribution option by notifying the funds in writing prior
to the distribution record date. If an option is not selected, all dividends and
distributions will be automatically reinvested in shares of the fund that paid
the dividend or distribution. Automatic reinvestments in additional shares are
made without a sales charge on pay date, at the NAV determined on ex-date.
Directed Dividends
You may elect on the Account Application to have your dividends from one fund
paid to a third party or invested in shares of the same class of another series
of the funds, provided you have an existing account under the same registration
in the other fund.
United States Federal Taxation of Shareholders
For federal income tax purposes, any income dividends and short-term capital
gains distributions earned from a fund are treated as ordinary income whether
you receive them in cash or in additional shares. Long-term capital gains
distributions are treated as long-term capital gains regardless of the length of
time you have owned the shares of a fund, and whether you receive the
distributions in cash or in additional shares.
Redemptions and exchanges of fund shares are taxable events on which you may
realize a gain or loss. All or a portion of a loss realized upon a redemption of
shares will be disallowed to the extent other shares of a fund are purchased
(through reinvestment of dividends or otherwise) within 30 days before or after
such redemption.
Each fund will inform you 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 you of the tax status for federal income tax purposes of
such dividends and distributions. Income received by the funds may give rise to
withholding and other taxes imposed by foreign countries.
Each fund will also be required to withhold 31% of any dividend and distribution
payments made to shareholders who have not provided the following:
o a correct taxpayer identification number; or
o the certifications required on the Account Application.
You may also be subject to backup withholding if the IRS or a securities dealer
notifies the funds that
o your taxpayer identification number is incorrect or
o you are subject to backup withholding for previous under-reporting of
interest or dividend income.
This discussion does not purport to be a complete description of all tax
implications of investing in the funds. Because everyone's tax situation is
unique, you should always consult your tax professional regarding foreign,
federal, state, and local tax consequences.
21
22
Financial Highlights
The following tables describe the funds' performance for the periods indicated.
These financial highlights are intended to help you understand the funds'
financial performance. Some of this information reflects the results for a
single fund share. The total return shows how much your investment in the fund
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose unqualified report, along with the funds'
financial statements, are included in the Annual Report.
Emerging Markets Equity Fund - Class A
(Emerging Markets Equity Fund - Institutional Class had not commenced operations
as of 12/31/99)
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.96 $12.24 $13.66 $12.24 $13.29
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) = 0.02= (0.11)= (0.13)= (0.06)=
Net realized and unrealized gain (loss) on
Investments 5.58 (4.15) (1.31) 1.61 (0.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.58 (4.13) (1.42) 1.48 (1.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
From net investment income -- (0.15) -- -- --
In excess of net investment income -- -- -- (0.06) --
From net realized gain -- -- -- -- (0.01)
In excess of net realized capital gain -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.15) -- (0.06) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.54 $7.96 $12.24 $13.66 $12.24
====================================================================================================================================
Total Return** 70.10% (34.18)% (10.40)% 12.08% (7.84)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $18,059 $14,734 $32,899 $56,814 $75,887
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses to average daily net assets (Note A) 1.85% 2.50% 2.50% 2.38% 2.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income(loss) to average daily
net assets 0.08% 0.03% (0.54)% (0.62)% (0.49)%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 63% 121% 120% 122% 115%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Note A: For the years presented, AIB Govett, investment manager (or its
predecessors or affiliates thereof), waived a portion of its
management fee and reimbursed a portion of other operating expenses of
the funds. Without the waiver and reimbursement of expenses, the
expense ratios as a percentage of average net assets for the periods
indicated would have been:
Expenses 4.31% 4.09% 2.91% 2.62% 2.78%
(a) As of January 1, 1998, AIB Govett became investment manager to all funds,
and AIB Govett London (former investment manager) became Subadviser to all
funds.
** Total return calculations exclude front-end sales load. As of September 1,
1998, purchases of Class A Retail shares are no longer subject to a
front-end sales load. Total return would have been lower if the Investment
Manager had not voluntarily waived a portion of its management fees and
assumed a portion of the fund's expenses.
= 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).
</FN>
22
23
Smaller Companies Fund - Class A
(Smaller Companies Fund - Institutional Class had not commenced operations as of
12/31/99)
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.85 $19.09 $21.83 $29.96 $19.06
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.47)= (0.35)= (0.43)= (0.44)= (0.30)=
Net realized and unrealized gain (loss) on
Investments 12.31 (1.89) (2.31) (2.84) 13.32
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 11.84 (2.24) (2.74) (3.28) 13.02
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
From net investment income -- -- -- -- --
In excess of net investment income -- -- -- -- --
From net realized gain -- -- -- (4.85) (2.12)
In excess of net realized capital gain -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- -- (4.85) (2.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $28.69 $16.85 $19.09 $21.83 $29.96
====================================================================================================================================
Total Return** 70.27% (11.73)% (12.55)% (10.62)% 69.13%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $72,675 $60,952 $127,925 $259,735 $517,990
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses to average daily net assets (Note A) 2.35% 1.95% 1.95% 1.81% 1.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income(loss) to average daily
net assets (1.97)% (1.51)% (1.64)% (1.40)% (1.64)%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 76% 104% 77% 406% 280%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Note A: For the years presented, AIB Govett, investment manager (or its
predecessors or affiliates thereof), waived a portion of its
management fee and reimbursed a portion of other operating expenses of
the funds.Without the waiver and reimbursement of expenses, the
expense ratios as a percentage of average net assets for the periods
indicated would have been:
Expenses 3.16% 2.91% 2.59% 2.08% 2.12%
(a) As of January 1, 1998, AIB Govett became investment manager to all funds,
and AIB Govett London (former investment manager) became Subadviser to all
funds.
(b) Prior to January 9, 1997, Berkeley Capital Management acted as investment
sub-adviser to this fund.
** Total return calculations exclude front-end sales load. As of September 1,
1998, purchases of Class A Retail shares are no longer subject to a
front-end sales load. Total return would have been lower if the Investment
Manager had not voluntarily waived a portion of its management fees and
assumed a portion of the fund's expenses.
= 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).
</FN>
23
24
International Equity Fund - Class A
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.17 $10.90 $11.19 $11.27 $10.16
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)= (0.08)= (0.24)= (0.11)= (0.08)=
Net realized and unrealized gain (loss) on
Investments 3.11 2.15 0.18 1.45 1.20
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.05 2.07 (0.06) 1.34 1.12
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
From net investment income -- -- -- (0.11) --
In excess of net investment income -- -- -- (0.09) --
From net realized gain (1.50) (1.80) (0.23) (1.22) (0.01)
In excess of net realized capital gain -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.50) (1.80) (0.23) (1.42) (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.72 $11.17 $10.90 $11.19 $11.27
===================================================================================================================================
Total Return** 27.95% 19.12% (0.71)% 12.13% 11.01%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $12,718 $12,233 $13,952 $25,822 $28,546
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses to average daily net assets (Note A) 2.35% 2.45 2.50% 2.39% 2.50%
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income(loss) to average daily
net assets (0.52)% (0.62)% (1.01)% (1.06)% (0.64)%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 41% 109% 51% 84% 101%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
Note A: For the years presented, AIB Govett, investment manager (or its
predecessors or affiliates thereof), waived a portion of its
management fee and reimbursed a portion of other operating expenses of
the funds. Without the waiver and reimbursement of expenses, the
expense ratios as a percentage of average net assets for the periods
indicated would have been:
Expenses 3.34% 3.30% 3.12% 3.09% 2.75%
(a) As of January 1, 1998, AIB Govett became investment manager to all funds,
and AIB Govett London (former investment manager) became Sub-adviser to all
funds.
** Total return calculations exclude front-end sales load. As of September 1,
1998, purchases of Class A Retail shares are no longer subject to a
front-end sales load. Total return would have been lower if the Investment
Manager had not voluntarily waived a portion of its management fees and
assumed a portion of the fund's expenses.
= 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).
</FN>
24
25
International Equity Fund - Institutional Class
Year Ended Year Ended
12/31/99 12/31/98(d)
- -------------------------------------------------------------------------------------
Net asset value, beginning of period $11.19 $12.85
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)= (0.02)=
Net realized and unrealized gain (loss) on
Investments 3.11 (0.13)
- -------------------------------------------------------------------------------------
Total from investment operations 3.09 (0.15)
- -------------------------------------------------------------------------------------
Less distributions to shareholders:
From net investment income -- --
In excess of net investment income -- --
From net realized gain (1.50) (1.51)
In excess of net realized capital gain -- --
- -------------------------------------------------------------------------------------
Total distributions (1.50) (1.51)
- -------------------------------------------------------------------------------------
Net asset value, end of period $12.78 $11.19
=====================================================================================
Total Return** 28.25% (1.15)%
- -------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $8,419 $6,678
- -------------------------------------------------------------------------------------
Net expenses to average daily net assets (Note A) 2.00% 1.75%
- -------------------------------------------------------------------------------------
Net investment income(loss) to average daily
net assets (0.17)% (0.47)%
- -------------------------------------------------------------------------------------
Portfolio turnover rate 41% 109%
- -------------------------------------------------------------------------------------
<FN>
Note A: For the period presented, AIB Govett, investment manager (or its
predecessors or affiliates thereof), waived a portion of its
management fee and reimbursed a portion of other operating expenses of
the funds. Without the waiver and reimbursement of expenses, the
expense ratios as a percentage of average net assets for the periods
indicated would have been:
Expenses 2.98% 2.90%*
(a) As of January 1, 1998, AIB Govett became investment manager to all funds,
and AIB Govett London (former investment manager) became Subadviser to all
funds.
(d) Commencement of operations was July 24, 1998.
* Annualized
** Not annualized. Total return would have been lower if the Investment
Manager had not voluntarily waived a portion of its management fees and
assumed a portion of the fund's expenses.
= Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
</FN>
25
26
Global Income Fund - Class A
(Global Income Fund - Institutional Class had not commenced operations as of
12/31/99)
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.07 $7.82 $8.32 $8.97 $8.48
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16)= (0.32)= (0.26)= (0.57)= (0.63)=
Net realized and unrealized gain (loss) on
Investments (0.80) 0.27 (0.30) (0.54) 0.53
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.64) 0.59 (0.04) 0.03 1.16
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
From net investment income (0.21) (0.06) (0.12) (0.66) (0.63)
In excess of net investment income -- -- -- (0.02) (0.04)
From net realized gain -- -- -- -- --
In excess of net realized capital gain -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Tax return of net realized capital gain (0.09) (0.28) (0.34) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.30) (0.34) (0.46) (0.68) (0.67)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.13 $8.07 $7.82 $8.32 $8.97
====================================================================================================================================
Total Return** (8.06)% 7.65% (0.35)% 0.34% 14.11%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $3,951 $7,068 $10,277 $20,354 $41,181
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses to average daily net assets (Note A) 2.35% 1.75% 1.75% 1.64% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income(loss) to average daily
net assets 3.56% 4.37% 4.23% 7.17% 7.45%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 33% 23% 76% 236% 249%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Note A: For the years presented, AIB Govett, investment manager (or its
predecessors or affiliates thereof), waived a portion of its
management fee and reimbursed a portion of other operating expenses of
the funds. Without the waiver and reimbursement of expenses, the
expense ratios as a percentage of average net assets for the periods
indicated would have been:
Expenses 4.51% 3.54% 2.82% 2.38% 1.93%
(a) As of January 1, 1998, AIB Govett became investment manager to all funds,
and AIB Govett London (former investment manager) became Sub-adviser to all
funds.
** Total return calculations exclude front-end sales load. As of September 1,
1998, purchases of Class A Retail shares are no longer subject to a
front-end sales load. Total return would have been lower if the Investment
Manager had not voluntarily waived a portion of its management fees and
assumed a portion of the fund's expenses.
= Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
</FN>
26
27
International Smaller Companies Fund - Institutional Class
Year Ended
12/31/99
- ----------------------------------------------------------------------
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (loss) (0.07)
Net realized and unrealized gain (loss) on
Investments 5.61
- ----------------------------------------------------------------------
Total from investment operations 5.54
- ----------------------------------------------------------------------
Less distributions to shareholders:
From net investment income --
In excess of net investment income --
From net realized gain (0.69)
In excess of net realized capital gain --
- ----------------------------------------------------------------------
Total distributions (0.69)
- ----------------------------------------------------------------------
Net asset value, end of period $14.85
======================================================================
Total Return** 55.51%
- ----------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $1,167
- ----------------------------------------------------------------------
Net expenses to average daily net assets (Note A) 1.50%
- ----------------------------------------------------------------------
Net investment income(loss) to average daily
net assets (0.55)%
- ----------------------------------------------------------------------
Portfolio turnover rate 87%
- ----------------------------------------------------------------------
Note A: For the period presented, AIB Govett, investment manager (or its
predecessors or affiliates thereof), waived a portion of its
management fee and reimbursed a portion of other operating expenses of
the funds. Without the waiver and reimbursement of expenses, the
expense ratios as a percentage of average net assets for the periods
indicated would have been:
Expenses 16.91%
* Annualized
** Not annualized. Total return would have been lower if the Investment
Manager had not voluntarily waived a portion of its management fees and
assumed a portion of the fund's expenses.
= Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
27
28
International Smaller Companies Fund - Class A
Year Ended
12/31/99
- --------------------------------------------------------------
Net asset value, beginning of period $10.90
- --------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)=
Net realized and unrealized gain (loss) on
Investments 4.71
- --------------------------------------------------------------
Total from investment operations 4.62
- --------------------------------------------------------------
Less distributions to shareholders:
From net investment income --
In excess of net investment income --
From net realized gain (0.69)
In excess of net realized capital gain --
- --------------------------------------------------------------
Total distributions (0.69)
- --------------------------------------------------------------
Net asset value, end of period $14.83
==============================================================
Total Return** 42.49%
- --------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $67
- --------------------------------------------------------------
Net expenses to average daily net assets (Note A) 1.85%
- --------------------------------------------------------------
Net investment income(loss) to average daily
net assets (1.22)%
- --------------------------------------------------------------
Portfolio turnover rate 87%
- --------------------------------------------------------------
<FN>
Note A: For the years presented, AIB Govett, investment manager (or its
predecessors or affiliates thereof), waived a portion of its
management fee and reimbursed a portion of other operating expenses of
the funds. Without the waiver and reimbursement of expenses, the
expense ratios as a percentage of average net assets for the periods
indicated would have been:
Expenses 16.91%
(a) Commencement of operations was May 25th 1999.
** Total return calculations exclude front-end sales load. As of September 1,
1998, purchases of Class A Retail shares are no longer subject to a
front-end sales load. Total return would have been lower if the Investment
Manager had not voluntarily waived a portion of its management fees and
assumed a portion of the fund's expenses.
= 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).
</FN>
28
29
Quick Reference Guide
You are encouraged to place purchase, exchange and redemption orders through
your broker. You may place orders directly with the Govett Funds. Mail
transactions sent by overnight delivery service should always be sent to the
address shown in Transactions by Mail. Failure to follow this instruction is
likely to result in a delay in processing your transaction.
Adviser Services. Broker-dealers, investment advisers, and other financial
intermediaries may call 800-634-6838 to reach the Adviser Service Desk.
Transactions By Mail. For new accounts, send the signed, completed Account
Application with a check made payable to "Govett Funds" to the following
address:
via U.S. Postal Service
Govett Funds
P.O. Box 61503
King of Prussia, PA 19406-0903
via overnight delivery service
Govett Funds
211 S. Gulph Road
King of Prussia, PA 19406
For exchanges and redemptions, send complete instructions including the name of
the fund(s), the amount of the exchange or redemption, the name(s) of the
shareholder(s) in whose name(s) the account is registered, and the account
number, to the address shown above.
For subsequent investments, send the investment stub from your Shareholder
Statement or a letter stating the fund's name, the name(s) of the shareholder(s)
in whose name(s) the account is registered, and the account number, together
with a check for each subsequent investment, to:
via U.S. Postal Service
Govett Funds
P.O. Box 412797
Kansas City, MO 64141-2797
via overnight delivery service
Govett Funds
211 S. Gulph Road
King of Prussia, PA 19406
Payments By Bank Wire. When opening a new account, you must call 800-821-0803
before wiring money. Within seven days of purchase, you must send a signed,
completed Account Application containing your taxpayer identification number to
the Govett Funds at the address for new accounts stated under Transactions by
Mail. Wire instructions must state the fund's name, the name(s) of the
shareholder(s) in whose name(s) the account is registered, and the account
number. Bank wires should be sent through the Federal Reserve Wire System to:
United Missouri Bank KC, N.A.
ABA #10-10-00695
For PFPC
Bank Account #9870370719
FBO Govett _________ Fund
Shareholder Name and Account Number
Telephone Transactions. If you have the Telephone Privilege, you may call the
Govett Funds at 800-821-0803 to complete exchanges and redemptions.
Class A Class I
- ---------------------------------------------------------------------
Sales Charges None None
12b-1 fee 0.35% None
Redemption / 1% within 6 1% within 6
Exchange Fee months of months of
purchase purchase
Service Fee None None
Minimum Investment
Initial
Regular accounts $5,000* $25,000
IRA accounts $2,000* $25,000
Subsequent
Regular accounts $1,000* Any amount
IRA accounts $1,000* Any amount
Automatic Investment Plan yes no
Automatic Exchange Plan yes no
Systematic Withdrawal Plan yes no
* For existing shareholders of record as of December 31, 1997, the applicable
minimums are $500, $500, $25 and $25, respectively, for identically
registered accounts.
29
30
For more information about the funds, the following documents are available free
upon request:
Annual/Semi-annual Reports: Additional information about the funds' investments
is available in the funds' annual and semi-annual reports to shareholders. In
the funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the fund's performance
during its last fiscal year.
Statement of Additional Information (SAI): The SAI provides more detailed
information about the funds and is incorporated into this prospectus by
reference.
You can get free copies of the reports and SAI, request other information, and
discuss questions about the funds by contacting your broker or bank or the funds
at:
Govett Funds
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
800-821-0803
You can also review and copy information about the funds, including the SAI, at
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C.
Information on the operations of the Public Reference Room may be obtained by
calling the SEC at 1.202.942.8090.
Reports and other information about the Funds are available in the EDGAR
database, which can be accessed at: www.sec.gov. You can obtain copies of that
information (after paying a fee) by electronic request at the following email
address: publicinfo@sec.gov, or by visiting the Public Reference Section at the
SEC, Washington, D.C., 20549-0102.
Govett Funds
Govett Emerging Markets Equity Fund
Govett Smaller Companies Fund
Govett International Smaller Companies Fund
Govett International Equity Fund
Govett Global Income Fund
Directors
Patrick K. Cunneen, Chairman
Elliott L. Atamian
Sir Victor Garland
James M. Oates
Frank R. Terzolo
Investment Company Act file no. 811-6229
31
Govett Funds
Statement of Additional Information, dated May 1, 2000
Relating to the prospectus of Govett Funds (Class A Retail and
Institutional Class Shares), the prospectus of Govett Funds
The Govett Funds, Inc. (the "Govett Funds" or the "Company") is an open-end,
management investment company. The Company presently consists of a series of
seven funds, each a separate investment portfolio with its own investment
objective and policies, as follows: Govett Emerging Markets Equity Fund, Govett
Smaller Companies Fund, Govett International Smaller Companies Fund, Govett
International Equity Fund, Govett Europe Fund, Govett China Fund, each of which
seeks long-term capital appreciation, and Govett Global Income Fund, which seeks
primarily a high level of current income, consistent with preservation of
capital, and has a secondary objective of capital appreciation (individually a
"Fund", and together the "Funds"). There can, of course, be no assurance that a
Fund's investment objective will be achieved.
Currently, Emerging Markets Equity Fund, Smaller Companies Fund, International
Smaller Companies Fund, International Equity Fund, and Global Income Fund (the
"Open Funds") are available to the public. The Europe Fund and China Fund (the
"New Funds") are currently not available to the public.
Each prospectus set out above provides the basic information that a prospective
shareholder should know before investing in the Funds. Audited financial
statements for the fiscal year ended December 31, 1999 for the Open Funds are
included in the Annual Reports to Shareholders dated December 31, 1999 for those
Funds. Each prospectus and such financial statements are incorporated by
reference herein and may be obtained without charge by calling 800-821-0803 or
by writing to Govett Funds, 3200 Horizon Drive, P.O. Box 61503,King of Prussia,
PA 19406-0903
This Statement of Additional Information is not a prospectus. It contains
information in addition to and in more detail than is set forth in the
prospectuses. It should be read in conjunction with the prospectuses.
TABLE OF CONTENTS
ABOUT THE FUNDS...............................................................2
INVESTMENT OBJECTIVES AND POLICIES............................................3
DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS...............5
DIRECTORS AND OFFICERS.......................................................18
MANAGEMENT OF THE FUNDS......................................................20
BROKERAGE ALLOCATION.........................................................23
THE COMPANY AND ITS SHARES...................................................25
ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION....................26
ADDITIONAL DISTRIBUTION AND TAXATION INFORMATION.............................32
DISTRIBUTION ARRANGEMENTS....................................................34
ARRANGEMENTS WITH BROKERS....................................................36
PERFORMANCE..................................................................36
FINANCIAL STATEMENTS.........................................................39
EFFECTS OF BANKING LAWS......................................................39
CODE OF ETHICS...............................................................39
APPENDIX A: DESCRIPTION OF DEBT RATINGS......................................40
1
32
ABOUT THE FUNDS
Definitions
The "Company" or the "Govett Funds"
The Govett Funds, Inc.
The "Funds"
Govett Emerging Markets Equity Fund, Govett International Smaller
Companies Fund, Govett Smaller Companies Fund, Govett International
Equity Fund, Govett Global Income Fund, Govett China Fund, and Govett
Europe Fund
The "Original Funds"
Govett Emerging Markets Equity Fund, Govett Smaller Companies Fund,
Govett International Equity Fund, and Govett Global Income Fund
The "Open Funds"
Govett Emerging Markets Equity Fund, Govett Smaller Companies Fund,
Govett International Smaller Companies Fund, Govett International
Equity Fund, and Govett Global Income Fund
The "New Funds"
Govett Europe Fund and Govett China Fund
"AIB Govett" or the "Investment Manager"
AIB Govett, Inc.
"AIB Govett London" or the "Sub-adviser"
AIB Govett Asset Management Limited
"PFPC" or the "Distributor"
PFPC, Inc.
"AIB Group"
Allied Irish Banks plc and its subsidiaries
"Custodian"
The Chase Manhattan Bank
"Transfer Agent"
PFPC, Inc.
The Govett Funds, Inc. is an open-end management investment company, commonly
called a "mutual fund", incorporated in Maryland on November 13, 1990. The
Company is organized in series form, presently consisting of seven portfolios:
Govett Emerging Markets Equity Fund, Govett Smaller Companies Fund, Govett
International Smaller Companies, Govett International Equity Fund, Govett Global
Income Fund, Govett China Fund, and Govett Europe Fund. Each Fund is a separate
and distinct investment portfolio, with its own separate investment objective
and policies.
2
33
INVESTMENT OBJECTIVES AND POLICIES
As noted in the prospectuses, each Fund has its own investment objective and
follows policies designed to achieve that objective. The following investment
policies and limitations for the Funds supplement those set forth in the
prospectuses.
In interpreting each Fund's investment goals and strategies, the Investment
Manager uses the following definitions:
o When a limitation sets out the maximum percentage of a Fund's assets that
may be invested in a type or quality of securities, the percentage
limitation is calculated immediately after the Fund acquires the asset. Any
later increase or decrease due to a change in market values, net assets or
other circumstances will not be considered to determine if the asset
complies with the Fund's investment policies and limitations. (However, any
increase or decrease will be considered in determining the asset's
compliance with regulatory limitations on borrowings and illiquid
securities.)
o The term "issuers located in" a particular country or region includes
issuers
(i) which are organized under the laws of that country or a country in
that region and which have their principal office in that country or a
country in that region; or
(ii) which obtain 50% or more of their total revenues from business in that
country or a country in that region; or
(iii)whose equity securities are primarily traded on a stock exchange of
that country or a country in that region.
A Fund's investment objective and fundamental investment limitations cannot be
changed without approval by a majority of the outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), of
that Fund. Except for the numbered limitations set forth immediately below, the
investment policies and limitations described in this Statement of Additional
Information are not fundamental policies, and may be changed without approval of
shareholders. These limitations, except as otherwise indicated, apply separately
to each Fund.
The following are the Funds' fundamental investment limitations. No Fund may:
1. Borrow money or mortgage or pledge any of its assets, except that a Fund may
borrow from banks, for temporary or emergency purposes, up to 33-1/3% of its
total assets and pledge up to 33-1/3% of its total assets in connection
therewith. Any borrowings that come to exceed 33-1/3% of the value of the Fund's
total assets at any time will be reduced within three days (exclusive of Sundays
and legal holidays) to the extent necessary to comply with the 33-1/3%
limitation. No Fund may purchase securities when borrowings exceed 5% of its
assets. Borrowings for purposes of this restriction include reverse repurchase
agreements.
2. Purchase any securities on "margin," or underwrite securities, except that a
Fund may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of securities and except that the Funds may make margin
deposits in connection with futures contracts and options.
3. Make loans if, as a result, more than 33-1/3% of a Fund's total assets would
be lent to other parties except (i) through the purchase of a portion of an
issue of debt securities in accordance with its investment objectives, policies,
and limitations, or (ii) by engaging in repurchase agreements with respect to
portfolio securities. Portfolio securities may be loaned only if continuously
collateralized at least 100% by "marking-to-market" daily.
4. Invest 25% or more of its total assets in the securities of issuers in a
single industry (excluding securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities).
5. Purchase from, or sell any portfolio securities to, a Fund's officers or
Directors, or any firm of which any such officer or Director is a member, as
principal, except that a Fund may deal with such persons or firms as securities
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dealers and pay a customary brokerage commission; or retain securities of any
issuer, if to the knowledge of a Fund, one or more of its officers, Directors or
investment managers own beneficially more than one-half of 1% of the securities
of such issuer and all such persons together own beneficially more than 5% of
such securities.
6. Purchase the securities of any issuer if, as a result thereof, more than 5%
of the value of total assets of any Fund (other than the Smaller Companies Fund
and the International Smaller Companies Fund) would be invested in the
securities of companies which, including predecessors, have a record of less
than three years' continuous operations.
7. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result thereof, any such Fund, or the Company as a whole, would own
more than 10% of the outstanding voting securities of such issuer.
8. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit a Fund from (a) making any otherwise
permitted borrowings, mortgages or pledges, or (b) entering into option
contracts, futures contracts, forward contracts or repurchase transactions.
9. With respect to 75% of its total assets, invest in securities of any one
issuer if immediately after, and as a result of such investment, more than 5% of
the total assets of the Fund, taken at market value, would be invested in the
securities of such issuer, provided that the Global Income Fund is not
restricted in this regard. This restriction does not apply to investments in
U.S. government or agency securities.
10. Make investments for the purpose of exercising control, or underwrite the
securities of other issuers, except insofar as a Fund may be technically deemed
an underwriter in connection with the disposition of its portfolio securities.
11. Purchase interests in oil, gas or other mineral exploration or development
programs, including mineral leases, although the Funds may invest in common
stocks of companies which invest in or sponsor such programs.
12. Purchase or sell real estate or real estate limited partnerships or
securities issued by companies that invest in real estate or interests therein.
13. Purchase commodities or commodity contracts (including futures contracts),
except that the Funds may purchase securities of issuers which invest or deal in
commodities or commodity contracts, and except that the Funds may enter into
futures and options contracts only for hedging purposes.
In order to change any restriction which is a fundamental policy, approval must
be obtained from the respective Fund's shareholders; this would require the
affirmative vote of the lesser of (i) 67% or more of the respective Fund's
outstanding voting securities that are represented at the meeting if more than
50% of the outstanding voting securities of the respective Fund are represented,
or (ii) more than 50% of the respective Fund's outstanding voting securities.
The following investment limitations are not fundamental, and may be changed
with the approval of the Board of Directors and without shareholder approval
(they too apply to each Fund).
No Fund may:
1. Engage in any reverse repurchase agreements if, as a result, more than 5% of
a Fund's net assets would be subject to reverse repurchase agreements.
2. Purchase or otherwise acquire any security or enter into a repurchase
agreement with respect to any security if, as a result, more than 5% of a Fund's
net assets (taken at current value) would be invested in repurchase agreements
not entitling the holder to payment of interest and principal within seven days,
or in securities that are illiquid by virtue of legal or contractual
restrictions on resale or for which there is no readily available market.
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3. Purchase securities of another investment company, except as permitted by the
1940 Act and other applicable laws.
4. Lend assets, other than portfolio securities, to other parties, except by
purchasing debt securities and engaging in repurchase agreements. Portfolio
securities may be loaned only if continuously collateralized at least 100% by
"marking-to-market" daily. The Funds, however, do not currently intend to lend
their portfolio securities during the current fiscal year.
5. Make short sales of securities or maintain a short position, unless at all
times when a short position is open the respective Fund owns an equal amount of
such securities or securities convertible or exchangeable into, without payment
of any further consideration, securities of the same issuer as, and equal in
amount to, the securities sold short ("short sales against the box"), and unless
not more than 5% of the Fund's net assets (taken at market value) is held as
collateral for such sales at any one time.
6. Purchase a security if, as a result thereof, more than 5% of a Fund's net
assets would be invested in warrants and rights or more than 2% of such Fund's
net assets will be invested in warrants which are not listed on the American or
New York Stock Exchange.
7. Purchase the securities of any issuer if, as a result thereof, more than 5%
of the value of the total assets of the Smaller Companies Fund or the
International Smaller Companies Fund would be invested in the securities of
companies which, including predecessors, have a record of less than three years'
continuous operations.
8. Invest 25% or more of the Global Income Fund's total assets in asset-backed
securities.
DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS
Market Risk. Each Fund is subject to market risk. This risk is the possibility
that stock and bond prices will decline over short or extended periods of time.
The possible result of this risk is your investment may be worth less when you
sell than you originally invested.
Foreign Securities. In addition, all of the Funds, to a greater or lesser
extent, invest in equity and bond markets out the U.S. While the Investment
Manager believes that investments in foreign securities may provide greater
long-term investment returns than would be available from investing solely in
U.S. securities, the Funds are exposed to additional risks by investments in
foreign markets.
All of the Funds (except the Smaller Companies Fund) will invest primarily in
securities issued by companies or other issuers whose principal activities are
outside the U.S.; such investments involve significant risks not present in U.S.
investments. The Smaller Companies Fund invests in the securities of issuers
located in the U.S. and/or foreign countries. At any point in time, all or
substantially all of the Smaller Companies Fund's assets may be invested in
issuers located (1) solely in the U.S., or (2) solely in countries other than
the U.S., or (3) in the U.S. and foreign countries. The value of securities
denominated in foreign currencies and of dividends and interest paid with
respect to such securities will fluctuate based on the relative strength of the
U.S. dollar. In addition, less information is generally available about foreign
companies, particularly those not subject to the disclosure and reporting
requirements of the U.S. securities laws. Foreign companies are not bound by
uniform accounting, auditing, and financial reporting requirements and standards
of practice comparable to those applicable to U.S. companies. Investments in
foreign securities also involve the risk of possible adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, limitations on the repatriation of monies or other assets of the
Funds, political or financial instability or diplomatic and other developments
which could affect such investments. Further, the economies of particular
countries or areas of the world may perform less favorably than the economy of
the U.S., and the U.S. dollar value of securities denominated in currencies
other than the U.S. dollar may be affected unfavorably by exchange rate
movements. Each of these factors could influence the value of a Fund's shares,
as well as the value of dividends and interest earned by the Fund and the gains
and losses which it realizes. It is anticipated that in most cases the best
available market for foreign securities will be on exchanges or in
over-the-counter markets located outside of the U.S. However, foreign securities
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markets, while growing in volume and sophistication, are generally not as
developed as those in the U.S., and securities of some foreign companies
(particularly those located in developing countries) are generally less liquid
and more volatile than securities of comparable U.S. companies. Foreign security
trading practices, including those involving securities settlement where Fund
assets may be released prior to receipt of payment, may expose the Funds to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. In addition, foreign brokerage commissions and other fees are
generally higher than on securities traded in the U.S. and may be
non-negotiable. There is less overall governmental supervision and regulation of
securities exchanges, securities dealers, and listed companies in most foreign
markets than in the U.S.
Currency Risk. Like other foreign investors, the Funds are exposed to currency
risk if the U.S. dollar value of the securities denominated in other currencies
is adversely affected by exchange rate movements. Currency risk could affect the
value of a Fund's investments, the value of dividends and interest earned by a
Fund, and the value of gains which may be realized.
AIB Govett and the Subadviser generally evaluate foreign currencies on the basis
of fundamental economic criteria (e.g., relative inflation and interest rate
levels and trends, growth rate forecasts, balance of payments status and
economic policies) as well as technical and political data. If the currency in
which a security is denominated or quoted in appreciates against the U.S.
dollar, or (in the case of debt securities) if interest rates decline, the U.S.
dollar value of the security will generally increase. Conversely, if other
factors remain constant, a rise in interest rates or a decline in the exchange
rate of the currency will adversely affect the value of the security expressed
in dollars.
The Funds will only invest in securities denominated in a foreign currency if,
at the time of investment, such currency is considered by AIB Govett or the
Subadviser to be fully exchangeable into U.S. dollars without significant legal
restriction. The Funds may purchase securities issued by the government of, or a
corporation or financial institution located in, one nation but denominated in
the currency of another nation (or in a multinational currency unit).
Foreign Taxation. Some foreign governments impose brokerage taxes, increasing
the cost of securities subject to the tax and reducing any realized gain or
increasing any realized loss. Foreign governments also may withhold taxes from
dividends, distributions, and interest payments. These taxes may impair Fund
performance.
Special Emerging Markets Considerations. The risks of investing in foreign
securities are increased if a Fund's portfolio investments are in emerging
markets. An emerging market is broadly defined as a market with low- to
middle-range per capita income. The Investment Manager uses the World Bank's
classification system to identify the potential universe of emerging markets.
However, the Investment Manager limits the Funds' investment to those countries
it believes have potential for significant growth and development.
Investments in emerging markets involve special risks not present in the U.S. or
in mature foreign markets, such as Germany and the United Kingdom. For example,
settlement of securities trades may be subject to extended delays so that a Fund
may not receive securities purchased or the proceeds of sales of securities on a
timely basis. Emerging markets generally have smaller, less developed trading
markets and exchanges, and a Fund may not be able to dispose of those securities
quickly and at reasonable price affecting the Fund's liquidity. These markets
may also experience greater volatility, which can materially affect the value of
a Fund's portfolio and its net asset value. Emerging market countries may have
relatively unstable governments. In such environments, the risk of
nationalization of business or of prohibitions on repatriations of assets is
greater than in more stable, developed political and economic circumstances. The
economy of an emerging market country may be predominately 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 restrictions on foreign
ownership that may limit or eliminated a Fund's opportunity to acquire desirable
securities.
Emerging Markets Sovereign Debt. The Funds may invest in debt securities
including sovereign debt securities of emerging market governments. Investments
in such securities involve special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due in accordance with the terms
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of the debt especially if such debt is denominated in a currency other than that
government's home currency. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt, and in turn the Fund's net asset
value, to a greater extent than the volatility inherent in domestic debt
securities.
A sovereign debtor's willingness or ability to repay principal, especially if
such debt is denominated in a currency other than that government's home
currency, and pay interest in a timely manner may be affected by, among other
factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject. Governments of emerging
markets could default on their sovereign debt. Such sovereign debtors also may
be dependent on expected disbursements from foreign governments, multilateral
agencies and other entities abroad to reduce principal and interest arrearages
on their debt. The commitment on the part of these governments, agencies and
others to make such disbursements may be conditioned on a sovereign debtor's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due,
could result in the cancellation of such third parties' commitments to lend
funds to the sovereign debtor, which may further impair such debtor's ability or
willingness timely to service its debt.
If reliable market quotations are not available, the Investment Manager values
such securities in accordance with procedures established by the Board of
Directors. The Investment Manager's judgment and credit analysis plays a greater
role in valuing sovereign debt obligations than for securities where external
sources for quotations and last sale information are available.
Investment in Debt Securities and Commercial Paper. With respect to
International Equity, Emerging Markets Equity, International Smaller Companies,
and Smaller Companies Funds only, at least 75% of Fund's total assets invested
in non-convertible debt securities other than commercial paper must be rated, at
the time of purchase, at least in the A major ratings category by Standard &
Poor's or Moody's, or if unrated, determined to be of comparable quality by AIB
Govett. These four Funds' commercial paper investments must, at the time of
purchase, be rated at least in the Prime-2 major rating category by Moody's or
in the A-2 major rating category by Standard & Poor's, or if unrated, determined
to be of comparable quality by AIB Govett.
With respect to Global Income Fund, it is the Fund's policy that 75% of its
total assets invested in debt securities and commercial paper, at the time of
purchase, will be rated by Moody's at least in the Baa major rating category or
by Standard & Poor's at least in the BBB major rating category or, if unrated,
determined to be of comparable quality by the Investment Manager, with respect
to debt securities, and rated by Moody's at least in the Prime-2 major rating
category or by Standard & Poor's in the A-2 major rating category, or, if
unrated, determined to be of comparable quality by the Investment Manager, with
respect to commercial paper.
With respect to all Funds, the subsequent downgrade of a debt security to a
level below the investment grade required for the Fund will not require an
immediate sale of the security. However, AIB Govett will consider the
circumstances of the downgrade in determining whether to hold that security,
including causes of the downgrade, local market conditions, and general economic
trends.
Lower Quality Debt Securities. The market values of lower quality debt
securities tend to reflect individual developments of the issuer to a greater
extent than do higher quality debt securities, which react primarily to
fluctuations in the general level of interest rates. In addition, lower quality
debt securities tend to be more sensitive to economic conditions and generally
have more volatile prices than higher quality debt securities. Issuers of lower
quality debt securities are often highly leveraged, and issuers of such
securities may not have available to them more traditional methods of financing.
Please see Appendix A.
The market for lower rated debt securities may be less active than that for
higher rated securities, which can adversely affect the prices at which these
securities can be sold. If market quotations are not available, these securities
are valued in accordance with procedures established by the Board of Directors,
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including the use of outside pricing services. Judgment plays a greater role in
valuing high yield debt securities than is the case for securities for which
more external sources for quotations and last sale information are available.
Adverse publicity and changing investor perceptions may affect the ability of
outside pricing services to value securities, and the Funds' ability to dispose
of these lower rated debt securities.
Factors having an adverse effect on the market value of lower rated debt
securities of their equivalents purchased by a Fund will adversely affect the
net asset value of those Funds. In addition to the foregoing, such factors may
include: (i) potential adverse publicity; (ii) heightened sensitivity to general
economic or political conditions; and (iii) the likely adverse impact of a major
economic recession. A Fund may incur additional expenses to the extent they are
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings, and the Funds may have limited legal recourse in the
event of a default. Debt securities issued by an emerging market government can
differ from debt obligations issued by private entities in that remedies from
defaults generally must be pursued in the courts of the defaulting government,
and legal recourse can therefore be significantly diminished. Political
conditions, in terms of a government's willingness to meet the terms of its debt
obligations, also are of considerable significance. There can be no assurance
that the holders of commercial bank debt may not contest payments to the holders
of debt securities issued by governments in emerging or developing markets in
the event of default by the governments under commercial bank loan agreements.
No Fund is permitted to invest more than 35% of its net assets in lower quality
debt securities.
Options on Foreign and U.S. Currencies and Securities. In an effort to reduce
the fluctuations in their respective net asset value, the Funds may write
covered put and call options and purchase put and call options on U.S. and
foreign currencies and securities that are traded on U.S. and foreign securities
exchanges and over-the-counter. Call options written by the Funds give the
holder the right to buy the underlying currency or security from the Funds at a
stated exercise price upon exercising the option at any time prior to its
expiration. A call option written by the Funds is "covered" if the Funds own or
have an absolute right (such as by conversion) to the underlying currency or
security covered by the call. A call option is also covered if the Funds hold a
call on the same currency or security and in the same principal amount as the
call written and the exercise price of the call held is (a) equal to or less
than the exercise price of the call written, or (b) greater than the exercise
price of the call written if the difference is maintained by the Funds in cash,
U.S. government securities or other liquid high grade debt obligations in a
segregated account with its Custodian. Put options written by the Funds give the
holder the right to sell the underlying currency or security to the Funds at a
stated exercise price. A put option written by the Funds is "covered" if the
Fund maintains cash or liquid high grade debt obligations with a value equal to
the exercise price in a segregated account with its Custodian, or else holds a
put on the same currency or security and in the same principal amount as the put
written, and the exercise price of the put held is equal to or greater than the
exercise price of the put written. Premiums for currency options held by any
Fund may not exceed 5% of its total assets.
The writer of an option who wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing authority or otherwise
economically nullified. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option. Likewise, a
holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. The Funds may enter into closing transactions
to terminate an options position. The Funds will realize a profit from a closing
transaction if the price of the transaction is less than the premium received
from writing the option or is more than the premium paid to purchase the option;
the Funds will realize a loss from closing a transaction if the price of the
transaction is more than the premium received from writing the option or is less
than the premium paid to purchase the option.
The Funds may write options in connection with buy-and-write transactions, that
is, the Funds may purchase a currency or security and then write a call option
against that currency or security. The exercise price of the call will depend
upon the expected price movement of the underlying currency or security. The
exercise price of a call option may be below ("in-the-money") or equal to
("at-the-money") or above ("out-of-the-money") the current price of the
underlying currency or security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected by
AIB Govett that the price of the underlying currency or security will remain
flat or decline moderately during the option period. Buy-and-write transactions
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using at-the-money call options may be used when it is expected by AIB Govett
that the price of the underlying currency or security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when AIB Govett expects that the
premiums received from writing the call option plus the appreciation in the
market price of the underlying currency or security up to the exercise price
will be greater than the appreciation in the price of the underlying currency or
security alone. If the call options are exercised in such transactions, a Fund's
maximum gain will be the premium received by it for writing the option, adjusted
upward or downward by the difference between the Fund's purchase price for the
currency or security and the exercise price. If the options are not exercised
and the price of the underlying currency or security declines, the amount of
such decline will be mitigated by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying currency or security rises or otherwise is above the exercise price,
the put option will expire worthless and the Fund's gain will be limited to the
premium received. If the market price of the underlying currency or security
declines or otherwise is below the exercise price, the Fund may elect to close
the position or wait for the option to be exercised and take delivery of the
currency or security at the exercise price. The Fund's return will be the
premium received from the put option minus the amount by which the market price
of the currency or security is below the exercise price. Out-of-the-money,
at-the-money, and in-the-money put options may be used by the Funds in the same
market environments that call options are used in equivalent buy-and-write
transactions.
In addition to the matters discussed in the prospectuses, shareholders should be
aware that when trading options on foreign exchanges or in the over-the-counter
market, many of the protections afforded to U.S. option exchange participants
will not be available. For example, there are no daily price fluctuation limits
in such exchanges or markets, and adverse market movements could therefore
continue to an unlimited extent over a period of time. Although the purchaser of
an option cannot lose more than the amount of the premium plus related
transaction costs, this entire amount could be lost. Moreover, the Fund as an
option writer could lose amounts substantially in excess of its initial
investment, due to the margin and collateral requirements typically associated
with such option writing. The ability of any Fund to engage in options
transactions is subject to the following limitations: (a) not more than 5% of
the net assets of the Fund may be invested in options purchased by the Fund; (b)
the obligations of the Fund under put options written by the Fund may not exceed
5% of the net assets of the Fund; and (c) the obligations of the Fund under call
options written by the Fund may not exceed 5% of the net assets of the Fund.
The staff of the SEC has taken the position that purchased over-the-counter
("OTC") options and the assets used as "cover" for written OTC options are
illiquid securities. However, the Funds may treat the securities they use as
cover for written OTC options as liquid provided the Funds follow a specified
procedure. The Funds may sell OTC options only to qualified dealers who agree
that the Funds may repurchase any OTC options written for a maximum price to be
calculated by a predetermined formula. In such cases, the OTC option would be
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.
Foreign Currency Exchange Transactions. Since investments in companies whose
principal business activities are located outside of the U.S. will frequently
involve currencies of foreign countries, and since assets of a Fund may
temporarily be held in bank deposits in foreign currencies during the completion
of investment programs, the value of the Funds' assets as measured in U.S.
dollars generally will be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Although the
Funds value their assets daily in terms of U.S. dollars, they do not intend to
convert their holdings of foreign currencies into U.S. dollars on a daily basis.
The Funds may conduct their foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into contracts to purchase or sell foreign currencies
at a future date (i.e., a forward foreign currency contract or forward
contract). Foreign currency futures contracts and options on foreign currencies
may also be used. The Funds will convert currency on a spot basis from time to
time, and shareholders should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the spread) between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Funds at one rate, while offering a lesser
rate of exchange should the Funds desire to resell that currency to the dealer.
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A forward currency exchange contract ("Forward Contract") involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract, agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A Forward Contract generally has no
deposit requirement, and no commissions are charged at any stage for trades. A
Fund will cover a Forward Contract that it has sold by establishing and
maintaining with its Custodian a segregated account, consisting of cash, cash
equivalents or liquid, short-term high quality debt securities from its
portfolio.
The Funds may enter into Forward Contracts in order to fix a definite U.S.
dollar price for securities denominated in foreign currencies, in connection
with a purchase or sale of those securities. For example, if a Fund placed a
purchase order for securities denominated in Japanese Yen, it would be required
to pay for the securities with Yen on the date the transaction settles. If the
Fund has U.S. dollar-denominated cash or securities on hand, it can enter into a
Forward Contract to exchange its dollars for Yen, with the exchange taking place
on the settlement date of the security purchase order, so that the Fund would
have sufficient Yen to pay for the securities it has purchased. This type of
currency strategy is often referred to as a "transaction hedge."
The Funds may also enter into Forward Contracts to hedge securities in their
portfolios that are denominated in foreign currency against losses caused by a
decline in foreign currency values. For example, if a Fund owns securities
denominated in French Francs, and AIB Govett anticipates a decline in the
Franc's value relative to the U.S. dollar, the Fund can enter into a contract to
exchange Francs for dollars in order to lock in the current exchange rate for
the term of the contract. By locking in an exchange rate, the Fund would seek to
protect itself against a decline in the Franc's value relative to the U.S.
dollar, but would also give up the opportunity to profit from an increase in its
value. This type of transaction is often termed "position hedging." Of course, a
position hedge does not protect against price changes caused by other factors
such as a change in an issuer's prospects--it only hedges against losses caused
by currency movements relative to the U.S. dollar.
At the maturity of a Forward Contract, the Funds may either sell the portfolio
security and make delivery of the foreign currency, or they may retain the
security and terminate their contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obliging it to purchase, on the same maturity date, the same amount of the
foreign currency.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of the Forward Contract. Accordingly, it may be
necessary for the Funds to purchase additional foreign currency on the spot
market (and bear the expense of such purchases) if the market value of the
security is less than the amount of foreign currency the Funds are obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Funds are obliged to
deliver.
If the Funds retain the portfolio security and engage in an offsetting
transaction, they will incur a gain or a loss to the extent that there has been
a movement in Forward Contract prices. If the Funds engage in an offsetting
transaction, they may subsequently enter into a new Forward Contract to sell the
foreign currency. Should forward prices decline during the period between the
date the Funds enter into a Forward Contract for the sale of the foreign
currency and the date they enter into an offsetting contract for the purchase of
the foreign currency, the Funds will realize a gain to the extent the price of
the currency they have agreed to sell exceeds the price of the currency they
have agreed to purchase. Such gain may be offset by a corresponding change in
the value of the underlying securities if they are retained by the Funds and if
an offset is effected. Should forward prices increase, the Funds will suffer a
loss to the extent that the price of the currency they have agreed to purchase
exceeds the price of the currency they have agreed to sell. Although there are
no limits on the number of Forward Contracts which a Fund may enter into, no
Fund may position hedge with respect to a particular currency for an amount
greater than the aggregate market value (determined at the time of making any
sale of foreign currency) of the securities held in its portfolio, denominated
or quoted in, or currently convertible into, such currency.
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Futures Contracts. The Funds may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies, or
contracts based on financial indexes including any index of U.S. government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC"), and
must be executed through a futures commission merchant, or brokerage firm, which
is a member of the relevant contract market. Futures contracts trade on a number
of exchange markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. The Funds may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. government,
such as long-term U.S. Treasury bonds, Treasury notes, GNMA modified
pass-through mortgage backed securities and three month U.S. Treasury bills. The
Funds may also enter into futures contracts which are based on bonds issued by
entities other than the U.S. government.
The Funds will not enter into Futures Contracts for speculation and will only
enter into Futures Contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal interest rate and currency Futures exchanges in the U.S. are the Board
of Trade of the City of Chicago and the Chicago Mercantile Exchange. U.S.
futures exchanges and trading are regulated under the Commodity Exchange Act by
the CFTC. Futures are also exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could be
used to reduce the Funds' exposure to interest rate, currency exchange rate and
stock price fluctuations, the Funds may be able to hedge their exposure more
effectively and at a lower cost through using Futures Contracts. A Fund will not
enter into Futures Contracts if, as a result thereof, more than 5% of a Fund's
total assets (taken at market value at the time of entering into the contract)
would be committed to "margin" (down payment) deposits on such Futures
Contracts.
An interest rate Futures Contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (debt security or currency) for a specified price at a designated
date, time and place. A stock index Futures Contract provides for the delivery,
at a designated date, time and place, of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck; no physical delivery of the stocks comprising the index is
made. Most stock index futures and options are based on broad-based stock
indexes reflecting the prices of a broad variety of common stocks, such as the
Nikkei Keizai Shimbun (the Nikkei Dow). Some index options are based on narrow
industry averages or market segments. A foreign currency Futures Contract
provides for the purchase or sale for future delivery of a currency. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment for
financial instruments and currencies, or the delivery of cash, they are usually
closed out before the delivery date. Closing out an open Futures Contract sale
or purchase is effected by entering into an offsetting Futures Contract purchase
or sale, respectively, for the same aggregate amount of the identical financial
instrument, currency or stock index and the same delivery date. If the
offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance, however,
that a Fund will be able to enter into an offsetting transaction with respect to
a particular Futures Contract at a particular time. If a Fund is not able to
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations arising
from the sale of one Futures Contract of September Treasury Bills on an exchange
may be fulfilled at any time before delivery under the Futures Contract is
required (i.e., on a specified date in September, the "delivery month") by the
purchase of another Futures Contract of September Treasury Bills on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Fund.
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Persons who trade in Futures Contracts may be broadly classified as "hedgers"
and "speculators." Hedgers, such as the Funds, whose business activity involves
investment or other commitment in securities or other obligations, use the
futures markets primarily to offset unfavorable changes in value that may occur
because of fluctuations in the value of the securities and obligations held or
expected to be acquired by them or fluctuations in the value of the currency in
which the securities or obligations are denominated. Debtors and other obligors
may also hedge the interest cost of their obligations. The speculator, like the
hedger, generally expects neither to deliver nor to receive the financial
instrument underlying the Futures Contract, but, unlike the hedger, hopes to
profit from fluctuations in prevailing interest rates, the underlying stock
index, or currency exchange rates. A Fund's Futures transactions will be entered
into for traditional hedging purposes; that is, Futures Contracts will be sold
to protect against a decline in the price of securities or currencies that the
Fund owns, or Futures Contracts will be purchased to protect the Fund against an
increase in the price of securities or currencies it has committed to purchase
or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by a Fund with a securities dealer in order to initiate Futures
trading and to maintain the Fund's open positions in Futures Contracts. A margin
deposit made when the Futures Contract is entered into ("initial margin") is
intended to assure the Fund's performance of the Futures Contract. The margin
required for a particular Futures Contract is set by the exchange on which the
Futures Contract is traded, and may be significantly modified from time to time
by the exchange during the term of the Futures Contract. Futures Contracts are
customarily purchased and sold on margins that may range upward from less than
5% of the value of the Futures Contract being traded.
If the price of an open Futures Contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the securities dealer will require an increase in the margin
deposit ("margin variation"). However, if the value of a position increases
because of favorable price changes in the Futures Contract so that the margin
deposit exceeds the required margin, the securities dealer will pay the excess
to the Fund. In computing daily net asset values, a Fund will mark-to-market the
current value of its open Futures Contracts. The Funds expect to earn interest
income on their margin deposits.
The prices of Futures Contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates, which in turn are
affected by fiscal and monetary policies and national and international
political and economic events. At best, the correlation between changes in
prices of Futures Contracts and of the securities or currencies being hedged can
be only approximate. The degree of imperfection of correlation depends upon
circumstances such as: variations in speculative market demand for Futures and
for debt securities or currencies, including technical influences in Futures
trading; and differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading. A
decision of whether, when, and how to hedge involves skill and judgment and even
a well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, or
gain, to the investor. For example, if at the time of purchase, 10% of the value
of the Futures Contract is deposited as margin, a subsequent 10% decrease in the
value of the Futures Contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the contract were closed out. Thus, a purchase or
sale of a Futures Contract may result in losses in excess of the amount invested
in the Futures Contract. However, the Fund would presumably have sustained
comparable losses if, instead of the Futures Contract, it had invested in the
underlying financial instrument and sold it after the decline.
Furthermore, in the case of a Futures Contract purchase, in order to be certain
that the Fund has sufficient assets to satisfy its obligations under a Futures
Contract, the Fund segregates and commits to back the Futures Contract with an
amount of cash, U.S. government securities or other liquid, high-grade debt
securities equal in value to the current value of the underlying instrument less
the margin deposit.
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Most U.S. Futures exchanges limit the amount of fluctuation permitted in Futures
Contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a Futures Contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of Futures Contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures Contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of Futures positions and subjecting some
Futures traders to substantial losses.
The Funds will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fiscal year) on Futures transactions. Such
distributions will be combined with distributions of capital gains realized on a
Fund's other investments and shareholders will be advised of the nature of
payments.
Hedging Strategies. Each Fund may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with its investments, although there can be no assurance that such efforts will
succeed. Among the types of transactions which may be used are: forward currency
contracts, writing of covered put and call options, purchase of put and call
options on currencies and equity and debt securities, stock index futures and
options thereon, interest rate or currency futures and options thereon, and
securities futures and options thereon. It is currently intended that no Fund
will place more than 5% of its net assets at risk in any one of these
transactions or securities, except Global Income Fund may invest significantly
more than 5% of its net assets in forward currency contracts, provided that no
more than 5% of its net assets are at risk in any one of the other types of
transactions or securities. However, although there is no limit on the number of
forward currency contracts Global Income Fund may enter into, this Fund may not
position hedge with respect to a particular currency for an amount greater than
the aggregate market value (determined at the time the sale of any foreign
currency is made) of the securities held in its portfolio denominated or quoted
in, or currently convertible into, such currency.
Regulatory Aspects of Hedging. The Funds are not commodity pools. Each Fund's
transactions in futures and options thereon will constitute bona fide hedging or
other permissible transactions under regulations promulgated by the CFTC. In
addition, no Fund may engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired futures and options
thereon would exceed 5% of the fair market value of the Fund's assets, with
certain exclusions as defined in the applicable CFTC rules.
Special Risks of Hedging. Participation in the options or futures markets and in
currency exchange transactions involves investment risks and transactions costs
to which the Funds would not be subject absent the use of these strategies. If
the Investment Manager's prediction of movements in the direction of interest
rates, securities prices, or currency markets are inaccurate, the adverse
consequences to the Funds may leave the Funds in a worse position than if such
strategies were not used. Risks inherent in the use of options, foreign currency
and futures contracts and options on futures contracts include: (1) dependence
on the Investment Manager's ability to predict correctly movements in the
direction of interest rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities or currencies
being hedged; (3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences.
Warrants or Rights. Warrants or rights may be acquired by a Fund in connection
with other securities or separately, and provide the Fund with the right to
purchase at a later date other securities of the issuer. As a condition of its
continuing registration in a state, each Fund has undertaken that its
investments in warrants or rights, valued at the lower of cost or market, will
not exceed 5% of the value of its net assets and not more than 2% of such assets
will be invested in warrants and rights which are not listed on the American or
New York Stock Exchange. Warrants or rights acquired by a Fund in units or
attached to securities will be deemed to be without value for purpose of this
restriction. These limits are not fundamental policies of the Funds and may be
changed by the Company's Board of Directors without shareholder approval.
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Security Forward Commitments. Global Income Fund may buy or sell "when-issued"
or "delayed-delivery" securities (collectively called "Forward Commitments").
Forward Commitments occur when the Fund buys or sells securities with payment
and delivery taking place in the future (typically a month or more after the
deal is struck). The price is fixed on the date of the commitment, and the
seller continues to accrue interest on the securities until delivery and payment
takes place. At the time of settlement, the market value of the securities may
be more or less than the purchase or sale price.
A Forward Commitment may either be settled according to its original terms, or
it may be resold or repurchased on or before the settlement date, if AIB Govett
deems it advisable to do so. When engaging in Forward Commitments, the Fund
relies on the other party to complete the transaction. If the other party fails
to do so, the Fund may lose a purchase or sale opportunity that could be more
advantageous than alternative opportunities at the time of the failure. The
amount at risk to the Fund for an uncompleted Forward Commitment is the
difference between the purchase price and the current marked-to-market price.
To minimize this risk, for each Forward Commitment purchase, Global Income Fund
maintains appropriate liquid securities, or cash, in a segregated account (which
is marked to market daily) with the Fund's custodian. The aggregate amount of
this account must be equal to the amount of the commitment as long as the
purchase obligation continues. Since the market value of the securities or
currency subject to the Forward Commitment and the securities or currency held
in the segregated account may fluctuate, the use of Forward Commitments may
magnify the effect of interest rate changes on the Fund's net asset value.
A Forward Commitment sale is "covered" if the Fund owns or has the right to
acquire the underlying securities or currency subject to the Forward Commitment.
A Forward Commitment is for cross-hedging if it is not covered but is designed
to hedge against a decline in value of a security or currency which the Fund
owns or has the right to acquire. In either circumstance, the Fund maintains in
a segregated account (which is marked to market daily) either the security or
currency covered by the Forward Commitment or other appropriate liquid
securities, in an aggregate amount equal to the amount of its commitment, as
long as the obligation to sell continues. By entering into a Forward Commitment
sale transaction, the Fund foregoes or reduces the potential for gain and loss
in the holding which is being hedged.
Repurchase Agreements. Repurchase agreements are transactions by which the Funds
purchase a security and simultaneously commit to resell that security to the
seller at an agreed upon price on an agreed upon date within a specified number
of days (usually not more than seven) from the date of purchase. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value (at least equal to the amount
of the agreed upon resale price and marked to market daily) of the underlying
security. In the event of the seller's default, the Funds could suffer a loss if
the fair market value of the security "purchased" is less than the amount paid
for the security. The Investment Manager will consider the creditworthiness of
sellers before causing a Fund to enter into repurchase agreements with them, and
will review such creditworthiness periodically. In the event of the bankruptcy
of the other party to a repurchase agreement, a Fund could experience delays in
recovering either the securities or the cash lent. To the extent that, in the
meantime, the value of the securities purchased had decreased, the Fund could
experience a loss. In all cases, the Investment Manager must find the
creditworthiness of the other party to the transaction satisfactory.
The purpose of engaging in repurchase agreements is to earn a return on
uninvested cash. The Funds may engage in a repurchase agreement with respect to
any security in which they are authorized to invest. Whether a repurchase
agreement is the purchase and sale of a security or a collateralized loan has
not been definitively established. This might become an issue in the event of
the bankruptcy of the other party to the transaction. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the underlying
securities, as well as delays and costs to the Funds in connection with
bankruptcy proceedings), it is currently the policy of the Funds to enter into
repurchase agreements only with those member banks of the Federal Reserve System
and primary dealers in U.S. government securities whose creditworthiness has
been reviewed and found satisfactory by the Investment Manager, pursuant to
policies established by the Company's Board of Directors.
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The Funds may in the future wish to invest in foreign repurchase agreements.
Currently, markets for foreign repurchase agreements are in the developing stage
in various countries and it can be expected that new markets will continue to be
developed in the future. The Funds do not have any current intention of engaging
in foreign repurchase agreements, and will not do so until general guidelines
and criteria have been approved by the Company's Board of Directors.
Reverse Repurchase Agreements. In a reverse repurchase agreement, a Fund
temporarily transfers possession of a security to another party, such as a bank,
in return for cash. At all times that a reverse repurchase agreement is
outstanding, the Fund will maintain cash and liquid high grade debt securities
in a segregated account at its custodian bank with a value at least equal to its
obligation under the agreement. Reverse repurchase agreements are considered to
be borrowings for purposes of investment limitation 1. on page 4 of this
Statement of Additional Information, and therefore are subject to the overall
percentage limitations on borrowings and the restrictions on the purposes of
borrowings contained in that limitation. As of the date of this Statement of
Additional Information, the Funds do not invest in reverse repurchase
agreements, and will not do so until the Board of Directors has approved
guidelines for such investments.
Borrowings. The Funds' ability to borrow money creates special risks not
associated with funds that have similar investment objectives and policies but
do not have the ability to borrow money or borrow at the same level as the
Funds. Borrowings by the Funds may have either a positive or negative effective
on their respective levels of investment income. Any investment income or gain
earned from amounts borrowed which is in excess of the interest due on and other
costs of such borrowings may cause the Funds' investment income to be greater
than would otherwise be the case. Conversely, if the investment performance of
any amount borrowed fails to cover the interest due on and other costs of such
borrowings, the Funds' investment income will be less than would otherwise be
the case.
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 Funds may be able to invest in such
countries solely or primarily through open- or closed-end investment companies.
Each Fund may invest in such companies to the extent permitted under the 1940
Act. The Funds may not invest in any investment companies managed by AIB Govett
or any of its affiliates. Investments in investment companies may involve a
duplication of certain expenses, such as management and administrative expenses.
Restricted Securities. The Funds may invest in foreign securities that are
restricted against transfer within the U.S. or to U.S. persons. Although
securities subject to such U.S. transfer restrictions may be marketable abroad,
they may be less liquid than foreign securities of the same class that are not
subject to such restrictions. Unless these securities are limited as to resale
within their principal market, the Funds treat such foreign securities whose
principal market is abroad as not being subject to investment limitation on
restricted securities.
Portfolio Turnover. The Company's Board of Directors periodically reviews the
Investment Manager's performance of their respective responsibilities in
connection with the placement of portfolio transactions on behalf of the Funds,
and reviews the commissions paid by the Funds to determine whether such
commissions are reasonable in relation to what the directors believe are the
benefits to the Funds.
The frequency of portfolio transactions--the "portfolio turnover rate"-- varies
from year to year depending on market conditions. Because a high annual turnover
rate increases transaction costs and may lead to capital gains which are subject
to federal taxation, AIB Govett or the Subadviser carefully weighs anticipated
benefits of a trade against expected transaction costs and tax consequences.
Neither AIB Govett nor the Subadviser engages in short-term trading except when
necessary to prudently manage the Funds' portfolios. The portfolio turnover
rates for the Funds for the period from January 1, 1999 through December 31,
1999 were: International Equity Fund - 41%; Emerging Markets Equity Fund - 63%;
Smaller Companies Fund - 76%; International Smaller Companies Fund - 87%; and
Global Income Fund - 33%. Each Fund's portfolio turnover rate reflects market
conditions affecting the economies that Fund invests in. The portfolio turnover
rate for International Equity Fund and Emerging Markets Equity Fund have
decreased as current portfolio holdings have remained consistently attractive
and a relatively consistent level of subscriptions and redemptions have not
prompted portfolio activity.
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Temporary Defensive Strategies. To retain flexibility to respond promptly to
adverse changes in market and economic conditions, AIB Govett, in its
discretion, may use temporary defensive strategies. Under such strategies, a
Fund may hold up to 100% of its total assets as cash (either U.S. dollars,
foreign currencies or multinational currency units), and/or invest in
short-term, high-quality debt securities, including money market securities. For
debt obligations other than commercial paper, such instruments must be rated, at
the time of purchase, at least in the AAA category by Standard & Poor's or at
least in the Aaa category by Moody's, or if unrated, determined to be of
comparable quality by AIB Govett. For commercial paper, such investments must be
rated, at the time of purchase, at least in the A-2 major rating category by
Standard & Poor's or in the Prime-2 major rating category by Moody's, or if
unrated, determined to be of comparable quality by AIB Govett.
Money Market Instruments. The Funds may, from time to time, invest excess cash
in the following "money market" securities:
U.S. Government Securities. The Funds may invest in the various types of
short-term marketable securities issued by or guaranteed as to principal and
interest by the U.S. government and supported by the full faith and credit of
the U.S. Treasury. U.S. Treasury obligations differ mainly in the length of
their maturity. Treasury bills, the most frequently issued marketable government
securities, have a maturity of up to one year and are issued on a discount
basis.
U.S. Government Agency Securities. The Funds may invest in short-term U.S.
government agency securities which are debt securities issued by
government-sponsored enterprises and federal agencies. Examples are the Federal
National Mortgage Association and the Federal Intermediate Credit Bank. Such
securities are not direct obligations of the Treasury but involve U.S.
government sponsorship or guarantees by U.S. government agencies or enterprises.
Such securities are subject to fluctuations in market value due to fluctuations
in market interest rates. Certain types of these securities are subject to
fluctuations in yield due to early prepayments on mortgages underlying such
securities. The Funds may invest in all types of U.S. government agency
securities currently outstanding or to be issued in the future.
Bank Obligations. These obligations include, but are not limited to, negotiable
certificates of deposit, bankers' acceptances and fixed time deposits. The Funds
will limit their investment in U.S. bank obligations to obligations of U.S.
banks (including foreign branches) which have more than $1 billion in total
assets at the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits are insured
by the Federal Deposit Insurance Corporation. The Funds will limit their
investments in foreign bank obligations to U.S. dollar denominated obligations
of foreign banks which at the time of investment (i) have more than $10 billion,
or the equivalent in other currencies, in total assets; (ii) in terms of assets
are among the 75 largest foreign banks in the world; (iii) have branches or
agencies in the U.S.; and (iv) in the opinion of the Investment Manager are of
an investment quality comparable with obligations of U.S. banks which may be
purchased by the Funds.
Fixed time deposits are obligations of U.S. banks, of foreign branches of U.S.
banks, or of foreign banks which are payable at a stated maturity date and bear
a fixed rate of interest. Generally, fixed time deposits may be withdrawn on
demand by the investor, but they may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have a market, there are no
contractual restrictions on the Funds' right to transfer a beneficial interest
in the deposit to a third party. It is the policy of each Fund not to invest in
(i) fixed time deposits subject to withdrawal penalties, other than overnight
deposits; (ii) repurchase agreements with more than seven days to maturity; or
(iii) other illiquid securities, if in the aggregate more than 5% of the value
of its net assets would be so invested.
Obligations of foreign banks and foreign branches of U.S. banks involve somewhat
different investment risks from those affecting obligations of U.S. banks,
including the possibilities that liquidity could be impaired because of future
political and economic developments, that the obligations may be less marketable
than comparable obligations of U.S. banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions (such as foreign exchange controls) may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks, or the
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accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks differ from those applicable to U.S.
banks. In that connection, foreign banks are not subject to examination by any
U.S. government agency or instrumentality.
Short-Term Corporate Debt Instruments. The Funds may invest in commercial paper,
which refers to short-term, unsecured promissory notes issued by U.S. and
foreign corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months.
The Funds may also invest in non-convertible corporate debt securities (e.g.,
bonds and debentures) with no more than one year remaining to maturity at the
date of settlement. Corporate debt securities with a remaining maturity of less
than one year tend to become extremely liquid and are traded as money market
securities.
The Funds' commercial paper investments at the time of purchase will be rated at
least in the A-2 major rating category by Standard & Poor's or in the Prime-2
major rating category by Moody's, or if unrated, will be of comparable quality
as determined by the Investment Manager. The Funds' short-term investments in
corporate bonds and debentures (which must have maturities at the date of
purchase of one year or less) must be rated at the time of settlement at least
in the AA major rating category by Standard & Poor's or in the Aa major rating
category by Moody's or if unrated, will be of comparable quality as determined
by the Investment Manager. See Appendix A to this Statement of Additional
Information for information about Moody's and Standard & Poor's ratings.
Mortgage-Backed Securities. Mortgage-backed securities represent interests in
pools of mortgage loans and provide the purchasers of such securities a
flow-through of interest and principal payments as such payments are received
with respect to mortgages in the pool. An issuer may offer senior or
subordinated securities backed by the same pool of mortgages. Mortgage-related
securities may be issued by private entities, agencies of the U.S. government or
by corporations established under the authority of legislation.
Mortgage-backed securities have the same risks of most debt securities,
including the risk of default as to some or all of the principal and interest.
In addition, mortgage-backed securities also have the risks of prepayment or
delay, that is, if some or all of the underlying mortgages are paid before or
after the anticipated date of payment (which may be before or after the stated
maturity date), the holder of the mortgage-backed securities may have to invest
the paid principal at times when interest rates are not favorable.
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DIRECTORS AND OFFICERS
The Company's Board of Directors has the responsibility for the overall
management of the Funds, including general supervision and review of their
investment activities. The Board of Directors, in turn, appoints the officers
who are responsible for administering the day-to-day operations of the Funds.
Listed below are the directors and officers of the Funds, and their affiliations
and principal occupations for the past five years. Directors who may be
"interested persons" of the Funds, as defined in the 1940 Act, are designated by
an asterisk (*).
Directors
Elliott L. Atamian (24 Country Drive, Weston, MA 02193) is a private investor,
and has served on the Board of Directors of Rogers Foam Corp. since 1989 and
Brookline Savings Bank since 1978. He was a Professor of Finance at Northeastern
University from 1977 to 1991 and served on the Board of Directors of certain
mutual funds managed by John Hancock Advisors, Inc. from 1972 to 1991. He is 81.
Patrick Cunneen * (c/o AIB Asset Management Holdings Limited, AIB International
Center, Dublin, Ireland 1) graduated from University College, Dublin with a
Bachelor of Commerce degree in 1967. He joined AIB Investment Managers Limited
("AIBIM") as Managing Director in 1991 and currently holds the office of Vice
Chairman and Director of AIB Asset Management Holdings Limited. AIBIM is a
subsidiary of Allied Irish Banks plc, the majority owner of AIB Govett. Prior to
joining AIBIM, Mr. Cunneen was Investment Director of New Ireland Assurance
Company Limited, where he had been since 1972. He has been a member of the
Society of Investment Analyst since 1974, and is a former Chairman of the Irish
Association of Investment Managers. He is 54.
Sir Victor Garland * (15 Wilton Place, Knightsbridge, London, SW1X 8RL) is
President of the Company. He has been a private investor since 1984 and
currently serves as a director of a number of U.K. public companies. He is the
former Australian Ambassador to the U.K. and a former director of Prudential
Assurance Corporation in the U.K. He is 65.
James M. Oates (c/o The Wydown Group, 60 State Street, Suite 950, Boston, MA
02109) is currently Managing Director of The Wydown Group and Chairman of IBEX
Capital Markets, LLC. His present Board affiliations include: Blue Cross and
Blue Shield of New Hampshire, Director; Phoenix Mutual Funds, Director; Phoenix
Duff & Phelps, Director, Chairman of the Compensation Committee; The Govett
Funds, Director, Member of the Audit Committee; Investors Bank & Trust,
Director, Member of Executive Committee, Chairman of the Compensation Committee;
Investor Financial Services Corp., Director; Member of the Executive Committee,
Chairman of the Compensation Committee, and Member of the Nominating Committee;
Plymouth Rubber Company, Director; Stifel Financial, Director, Member of the
Executive Committee and Member of Compensation, Audit and Finance Committees;
Emerson Investment Management, Inc., Director and Member of the Executive
Committee; Massachusetts Housing Partnership, Vice Chairman and Director;
Massachusetts General Hospital, Member of the Corporation; Middlesex School
(Concord, MA), President of the Board of Trustees; Chief Executive Organization,
Member. He is 53.
Frank R. Terzolo (c/o C.R.T. Strategies, 65337 East Brassie Drive, Tucson, AZ,
85739) is presently President and Chief Executive Office of C.R.T. Strategies, a
company that designs and implements charitable remainder trusts. From 1989 to
1996 he was President and Chief Executive Officer of Ameritrust Network, Inc.,
which also designed and implemented charitable remainder trusts. From 1988 to
1989, he was President and Chief Executive Officer of American Equities, and
from 1984 to 1988 he was President and Chief Operating Officer for Equitec
Securities Company, a financial services company. He is 66.
18
49
Officers
Sir Victor Garland (15 Wilton Place, Knightsbridge, London, SW1X 8RL) is
President of the Company. He has been a private investor since 1984 and
currently serves as a director of a number of U.K. public companies. He is the
former Australian Ambassador to the U.K. and a former director of Prudential
Assurance Corporation in the U.K. He is 65.
Colin Kreidewolf, (c/o AIB Govett, Inc., 250 Montgomery Street, Suite 1200, San
Francisco, CA 94104) Treasurer of the Company, joined AIB Govett London in 1981.
He became a member of The Institute of Chartered Secretaries and Administrators
in England and Wales in 1986. He is Senior Vice President of AIB Govett
responsible for the management of Consultant Relations an for the financial and
operational activities of the Company. He is 40.
John Hunt (c/o AIB Govett, Inc., 250 Montgomery Street, Suite 1200, San
Francisco, CA 94104) is Secretary of the Company, Since 1996, he has been an
attorney at Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Prior to 1996,
he was an attorney with the firm of Nutter, McLennan & Fish, Boston,
Massachusetts. He is 41.
Andrew Barnett, (c/o AIB Govett Asset Management Limited, Shackleton House, 4
Battle Bridge Lane, London, England SE1 2HR) Assistant Treasurer of the Company,
joined AIB Govett London in 1987. He graduated from Manchester University in
1970 with a BA (Hons) in History, Economics, and Politics and become a member of
the Institute of Chartered Accountants in England and Wales in 1974. He was
appointed Operations Director in 1991. He is 52.
John Wade, (c/o AIB Govett Asset Management Limited, Shackleton House, 4 Battle
Bridge Lane, London, England SE1 2HR) Assistant Treasurer of the Company, joined
AIB Govett London in 1989. In 1998, he was appointed Manager of US
Administration. Prior to 1989, he was a fund accountant with Aitken Hume Bank in
their unit trust operations for ten years. He is 46.
As indicated above, a director and officer may hold other positions with the
Investment Manager and its affiliates. The President of the Company is a
resident of the United Kingdom and has appointed the Company, located at 250
Montgomery Street, Suite 1200, San Francisco, CA, 94104, as his agent for
notice.
Directors not affiliated with the Investment Manager are paid director fees of
$20,000 per year, plus a fee of $1,000 per Board meeting, with Mr. Atamian the
independent Board member who serves on the Pricing Committee to receive a
retainer of $1,000. Each member of the Committee on Administration and the Audit
Committee, which are comprised of all directors who are not employees of the
Investment Manager or its affiliates, is compensated in the amount of $1,000 for
each meeting, except when its meetings are held in conjunction with regular or
special Board meetings or for short telephonic meetings. Directors not
affiliated with the Investment Manager are reimbursed for expenses incurred in
connection with attending Board of directors meetings.
These fees are paid equally by all Fund. No officer or director receives any
other compensation directly from the Funds. As of January 31, 2000, the
directors and officers, as a group, owned of record and beneficially less than
1% of the total outstanding shares of any Fund. The officers and directors of
the Company who are not U.S. residents have appointed the Company, 250
Montgomery Street, Suite 1200, San Francisco, California 94104, as their agent
for notice.
The holders of a majority of the outstanding shares of the Company can elect all
of the Company's directors and can remove one or more of the directors. The
holders of a majority of the outstanding shares of a Fund can change the Fund's
investment objective and fundamental investment policies and restrictions, and
can approve, disapprove, or amend the Management Contract and Distribution
Agreement, with respect to that Fund. The holders of a majority of the
outstanding shares of any class of a Fund can approve, disapprove, or amend the
Distribution Plan for such class. Shareholders holding at least 10% of the
Company's outstanding shares may call a meeting of shareholders. Large
redemptions by one or more shareholders in a Fund could give rise to significant
transaction costs which will be borne by the remaining shareholders in the Fund,
and could otherwise adversely affect the performance of the Fund.
19
50
The following table summarizes the above information relating to the directors
and officers of the Company, and the total compensation paid to them by the
Funds during 1998. The Govett Funds have not established any pension, retirement
or deferred compensation plans for directors or officers. No officers of the
Company, other than the President, received any compensation from any Fund or
the Fund Complex during 1998.
- ----------------------------------------------------------------------------------------------------------------
Govett
Govett Govett Govett International Govett
International Emerging Smaller Small Global Total
Name, Age, Position Equity Markets Companies Companies Income Compensation
Fund Equity Fund Fund Fund Fund From Funds*
- ----------------------------------------------------------------------------------------------------------------
Elliott L. Atamian, $5,200 $5,200 $5,200 $5,200 $5,200 $26,000.00
81, Director
- ----------------------------------------------------------------------------------------------------------------
Patrick K. Cunneen N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
Sir Victor Garland $5,000 $5,000 $5,000 $5,000 $5,000 $25,000.00
- ----------------------------------------------------------------------------------------------------------------
James M. Oates $5,000 $5,000 $5,000 $5,000 $5,000 $25,000.00
- ----------------------------------------------------------------------------------------------------------------
Frank R. Terzolo $5,000 $5,000 $5,000 $5,000 $5,000 $25,000.00
66, Director
- ----------------------------------------------------------------------------------------------------------------
<FN>
* based on fiscal year ending December 31, 1999
</FN>
MANAGEMENT OF THE FUNDS
Under the Company's Articles of Incorporation and the laws of Maryland, the
Board of Directors is responsible for overseeing the conduct of the funds'
business and the activities of each fund. Under the Investment Management
Agreement effective on January 1, 1998, AIB Govett provides the funds with
day-to-day management services and makes, or supervises any sub-adviser who
makes, investment decisions on the funds' behalf in accordance with each fund's
investment policies.
Investment Manager
AIB Govett, located at 250 Montgomery Street, Suite 1200, San Francisco, CA
94104, is the investment manager of the Funds.
Sub-adviser
AIB Govett London, a U.K. company located at Shackleton House, 4 Battle Bridge
Lane, London SE1 2HR, England, serves as investment sub-adviser to each Fund.
The Sub-adviser and the Investment Manager are affiliates of each other and
members of the AIB Group.
Distributor and Principal Underwriter
PFPC, Inc. (formerly First Data Distributors, Inc., the "Distributor" or
"PFPC"), 4400 Computer Drive, Westborough, MA 01581, is the Funds' distributor
and principal underwriter.
Transfer Agent
PFPC, Inc. (formerly First Data, Inc., the "Transfer Agent"), 3200 Horizon
Drive, King of Prussia, PA 19406, provides the Company and each Fund with
certain services, including the following: (1) preparation and maintenance of
accounts and records for each Fund and performance of certain related functions;
and (2) provision of transfer agency services to each Fund. These services are
provided at cost plus a profit. The Transfer Agent and Distributor are
affiliates and both are subsidiaries of PNC Group.
20
51
Fund Administrator and Accountant
Chase Global Funds Services Company, Inc., 73 Tremont Street, Boston, MA 02108
(the "Fund Administrator and Accountant") provides the Company with certain
administration and accounting services.
Custodian
The Chase Manhattan Bank, 4 MetroTech Center, Brooklyn, NY 11245 (the
"Custodian") is the Funds' global custodian.
The Custodian and the Fund Administrator and Accountant do not participate in
decisions relating to the purchase and sale of portfolio securities. These
entities provide services in connection with the sale, exchange, substitution,
transfer and other dealings with the Funds' investments, receive and disburse
all funds and perform various other duties upon receipt of proper instructions
from the Funds. The Custodian also acts as Custodian for certain cash and
securities of the Funds maintained outside of the U.S. in certain countries
through certain foreign subcustodians pursuant to the requirements of a
Securities and Exchange Commission rule. The Custodian charges custody fees
which are believed to be competitive within the industry.
Independent Accountant
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA, 94105, acts as
the Funds' independent accountants.
Fund Counsel
Goodwin, Procter & Hoar LLP, One Exchange Place, Boston, MA 02109-2881, serves
as Fund counsel.
Principal Shareholders and Control Persons
The following persons are known by the Company to own of record or beneficially
5% or more of the particular class of securities of the indicated Funds as of
January 31, 2000:
- --------------------------------------------------------------------------------------------------------------------
Name and Address Fund/Class Percentage of Outstanding Shares
of Shareholder as of January 31, 2000
- --------------------------------------------------------------------------------------------------------------------
Michael E. Pichichero International Equity/A xxx%
332 Landing Road South
Rochester, NY 14610-3535
- --------------------------------------------------------------------------------------------------------------------
Light & Co International Equity/I xxx%
- --------------------------------------------------------------------------------------------------------------------
St. Elizabeth Hospital Global Income Fund/A xxx%
- --------------------------------------------------------------------------------------------------------------------
Subramonian Shankar Global Income Fund/A xxx%
- --------------------------------------------------------------------------------------------------------------------
AIB Govett, Inc. International Smaller Companies/A xxx%
- --------------------------------------------------------------------------------------------------------------------
AIB Asset Management Holdings International Smaller Companies/I 100%
FAO Colin Kreidewolf
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
- --------------------------------------------------------------------------------------------------------------------
21
52
Light & Co. (c/o Allfirst Financial, Security Processing 109-911, P.O. Box 1596,
Baltimore, MD 21203-1596) owns XXXX% of the shares of International Equity Fund
as of January 31, 2000, and is a "control person" of that Fund as defined in the
1940 Act. As a result, Light & Co. may have significant influence on shareholder
votes taken for the International Equity Fund.
Expenses: Investment Management and Subadvisory Arrangements
In addition to the investment management fee payable to the Investment Manager
(described below) and the compensation payable to the Transfer Agent, the Funds
pay all of their own expenses, including, without limitation, the costs and
expenses attributable to the preparation, typesetting, printing and mailing of
their proxy materials to existing shareholders, their legal expenses, and the
fees of their custodians, auditor and non-interested directors. The Funds'
Investment Management Contract with the Investment Manager also provides that
the Funds will pay for the typesetting, printing and mailing of prospectuses,
Statements of Additional Information and reports to existing shareholders. Other
expenses paid by the Funds include interest, taxes, brokerage commissions, and
other portfolio transactions fees and charges, the Funds' proportionate share of
insurance premiums and dues, and the costs of registering shares under federal
and state securities laws. The Funds are also responsible for such nonrecurring
expenses as may arise, including costs of litigation to which the Funds are
party and any obligations they may have to indemnify their officers and
directors with respect to such litigation.
Pursuant to the Investment Management Contract, each Fund is obligated to pay
the Investment Manager a monthly fee computed at the close of business on the
last business day of each month equal to a monthly rate of approximately .08%,
or 1% per year (.06% monthly or .75% per year for the Global Income Fund), of
the average daily net assets of the Fund.
During the fiscal years ending December 31, 1997, 1998, and 1999 the Investment
Manager was entitled to receive management fees as follows:
- --------------------------------------------------------------------------------
FUND 1997 1998 1999
- --------------------------------------------------------------------------------
International Equity $ 216,129 $155,629 $188,339
- --------------------------------------------------------------------------------
Emerging Markets Equity 532,713 209,395 153,628
- --------------------------------------------------------------------------------
Smaller Companies 1,730,046 838,390 600.083
- --------------------------------------------------------------------------------
Global Income 101,316 61,731 39,757
- --------------------------------------------------------------------------------
International Smaller Companies n/a n/a 9,311
- --------------------------------------------------------------------------------
Asia + 26,499 n/a n/a
- --------------------------------------------------------------------------------
Latin America + 53,584 n/a n/a
- --------------------------------------------------------------------------------
+ Asia and Latin America Funds merged with Emerging Markets Equity Fund as of
the close of business December 18, 1998.
Of these fees, the Investment Manager waived and reimbursed the following
amounts:
- --------------------------------------------------------------------------------
FUND 1997 1998 1999
- --------------------------------------------------------------------------------
International Equity $ 110,750 $140,867 $143,779
- --------------------------------------------------------------------------------
Emerging Markets Equity 188,156 324,811 345,286
- --------------------------------------------------------------------------------
Smaller Companies 1,050,572 772,450 388,810
- --------------------------------------------------------------------------------
Global Income 129,931 141,236 110,796
- --------------------------------------------------------------------------------
International Smaller Companies n/a n/a 140,717
- --------------------------------------------------------------------------------
Asia 218,074 n/a n/a
- --------------------------------------------------------------------------------
Latin America 159,809 n/a n/a
- --------------------------------------------------------------------------------
22
53
The Investment Management Contract remains in effect until the second
anniversary of its effective date with respect to such Fund. Thereafter, it
continues in effect for successive annual periods, provided such continuance is
specifically approved at least annually by a vote of the Company's Board of
Directors or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority of the Company's directors
who are not parties to the agreement or interested persons of any such party
(other than as directors of the Company), cast in person at a meeting called for
that purpose. The Investment Management Contract may be terminated without
penalty at any time by one or more of the Funds or by the Investment Manager on
sixty days written notice without penalty, and will automatically terminate in
the event of its assignment, as defined in the 1940 Act.
Pursuant to the Sub-advisory Agreements with the Investment Manager, the
Sub-adviser provides day-to-day investment advisory services to the Funds. The
Sub-adviser furnishes an investment program and make investment decisions for
the Funds, subject to the supervision of the Investment Manager and the
Company's Board of Directors. Under the Sub-advisory Agreement, AIB Govett, out
of the investment advisory fees received for each particular fund, pays AIB
Govett London an annual fee, computed daily and paid monthly, equal to .45% of
average daily net assets for the Emerging Markets Equity Fund, Smaller Companies
Fund, International Smaller Companies Fund, International Equity Fund, China
Fund, and Europe Fund and equal to .3375% of average daily net assets for the
Global Income Fund. Both the Investment Manager and Sub-adviser waive their fee
to the extent necessary to maintain the current expense limitations.
AIB Govett and the Sub-adviser permit their investment and other personnel to
purchase and sell securities for their own accounts, subject to a compliance
policy governing personal investment. This policy requires investment and other
personnel to conduct their personal investment activities in a manner that is
not detrimental to the Funds or to any of the group's other advisory clients.
BROKERAGE ALLOCATION
Under the Funds' Investment Management Contract, the selection of securities
dealers to execute transactions in the portfolios of the Funds is made by the
Investment Manager in accordance with criteria set forth in the prospectuses,
the Investment Management Contract, and policies adopted by the Company's Board
of Directors. The following procedures followed by the Investment Manager and
the Sub-adviser for the Emerging Markets Equity Fund, Smaller Companies Fund,
International Smaller Companies Fund, International Equity Fund, Global Income
Fund, China Fund, and Europe Fund.
The Investment Manager and the Sub-adviser place portfolio transactions for the
Funds with those securities broker-dealers which the Investment Manager believes
will provide best value in transaction and research services for the Funds,
either in a particular transaction or over a period of time. Although some
transactions involve only brokerage services, many involve research services as
well.
In valuing brokerage services, the Investment Manager and the Sub-adviser make
judgments as to which securities broker-dealers are capable of providing the
most favorable net price (not necessarily the lowest commission) and the best
execution in a particular transaction. Best execution connotes not only general
competence and reliability of a securities broker-dealer, but specific expertise
and effort of a securities broker-dealer in overcoming the anticipated
difficulties and fulfilling the requirements of particular transactions, because
the problems of execution and the required skills and effort vary greatly among
transactions.
In valuing research services, the Investment Manager and the Sub-adviser make a
judgment as to the usefulness of research and other information provided by a
securities broker-dealer to the Investment Manager and the Sub-adviser in
managing the Funds' investment portfolios. In some cases, the information, e.g.,
data for recommendations concerning particular securities, relates to the
specific transaction placed with the securities broker-dealer, but for the
greater part the research consists of a wide variety of information concerning
companies, industries, investment strategy and economic, financial and political
conditions and prospects, useful to the Investment Manager and the Sub-adviser
in advising the Funds. The Funds may pay to those securities broker-dealers
which provide brokerage and research services to the Investment Manager and the
Sub-adviser a higher commission than that charged by other securities
broker-dealers if the Investment Manager and the Sub-adviser determines in good
23
54
faith that the amount of the commission is reasonable in relation to the value
of those services in terms either of the particular transaction, or in terms of
the overall responsibility of the Investment Manager and the Sub-adviser to the
Funds and to any other accounts over which the Investment Manager and the
Sub-adviser exercises investment discretion.
The reasonableness of brokerage commissions paid by the Funds in relation to
transaction and research services received is evaluated by the staff of the
Investment Manager and the Sub-adviser on an ongoing basis. The general level of
brokerage charges and other aspects of the Funds' portfolio transactions are
reviewed periodically by the Company's Board of Directors.
The Investment Manager and the Sub-adviser are the principal source of
information and advice to the Funds, and are responsible for making and
initiating the execution of investment decisions for the Funds. However, the
Investment Manager and the Sub-adviser believe that it is important for the
Investment Manager and the Sub-adviser, in performing its responsibilities to
the Funds, to continue to receive and evaluate the broad spectrum of economic
and financial information that many securities broker-dealers have customarily
furnished in connection with brokerage transactions, and that in compensating
securities broker-dealers for their services, it is in the interest of the Funds
to take into account the value of the information received for use in advising
the Funds. The extent, if any, to which the obtaining of such information may
reduce the expenses of the Investment Manager and the Sub-adviser in providing
management services to a Fund is not readily determinable. In addition, other
clients of the Investment Manager and the Sub-adviser, including other Funds,
might also benefit from the information obtained for a particular Fund, in the
same manner that Fund might also benefit from information obtained by the
Investment Manager and the Sub-adviser in performing services to others,
including one or more of the other Funds.
The Investment Manager and the Sub-adviser will ordinarily place orders for the
purchase and sale of over-the-counter securities on a principal rather than
agency basis with a principal market maker unless, in the opinion of the
Investment Manager and the Sub-adviser, a better price and execution can
otherwise be obtained. Purchases of portfolio securities from underwriters will
include a commission or concession paid by the issuer to the underwriter, and
purchases from securities broker-dealers will include a spread between the bid
and asked prices. Subject to the requirement of best execution, the sale of Fund
shares may also be considered as a factor in the selection of securities
broker-dealers to execute the Funds' portfolio transactions.
Investment decisions for each Fund are made independently from those of other of
the Investment Manager's or the Sub-adviser's client accounts or other funds
managed or advised by the Investment Manager or the Sub-adviser, including the
other Funds. Nevertheless, it is possible that at times identical securities
will be acceptable for both one or more Funds and one or more of such client
accounts or other funds. In such event, the position of the Fund and such other
client accounts or other funds in the same issuer may vary. The length of time
that each may choose to hold its investment in the same issuer may also vary.
However, to the extent any of these client accounts or other funds seeks to
acquire the same security as a Fund at the same general time, the Fund may not
be able to acquire as large a part of such security as it desires, or it may
have to pay a higher price or obtain a lower yield for such security. Similarly,
the Fund may not be able to obtain as high a price for, or as large an execution
of, an order to sell any particular security at the same general time. The
Investment Manager or the Sub-adviser seeks to provide fair and equitable
treatment for each Fund in the selection of investments and allocation of
investment opportunities between the Fund and the Investment Manager's or the
Sub-adviser's other investment management clients, including the other Funds.
Total brokerage commissions paid by the Funds during 1997, 1998, and 1999 were:
- -----------------------------------------------------------------------------
FUND 1997 1998 1999
- -----------------------------------------------------------------------------
International Equity $ 113,012 $88,587 $41,285
- -----------------------------------------------------------------------------
Emerging Markets Equity 593,575 212,220 95,777
- -----------------------------------------------------------------------------
Smaller Companies 218,450 304,050 324,854
- -----------------------------------------------------------------------------
Global Income 5,853 n/a n/a
- -----------------------------------------------------------------------------
International Smaller Companies n/a n/a 8,478
- -----------------------------------------------------------------------------
Asia 63,025 n/a n/a
- -----------------------------------------------------------------------------
Latin America 37,991 n/a n/a
- -----------------------------------------------------------------------------
24
55
THE COMPANY AND THE SHARES
Each Fund is a series of The Govett Funds, Inc. (the "Company"). The Company was
organized as a Maryland corporation on November 13, 1990.
The Company's Articles of Incorporation permit the Directors to create an
unlimited number of series (funds). There are currently seven funds, which
comprise the Company. They are: Govett Emerging Markets Equity Fund, Govett
Smaller Companies Fund, Govett International Smaller Companies Fund, Govett
International Equity Fund, Govett Global Income Fund, Govett China Fund, and
Govett Europe Fund.
Each Fund has designated three classes of shares. Class A Retail Shares are sold
without any initial or deferred sales charge. Prior to September 1, 1998, Class
A Retail Shares were sold with an initial sales charge. Class B Retail Shares
are sold without an initial sales charge but are subject to a contingent
deferred sales charge ("CDSC") upon certain redemptions. Class B Retail Shares
are not currently available to the public. Institutional Class Shares are sold
without any sales charge. Class A Retail and Institutional Class Shares are
subject to a short-term redemption and exchange fee.
As of January 1, 1995, all of the previously outstanding shares of each Fund
were re-designated "Class A" shares without other changes, and Class B and Class
C shares were authorized for issuance. With effect from June 27, 1997, Class C
shares have been re-designated Institutional Class shares, which are available
for purchase only by certain eligible investors. As of the date of this
Prospectus, Class B shares, which are described in a separate prospectus, are
not available to the public.
Each class of shares of a Fund represents an interest in the same portfolio of
investments, have the same rights and are identical in all material respects,
and each class has its own sales charge structure. Each class has distinct
advantages and disadvantages for investors in different financial circumstances
and with different investment goals. In addition, Institutional Class has no
voting rights with respect to the Rule 12b-1 distribution plan pursuant to which
the distribution fee for Class A Retail Shares is paid.
Voting Rights. The total authorized capital stock of the Company consists of
three billion shares. Currently, the Company issues seven series of shares, each
of which corresponds to one of the Funds. Each Fund has authorized 250 million
shares for issuance. The shares have no preemptive or conversion rights; the
voting and dividend rights, and the right of exchange or redemption with respect
to each class of shares of the Funds are described in the Funds' prospectuses.
Upon issuance and payment as described in the prospectuses, shares of each Fund
will be fully paid and non-assessable. Shareholders holding 10% or more of the
outstanding shares of the Funds may, as set forth in the Articles of
Incorporation, call meetings for any purpose, including the purpose of voting on
removal of one or more of the Company's Directors. Separate votes are taken by a
Fund when a matter affects only that Fund. The Funds normally will not hold
meetings of shareholders except as required under the 1940 Act and Maryland law.
The Funds would be required to hold a shareholders' meeting in the event that,
at any time, less than a majority of the directors holding office have been
elected by shareholders. Directors will continue to hold office until their
successors are elected and have qualified. Shares of the Funds do not have
cumulative voting rights, which means that the holders of a majority of the
shares voting for the election of Directors can elect all of the Directors. A
Fund may be terminated upon the sale of its assets to another diversified,
open-end management investment company, or upon liquidation and distribution of
its assets, if approved by the requisite vote of the holders of the outstanding
shares of that Fund. If not so terminated, the portfolios are expected to
continue indefinitely.
25
56
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
Please see the section entitled "About Your Account" in the prospectus relevant
to the Class of shares you hold for general information and explanations about
how to purchase, redeem and exchange shares of the Funds, including information
about sales charges and special shareholder services such the telephone
privilege, systematic withdrawal plans, and automatic investment plans. The
information included in this Statement of Additional information supplements the
information included in the prospectuses.
When purchasing shares of a Fund, investors must specify whether the purchase is
for Class A or Institutional Class shares. An unspecified purchase order will be
considered an order for Class A Retail Shares.
How to Buy Shares. Effective January 1, 1998, the minimum initial investment for
new investors in Class A Retail and Class B Retail shares ("Second Stage
Shareholders") of any series of the Funds is $5,000 and any subsequent
investments are to be $1,000 or more. Different minimums apply to investments
made according to an Automatic Investment Plan. For existing shareholders of
record as of the close of business December 31, 1997 ("First Stage
Shareholders"), the investment minimums for identically registered accounts
remain those in effect when they first invested in any Fund; specifically, $500
minimum initial investment into another Fund in the Govett Funds' family and
subsequent investments of $25 or more.
For an Individual Retirement Account ("IRA") in Class A Retail or Class B Retail
shares, the minimum initial investment for Second Stage Shareholders in any Fund
is $2,000 and subsequent investments are to be of $1,000 or more. For First
Stage Shareholders, the investment minimums for identically registered IRAs
remain those in effect when they initially invested in any Fund; specifically,
$500 minimum initial investment in another Fund and subsequent investments of
$25 or more.
Certificates. In the interest of economy and convenience, the Funds do not issue
certificates for Class A Retail shares unless you or your authorized dealer
submits a written request to the Transfer Agent. You will have the same rights
of ownership as if certificates had been issued. Redemptions of certificates may
take longer than redemptions of non-certificated shares because physical
delivery and processing of the certificates is necessary. The Funds and the
Distributor recommend that shareholders of Class A Retail shares refrain from
requesting certificates.
Certificates are not issued for Class B Retail or Institutional Class shares.
Purchases not involving the issuance of certificates are confirmed to you and
credited to your account on the books of the Transfer Agent. You have the same
rights of ownership as if certificates had been issued.
When Class A Retail shares to be redeemed are represented by a share
certificate, the certificate must accompany the redemption request, together
with a share assignment form signed by the registered shareholders exactly as
the account is registered, with signature guarantees as described above. For
your own protection, you should send the share certificate and assignment form
in separate envelopes.
Directed Dividends. You may elect on the Account Application to have your
dividends from one Fund paid to a third party or invested in shares of the same
class of another series of the Funds, provided that an existing account in such
other Fund is maintained by you or for your benefit in the same
employer-sponsored retirement plan. Both Fund accounts must be of the same type,
either non-retirement or retirement. If the accounts are retirement accounts,
they must both be for the same type of retirement plan and for the benefit of
the same individual. Distributions are invested into the selected Fund at its
NAV as of the payable date of the distribution.
Automatic Investment Plan. Second Stage Shareholders may buy Class A Retail or
Class B Retail shares of a Fund through the Automatic Investment Plan ("AIP")
with an initial amount of at least $5,000 and $100 thereafter, per Fund, to be
invested on a regular basis. For First Stage Shareholders, the initial amount
for an AIP remains at least $100 and $25 thereafter, per Fund, to be invested on
a regular basis. The specified amount will be transferred directly from the
investor's bank for investment into the designated Fund(s) on the designated
investment day. These transfers are processed on the 10th, 15th, and 20th of
each month (or on the next business day if the designated day falls on a holiday
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or a weekend). To participate in the AIP, you should complete the appropriate
portion of the Account Application. An AIP may be terminated by the Transfer
Agent or the Funds upon 30 days written notice or by you, the participating
shareholder, at any time without penalty upon written notice to the Funds or the
Transfer Agent.
Automatic Exchange Plan. Investors may exchange Fund shares through the
Automatic Exchange Plan. Both accounts must be of the same type and class. To
participate in this plan, investors should complete the appropriate portion of
the Account Application, and should contact the Transfer Agent for more
information. For Second Stage Shareholders, there is a $5,000 minimum for
establishing a new account and $100 minimum for an existing account. For First
Stage Shareholders, the minimum remains $100 for a new Fund in an identically
registered account and the minimum for an existing Fund remains $25. These
transactions are effected on the 25th of each month. If the 25th falls on a
weekend or holiday, the transaction will be effected on the next business day.
The exchange fee is waived for participants in the Automatic Exchange Plan.
Short-term Redemption and Exchange Fee. To discourage short-term trading,
effective September 1, 1998, purchases of Class A and Institutional Class shares
are subject to a 1% redemption fee on shares redeemed within six months of
acquisition of the shares. As of January 1, 1999, exchanges of Class A and
Institutional Class shares are subject to a 1% fee on shares exchanged within
six months of acquisition.
Waiver of CDSCs and Short-term Redemption Fees. CDSCs and Short-term Redemption
Fees may be waived under the following circumstances:
Redemption Upon Disability or Death. The Funds will waive any otherwise
applicable CDSC or redemption fee on redemptions following the death or
disability of a shareholder. An individual will be considered disabled
for this purpose if he or she meets the definition thereof in Section
72(m)(7) of the Code, which in pertinent part defines a person as
disabled if such person "is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of
long-continued and indefinite duration." While the Funds do not
specifically adopt the balance of Code's definition which pertains to
furnishing the Secretary of Treasury with proof as he or she may
require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC or redemption fee.
In cases of disability or death, the CDSC or redemption fee may be
waived when the descendent or disabled person is either an individual
shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary
account, and where the redemption is made within one year of the death
or initial determination of disability. This waiver of the CDSC or
redemption fee applies to a total or partial redemption.
Redemption in Connection with Certain Distributions from Retirement
Plans. The Funds will waive the CDSC or redemption fee when a total or
partial redemption is made in connection with certain distributions
from the following types of retirement plans: deferred compensation
plans under Section 451 of the Code; custodial accounts maintained
pursuant to Section 403(b)(7) of the Code, and pension or profit
sharing plans qualified under Section 401(a) of the Code. The charge
may be waived upon the tax-free rollover or transfer of assets to
another retirement plan invested in one or more of the Funds; in such
event, as described below, the Funds will "tack" the period for which
the original shares were held on to the holding period of the shares
acquired in the transfer or rollover for purposes of determining what,
if any, CDSC or redemption fee is applicable in the event that such
acquired shares are redeemed following the transfer or rollover. The
CDSC or redemption fee also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Code, the return of excess deferral amounts
pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or
disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii). In addition, the CDSC or redemption fee may be waived
on any minimum distribution required to be distributed in accordance
with Code Section 401(a)(9).
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The Funds do not currently intend to waive the CDSC or redemption fee
for any distributions from IRAs or other retirement plans not
specifically described above.
Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption (Class B only) . A Class B shareholder who
has redeemed Class B Retail Shares of a Fund may reinstate any portion
or all of the net proceeds of such redemption in Class A Retail Shares
of any other Fund. Class B redemption proceeds cannot be reinstated in
Class B Retail Shares. Any such reinstatements of Class B Retail Shares
will be made at the net asset value next determined after the
reinstatement request is received, which must be within 120 days after
the date of the initial redemption.
Redemption by Investment Manager. The Funds may waive CDSCs or
redemption fee when a total or partial redemption is made by the
Investment Manager with respect to its investments in a Fund.
Redemptions Through Authorized Dealers. If your account is with an authorized
dealer, you may submit redemption requests to the dealer. Orders received from
securities dealers must be at least $500, unless submitted through Fund/SERV.
Generally, the Transfer Agent accepts redemption requests by telephone on any
business day from 9:00 a.m. to 5:00 p.m. Eastern Time, from authorized dealers,
which have a dealer agreement with the Distributor, or from other qualified
brokers, provided that the dealer has received the request prior to 4:00 p.m.
Eastern Time. From time to time, on a case-by-case basis, the Transfer Agent may
make arrangements for later processing times with authorized dealers, so long as
such arrangements comply with applicable law and Fund operational requirements.
This is known as a repurchase. However, even after receipt of a repurchase order
from a dealer, the funds still require a signed letter from the shareholder
containing redemption instructions and all other documents required for direct
redemption requests, as stated above. The shareholder's letter should refer to
the fund involved, the account from which the redemption is to be made, the fact
that the repurchase was ordered through a dealer, and the dealer's name. Details
of the dealer-ordered trade, such as the trade date, confirmation number, and
the amount of shares or dollars, will speed processing. The seven-day period
within which the proceeds of the shareholder's redemption will be sent will
begin when the Transfer Agent receives all documents required to complete (or
"settle") the repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of by the Transfer Agent
of the dealer's repurchase order and the date the redemption is processed after
all necessary documents have been received. It is therefore in the shareholder's
best interest to have all required documentation completed and forwarded to the
Transfer Agent as soon as possible. The shareholder's dealer may charge a fee
for handling the order.
Signature Guarantee. A original signature guarantee from all eligible including
most banks, trust companies, and securities dealers (but not notary publics) is
required in some circumstances to help protect against fraud. These
circumstances include the following:
o You wish to redeem $50,000 or more by written request.
o The proceeds are to be paid to someone other than the registered owner(s)
of the account.
o The proceeds are to be sent to any other address other than your address of
record, predesignated bank, savings and loan, credit union, or brokerage
firm account.
o The Transfer Agent believes that a signature guarantee would protect
against potential claims based on the transfer instructions, including when
(a) the current address of one or more joint owners of an account can not
be confirmed; (b) multiple owners have a dispute or give conflicting
instructions to the fund; (c) the fund has been notified or an adverse
claim; (d) the instructions received by the fund are given by an agent, not
the registered owner; (e) the fund determines that joint owners who are
married to each other are separated or involved in divorce proceedings, or
(f) the authority of a representative of a corporation, partnership,
association or other entity has not been established to the fund's
satisfaction.
o The proceeds are to be sent to the shareholder's address of record and that
address has changed with the preceding 30 days.
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59
or
o The shareholder requests that the proceeds by sent directly to a bank,
savings and loan, credit union or brokerage firm account that has not been
predesignated in the "Bank Wiring Instructions" sections of the Account
Application.
The fund reserves the right to waive signature guarantees and to request
additional information under certain circumstances.
Involuntary Redemption of Class A and Class B Retail Shares in Accounts That Do
Not Have the Required Minimum Balance. The Funds reserve the right to redeem
shareholder accounts with balances of less than a specified dollar amount as set
forth in the relevant prospectus. Prior to such redemptions, shareholders will
be notified in writing and allowed a specified period of time to purchase
additional shares to bring the account up to the required minimum balance.
Redemptions at the discretion of the Funds are not subject to the short-term
redemption fee
Redemptions in Kind. The Funds have committed themselves to pay in cash all
requests for redemption of Fund shares by any shareholder of record, limited in
amount, however, during any 90-day period to the lesser of $250,000 or 1% of the
value of each Fund's net assets at the beginning of such period. This commitment
is irrevocable without the prior approval of the SEC. In the case of requests
for redemption in excess of such amounts, in an emergency, or if the payment of
such a redemption in cash would be detrimental to the existing shareholders of
the Fund, the Board of Directors reserves the right to make payments in whole or
in part in securities or other assets held by the Fund from which the
shareholder is redeeming. In such circumstances, the assets distributed would be
valued using the same methods used to determine the Fund's net asset value.
Should a Fund make a redemption in kind, the recipient shareholder may incur
brokerage fees and additional tax costs in converting the securities to cash.
Systematic Withdrawal Plan. For Second Stage Shareholders, a Systematic
Withdrawal Plan ("SWP") is available to Class A Retail or Class B Retail
shareholders whose accounts total $50,000 or more. Under the SWP, the Transfer
Agent will make specified monthly, quarterly, semi-annual or annual payments to
a designated party of any amount selected with a minimum of $100. For First
Stage Shareholders, a SWP continues to be available to Class A Retail or Class B
Retail shareholders whose accounts total $5,000 or more with specific period
payments to a designated party of any amount selected with a minimum of $25.
The withdrawal will occur on the 25th of each month, or on the first business
day following the 25th if the 25th is not a day the New York Stock Exchange is
open for regular trading. Changes concerning the Systematic Withdrawal Plan must
be received by the Transfer Agent at least two weeks prior to the next scheduled
withdrawal. The Funds reserve the right to change the terms and conditions of
the Systematic Withdrawal Plan and the ability to offer it. For further
information about the Systematic Withdrawal Plan, its requirements and its tax
consequences, call the Transfer Agent at 800-821-0803.
Suspension of Redemption Privilege. The Funds may suspend redemption privileges
or postpone the date of payment of redemptions for more than seven days after a
redemption order is received during any period (1) when the New York Stock
Exchange is closed other than customary weekend and holiday closings, or trading
on the New York Stock Exchange is restricted as determined by the SEC; (2) when
an emergency exists as defined by the SEC, which makes it not reasonably
practicable for the Funds to dispose of securities owned by it or fairly to
determine the value of its assets; or (3) as the SEC may permit.
Individual Retirement Accounts (IRA). Shares of the Funds may also be purchased
as the underlying investment for an individual retirement account meeting the
requirements of Section 408(a) of the Code of 1986, as amended. IRA applications
are available from securities dealers who sell Fund shares or from the Transfer
Agent.
Telephone Transactions. You may complete exchange, redemption and certain types
of account maintenance transactions by telephone unless you waive the Telephone
Privilege by completing the appropriate section of the Account Application. The
Telephone Privilege authorizes the Funds, the Transfer Agent, and the
Distributor to act on instructions by telephone to exchange, redeem and
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60
generally to maintain the account for which the Telephone Privilege applies. You
may give exchange instructions to the Transfer Agent by calling 800-821-0803.
The Telephone Privilege permits you to redeem so long as the proceeds are
payable to the shareholder(s) of record and sent to the address of record for
the account or wired directly to your predesignated bank account. This privilege
is not available if the address of record has been changed within the thirty
days prior to a telephone redemption request. Proceeds from redemptions are
expected to be wired on the next business day following the date of the
redemption. The Funds reserve the right to terminate, limit or otherwise modify
the Telephone Privilege at any time without prior notice. Shareholders who have
retirement or employer-sponsored accounts with the Funds or hold certificated
shares may not redeem by telephone.
In an effort to confirm that telephone requests are genuine, reasonable
procedures are employed, which currently include recording all telephone
instructions and mailing a confirming account statement to the record address.
If reasonable procedures are followed, neither the Funds, the Distributor, nor
the Transfer Agent will be liable for following telephone instructions it
reasonably believes to be genuine. Any of the Funds, the Distributor, and the
Transfer Agent may be liable for losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges and
redemptions will be accepted from authorized dealers on behalf of a shareholder
by telephone, provided that the exchange or redemption involves only
uncertificated shares on deposit in the shareholder's account or shares for
which certificates have previously been deposited.
Calculation of Net Asset Value
The Funds are open for business, and each Fund's net asset value per share
("NAV") is calculated, on every day the New York Stock Exchange is open for
trading. The New York Stock Exchange is closed on the following days: New Year's
Day, Dr. Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The close of
trading and the determination of NAV will coincide with the close of regular
trading of the New York Stock Exchange (normally considered 4:00 p.m. Eastern
Time). When the New York Stock Exchange is closed for regular trading or when
trading is restricted or suspended for any reason other than its customary
weekend or holiday closings, or under emergency circumstances as determined by
the SEC to merit such action, the Funds will determine NAV at the close of
regular trading, the exact time of which will coincide with the closing of the
New York Stock Exchange. If there is such a restriction or suspension, any
shareholder may withdraw any demand for redemption or any tender of shares which
has been received by the Transfer Agent during any such period, the applicable
NAV of which would but for such restriction or suspension be calculated as of a
time during such period. Upon such withdrawal, the Transfer Agent shall return
to the shareholder the share certificates tendered, if any.
Securities listed or traded on the New York Stock Exchange or on a foreign
securities exchange ("Listed Securities") are valued at the last quoted sales
price on that exchange prior to the time when the Funds' assets are valued.
Securities listed or traded on certain foreign exchanges whose operations are
similar to the U.S. over-the-counter market are valued at the price within the
limits of the latest available current bid and asked prices deemed by the
Investment Manager best to reflect a fair value. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at the spot exchange rates
at 1:00 p.m. Eastern Time or at such other rates as the Investment Manager may
determine to be appropriate in computing NAV. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security by the Investment Manager.
Listed securities that are not traded on a particular day, and securities
regularly traded in the over-the-counter market, are valued at the price within
the limits of the latest available current bid and asked prices deemed by the
Investment Manager best to reflect a fair value. In instances where the price of
a security determined above is deemed by the Investment Manager not to be
representative, the security is valued in such a manner as prescribed by the
Funds' Board of Directors to reflect the security's fair value. Because the
Funds invest in securities that are traded in foreign markets on days the Funds
are not open for business, the Funds' NAV may be significantly affected on days
when shareholders do not have access to the Funds to purchase or redeem shares.
For purposes of determining the Funds' NAV, all assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at exchange
rates quoted by a major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established in good
faith by the Board of Directors. The Board of Directors monitors the Funds'
method of valuation on an ongoing basis.
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Long-term debt obligations are valued at the mean of representative quoted bid
and asked prices for such securities or, if such prices are not available, at
prices for securities of comparable maturity, quality and type; however, when
the Investment Manager deems it appropriate, prices obtained for the day of
valuation from a bond pricing service will be used. Short-term debt obligations
with remaining maturities in excess of 60 days are valued at the mean of
representative quoted bid and asked prices for such securities or, if such
prices are not available, such securities are valued using the prices for
securities of comparable maturity, quality, and type.
Options are valued at the last sale price on the exchange on which they are
listed, unless no sales of such options have taken place that day, in which case
they will be valued at the mean between their closing bid and asked prices. If
an option exchange closes later than 4:00 p.m. Eastern Time, the options traded
on it are valued based on the sale price, or on the mean between the bid and
asked prices, as the case may be, as of 4:00 p.m. Eastern Time. When the seller
writes a call, an amount equal to the premium received is included as an asset,
and an equivalent deferred credit is included as a liability. If a call written
by a Fund is exercised, the proceeds are increased by the premium received. If a
call expires, a Fund has a gain in the amount of the premium; if a Fund enters
into a closing purchase transaction, the Fund will have a gain or loss depending
on whether the premium was more or less than the cost of the closing
transaction. If a put held by a Fund is exercised, the amount the Fund receives
on sale of the underlying investment is reduced by the amount of the premium
paid by the Fund.
Futures are valued at the last sale price as of the close of the commodities
exchange on which they are traded, unless such exchange closes later than 4:00
p.m. Eastern Time, in which case such Futures are valued at the last sale price
as of 4:00 p.m. Eastern Time. Should the Board of Directors determine that such
price does not reflect the instrument's fair value, such instruments will be
valued at their fair market value as determined by, or in accordance with
valuation procedures and guidelines established by, the Board of Directors.
As noted in each prospectus, the purchase and redemption prices of a Fund's
shares are based upon the Fund's NAV of each such class. Each Fund determines
its NAV of each class by subtracting the Fund's liabilities (including accrued
expenses and dividends payable) attributable to that class from its total assets
(the value of the securities the Fund holds plus cash and the value of other
assets, including income accrued but not yet received) attributable to that
class and dividing the result by the total number of shares outstanding. The NAV
per share of the Fund is calculated at the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern Time) every day the Exchange is
open.
Reinvestment Date
The dividend reinvestment date is the date on which additional Fund shares are
purchased for shareholders who have elected to have their Fund dividends
reinvested. Automatic reinvestments in additional shares are made without a
sales charge as of the ex-dividend date using the relevant Fund's NAV determined
on that date, and are credited to your account on that date.
Restrictions on Timed Exchanges
With regard to accounts that are administered by market timing services ("Timing
Firms") to purchase or redeem shares based on changing economic and market
conditions ("Timing Accounts"), the Funds reserve the right to refuse any new
timing arrangements, as well as any new purchases (as opposed to exchanges) of
Fund shares from Timing Firms. The Funds also reserve the right to temporarily
or permanently terminate the exchange privilege or to reject any specific
purchase order for any person whose transactions seem to follow a timing pattern
who (i) makes an exchange request out of a Fund within two weeks of an earlier
exchange request out of such fund, or (ii) makes more than two exchanges out of
a Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1/4 of 1% of a Fund's net assets. Accounts under
common ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
Each Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person or group if, in the Investment Manager's
judgment, a Fund would be unable to invest effectively in accordance with its
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investment object and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.
ADDITIONAL DISTRIBUTION AND TAXATION INFORMATION
The following information is a supplement to and should be read in conjunction
with the section in the Funds' prospectuses entitled "Dividends, Distributions
and Federal Income Taxation."
Tax Status of the Funds. The Funds intend to qualify each year as "regulated
investment companies" under subchapter M of the Code for federal income tax
purposes, to avoid liability for federal income tax on income and capital gains
distributed to shareholders. In order for each Fund to continue to qualify for
federal income tax treatment as a "regulated investment company" under the Code,
at least 90% of its gross income for a taxable year must be derived from
qualifying income, i.e., dividends, interest, income derived from loans of
securities, and gains from the sale of securities or certain currency positions.
In addition, the Funds intend to declare at least annually distributions of
substantially all of their net taxable income and net realized capital gains
within each calendar year to shareholders of their Class A and Class B and
Institutional Class shares. The Company's Board of Directors retains the right
to determine, for any particular year, that one or more of the Funds should not
qualify as a regulated investment company. In any year in which a Fund does not
so qualify, the Fund will be subject to federal and state income tax as a
regular corporation, and all distributions of its current or accumulated
earnings and profits (including distributions derived from net realized
long-term capital gains) will be taxed to shareholders as ordinary income.
Global Income Fund seeks to pay monthly dividends from net investment income, if
any, which may include all or a portion of their respective net realized
short-term gains. The Funds also intend to comply with other tax rules that may
be applicable to regulated investment companies.
Dividends. Gains (losses) attributable to foreign currency fluctuations are
generally taxable as ordinary income and therefore increase (decrease) dividend
income. However, this rule generally does not apply to equity securities.
Because the Funds invest primarily in foreign securities (other than Smaller
Companies Fund, however, that Fund may from time to time may invest primarily in
foreign securities), corporate shareholders should not expect dividends from the
Funds to qualify for the dividends received deduction. If the Funds earn
qualifying dividends from U.S. corporations, they will notify corporate
shareholders annually of the percentage of the Funds' dividends which qualify
for the dividends received deduction. Dividends are declared annually (Global
Income Fund seeks to declare monthly dividends out of net investment income, if
any). The Funds will send each shareholder a notice promptly after the end of
the calendar year describing the tax status of dividends and capital gain
distributions made during the prior year. The per share dividend on Class B
Retail Shares are expected to be lower than the per share dividends on Class A
Retail Shares and Institutional Class shares as a result of the higher
distribution fees and expenses and incremental transfer agency fees applicable
to Class B.
Capital Gains Distributions. Other capital gains earned by the Funds on the sale
of securities and distributed to shareholders are generally taxable to
shareholders as other capital gains, regardless of the length of time that the
shareholders have held their shares. If a shareholder receives a capital gain
distribution on shares of a Fund and such shares are held for less than six
months and are sold at a loss, the portion of the loss equal to the amount of
the capital gain distribution (to the extent not otherwise disallowed) will be
considered a capital loss for tax purposes. Short-term capital gains distributed
by the Funds are taxable to shareholders as dividends, not as capital gains.
Distributions from the short-term capital gains do not qualify for the dividends
received deduction.
Federal Income Tax Treatment of Options. Certain option transactions have
special tax implications for the Funds. Listed non-equity options, including
options on currencies, will be considered to have been closed out at the end of
the Funds' taxable year, and any gains or losses will be recognized for tax
purposes at that time. Such gains or losses will be characterized as 60%
long-term capital gain or loss and 40% short-term capital gain or loss
regardless of the holding period of the option. Gains or losses on unlisted
currency options will not be subject to this treatment and will generally result
in ordinary income or loss. In addition, losses on purchased puts and written
covered calls, excluding "qualified covered call options" on equity securities,
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63
to the extent they do not exceed the unrealized gains on the securities or
currencies covering the options, may be subject to deferral until the securities
or currencies covering the options have been sold. The holding period of the
securities covering these options will be deemed not to begin until the option
is terminated. For securities covering a purchased put, this adjustment of the
holding period may increase the gain from sales of securities held for less than
three months prior to January 1, 1998. The holding period of the security
covering an "in-the-money-qualified covered call" option on an equity security
will not include the period of time the option is outstanding. Losses on written
covered calls and purchased puts on securities, excluding certain "qualified
covered call" options on equity securities, may be long-term capital losses, if
the security covering the option was held for more than twelve months prior to
the writing of the option.
Federal Tax Treatment of Futures Contracts. Except for transactions the Funds
have identified as hedging transactions, the Funds are required for federal
income tax purposes to recognize as income for each taxable year their net
unrealized gains and losses on listed Futures Contracts as of the end of the
year, as well as those actually realized during the year. Except for
transactions in Futures Contracts which are classified as part of a "mixed
straddle," any gain or loss recognized with respect to a Futures Contract is
considered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the Futures Contract. In
the case of a Futures transaction classified as a "mixed straddle," the
recognition of losses may be deferred to a later taxable year.
Sales of Futures Contracts which are intended to hedge against a change in the
value of securities or currencies held by the Funds may affect the holding
period of such securities or currencies and, consequently, the nature of the
gain or loss on such securities or currencies upon disposition. It is
anticipated that any net gain realized from the closing out of Futures Contracts
will be considered gain from the sale of securities or currencies and therefore
be qualifying income for purposes of the 90% test.
The Funds will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fiscal year) on Futures transactions. Such
distributions will be combined with distributions of capital gains realized on a
Fund's other investments and shareholders will be advised of the nature of such
distributions.
Foreign Taxes. Income received by the Funds may give rise to withholding and
other taxes imposed by foreign countries. If more than 50% of the value of a
Fund's assets at the close of a taxable year consists of securities of foreign
corporations, the Fund may make an election that will permit its shareholders to
take a credit (or, if more advantageous, a deduction) for foreign income taxes
paid by the Fund, subject to limitations contained in the Code. Shareholders
would then include in gross income both dividends paid to them by the Fund and
the foreign taxes paid by the Fund on its foreign investments. The Funds cannot
assure shareholders that they will be eligible for the foreign tax credit. The
Funds will advise shareholders annually of their share of any creditable foreign
taxes paid by the Funds.
The foregoing discussion and the related discussion in the prospectuses have
been prepared by management of the Company and do not purport to be a complete
description of all tax implications of an investment in the Funds. Shareholders
are advised to consult with their own tax advisors concerning the application of
foreign, federal, state, and local taxes to an investment in the Funds. Goodwin
Procter & Hoar LLP have expressed no opinion in respect thereof.
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DISTRIBUTION ARRANGEMENTS
Underwriting Agreement / 12b-1 Distribution Plans
Pursuant to an Underwriting Agreement that is subject to annual renewal,
effective April 1, 1997, PFPC, Inc. (formerly First Data Distributors, Inc.)
(the "Distributor") acts as statutory principal underwriter and distributor in a
continuous public offering of the Funds' shares. The Distributor is a
broker-dealer registered under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc.
The Distributor pays the expenses of distribution of the Funds' shares,
including advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Funds pay the expenses of
preparing and printing amendments to their registration statements and
prospectuses (other than those necessitated by the activities of the
Distributor) and of sending prospectuses and reports to existing shareholders.
The Underwriting Agreement continues in effect with respect to a Fund for
successive annual periods provided that its continuance is specifically approved
at least annually by a vote of the Company's Board of Directors, or by a vote of
the holders of a majority of a Fund's outstanding voting securities, and in
either event by a majority of the Company's directors who are not parties to the
Underwriting Agreement or interested persons of any such party (other than as
Directors of the Company), cast in person at a meeting called for that purpose.
The Underwriting Agreement may be terminated without penalty by either party as
to one or more of the Funds on 60 days' written notice.
Effective September 1, 1998, the sales charge on Class A Retail Shares has been
eliminated. Prior to that time during 1998, 1997, and 1996, pursuant to the
Underwriting Agreement and its predecessors, the Distributor and its
predecessors received the following front-end sales charges in connection with
certain sales of Class A Retails shares of the Funds.
- -----------------------------------------------------------------------------------------------------------
Total Front-End Dealer Net Front-End
Principal Underwriter Period Sales Charges Reallowance Sales Charges
- -----------------------------------------------------------------------------------------------------------
Van Kampen American Capital 1/1/96-12/31/96 $4,386,426 $3,891,506 $494,920
- -----------------------------------------------------------------------------------------------------------
Van Kampen American Capital 1/1/97-5/2/97 $265,573 $244,855 $20,718
- -----------------------------------------------------------------------------------------------------------
PFPC, Inc.+ 5/5/97-12/31/97 $475,836 $408,356 $67,480
- -----------------------------------------------------------------------------------------------------------
PFPC, Inc.+ 1/1/98-8/31/98 $130,278 $130,278 $12,826
- -----------------------------------------------------------------------------------------------------------
<FN>
+ formerly known as FPS Brokers Services, Inc., and First Data Distributors, Inc.
</FN>
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to pay expenses associated with the distribution of its shares ("distribution
expenses") in accordance with a plan adopted by the investment Company's Board
of Directors and approved by its shareholders. Pursuant to such Rule, the
Company's Board of Directors, and the shareholders of each class of each Fund,
have adopted two Distribution Plans hereinafter referred to as the "Class A
Plan", and the "Class B Plan" and together as the "Plans." Under the Class A
Plan, each Fund pays a distribution fee to the Distributor at an annual rate of
0.35% of each Fund's aggregate average daily net assets attributable to its
Class A Retail Shares (prior to February 1, 1998, the annual rate was 0.50% for
all Funds except Global Income which was 0.35%). From the payments received
under the Class A Plan, the Distributor pays the Funds' dealers 0.25% of each
Fund's aggregate average daily net assets attributable to Class A Retail Shares
which they have sold. The rate form brokers is 0.35% for Class A Retail Shares
sold prior to February 1, 1998 and to Merrill Lynch, Pierce, Fenner & Smith, Inc
and Charles Schwab & Co for all Class A Retail Shares sold. Under the Class B
Plan, each Fund pays a distribution and service fee to the Distributor at an
annual rate of 1% of the Fund's aggregate average daily net assets attributable
to its Class B Retail Shares.
The Plans are deemed by the Staff of the SEC to be "compensation plans" because
payments made are not tied directly to actual expenses incurred, and the
Distributor is given discretion concerning what expenses are payable under the
Plans. The fees received by the Distributor pursuant to the Plans may exceed or,
particularly in the early years of the Funds, be less than the estimated direct
and indirect costs incurred by the Distributor in providing its services under
the Plans and its Underwriting Agreement with the Funds. If the fees received
exceed expenses incurred, the Distributor may be deemed to have received a
"profit" to the extent of such excess. For example, if the Distributor pays $1
34
65
for distribution expenses and receives $2 under the Class A Plan, the $1
difference could be said to be a profit for the Distributor. If the fees
received are less than expenses incurred, the Plans do not carry over any excess
costs over fees to a subsequent annual period.
Under the Plans, the Distributor receives distribution fees from the Funds at
the annual rates described in the prospectuses as compensation for providing
services and incurring expenses in the distribution of Fund shares. Such
expenditures may include payment of (1) commissions to certain financial
institutions, securities dealers and other industry professionals (collectively,
"Service Organizations") for providing services on behalf of the Funds, (2)
out-of-pocket expenses of printing and distributing prospectuses and annual and
semiannual shareholder reports to other than existing shareholders, (3)
out-of-pocket and overhead expenses for preparing, printing and distributing
advertising material and sales literature, (4) expenses for promotional
incentives to securities dealers and financial and industry professionals, and
(5) advertising and promotional expenses, including conducting and organizing
sales seminars, marketing support salaries and bonuses, and travel-related
expenses.
The distribution and service fees attributable to Class B Retail Shares are
designed to permit an investor to purchase such shares without the assessment of
a front-end sales charge and at the same time permit the Distributor to
compensate Service Organizations with respect to such shares. In this regard,
the purpose and function of the combined CDSC and distribution and service fees
are the same as those of the initial sales charge and distribution fee with
respect to the Class A Retail Shares of the Funds in that in both cases the
sales charge and distribution charge provide for the financing of the
distribution of the Funds' shares.
As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements and selling agreements were approved by the Company's Board
of Directors, including a majority of the Directors who are not interested
persons (as defined in the 1940 Act) of the Company and who have no direct or
indirect financial interest in the operation of any of the Plans or in any
agreements related to a Plan (the "Independent Directors"). In approving each
Plan in accordance with the requirements of Rule 12b-1, the Directors determined
that there is a reasonable likelihood that each Plan will benefit the Funds and
their respective shareholders. Information with respect to distribution revenues
and expenses is presented to the Directors each year for their consideration in
connection with their deliberations as to the continuance of the Plans. In their
review of the Plans, the Directors are asked to take into consideration expenses
incurred in connection with the distribution of each class of shares separately.
The distribution charge and the sales charge of a particular class will not be
used to subsidize the sale of the other classes.
Each Plan requires the Distributor to provide the Company's Board of Directors
at least quarterly with a written report of the amounts expended pursuant to the
Plan and the purposes for which such expenditures were made. Unless sooner
terminated in accordance with their terms, the Plans will continue in effect
initially for a period of one year, and thereafter will continue in effect so
long as such continuance is specifically approved at least annually by the
Company's Board of Directors, including a majority of the Independent Directors.
Each Plan may be terminated with respect to a class of any Fund by vote of a
majority of the Independent Directors, or by vote of a majority of the
outstanding voting shares of the respective class. Any change in a Distribution
Plan that would materially increase the distribution expenses borne by a Fund
requires shareholder approval, voting separately by class; otherwise, each Plan
may be amended by a majority of the Board of Directors, including a majority of
the Independent Directors, by vote cast in person at a meeting called for the
purpose of voting upon such amendment. So long as any Plan is in effect, the
selection or nomination of the Independent Directors is committed to the
discretion of the Independent Directors.
The Glass-Steagall Act generally prohibits banks and their affiliates from
engaging in the business of underwriting, selling or distributing securities.
Although the scope of this prohibition under the Glass-Steagall Act has not been
clearly defined by the courts or appropriate regulatory agencies, applicable
precedents do not preclude a bank from performing shareholder support, servicing
and recordkeeping functions. The Distributor intends to engage banks to perform
only such functions with respect to the Funds. However, changes in federal or
state statutes and regulations pertaining to the permissible activities of banks
and their affiliates or subsidiaries, as well as further judicial or
administrative decisions or interpretations, could prevent a bank from
continuing to perform all or a part of the contemplated services. If a bank were
35
66
prohibited from so acting, the Company's Board of Directors would consider what
actions, if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the operation of the
Funds might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences. The Funds may execute transactions with and purchase
securities issued by depository institutions that receive payments under the
Plans. No preference will be shown in the selection of Fund investments for the
securities of such depository institutions.
ARRANGEMENTS WITH BROKERS
From time to time programs may be implemented under which a broker, dealer or
financial intermediary's sales force may be eligible to win nominal awards for
certain sales efforts or under which certain reallowances (not exceeding the
total applicable sales charges on the sales generated by the broker, dealer or
financial intermediary) may be paid to such entities. Other programs provide,
among other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Funds. The Distributor may, from
time to time, pursuant to objective criteria it establishes, pay fees to, and
sponsor seminars for, qualifying brokers, dealers, or financial intermediaries
for certain services or activities which are primarily intended to result in the
sale of Fund shares. Any such programs will not change the price an investor
will pay for shares or the amount that a Fund will receive from such a sale. No
such programs or additional compensation will be offered to the extent that they
are prohibited by the laws of any state or any self-regulatory agency with
jurisdiction over the Distributor, such as the National Association of
Securities Dealers, Inc. (the "NASD").
PERFORMANCE
As noted in the prospectuses, the Funds may from time to time quote various
performance figures to illustrate the Funds' past performance. They may also
occasionally cite statistics to reflect the volatility or risk of their
portfolios.
A Fund's "Standardized Return" is calculated as follows: Standardized Return
("T") is computed by using the value at the end of the period ("V") of a
hypothetical initial investment of $1,000 ("P") over a period of years ("n")
according to the following formula as required by the SEC: P(1 + T)n=EV (the
ending redeemable value of initial investment). The following assumptions will
be reflected in computations made in accordance with this formula: (1) deduction
of the maximum front-end sales charge from the $1,000 initial investment (prior
to September 1, 1998, Class A Retail Shares were subject to a maximum sales
charge of 4.95% and these calculations do not reflect the previously imposed
sales charge); (2) reinvestment of dividends and distributions at net asset
value on the reinvestment date determined by the Company's Board of Directors;
(3) a complete redemption at the end of any period illustrated, and (4)
deduction of any applicable CDSC.
The Standardized Returns of the Class A Retail Shares of the following Funds for
the periods indicated are:
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/99
------------------------------------------------
Fund One Year Five Year Since Inception
- ------------------------------------------------------------------------------------------------------------
International Equity (inception 1/7/92) 27.95% 13.50% 12.28%
- ------------------------------------------------------------------------------------------------------------
Emerging Markets Equity (inception 1/7/92) 70.10% 0.72% 7.21%
- ------------------------------------------------------------------------------------------------------------
Smaller Companies (inception 1/1/93) 70.27% 14.72% 22.12%
- ------------------------------------------------------------------------------------------------------------
Global Income (inception 1/7/92) -8.06% 2.41% 3.48%
- ------------------------------------------------------------------------------------------------------------
International Small Companies (inception 5/27/99) N/A N/A 42.49%
- ------------------------------------------------------------------------------------------------------------
The Standardized Returns of the Institutional Class Shares of the following
Funds for the periods indicated are:
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/99
-----------------------------------------------------
Fund One Year Five Year Since Inception
- ---------------------------------------------------------------------------------------------------------------
International Equity (inception 7/24/98) 28.25% N/A 17.94%
- ---------------------------------------------------------------------------------------------------------------
International Smaller Companies (inception 12/31/98) 55.51% N/A 55.51%
- ---------------------------------------------------------------------------------------------------------------
36
67
"Non-Standardized Return" is calculated for a specified period of time by
assuming the investment of $1,000 in Fund shares and further assuming the
reinvestment of all dividends and distributions made to Fund shareholders in
additional Fund shares at their net asset value. Percentage rates of return are
then calculated by comparing this assumed initial investment to the value of the
hypothetical account at the end of the period for which the Non-Standardized
Return is quoted.
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/99
At Net Asset Value
-----------------------------------------------------
Fund - Class A Retail Shares One Year Three Year Five Year Since
Inception
- ------------------------------------------------------------------------------------------------------------
International Equity (inception 1/7/92) 27.95% 14.80% 13.50% 12.28%
- ------------------------------------------------------------------------------------------------------------
Emerging Markets Equity (inception 1/7/92) 70.10% 0.11% 0.72% 7.21%
- ------------------------------------------------------------------------------------------------------------
Smaller Companies (inception 1/1/93) 70.27% 9.54% 14.72% 22.12%
- ------------------------------------------------------------------------------------------------------------
Global Income (inception 1/7/92) -8.06% -0.59% 2.41% 3.48%
- ------------------------------------------------------------------------------------------------------------
International Small Companies (inception 5/27/99) N/A N/A N/A 42.49%
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/99
At Net Asset Value
-----------------------------------------------------
Fund - Institutional Class Shares One Year Three Year Five Year Since
Inception
- ------------------------------------------------------------------------------------------------------------
International Equity (inception 7/24/98) 28.25% N/A N/A 17.94%
- ------------------------------------------------------------------------------------------------------------
International Smaller Companies (inception 12/31/98) 55.51% N/A N/A 55.51%
- ------------------------------------------------------------------------------------------------------------
Current yield ("YIELD") is computed by dividing the difference between dividends
and interest earned during a one-month period ("a") and expenses accrued for the
period (net of reimbursements) ("b") by the product of the average daily number
of shares outstanding during the period that were entitled to receive dividends
("c") and the maximum offering price per share on the last day of the period
("d") according to the following formula as required by the SEC:
6
YIELD = 2[(a-b + 1) - 1]
--
cd
The YIELD of the Class A Retail Shares of Global Income Fund for the one month
period ended December 31, 1998 was 3.01%.
As of January 1, 1995, all of the outstanding shares of each Fund were
redesignated as Class A Retail Shares without any other changes, and Class B and
Class C shares were authorized for issuance. As of June 27, 1997, all Class C
shares were redesigned as Institutional Class shares. Yield and total return are
calculated separately for Class A, Class B Retail Shares and Institutional Class
shares of each Fund. Class B total return figures include any applicable CDSC.
No sales charge applies to Institutional Class shares. Because of the
differences in sales charges and distribution charges, the total returns for
each of the classes of the same Fund will differ. Each Fund will include
performance data for its Class A, Class B and Institutional Class shares in any
advertisement or information including performance data of the Fund.
Each Fund's investment results will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund, so that current or past yield or total return should not be considered
representations of what an investment in a Fund may earn in any future period.
These factors and possible differences in the methods used in calculating
investment results should be considered when comparing a Fund's investment
results with those published for other investment companies and other investment
vehicles. A Fund's results also should be considered relative to the risks
associated with such Fund's investment objectives and policies. Each Fund and
the Distributor may from time to time compare the Funds with the following:
(1) Various Salomon Brothers World Bond Indices, which measure the
total return performance of high-quality securities in major sectors of the
worldwide bond markets.
37
68
(2) The Shearson Lehman Government Corporate Bond Index, which is a
comprehensive measure of all public obligations of the U.S. Treasury (excluding
flower bonds and foreign targeted issues), all publicly issued debt of agencies
of the U.S. government (excluding mortgage backed securities), and all public,
fixed rate, non-convertible investment grade domestic corporate debt rated at
least Aa by Moody's or AA by Standard & Poor's, or, in the case of bonds not
rated by Moody's or Standard & Poor's, BBB by Fitch Investors Service (excluding
Collateralized Mortgage Obligations).
(3) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures supplied
by the U.S. League of Savings Institutions). Savings accounts offer a guaranteed
rate of return on principal, but no opportunity for capital growth. During a
portion of the period, the maximum rates paid on some savings deposits were
fixed by law.
(4) The Consumer Price Index, which is a measure of the average change
in prices over time in a fixed market basket of goods and services (e.g., food,
clothing, shelter, fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
(5) Data and mutual fund rankings and comparisons published or prepared
by Lipper Analytical Data Services, Inc. ("Lipper"), Morningstar Inc.
("Morningstar"), Micropal, Inc. ("Micropal"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Company Services ("Wiesenberger") and/or other
companies that rank or compare mutual funds by overall performance, investment
objectives, assets, expense levels, periods of existence and/or other factors.
In this regard, each Fund may be compared to its "peer group" as defined by
Lipper, Morningstar, Micropal, CDA, Wiesenberger and/or other firms, as
applicable or to specific funds or groups of funds within or without such peer
group.
(6) Bear Stearns Foreign Bond Index, which provides simple average
returns for individual countries and a GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
(7) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(8) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500 of the
largest publicly traded stocks in the U.S., and Russell 2000 Index, NASDAQ
Composite Index and the Wilshire 500 Stock Index, which are recognized indices
composed of capitalization-weighted average share prices of smaller company
stocks.
(9) Salomon Brothers Broad Investment Grade Index, which is a widely
used index composed of U.S. domestic government, corporate, and mortgage-backed
fixed income securities.
(10) Dow Jones Industrial Average.
(11) Financial News Composite Index.
(12) Morgan Stanley Capital International World Indices, including,
among others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of more than 800
companies located in Europe, Australia and the Far East.
(13) International Finance Corporation (IFC) Emerging Markets Data Base
which provides detailed statistics on bond and stock markets in developing
countries.
(14) J.P. Morgan & Co. Bond Indices, including, among others, the J.P.
Morgan Traded Government Bond Index which is an index composed of liquid
non-U.S. fixed income securities based on market weightings and currency since
1986.
38
69
(15) Chemical Emerging Markets Debt Index.
(16) Morgan Stanley Capital International Latin America Emerging Market
Indices, including the Morgan Stanley Emerging Markets Free Latin America Index
(which excludes securities issued by Mexican banks and securities companies
which cannot be purchased by foreigners) and the Morgan Stanley Emerging Markets
Global Latin America Index. Both indices include 60% of the market
capitalization of the following countries: Argentina, Brazil, Chile, and Mexico.
The indices are weighted by market capitalization and are calculated without
dividends reinvested.
(17) International Financial Corporation ("IFC") Latin American Indices
which include 60% of the market capitalization in the covered countries and are
market weighted. One index includes reinvestment of dividends and one does not.
(18) MSCI Pacific Index (which includes Japan).
(19) Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith,
Inc.; Bear Stearns & Co., Inc; Morgan Stanley; and Ibbottson Associates may be
used, as well as information provided by the Federal Reserve Board. In addition,
performance rankings and ratings reported periodically in national financial
publications, including but not limited to Money Magazine, Forbes, Business
Week, The Wall Street Journal and Barron's may also be used.
The Funds may, from time to time, publish information describing a Funds'
largest holdings, country weightings, and sector allocations. The Funds may also
publish information concerning the average maturity of bond holdings in a Fund.
FINANCIAL STATEMENTS
Audited financial statements for the fiscal year ended December 31, 1999 for the
International Equity Fund, Emerging Markets Equity Fund, Smaller Companies Fund,
International Smaller Companies Fund, and Global Income Fund are included in
those Funds' Annual Report to Shareholders dated December 31, 1999. Such
financial statements (but no other portion of such Reports) are incorporated
herein by this reference.
Any person who desires a copy of the most recent financial statements for Govett
Funds should call 800-821-0803, or write the Funds c/o PFPC, Inc., 3200 Horizon
Drive, King of Prussia, PA 19406, to obtain a free copy.
EFFECTS OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations (the "Banking
Laws") presently prohibit member banks of the Federal Reserve System or their
non-bank affiliates (the "Member Banks") from sponsoring, organizing,
controlling or distributing shares of registered open-end investment companies,
such as the Funds. Under the Banking Laws, however, a Member Bank may act as an
investment adviser, transfer agent, administrator or custodian to a registered
open-end investment company, and it also may act as agent in connection with the
purchase of shares of such an investment company upon certain customer orders.
Each of AIB Govett and the Sub-adviser is an affiliate of Allfirst Financial,
which is a wholly-owned subsidiary of AIB, and, thus, is subject to compliance
with the Banking Laws.
Changes to the Banking Laws or future judicial or administrative decisions could
result in any of AIB Govett and the Sub-adviser being prevented from continuing
to perform services required under its investment advisory agreement with the
Company, sub-advisory agreement with AIB Govett, or the Sub-Administration
Agreement with the Distributor, as the case may be. If any of AIB Govett and the
Sub-adviser were prevented from continuing to provide services called for under
any of those agreements, it is expected that the Board of Directors would
identify, and ask the Funds' shareholders to approve, a new investment adviser
or sub-adviser. If this was to occur, the Board of Directors would seek to take
action so that no shareholder of any Fund would suffer any adverse consequences.
CODE OF ETHICS
Each of the companies, AIB Govett Asset Management Holdings and Subsidiaries,
Govett Funds, Inc., and PFPC Inc. have adopted codes of ethics under Rule 17j-1
under the 1940 Act. Each code permits personnel to invest in securities,
including securities that may be purchased or held by the Funds.
39
70
APPENDIX A
Description of Moody's Investors Service, Inc. ("Moody's") Corporate Debt
Ratings
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues; Aa. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group, they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which made the long term risks appear
somewhat larger than in Aaa securities; A. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future; Baa. Bonds which are rated Baa are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated Ba have speculative elements
and their future cannot be considered to be well assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class; B. Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa. Bonds which are rated Caa are in poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest; Ca. Bonds which are rated Ca are speculative in a high
degree. Such issues are often in default or have other marked shortcomings; C.
Bonds which are rated C are the lowest rated class of bonds. Issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Description of Standard & Poor's Corporation Corporate Debt Ratings
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong; AA. Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree; A. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories; BBB. Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories; BB. Debt rated BB has less near-term vulnerability to default than
other speculative issues; however, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB--" rating; B. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB--" rating; CCC. Debt
rated CCC has a currently indefinable vulnerability to default, and is dependent
upon favorable business, financial and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B--" rating; CC. Debt rated CC typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating; C. Typically
applied to debt subordinated to senior debt which is assigned an actual or
implied "CCC--" debt rating. The "C" rating may be used to cover a situation
40
71
where a bankruptcy petition has been filed, but debt service payments are
continued; D. In payment default. The "D" rating is used when interest payments
are not made on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments will be made
during such grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Commercial Paper Ratings
Moody's employs the designations "Prime-1" and "Prime-2" to indicate commercial
paper having the highest capacity for timely repayment. Issuers rated Prime-1
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protections; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong capacity for repayment
of short-term promissory obligations. This will normally be evidenced by many of
the characteristics cited above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Standard & Poor's ratings of commercial paper are graded into four categories
ranging from "A" for the highest quality obligations to "D" for the lowest.
A--Issues assigned its highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with numbers
1 and 2 to indicate the relative degree of safety. A-1--This designation
indicates that the degree of safety regarding timely payment is either
overwhelming or very strong. Those issues determined to possess overwhelming
safety characteristics will be denoted with a plus (+) sign designation.
A-2--Capacity for timely payments on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1."
* * *
Ratings of debt securities represent the rating agency's opinion regarding their
quality and are not a guarantee of quality. Subsequent to its purchase by a
Fund, the rating of an issue of debt securities may be reduced below the minimum
rating required for purchase by that Fund. AIB Govett will consider such an
event in determining whether the Fund should continue to hold the security.
Credit ratings attempt to evaluate the safety of principal and interest payments
and do not evaluate the risks of fluctuations in market value. Also, rating
agencies may fail to make timely changes in credit ratings in response to
subsequent events, so that an issuer's current financial condition may be better
or worse than the rating indicates.
41
72
THE GOVETT FUNDS, INC
PART C TO FORM N-1A DATED MAY 4, 2000
OTHER INFORMATION
Item 23. Exhibits
(a) 1. Articles of Amendment and Restatement (8)
2. Articles Supplementary (6)
(b) By-Laws (3)
(c) Specimen Share Certificate*
(d) 1. Investment Management Contract (6)
2. Investment Subadviser Contract (6)
(e) 1. Underwriting Agreement(9)
2. Form of Multi-Class Selling Group Agreement(9)
3. Form of Administrative Services Agreement(9)
(f) Copy of Bonus, Profit Sharing, etc. (Not Applicable)
(g) Global Custody Agreement dated December 16, 1991 (2), as amended, by
Amendment dated May 13th, 1996 (8); by Amendment dated November,
1996 (8); by Amendment dated November 25th, 1997 (8); by Amendment
dated , November 12, 1998(9)
(h) Transfer Agency Agreement (5)
(i) 1. Opinion and Consent of Counsel, Heller, Ehrman, White &
McAuliffe, counsel to the Funds (2)
2. Opinion of Counsel, Goodwin, Procter & Hoar LLP, counsel to
the Funds (6)
(j) Consent of Independent Accountants--PricewaterhouseCoopers LLP*
(k) All Financial Statements Omitted from Item 22 (Not Applicable)
(l) Investment Intent Letter (2)
(m) 1. Class A Distribution and Service Plan Pursuant to Rule 12b-1(9)
2. Class B Distribution Plan of the Registrant (3)
(n) Financial Data Schedule*
(o) Rule 18f-3 Plan (8)
(p) Code of Ethics*
* filed herewith
1
73
(1) Incorporated by reference to like-numbered exhibits filed with Pre-
Effective Amendment No. 2 to this Registration Statement on September
23, 1991.
(2) Incorporated by reference to like-numbered exhibits filed with Pre-
Effective Amendment No. 3 to this Registration Statement on December
19, 1991.
(3) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 16 to this Registration Statement on April
24, 1996.
(4) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 17 to this Registration Statement on May 1,
1997.
(5) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 18 to this Registration Statement on
September 1, 1997.
(6) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 19 to this Registration Statement on October
7, 1997.
(7) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 22 to this Registration Statement on April
17, 1998.
(8) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 23 to this Registration Statement on October
6, 1998.
(9) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 25 to this Registration Statement on March 1,
1999.
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74
Item 24. Persons Controlled by or Under Common Control with Registrant
None.
Item 25. Indemnification
Article VIII of the Registrant's Articles of Incorporation provides as
follows:
"Section 1. To the fullest extent that limitations on the liability
of directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Registrant shall have
any liability to the Registrant or its shareholders for damages. This
limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Registrant whether or
not such person is a director or officer at the time of any
proceeding in which liability is asserted.
"Section 2. The Registrant shall indemnify and advance expenses to
its currently acting and its former directors to the fullest extent
that indemnification of directors is permitted by the Maryland
General Corporation Law. The Corporation shall indemnify and advance
expenses to its officers to the same extent as its directors and to
such further extent as is consistent with law. The Board of Directors
may by Bylaw, resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to the
fullest extent permitted by the Maryland General Corporation Law.
"Section 3. No provision of this Article shall be effective to
protect or purport to protect any director or officer of the
Registrant against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
"Section 4. References to the Maryland General Corporation Law in
this Article are to the law as from time to time amended. No further
amendment to the Articles of Incorporation of the Registrant shall
decrease, but may expand, any right of any person under this Article
based on any event, omission or preceding prior to such amendment."
Article VII of the Registrant's Bylaws also provide for
indemnification by the Registrant of its officers and directors and
others to the fullest extent permitted by Maryland law and the
Investment Company Act of 1940. The Bylaws also provide for the
advance of certain expenses incurred by such persons under certain
circumstances.
Section 11 of the Investment Management Contract filed as Exhibit 5
to Post-Effective Amendment No. 19 provides that AIB Govett, Inc.
(the "Manager") shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Registrant or any of
its portfolios in connection with the matters to which the contract
relates, except for losses resulting from the willful misfeasance,
bad faith or gross negligence of the Manager in the performance of
its duties or from reckless disregard by the Manager of its
obligations and duties under the contract.
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75
Registrant also participates in a policy of insurance which insures
Registrant, the Manager and Distributor, and their respective
present, past and future directors, partners, officers, trustees and
employees against liability incurred on account of any breach of
duty, neglect, error, misstatement, misleading statement, omission or
other wrongful act done or attempted by any insured (each a "Wrongful
Act") in connection with the management and operation of Registrant,
or the provision of investment advisory or distribution services to
or on behalf of Registrant, but excluding losses incurred by reason
of actual fraud, dishonesty, criminal or malicious acts or omissions
finally adjudicated. No coverage is provided for any Wrongful Act
committed with knowledge that it was a Wrongful Act.
The Underwriting Agreement between Registrant and First Data
Distributors, Inc. (the "Distributor") filed as Exhibit (e)1 to this
Post-Effective Amendment provides that Registrant shall indemnify the
Distributor against any and all claims, demands, liabilities and
expenses which the Distributor may incur under the Securities Act (as
defined below), at common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in any
registration statement or prospectus of Registrant, or any omission
to state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or
omission was made in reliance upon, and in conformity with,
information furnished to Registrant in connection therewith by or on
behalf of the Distributor.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") may be
permitted to directors and officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification by Registrant is against
public policy as expressed in the Securities Act, and therefore may
be unenforceable. In the event that a claim for such indemnification
(except insofar as it provides for the payment by Registrant of
expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding)
is asserted against Registrant by any director, officer or
controlling person and the Securities and Exchange Commission is
still of the same opinion, Registrant will, unless in the opinion of
its counsel the matter has been settled by a controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in
the Securities Act, and will be governed by the final adjudication of
such issue.
4
76
Item 26. Business and Other Connections of Investment Adviser
26a. AIB Govett, Inc. ("AIB Govett") serves as investment adviser to all of
the series of the Registrant. A description of the directors and
officers of AIB Govett, and other required information, is included in
AIB Govett's Form ADV and schedules thereto, as amended, which is on
file at the SEC (File No. 801-54821). AIB Govett's Form ADV, as
amended, is incorporated herein by reference.
26b. AIB Govett Asset Management Limited ("AIB Govett London", formerly
John Govett & Co. Limited) serves as investment subadviser to all of
the series of the Registrant. A description of the directors and
officers of AIB Govett London, and other required information, is
included in AIB Govett London's Form ADV and schedules thereto, as
amended, which is on file at the SEC (File No. 801-34730). AIB Govett
London's Form ADV, as amended, is incorporated herein by reference.
Item 27. Principal Underwriter
(a) Provident Distributors, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies as of 4/30/00:
International Dollar Reserve Fund I, Ltd.
Provident Institutional Funds Trust
Columbia Common Stock Fund, Inc.
Columbia Growth Fund, Inc.
Columbia International Stock Fund, Inc.
Columbia Special Fund, Inc.
Columbia Small Cap Fund, Inc.
Columbia Real Estate Equity Fund, Inc.
Columbia Balanced Fund, Inc.
Columbia Daily Income Company
Columbia U.S. Government Securities Fund, Inc.
Columbia Fixed Income Securities Fund, Inc.
Columbia Municipal Bond Fund, Inc.
Columbia High Yield Fund, Inc.
Columbia National Municipal Bond Fund, Inc.
GAMNA Series Funds, Inc.
WT Investment Trust
Kalmar Pooled Investment Trust
The RBB Fund, Inc.
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77
Robertson Stephens Investment Trust
HT Insight Funds, Inc.
Harris Insight Funds Trust
Hilliard-Lyons Government Fund, Inc
Hilliard-Lyons Growth Fund, Inc.
Hilliard-Lyons Research Trust
Senbanc Fund
Warburg Pincus Trust
ABN AMRO Funds
Alleghany Funds
BT Insurance Funds Trust
First Choice Funds Trust
Forward Funds, Inc.
IAA Trust Asset Allocation Fund, Inc.
IAA Trust Growth Fund, Inc.
IAA Trust Tax Exempt Bond Fund, Inc.
IAA Trust Taxable Fixed Income Series Fund, Inc.
IBJ Funds Trust
Light Index Funds, Inc.
LKCM Funds
Matthews International Funds
McM Funds
Metropolitan West Funds
New Covenant Funds, Inc.
Panorama Trust
Smith Breeden Series Funds
Smith Breeden Trust
Stratton Growth Fund, Inc.
Stratton Monthly Dividend REIT Shares, Inc.
The Stratton Funds, Inc.
The Galaxy Fund
The Galaxy VIP Fund
Galaxy Fund II
The Govett Funds, Inc.
Trainer, Wortham First Mutual Funds
Undiscovered Managers Funds
Wilshire Target Funds, Inc.
Weiss, Peck & Greer Funds Trust
Weiss, Peck & Greer International Fund
WPG Growth and Income Fund
WPG Growth Fund
WPG Tudor Fund
RWB/WPG U.S. Large Stock Fund
Tomorrow Funds Retirement Trust
The BlackRock Funds, Inc. (Distributed by BlackRock Distributors, Inc. a
wholly owned subsidiary of Provident Distributors, Inc.)
Northern Funds Trust and Northern Institutional Funds Trust (Distributed by
Northern Funds Distributors, LLC. a wholly owned subsidiary of Provident
Distributors, Inc.)
The Offit Investment Fund, Inc. (Distributed by Offit Funds Distributor,
Inc. a wholly owned subsidiary of Provident Distributors, Inc.)
The Offit Variable Insurance Fund, Inc. (Distributed by Offit Funds
Distributor, Inc. a wholly owned subsidiary of Provident Distributors,
Inc.)
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78
Provident Distributors, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. Provident Distributors, Inc. is located at 3200 Horizon
Drive, King of Prussia, Pennsylvania 19406.
(b) The following is a list of the executive officers, directors, and partners
of Provident Distributors, Inc.:
President and Treasurer Philip H. Rinnander
Secretary and Sole Director Jane Haegele
Vice President Jason A. Greim
Vice President Barbara A. Rice
Vice President Jennifer K. Rinnander
Vice President and Compliance Officer Lisa M. Buono
27c.
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
- - ----------------------------------------------------------------------------------------------------------
Provident none none none none
Distributors, Inc.
(12/1/99-12/31/99)
First Data $34,375 none none none
Distributors, Inc.
(formerly FPS Broker
Services, Inc.)
(1/1/99-11/30/99)
- - ----------------------------------------------------------------------------------------------------------
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79
Item 28. Location of Accounts and Records
The accounts and records required to be maintained by Rule 31a-1(b)(4)
under the Investment Company Act of 1940 will be maintained by the
Registrant at 250 Montgomery Street, Suite 1200, San Francisco,
California 94104. Pursuant to Rule 31a-3 under the 1940 Act, all other
records required by Rule 31a-1 will be maintained at one or more of
the following offices:
Name/Address
------------
AIB Govett, Inc. (Investment Adviser)
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
AIB Govett Asset Management Limited (Subadviser)
Shackleton House
4 Battle Bridge Lane
London SE1 2HR England
The Chase Manhattan Bank (Global Custodian)
4 Chase Metro Tech Center
Brooklyn, NY 11245
Chase Global Funds Services Company (Fund Accounting/Administration)
73 Tremont Street, 11th Floor
Boston, MA 02108
First Data Distributors, Inc. (Distributor)
4400 Computer Drive
Westborough, MA 01581
First Data Investor Services Group, Inc. (Transfer Agent)
3200 Horizon Drive
King of Prussia, PA 19406-0903
Item 29. Management Services
None.
Item 30. Undertakings
None
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of San Francisco, State of California, on the 9th day of
May, 2000.
THE GOVETT FUNDS, INC.
/s/ Sir Victor Garland
-------------------------------
Sir Victor Garland, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signatures Title Date
- - ------------------------ ------------------- -----------------
/s/ Elliott L. Atamian*
- ------------------------- Director May 9, 2000
Elliott L. Atamian
/s/ Patrick Cunneen*
- ------------------------- Chairman, Director May 9, 2000
Patrick Cunneen
/s/ Sir Victor Garland
- ------------------------- President, Director May 9, 2000
Sir Victor Garland
/s/ Colin Kreidewolf
- ------------------------- Treasurer May 9, 2000
Colin Kreidewolf (Principal Financial
and Accounting Officer)
/s/ James M. Oates*
- ------------------------- Director May 9, 2000
James M. Oates
/s/ Frank R. Terzolo*
- ------------------------- Director May 9, 2000
Frank R. Terzolo
* By /s/ Catherine M. MacGregor May 9, 2000
----------------------------
Catherine M. MacGregor,
Attorney In Fact
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LIST OF EXHIBITS
----------------
Exhibit (j) Consent of Independent Accountants
Exhibit (n) Financial Data Schedules
Exhibit (p) Code of Ethics for AIB Govett Asset Management Holdings
and Subsidiaries and Govett Funds, Inc.