1
ANNUAL REPORT
December 31, 1999
2
CONTENTS
LETTER TO THE SHAREHOLDERS 1
PORTFOLIO MANAGEMENT REVIEW AND
SCHEDULE OF INVESTMENTS 2
FINANCIAL STATEMENTS 20
3
January 03, 2000
To Govett Funds Investors:
1999 was generally a much-improved environment for international and global
investors. The markets have been encouraged by improved prospects for a period
of relatively coordinated global growth. There were strong results in the
Emerging Markets and steady positive returns in developed markets
We were generally pleased with the results posted in the Govett Funds.
The Govett Emerging Markets Equity Fund share price on December 31, 1999 was
$13.54 versus $7.96 a year earlier. The total return was 70.10% versus a return
in the MSCI Global Emerging Markets Index of 68.92%
The Govett International Smaller Companies Fund Class I share price on December
31, 1999 was $14.85 versus $10.00 a year ear-lier. Capital gain distributions of
$0.6928 were paid during the year. The total return was 55.51% versus a return
in the MSCI World Small Cap Ex-U.S. Index of 18.39%
The Govett Smaller Companies Fund share price on December 31, 1999 was $28.69
versus $16.85 a year earlier. The total return was 70.27% versus a return in the
Russell 2000 Index of 21.26%.
The Govett International Equity Class A Fund share price on December 31, 1999
was $12.72 versus $11.17 a year earlier. Capital gain distributions of $1.4953
were paid during the year. The total return was 27.95% versus a return in the
MSCI EAFE Index of 27.29%
The Govett Global Income Fund share price on December 31, 1999 was $7.13 versus
$8.07 a year earlier. Income distributions of $0.30 were paid during the year.
The total return was -8.06% versus a return in the Salomon Smith Barney World
Government Bond Index of -4.27%.
In terms of delivering overall results to our shareholders, we are seeking to
improve further in areas that relate to operating expenses. While we have made
good progress in reducing overall expenses in recent years, we still need to do
more.
In the very near future, you will receive proposals approved by your independent
Directors recommending a plan of reorganization of the Govett Funds with the ARK
Funds, which are managed by an affiliate of AIB Govett, Inc. Please read the
proposals carefully, including the objectives being sought to improve
shareholder results.
I am convinced that our proposals are going to be beneficial to shareholders in
the near and long term.
Thank you for investing with us.
/S/ Keith E. Mitchell
Keith E. Mitchell
President and Managing Director
AIB Govett, Inc.
__________________
Past performance is no guarantee of future results, and the investment return
and principal value of an investment in a Fund will fluctuate, so that an
Investor's shares, when redeemed, may be worth more or less than the original
cost.
Each index is a broad-based, unmanaged index considered to reflect the
performance of the relevant markets and is not available for direct investment.
Govett Funds are distributed by PFPC, Inc., 4400 Computer Drive, Westborough, MA
01581 (8/99)
Investors should be aware that investing internationally poses special risks,
such as currency fluctuations, economic and political risks and risks not
associated with domestic securities. See current prospectus for details.
Investors should be aware that investing in the Smaller Companies Fund and the
International Smaller Companies Fund can pose special risks related to the
rela-tively small size of the companies in which they invest. See current
prospectus for details.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a prospectus for each Fund.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by any bank and are not federally insured by the FDIC, the Federal
Reserve or any other agency.
1
4
PORTFOLIO MANAGEMENT REVIEW
Govett Emerging Markets Equity Fund
Market Conditions During The Year Ended
December 31, 1999
The year 1999 saw a strong out performance by the emerging markets asset class,
as it embarked on a recovery path, which began in the fourth quarter of 1998.
Asian markets led the recovery, with the strongest performances from Malaysia,
Korea, Taiwan and India. Performance was driven by an economic recovery which
surpassed previous expectations, prompting upward revisions to forecasts. The
relative strength of the yen against the US$ and the pick up in the Japanese
economy was also positive for the region, particularly for Taiwanese and Korean
exports.
After some spectacular gains in the first half of 1999, emerging markets
consolidated over the summer months as doubts over the sustainability of the
global economic recovery surfaced. In particular, investors were cautious of how
the global economic picture would be affected by US monetary policy and Y2K
related issues.
However, such concerns proved short lived and emerging markets regained strong
upward momentum in the final months of the year. Once again, the Turkish market
led the way, more than doubling in the final quarter of the year and up over
250% for 1999 as a whole in US$ terms. The catalyst was the announcement of a
long awaited structural adjustment program, supported by the IMF. This, together
with the accompanying exchange rate regime, gives Turkey the best opportunity to
beat years of structurally high inflation. Strong performances were also seen
from Brazil and Mexico, driven by a positive flow of economic news and, in
Mexico's case, above consensus earnings announcements from the market's biggest
companies.
Fund Performance
For the year ended December 31, 1999, total return at NAV on Class A Retail
Shares of the Fund was 70.10%, compared to 68.92% for the Morgan Stanley Capital
International (MSCI) Global Emerging Markets index.
The Fund performed well relative to its peers, helped in particular by a heavy
overweight position in Turkey. An overweighting to Asia, particularly the
emphasis on the better performing markets of Malaysia, Korea and Taiwan and to
the main Latin American markets of Mexico and Brazil, also helped performance.
In Central Europe, the Polish weighting was significantly reduced against a
background of increasing economic and political concerns leaving investment more
concentrated on Hungary, which performed well. After a strong first half
performance, most of the Greek investment was sold, as valuations remained
stretched.
Current Strategy & Outlook for 2000
We remain confident that emerging markets will perform strongly again this year.
Strengthening commodity prices indicate robust conditions in the US and ongoing
recovery in Japan and Europe. Global growth is accelerating while inflation
remains subdued, despite stronger oil prices. The momentum of the world economy
is self sustaining, providing that inflation is kept low and, so far, the signs
are positive.
After a strong return from Asian markets in 1999, the prospects for Asia remain
positive with economic recovery remaining in place, led by manufacturing and
exports. Recent data has shown year on year quarterly GDP growth of over 12% in
South Korea and 7% in Taiwan. Asia's economic recovery is expected to broaden in
2000, with stronger consumer spending and the investment cycle stabilizing. An
earnings recovery is also underway and current forecasts may prove conservative
as the year progresses. We remain overweight the region with emphasis on in the
North East Asian markets of Taiwan and Korea, which have the added advantage of
having some of the lowest correlations with the US equity market.
Latin America is expected join the Asian growth recovery story of 1999 in 2000,
with regional GDP forecast to grow 3.7%. Brazil and Mexico remain the preferred
markets although there are now reasons to look more closely at the smaller Latin
American markets, specifically Argentina and Chile.
The investment opportunities in the EMEA markets continue to offer scope for
further appreciation, based on fundamental assessment of their business
prospects, the macroeconomic convergence theme and the increasing integration of
future entrants into the European Union. The prospects for Turkey and South
Africa appear positive on the back of lower inflation and interest rates and, in
South Africa's case, a supportive commodities cycle.
2
5
Fund's Regional Allocation
Percentage of Fund's Total Net Assets as of December 31, 1999
Developed Markets Percent (%)
Asia 46.3%
Latin America 31.7%
Europe, Middle East & Africa 20.2%
Other 1.8%
1/7/92 - 12/31/99 Change in Value of a $10,000 Investment in Govett Emerging
Markets Equity Fund vs. MSCI Emerging Markets Index
[GRAPHIC OMITTED]
Emerging Markets Equity
PLOT POINTS
MSCI Emerging Markets Emerging NAV
01/07/1992 10,000 10,000
Jun-92 10,561 11,030
Dec-92 10,456 10,720
Jun-93 11,847 13,080
Dec-93 17,646 19,267
Jun-94 16,388 16,796
Dec-94 17,457 16,829
Jun-95 18,315 15,968
Dec-95 15,851 15,510
Jun-96 17,664 17,360
Dec-96 16,801 17,384
Jun-97 19,826 20,158
Dec-97 14,542 15,577
Jun-98 11,900 12,571
Dec-98 11,166 10,252
Jun-99 13,248 12,877
Dec-99 18,881 17,438
Fund's Average Annual At Net
Total Return Asset Value
One Year 70.10%
Three Year 0.11%
Five Year 0.72%
Since Inception (1/7/92) 7.21%
This graph compares the Fund's performance with the MSCI Emerging Markets Index,
a broad-based unmanaged index that represents the general performance of equity
markets. Total returns for the Fund at NAV and the index include reinvestment of
all dividends and capitalizations. The index does not include commissions or
fees that an investor purchasing the securities in the index would pay. The
total return line for the index does not include operating expenses (such as
transactions costs, management fees and sales charges) that reduce returns. Past
performance is no guarantee of future results, and the investment return and
principal value of an investment in the Fund will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. Although the investment characteristics of the index are similar to those
of the Fund, the securities owned by the Fund and those composing the index are
likely to be different, and any securities that the Fund and the index have in
common are likely to have different weightings in the respective portfolios.
Investors cannot invest directly in the index.
3
6
Govett Emerging Markets Equity Fund
Schedule of Investments
December 31, 1999
Shares Description Value
(See Note 1)
Common Stocks - 84.1%
Brazil - 5.0%
10,600 Companhia Cervejaria Brahma
ADR .......................... $ 148,400
4,820 Pao de Acucar GDR .............. 155,746
1,610 Telebras ....................... 206,885
4,202,465 Telesp Participacoes ........... 101,892
9,600 Unibanco GDR ................... 289,200
---------
902,123
---------
China - 0.4%
6,000 Huaneng Power International
ADR* ......................... 63,375
---------
Czech Republic - 0.9%
15,830 Ceska Sporitelna ............... 72,463
5,765 SPT Telekom* ................... 92,823
---------
165,286
---------
Greece - 0.4%
5,000 Panafon ........................ 67,202
---------
Hong Kong - 4.3%
39,000 China Telecom .................. 243,828
12,600 HSBC Holdings ....................... 176,677
16,000 Hutchison Whampoa ................... 232,585
57,000 New World Development ............... 128,321
---------
781,411
---------
Hungary - 2.5%
1,392 Gedeon Richter GDR ............. 91,350
8,684 Magyar Tavkozlesi Rt. ADR ...... 312,624
895 OTP Bank GDR ................... 52,134
---------
456,108
---------
India - 4.7%
10,493 Hindalco Industries ............ 194,181
4,550 Hindustan Lever ................ 235,345
3,300 ITC ............................ 50,448
98 Larsen & Toubro ................ 1,252
35,000 Manhanagar Telephone ........... 155,287
2,850 NIIT ........................... 217,226
550 Reliance Industries ............ 2,955
---------
856,694
---------
Korea - 16.1%
7,047 Housing & Commercial Bank ...... 223,419
6,322 Hyundai Motor Co. Ltd. ......... 100,217
10 Korea Electric Power ........... 310
11,000 Korea Telecom .................. 822,250
11,066 L.G Chemical ................... 349,863
4,640 Pohang Iron & Steel ............ 529,517
8,300 Samsung Corp. .................. 124,262
See accompanying notes to the financial statements.
7
Shares Description Value
(See Note 1)
Korea - (continued)
3,224 Samsung Electronics ............ $ 755,248
---------
2,905,086
---------
Malaysia - 4.9%
109,000 Commerce Asset Holding ......... 279,667
67,000 Perusahaan Otomobil Nasional ... 130,472
105,000 Resorts World .................. 301,180
70,000 Tenaga Nasional ................ 180,524
---------
891,843
---------
Mexico - 14.2%
33,244 ALFA* .......................... 156,051
10,920 Cemex .......................... 304,395
121,750 Cifra* ......................... 231,685
55,541 Femsa .......................... 247,825
44,890 Grupo Carso* ................... 223,503
79,500 Grupo Modelo ................... 218,038
5,700 Grupo Televisa GDR* ............ 389,025
35,700 Organizacion Soriana* .......... 163,813
113,750 Telefonos de Mexico ............ 635,944
---------
2,570,279
---------
Philippines - 2.2%
35,000 Manila Electric ................ 99,876
12,650 Metropolitan Bank & Trust ...... 91,030
4,600 Philippines Long Distance
Telephone ..................... 116,997
61,930 San Miguel Corp. B ............. 87,593
---------
395,496
---------
Poland - 1.4%
4,606 Bank Rozwoju Eksportu .......... 145,922
15,200 Telekomunikacja Polska GDR ..... 98,800
---------
244,722
---------
South Africa - 3.3%
2,800 Anglo American ................. 180,748
1 Edgars Stores .................. 7
20,000 Rembrandt Group ................ 190,569
22,000 Sappi .......................... 217,496
---------
588,820
---------
Taiwan - 9.1%
18,219 Asustek Computer* .............. 192,146
304,500 China Steel .................... 225,088
162,000 Evergreen Marine ............... 133,172
3,696 Nien Hsing Textile ............. 7,419
56,640 President Chain Store .......... 249,949
152,950 United Microelectronics* ....... 545,815
238,560 United World Chinese
Commercial Bank ............... 288,081
---------
1,641,670
---------
See accompanying notes to the financial statements.
4
8
Govett Emerging Markets Equity Fund (continued)
Schedule of Investments
December 31, 1999
Shares Description Value
(See Note 1)
Thailand - 4.6%
16,500 Advanced Info Service .......... $276,862
55,000 Bangkok Bank Public Co. Ltd.* .. 138,723
19,200 PTT Exploration and Production . 118,264
96,000 Thai Farmers Bank .............. 160,573
286,300 Thai Petrochemical ............. 133,021
----------
827,443
----------
Turkey - 10.1%
3,363,802 Aksigorta A.S. ................. 204,656
3,229,000 Arcelik ........................ 211,338
13,245,936 Dogan Sirketler Grubu Hldgs .... 390,735
7,241,317 Sabanci Holding ................ 420,541
26,329,345 Turkiye Garanti Bankasi A.S.*... 398,047
6,518,735 Yapi ve Kredi Bankasi .......... 201,307
----------
1,826,624
----------
Total - Common Stocks (Cost $9,865,928) 15,184,182
----------
Preferred Stocks - 12.5%
Brazil - 12.5%
1,969,000 Banco Itau ..................... 168,943
10,412,400 Copel .......................... 100,867
15,200 CVRD ........................... 420,703
2,072,900 Petrobras ...................... 527,835
12,703,718 Tele Norte Leste Participacoes.. 341,063
15,530,900 Tele Sudeste Celular
Participacoes ................ 114,773
15,261,700 Telecentro Sul Participacoes ... 278,707
1,752,000 Telesp Celular ................. 138,686
6,800 Telesp Participacoes ........... 166,175
----------
Total - Preferred Stocks (Cost $1,399,090) 2,257,752
----------
Warrants and Rights - 1.6%
South Africa - 1.0%
28,798 Dimensions Data Holdings Ltd.* 180,748
----------
Turkey - 0.6%
479,786 Vestel Elektronik Sanayii ve
Ticaret A.S.* ................ 114,993
----------
Total - Warrants and Rights (Cost $270,432) 295,741
----------
TOTAL INVESTMENTS - 98.2%
(Cost $11,535,450) 17,737,675
Other Assets and Liabilities (net) - 1.8% 321,124
----------
TOTAL NET ASSETS - 100.0% $18,058,799
===========
* Non-income producing security
ADR American Depositary Receipt
GDR Global Depositary Receipt
Sector Allocation
Banking 14.4%
National Telecommunications 12.3
Regional Telecommunications 10.1
Mining 8.5
Financial Services 6.5
Electronic Components & Instruments 6.2
Broadcasting & Publishing 4.2
Electricals 4.1
Beverages & Tobacco 4.1
Food & Household Products 3.8
Other 24.0
-----
98.2
Other Assets and Liabilities (net) 1.8
-----
Total Net Assets 100.0%
=====
See accompanying notes to the financial statements.
5
9
Govett Smaller Companies Fund
Market Conditions During The Year Ended
December 31, 1999
There were impressive returns from world stockmarkets in 1999, driven by
improved economic growth and the increased investor interest in the potential of
technology stocks. The best returns came from Japan, where there were
encouraging signs both of an end to the long-lasting recession and of concerted
moves to liberalize traditional business structures. In Europe the positive
developments in economies took a little longer to come through, although in the
UK recovery was more quickly established, and returns were similar to those
achieved in the US, where the economy showed good growth through the year. The
new Euro currency was weak against the US dollar.
The strength of economies led to increases in interest rates around the world,
and the expectation of further increases, which contributed to a degree of
volatility in stock markets in the second half of the year. The most notable
feature, however, was the exceptional rise in technology and telecommunications
stocks in the final quarter of the year, and especially those involved in the
Internet and e-commerce.
Smaller companies generally did better during the year, as would be expected
given the economic background and as was long overdue given their low valuations
relative to larger companies. In the US the Russell 2000 return of 19.6% was
similar to the S&P 500 Composite return of 21.26% (and the real star was the
NASDAQ Index, with 85.6%); in the UK smaller companies outperformed
substantially, and in Japan the TSE Second Section rose a remarkable 143.9%
against a return for the TSE of 74.6%; in Europe excluding the UK, the
performance of smaller companies was more muted.
Fund Performance
The Fund performed well over the year, with a return of 70.27% and a ranking of
105 within its peer group of 759. This compares to a return from the Russell
2000 Index of 21.26% over the period.
During the second half of the year and the year as a whole the Fund added value
through the investments in the US, where there were notable returns from Western
Wireless*. The Fund also added value in its investments outside the US, where
the portfolio of Japanese stocks did particularly well.
Current Structure
We believe that the prospects for world stockmarkets remain attractive. Most
forecasts of economic growth have been upgraded and the expectation is good
growth in 2000 and in 2001, with the US expected to remain strong and with
further progress anticipated in Japan and in Europe. We believe that inflation
will remain relatively subdued, helped by competitive pressures and by the
potential of e-commerce and wider technological advances to reduce costs in
businesses and with that the costs of goods sold, although commodity prices are
higher, and may rise further. We do expect interest rates to be raised further
in the US and elsewhere, but expect these increases to be limited in their
extent. It is possible that concerns on the level of interest rates may unsettle
the bond market and cause volatility in equity markets, especially after the
strong advances they have enjoyed. We would expect the Euro, yen and pound
sterling to hold their own against the dollar.
In an era of low inflation we will retain our focus on high quality companies
that have a proven ability to achieve superior growth given a market position
that will allow the pricing power that protects margins. We intend to maintain
an emphasis on attractive business sectors, such as media and business services,
and especially telecommunications and technology. The pace of technological
change is tremendous and the opportunities and threats that arise from it are
considerable. With the remarkable price rises in technology stocks it is
increasingly important to discriminate and to focus on the true potential of
business; many remain attractive and we expect to find plentiful opportunities
to invest.
We intend to maintain sizeable weightings in telecommunications, electronics,
computer equipment, business services and media. We also intend to continue to
have a spread of investments and to manage the portfolio on a sensible basis.
The continued potential of technology stocks is one of the reasons why we
believe smaller companies will retain their ability to grow quickly from a
smaller base and to benefit from new technologies. Valuations for smaller
companies remain attractive, even after their recent outperformance in some
markets.
We believe that a number of these opportunities will still be found outside the
US, where we will continue to concentrate on the major markets of Japan, the UK
and the rest of Europe.
- --------------------
* As of 12/31/99, the Fund held 2.53% of its total net assets in Western
Wireless.
6
10
Fund's Country Allocation
Percentage of Fund's Total Net Assets as of December 31, 1999
Country Percent (%)
United States 67.8%
Japan 9.6%
United Kingdom 7.1%
Italy 3.4%
France 2.5%
Spain 2.0%
Thailand 2.0%
Denmark 1.7%
Finland 1.2%
Other 2.7%
1/1/93 - 12/31/99 Change in Value of a $10,000 Investment in Govett
Smaller Companies Fund vs. Russell 2000 Index
[GRAPHIC OMITTED]
Smaller Companies
PLOT POINTS
Russell 2000 Smaller NAV
01/01/93 10,000 10,000
Jun-93 10,684 12,720
Dec-93 11,839 15,850
Jun-94 11,001 16,750
Dec-94 11,462 20,395
Jun-95 12,986 26,794
Dec-95 14,466 34,495
Jun-96 15,869 36,833
Dec-96 16,602 30,833
Jun-97 18,147 27,090
Dec-97 20,008 26,983
Jun-98 20,941 27,514
Dec-98 19,319 23,799
Jun-99 21,306 33,064
Dec-99 23,113 40,527
Fund's Average Annual At Net
Total Return Asset Value
One Year 70.27%
Three Year 9.54%
Five Year 14.72%
Since Inception (1/1/93) 22.12%
This graph compares the Fund's performance with the Russell 2000 Index, a
broad-based unmanaged index that represents the general performance of U.S.
smaller companies primarily with "small cap" companies with market
capitalization of less than $500 million. Total returns for the Fund at NAV
include reinvestment of all dividends and capital gains. The index does not
include the reinvestment of dividends or capital gains, or commissions or fees
that an investor purchasing the securities in the index would pay. The total
return line for the index does not include operating expenses (such as
transactions costs, management fees and sales charges) that reduce returns. Past
performance is no guarantee of future results, and the investment return and
principal value of an investment in the Fund will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. Although the investment characteristics of the index are similar to those
of the Fund, the securities owned by the Fund and those composing the index are
likely to be different, and any securities that the Fund and the index have in
common are likely to have different weightings in the respective portfolios.
Investors cannot invest directly in the index.
7
11
Govett Emerging Markets Equity Fund
Schedule of Investments
December 31, 1999
Shares Description Value
(See Note 1)
COMMON STOCKS - 100.4%
Belgium - 1.0%
Household Durables - 1.0%
12,000 Colruyt ...................... $ 689,711
-----------
Canada - 0.7%
Diversified Telecommunication
Services - 0.7%
15,000 Rogers Cantel Mobile
Communications* ............ 545,625
-----------
Denmark - 1.7%
Commercial Services & Supplies -
1.7%
18,000 International Service System.. 1,211,949
-----------
Finland - 1.2%
Communications Equipment -
1.2%
25,000 Perlos* ...................... 882,306
-----------
France - 2.5%
Computers & Peripherals - 2.5%
7,108 Cap Gemini Sogeti ............ 1,806,171
-----------
Germany - 0.5%
Electronic Equipment &
Instruments - 0.5%
25,400 Vivanco Gruppe* ................... 332,957
-----------
Italy - 3.4%
Media - 3.4%
140,000 Class Editori ................ 2,442,222
-----------
Japan - 9.6%
Commercial Services & Supplies -
5.1%
31,900 H.I.S.C.O. ................... 2,274,782
44,800 Meitec ....................... 1,424,240
-----------
3,699,022
-----------
Electrical Equipment - 2.0%
18,700 Fuji Soft ABC ................ 1,463,367
-----------
Pharmaceuticals - 2.5%
52,000 Kyorin Pharmaceutical ........ 1,836,251
-----------
6,998,640
-----------
Norway - 0.9%
Computers & Peripherals - 0.9%
55,300 Merkantildata ................ 670,554
12
Shares Description Value
(See Note 1)
Spain - 2.0%
Food & Drug Retailing - 0.6%
25,000 Superdiplo* .................. $ 478,966
-----------
Hotels Restaurants & Leisure -
0.8%
50,000 NH Hotels* ................... 563,667
-----------
IT Consulting & Services - 0.6%
22,300 Indra Sistemas ............... 419,367
-----------
1,462,000
-----------
Thailand - 2.0%
Diversified Telecommunications
Equipment - 2.0%
367,000 Total Access Communication*.. 1,445,980
-----------
United Kingdom - 7.1%
Computers & Peripherals - 3.1%
161,033 RM ........................... 2,249,718
-----------
Electrical Equipment - 0.7%
98,880 Critchley Group .............. 558,951
-----------
Health Care Equipment &
Supplies - 3.1%
105,991 Nestor Healthcare Group ...... 1,109,280
90,000 SSL International ............ 1,139,972
-----------
2,249,252
-----------
Road & Rail - 0.2%
56,463 Metroline .................... 124,934
-----------
5,182,855
-----------
United States - 67.8%
Banking - 2.0%
25,000 First Tennessee National ..... 712,500
50,000 Peoples Heritage Financial
Group ...................... 753,125
-----------
1,465,625
-----------
Chemicals - 0.9%
65,000 Airgas* ...................... 617,500
-----------
Commercial Services & Supplies -
5.3%
10,000 24/7 Media* .................. 562,500
20,000 Digital Insight Corp.* ....... 727,500
30,000 FreeShop.com* ................ 1,440,000
25,000 True North Communications .... 1,117,188
-----------
3,847,188
-----------
Communications Equipment -
5.8%
30,000 Copper Mountain Networks* .... 1,462,500
50,000 Dial ......................... 1,215,625
10,000 Gadzoox Networks* ............ 435,625
See accompanying notes to the financial statements.
8
13
Schedule of Investments
December 31, 1999
Govett Smaller Companies Fund (continued)
Shares Description Value
(See Note 1)
COMMON STOCKS - (continued)
Communications Equipment -
(continued)
20,000 Scientific-Atlanta ........... $ 1,112,500
-----------
4,226,250
-----------
Computers & Peripherals - 5.5%
25,000 Legato Systems* .............. 1,720,312
25,000 Online Resources &
Communications* ................... 415,625
26,250 USinternetworking* ........... 1,834,219
-----------
3,970,156
-----------
Diversified Financials - 4.4%
55,000 Blackrock Inc/New York* ...... 945,313
20,000 CIT Group .................... 422,500
20,000 Paine Webber ................. 776,250
40,000 Waddell & Reed Financial ..... 1,085,000
-----------
3,229,063
-----------
Diversified Telecommunication
Services - 14.7%
15,000 Comverse Technology* ......... 2,171,250
55,000 Forsoft* ..................... 701,250
20,000 Rural Cellular Corp .......... 1,810,000
19,000 VoiceStream Wireless* ........ 2,703,937
27,500 Western Wireless* ............ 1,835,625
20,000 WinStar Communications* ...... 1,497,500
-----------
10,719,562
-----------
Electronic Equipment &
Instruments - 15.8%
25,000 AltiGen Communications* ...... 257,812
15,000 CIENA* ....................... 862,500
20,000 Cypress Semiconductor Corp.*.. 647,500
36,000 Electronics for Imaging* ..... 2,092,500
35,000 Jabil Circuit* ............... 2,555,000
35,000 MKS Instruments * ............ 1,264,375
20,000 National Semiconductor* ...... 856,250
30,000 Sawtek* ...................... 1,996,875
15,000 Teradyne* .................... 990,000
-----------
11,522,812
-----------
Health Care Equipment &
Supplies - 1.5%
20,000 Biomet, Inc. ................. 800,000
12,500 Nanogen* ..................... 273,438
-----------
1,073,438
-----------
Media - 6.9%
20,000 Adelphia Communications* ..... 1,312,500
30,000 Southeby's Holdings (Class A). 900,000
14
Shares Description Value
(See Note 1)
Media - (continued)
40,000 Young & Rubicam .............. $ 2,830,000
-----------
5,042,500
-----------
Multiline Retail - 1.7%
30,000 Cutter & Buck, Inc.* ......... 453,750
25,000 Linens N Things * ............ 740,625
-----------
1,194,375
-----------
Oil & Gas - 2.3%
20,000 Smith International, Inc.* ... 993,750
60,000 Stolt Comex Seaway * ......... 663,750
-----------
1,657,500
-----------
Textiles & Apparel - 1.0%
40,000 Wellman Inc. ................. 745,000
-----------
49,310,969
-----------
Total - Common Stocks
(Cost $45,813,428) 72,981,939
-----------
TOTAL INVESTMENTS - 100.4%
(Cost $45,813,428) 72,981,939
Other Assets and Liabilities (net) - (0.4)% (306,861)
-----------
TOTAL NET ASSETS - 100.0% $72,675,078
===========
* Non-income producing security
See accompanying notes to the financial statements.
9
15
Govett International Smaller Companies Fund
Market Conditions During The Year Ended
December 31, 1999
World stockmarkets outside the US produced some impressive returns in 1999,
driven by improved economic growth and the increased investor interest in the
potential of technology stocks and helped by the strength of the US market
itself. The best returns came from Japan, where there were encouraging signs
both of an end to the long-lasting recession and of concerted moves to
liberalize traditional business structures. In Europe the positive developments
in economies took a little longer to come through, although in the UK recovery
was more quickly established, and it became more solid as the year progressed.
The new Euro currency was weak against the US dollar, which reflected more the
strength of the US currency, which was little changed against the pound sterling
and the Yen.
The strength of economies led to increases in interest rates around the world,
and the expectation of further increases, which contributed to a degree of
volatility in stock markets in the second half of the year. The most notable
feature, however, was the exceptional rise in technology and telecommunications
stocks in the final quarter of the year, and especially those involved in the
Internet and e-commerce. This followed the lead set in the US.
Smaller companies generally did better during the year, as would be expected
given the economic background and as was long overdue given their low valuations
relative to larger companies. In the UK smaller companies outperformed
substantially: the FTSE Small Cap Index produced a return of 50.0% and the FTSE
250 Index of mid-sized Companies one of 32.1%. In Japan the TSE Second Section
rose a remarkable 143.9%. In Europe excluding the UK, the performance of smaller
companies was more muted, in part as investors concentrated on larger companies
for technical reasons.
Fund Performance
The Fund performed well over the year, with a return of 55.51% on Institutional
Class shares and 42.49% for the Retail Class shares which compares to a return
from its benchmark, the MSCI World Small Cap Ex-U. S. index, of 18.39% over the
period. During the second half of the year and the year as a whole the Fund
added value through stock selection and benefited from its bias towards
attractive business sectors. Japanese stocks did particularly well, with the
benefits of the restructuring of the Japanese economy and its return to growth.
Current Structure
We believe that the prospects for international stockmarkets remain attractive.
Most forecasts of economic growth have been upgraded and the expectation is for
good growth in 2000 and in 2001, which depends in part on a strong US economy
and will be driven by further progress in Japan and Europe. We believe that
inflation will remain relatively subdued, helped by competitive pressures and by
the potential of e-commerce and wider technological advances to reduce costs in
businesses and with that the costs of goods sold, although commodity prices are
higher, and may rise further. We do expect interest rates to be raised further
in the UK and Europe, but expect these increases to be limited in their extent.
It is possible that concerns on the level of interest rates may unsettle the
bond market and cause volatility in equity markets, especially after the strong
advances they have enjoyed. We would expect the Euro, yen and pound sterling to
hold their own against the dollar.
In an era of low inflation we will retain our focus on high quality companies
that have a proven ability to achieve superior growth given a market position
that will allow the pricing power that protects margins. We intend to maintain
an emphasis on attractive business sectors, such as media and business services,
and especially telecommunications and technology. The pace of technological
change is tremendous and the opportunities and threats that arise from it are
considerable. With the remarkable price rises in technology stocks it is
increasingly important to discriminate and to focus on the true potential of
business; many remain attractive and we expect to find plentiful opportunities
to invest.
We intend to maintain sizeable weightings in electronics, computer equipment,
business services and media. We also intend to continue to have a spread of
investments and to manage the portfolio on a sensible basis.
The continued potential of technology stocks is one of the reasons why we
believe smaller companies will retain their ability to grow quickly from a
smaller base and to benefit from new technologies. Valuations for smaller
companies remain attractive, even after their recent outperformance in some
markets.
While individual stock selections will have a bearing on the weightings in
geographical areas, we do not currently intend to change dramatically the
position from the year-end. The outlook for emerging markets is positive and we
see scope to invest on a limited basis in certain stocks, based on our expertise
in that area.
10
16
Fund's Country Allocation
Percentage of Fund's Total Net Assets as of December 31, 1999
Country Percent (%)
United Kingdom 34.2%
Japan 24.8%
Spain 7.3%
Finland 5.7%
Italy 5.0%
Denmark 3.2%
France 3.1%
Germany 3.0%
Thailand 2.4%
Belgium 2.3%
Norway 1.7%
Other 7.3%
12/31/98 -12/31/99 Change in Value of a $10,000 Investment
in Govett International
Smaller Companies Fund vs. MSCI World Small Cap Ex-U.S. Index
[GRAPHIC OMITTED]
International Smaller Companies
PLOT POINTS
MSCI World Small Cap Int Smaller Co Fund
12/31/1998 10,000.00 10,000.00
Jun-99 10,555.00 13,135.00
Dec-99 11,839.00 15,551.00
Fund's Average Annual Class I
Total Return Institutional Shares
One Year 55.51%
Three Year N/A
Five Year N/A
Since Inception (12/31/98) 55.51%
This graph compares the Fund's Class I performance with the MSCI World Small Cap
Ex-U.S. Index, a broad-based unmanaged index that represents the general
performance of international equity markets including exposure to emerging
markets. Total returns for the Fund at NAV and the index include reinvestment of
all dividends and capital gains. The indices do not include commissions or fees
that an investor purchasing the securities in the indices would pay. The total
return line for the indices does not include operating expenses (such as
transactions costs, management fees and sales charges) that reduce return. Past
performance is no guarantee of future results, and the investment return and
principal value of an investment in the Fund will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. Although the investment characteristics of the indices are similar to
those of the Fund, the securities owned by the Fund and those composing each
index are likely to be different, and any securities that the Fund and the
indices have in common are likely to have different weightings in the respective
portfolios. Investors cannot invest directly in the indices. The graph presents
the performance of the International Smaller Companies Fund's Institutional
Class shares which have been in existence since the Fund's inception. The
Performance of the International Smaller Companies Fund's Retail Shares will
differ based upon the different inception date and higher fees assessed to that
class.
11
17
Schedule of Investments
December 31, 1999
Govett International Smaller Companies Fund
Shares Description Value
(See Note 1)
Common Stocks - 92.7%
Belgium - 2.3%
500 Colruyt . . . . . . . . . . . . . $ 28,738
----------
Denmark - 3.2%
580 International Service System. . . . 39,052
----------
Finland - 5.7%
2,000 Perlos* . . . . . . . . . . . . . . 70,584
----------
France - 3.1%
150 Cap Gemini Sogeti . . . . . . . . . 38,116
----------
Germany - 3.0%
9 Porsche . . . . . . . . . . . . . . 24,503
900 Vivanco Gruppe* . . . . . . . . . . 11,798
----------
36,301
----------
Italy - 5.0%
2,700 Class Editori . . . . . . . . . . . 47,100
1,900 Simint. . . . . . . . . . . . . . . 15,039
----------
62,139
----------
Japan - 24.8%
1,000 Arrk Corp.* . . . . . . . . . . . . 24,552
300 Doutor Coffee . . . . . . . . . . . 24,357
400 Fuji Soft ABC . . . . . . . . . . . 31,302
1,000 Kyorin Pharmaceutical . . . . . . . 35,313
520 H.I.S.C.O . . . . . . . . . . . . . 37,081
1,000 Meitec. . . . . . . . . . . . . . . 31,791
5,000 Nichido Fire & Marine Insurance Co.,
Ltd.. . . . . . . . . . . . . . . 28,759
300 Noritsu Koki Co. Ltd. . . . . . . . 11,445
300 People. . . . . . . . . . . . . . . 23,476
3,000 Tokyo Biso Kogyo Corp. . . . . . . 32,838
2,000 Tsubaki Nakashima . . . . . . . . . 25,413
----------
306,327
----------
Norway - 1.7%
1,700 Merkantildata . . . . . . . . . . . 20,614
----------
Spain - 7.3%
2,300 Indra Sistemas. . . . . . . . . . . 43,253
2,150 NH Hotels*. . . . . . . . . . . . . 24,238
1,200 Superdiplo*.. . . . . . . . . . . . 22,990
----------
90,481
----------
Thailand - 2.4%
7,500 Total Access Communication*.. . . . 29,550
----------
United Kingdom - 34.2%
7,333 Cannons Group . . . . . . . . . . . 21,733
3,915 Critchley Group . . . . . . . . . . 22,131
1,400 Filtronic . . . . . . . . . . . . . 47,484
10,100 First Choice Holidays . . . . . . . 21,369
4,200 First Technology. . . . . . . . . . 36,749
18
Shares Description Value
(See Note 1)
United Kingdom - (continued)
10,300 Grantchester Holdings . . . . . . $ 25,286
2,000 Guardian IT . . . . . . . . . . . . 31,139
4,700 J.D. Wetherspoon. . . . . . . . . . 32,944
1,673 Metroline. . . . . . . . . . . . . . 3,702
23,650 Miller Fisher Group . . . . . . . . 26,451
2,780 Nestor Healthcare Group . . . . . . 29,095
6,500 Redrow Group. . . . . . . . . . . . 20,786
2,500 RM. . . . . . . . . . . . . . . . . 34,926
8,500 Saatchi & Saatchi . . . . . . . . . 50,932
1,325 SSL International . . . . . . . . . 16,783
----------
421,510
----------
Total - Common Stocks (Cost $828,259) 1,143,412
----------
TOTAL INVESTMENTS - 92.7%
(Cost $828,259) 1,143,412
Other Assets and Liabilities (net) - 7.3% 90,266
----------
TOTAL NET ASSETS - 100.0% $1,233,678
==========
* Non-income producing security
Sector Allocation
Electronic Components & Instruments 15.5%
Services 12.4
Electricals 9.8
Health & Personal Care 7.6
Leisure & Tourism 7.3
Broadcasting & Publishing 7.1
Automobiles 4.5
Insurance 3.9
Food & Household Products 3.9
Transportation 2.9
Other 17.8
-----
92.7
Other Assets and Liabilities (net) 7.3
-----
Total Net Assets 100.0%
=====
See accompanying notes to the financial statements.
12
19
Govett International Equity Fund
Market Conditions During The Year Ended
December 31, 1999
The year 1999 was characterized by a significant improvement in the prospects
for global growth, helped in particular by an earlier and stronger than expected
recovery in the Asian economies but also by continuing strong growth in the US
and firmer growth in Europe and the UK. As a result, the pre-occupation of the
markets changed from concern about the adverse implications of the Asian
financial crisis for global economic growth to concern about the implications of
stronger growth for inflation.
The consequence of this was that the previous downward trend in the interest
rate cycle was reversed during 1999 and rates were increased in the UK and
Europe (while remaining low in Japan). In the UK, rates were increased by a
cumulative 0.5% between September and November. In Europe, the cut of 0.5% in
rates in April 1999 was reversed in November (although the current rate of 3.0%
remains quite low in absolute terms).
Equity markets generally rose strongly in the first half of the year, continuing
to respond positively to the cuts in interest rates, which had been induced by
the Asian crisis. However, when the economic growth prospects improved and the
markets began to focus on the risk of a pick-up in inflation and in interest
rates, equity markets became quite volatile and weakened somewhat in the third
quarter. They subsequently recovered strongly in the final months of the year,
helped by favorable inflation data, by a new wave of corporate activity
(especially in the telecommunications sector) and by strong buying interest in
technology stocks.
The markets took considerable comfort from the fact that US inflation remained
well behaved, notwithstanding that the economy continued to grow strongly. In
this regard, there continue to be global competitive forces constraining the
rate of global inflation.
For the year as a whole, equity markets performed strongly, with the UK and
European markets setting new record highs late in the year. Of particular note
were the exceptional returns from the Japanese market (reflecting a firmer
economy and improved prospects for corporate restructuring) and from the other
Asian markets, which were largely due to the earlier, and stronger than expected
economic recovery in the region. A particular feature of developed equity
markets was the exceptional growth in technology stocks.
Fund Performance
International Equity Fund Class A returned 27.95% for the year ended December,
31, 1999, compared to 31.03% and 27.30% for the MSCI EAFE + EMG and the MSCI
EAFE indices, respectively. While the developed equity markets continued to make
up the largest element of the fund, a strong allocation to developing markets
was in place all year. Within the developed area, the Fund favoured European
equity markets, maintaining an average weighting of 48.2% in this region over
the period. Reflecting the improved prospects for corporate restructuring in
Japan, the Fund increased its' exposure to this market from less than 10.20% at
the start of the year to 26.5% by the year end. Exposure to emerging markets was
consistently high during 1999, with Asia representing the heaviest weighting.
Within Latin America, Brazil and Mexico were our preferred markets, with
invested positions of 2.9% and 2.5% respectively.
Current Strategy and Outlook for 2000
As we enter the new millennium, the Fund's largest exposures are in the
developed markets, with a European weighting of 43.4%, followed by Japan at
26.5% and the UK at 12.0%. The outlook for Continental European equity markets
continues to be very positive, with a cyclical upturn in economic activity
providing a favorable environment for corporate profitability. This trend will
build on the structural improvements under way in corporate returns on capital
in Europe. Despite a strong return from the Asian markets in 1999, the tone
remains positive and we see considerable further upside, particularly from the
North East Asian market of Korea where the Fund holds 3.8% of its assets. Latin
America should join the Asian growth recovery story of 1999 in 2000. On a
sectoral basis, overall the Fund is overweight Capital Equipment and underweight
Oils and Consumer Goods.
The investment environment over the next year is likely to be one of firmer
global economic growth, a likely modest cyclical upturn in inflation and further
modest increases in interest rates in the UK and Europe. In this regard, our
view remains that global competitive pressures, combined with the positive
effects of new technology on productivity and business costs, will restrain the
extent of the updrift in inflation in the current economic cycle.
Correspondingly, the extent to which interest rates may need to be increased
should be limited.
13
20
Fund's Regional Allocation
Percentage of Fund's Total Net Assets as of December 31, 1999
Developed Markets Percent (%)
Europe 57.1%
Japan 26.5%
Emerging Markets
Asia 8.8%
Latin America 5.3%
Europe, Middle East & Africa 2.8%
Other (0.5)%
Fund's Average Annual Class A Class I
Total Return Retail Shares Institutional Shares
One Year 27.95% 28.25%
Three Year 14.80% N/A
Five Year 13.50% N/A
Since Inception 1/7/92 12.28% 17.94%
1/7/92 - 12/31/99 Change in Value of a $10,000 Investment in
Govett International
Equity Funds vs. MSCI EAFE Index and vs. MSCI EAFE+EMG
[GRAPHIC OMITTED]
International Equity Fund
PLOT POINTS
MSCI EAFE&EMG INT'L EQUITY NAV MSCI EAFE
01/07/1992 10,000 10,000 10,000
Jun-92 9,124 10,090 9,016
Dec-92 8,927 9,468 8,815
Jun-93 10,941 11,685 10,882
Dec-93 12,131 14,628 11,719
Jun-94 13,030 13,976 12,765
Dec-94 13,051 13,394 12,664
Jun-95 13,205 13,908 13,014
Dec-95 14,129 14,869 14,127
Jun-96 14,901 16,413 14,788
Dec-96 14,964 16,673 15,025
Jun-97 16,897 18,237 16,733
Dec-97 15,149 18,554 15,335
Jun-98 16,934 19,281 17,801
Dec-98 17,412 19,719 18,453
Jun-99 21,213 23,384 22,582
Dec-99 22,815 25,230 23,488
This graph compares the Fund's Class A Retail Shares performance with the MSCI
Europe Australia Far East Index, a broad-based unmanaged index that represents
the general performance of international equity markets and with the MSCI
EAFE+EMG Index, a broad-based unmanaged index that represents the general
performance of international equity markets including exposure to emerging
markets. Total returns for the Fund at NAV and the index include reinvestment of
all dividends and capital gains. The indices do not include commissions or fees
that an investor purchasing the securities in the indices would pay. The total
return line for the indices does not include operating expenses (such as
transactions costs, management fees and sales charges) that reduce return. Past
performance is no guarantee of future results, and the investment return and
principal value of an investment in the Fund will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. Although the investment characteristics of the indices are similar to
those of the Fund, the securities owned by the Fund and those composing each
index are likely to be different, and any securities that the Fund and the
indices have in common are likely to have different weightings in the respective
portfolios. Investors cannot invest directly in the indices. The graph presents
the performance of the International Equity Fund's Retail Shares which have been
in existence since the Fund's inception. The performance of the International
Equity Fund's Institutional Class Shares will differ based upon the different
inception date and higher fees assessed to that class.
14
21
Schedule of Investments
December 31, 1999
Govett International Equity Fund
Shares Description Value
(See Note 1)
Common Stocks - 98.3%
Brazil - 1.4%
4,660 CVRD . . . . . . . . . . . . . . $ 129,913
1,400 CVRD ADR. . . . . . . . . . . . . . 39,030
3,930 Pao de Acucar GDR. . . . . . . . . 126,988
---------
295,931
---------
China - 0.3%
5,900 Huaneng Power International ADR 62,319
---------
Finland - 3.5%
4,055 Nokia Oyj. . . . . . . . . . . . . 735,994
---------
France - 14.1%
5,685 Accor* . . . . . . . . . . . . . . 274,986
2,055 Aventis. . . . . . . . . . . . . . 119,563
2,975 Axa . .. . . . . . . . . . . . . . 415,178
3,040 Banque Nationale de Paris. . . . . 280,789
1,164 Groupe Danone. . . . . . . . . . . 274,650
641 L' Air Liquide . . . . . . . . . . 107,424
1,624 Lafarge. . . . . . . . . . . . . . 189,302
840 Suez Lyonnaise des Eaux. . . . . . 134,760
3,761 Total Fina . . . . . . . . . . . . 502,493
867 Valeo . . . . . . . . . . . . . . . 66,967
6,763 Vivendi* . . . . . . . . . . . . . 611,365
---------
2,977,477
---------
Germany - 9.6%
348 Celanese AG. . . . . . . . . . . . . 6,457
4,835 Deutsche Bank AG . . . . . . . . . 408,800
4,461 Hoechst. . . . . . . . . . . . . . 139,671
2,285 HypoVereinsbank. . . . . . . . . . 156,216
2,786 Mannesmann AG. . . . . . . . . . . 675,346
168 SAP. . . . . . . . . . . . . . . . 102,573
2,598 Siemens AG*. . . . . . . . . . . . 332,701
4,030 Viag AG . . . . . . . . . . . . . . 75,299
2,228 Volkswagon . . . . . . . . . . . . 125,810
---------
2,022,873
---------
Greece - 0.9%
2,542 Alpha Credit Bank. . . . . . . . . 200,180
---------
Hong Kong - 1.6%
14,000 Hutchison Whampoa. . . . . . . . . 203,512
56,000 New World Development. . . . . . . 126,069
---------
329,581
---------
Hungary - 0.7%
4,000 Magyar Tavkozlesi Rt. ADR. . . . . 144,000
---------
India - 0.9%
8,000 Mahanager Telephone Nigam GDR* . 90,000
8,250 State Bank of India GDR. . . . . . 100,650
---------
190,650
---------
22
Shares Description Value
(See Note 1)
Ireland - 0.4%
21,600 Eircom. . . . . . . . . . . . . . $ 94,309
---------
Italy - 1.5%
4,843 Assicurazioni Generali . . . . . . 160,177
10,780 Instituto Bancario San Paolo di
Torino . . . . . . . . . . . . . 146,636
---------
306,813
---------
Japan - 26.5%
15,000 Bank of Tokyo-Mitsubushi . . . . . 208,941
5,000 Fuji Bank Ltd. . . . . . . . . . . 48,567
10,000 Fuji Heavy Industries . . . . . . . 68,473
10,000 Fujitsu. . . . . . . . . . . . . . 455,835
24,000 Hitachi. . . . . . . . . . . . . . 385,014
1,000 Honda Motor . . . . . . . . . . . . 37,171
4,000 Ito-Yokado . . . . . . . . . . . . 434,315
14,000 Matsushita Electric Industries . . 387,557
28,000 Mazda Motor. . . . . . . . . . . . 124,621
48,000 Mitsubishi Heavy Industries, Ltd. .160,109
106,000 Nippon Steel . . . . . . . . . . . 247,814
27 Nippon Telegraph & Telephone . . . 462,193
5,200 Promise . . . . . . . . . . . . . .264,502
10,000 Ricoh . . . . . . . . . . . . . . .188,399
12,000 Sakura Bank . . . . . . . . . . . . 69,490
17,000 Sekisui House . . . . . . . . . . .150,494
9,000 Shin-Etsu Chemical . . . . . . . . 387,362
2,200 Sony . . . . . . . . . . . . . . . 652,059
14,000 Sumitomo Bank . . . . . . . . . . .191,588
43,000 Sumitomo Chemical Co. . . . . . . .201,898
30,000 Sumitomo Marine & Fire Insurance . 184,877
6,000 Takeda Chemical Industries . . . . 296,390
---------
5,607,669
---------
Korea - 3.8%
7,800 Korea Electric Power ADR . . . . . 130,650
1,814 Samsung Electronics GDR . . . . . .217,453
5,780 Samsung Electronics GDR (non-voting
shares). . . . . . . . . . . . . 459,510
---------
807,613
---------
Mexico - 2.5%
106,100 Cifra* . . . . . . . . . . . . . . 201,903
2,850 Telefonos de Mexico ADR . . . . . .320,625
---------
522,528
---------
Netherlands - 7.5%
48 ABN-AMRO Holdings NV . . . . . . . . 1,200
621 Equant . . . . . . . . . . . . . . .70,571
4,964 Fortis . . . . . . . . . . . . . . 178,945
4,751 ING Groep . . . . . . . . . . . . .287,153
9,236 Koninklijke Ahold . . . . . . . . .273,713
917 Royal Dutch Petroleum . . . . . . . 56,265
See accompanying notes to the financial statements.
15
23
Schedule of Investments
December 31, 1999
Govett International Equity Fund (continued)
Shares Description Value
(See Note 1)
Common Stocks - (continued)
Netherlands - (continued)
1,000 United Pan-Europe
Communications NV. . . . . . . $ 128,060
11,229 VNU . . . . . . . .. . . . . . . . 590,821
---------
1,586,728
---------
Philippines - 0.4%
3,100 Philippine Long Distance Telephone
ADR . . . . . . . . . . . . . . . 80,213
---------
South Africa - 0.4%
314 Edgars Consolidated Stores . . . . . 4,013
8,600 South African Breweries . . . . . . 87,538
---------
91,551
---------
Sweden - 0.9%
4,364 Atlas Copco. . . . . . . . . . . . 129,260
2,130 Sandvik AB. . . . . . . . . . . . . 67,981
---------
197,241
---------
Switzerland - 5.2%
92 Nestle . . . . . . . . . . . . . . 168,623
156 Novartis . . . . . . . . . . . . . 229,173
13 Roche Holding. . . . . . . . . . . 154,383
430 Swisscom*. . . . . . . . . . . . . 173,999
732 UBS* . . . . . . . . . . . . . . . 197,776
317 Zurich Allied. . . . . . . . . . . 180,858
---------
1,104,812
---------
Taiwan - 1.4%
21,021 Asustek Computer GDR . . . . . . . 292,717
---------
Thailand - 0.4%
55,000 Thai Farmers Bank . . . . . . . . . 91,995
---------
Turkey - 1.1%
7,812,000 Yapi ve Kredi Bankasi. . . . . . . 241,244
---------
United Kingdom - 13.3%
6,096 Allied Zurich*. . . . . . . . . . . 71,824
2,468 AstraZeneca. . . . . . . . . . . . 102,362
3,546 Barclays . . . . . . . . . . . . . 102,057
14,390 Barratt Developments. . . . . . . . 66,935
17,132 BP Amoco . . . . . . . . . . . . . 172,244
6,626 British Airways . . . . . . . . . . 43,234
9,706 British American Tobacco. . . . . . 55,141
1,729 British Energy . . . . . . . . . . . 9,913
4,746 British Telecommunications . . . . 115,975
5,118 CGU . . . . . . . . . . . . . . . . 82,454
14,500 Cookson Group . . . . . . . . . . . 58,547
10,588 Diageo. . . . . . . . . . . . . . . 85,161
1,350 Energis . . . . . . . . . . . . . . 64,844
6,550 Glaxo Wellcome . . . . . . . . . . 185,130
10,379 Granada Group. . . . . . . . . . . 105,188
8,280 Halifax . . . . . . . . . . . . . . 91,805
24
Shares Description Value
(See Note 1)
United Kingdom - (continued)
17,878 Invensys. . . . . . . . . . . . . $ 97,307
12,101 Lloyds TSB Group . . . . . . . . . 151,370
9,500 Marconi. . . . . . . . . . . . . . 168,087
5,647 National Westminister Bank . . . . 121,302
9,680 Prudential . . . . . . . . . . . . 190,736
7,039 Railtrack Group. . . . . . . . . . 118,234
7,054 Severn Trent. . . . . . . . . . . . 70,066
10,899 Smithkline Beecham . . . . . . . . 139,063
1,800 Smiths Industries . . . . . . . . . 26,891
13,346 Unilever. . . . . . . . . . . . . . 98,183
42,414 Vodafone Group . . . . . . . . . . 210,131
----------
2,804,184
----------
Total - Common Stocks (Cost $15,433,055) 20,788,622
----------
Preferred Stocks - 2.2%
Brazil - 1.5%
9,021,000 Telecentro Sul Participacoes . . . 164,740
5,839,849 Telesp Participacoes . . . . . . . 141,592
----------
306,332
----------
Germany - 0.7%
2,250 Henkel KGaA. . . . . . . . . . . . 149,740
----------
Total - Preferred Stocks (Cost $475,668) 456,072
----------
TOTAL INVESTMENTS - 100.5%
(Cost $15,908,723) 21,244,694
Other Assets and Liabilities (net) - (0.5)% (107,309)
----------
TOTAL NET ASSETS - 100.0% $21,137,385
===========
* Non-income producing security
ADR American Depositary Receipt
GDR Global Depositary Receipt
Sector Allocation
Banking 13.1%
Electricals 11.8
National Telecommunications 6.5
Electronic Components & Instruments 6.1
Insurance 6.0
Chemicals 5.1
Food & Household Products 5.0
Industrial Components 4.4
Regional Telecommunications 4.1
Construction & Housing 4.0
Other 34.4
-----
100.5
Other Assets and Liabilities (net) (0.5)
-----
Total Net Assets 100.0%
=====
See accompanying notes to the financial statements.
16
25
Govett Global Income Fund
Market Conditions During The Year Ended
December 31, 1999
The major world bond markets performed poorly in 1999. With the exception of
Japan, returns were significantly negative as bonds yields rose in response to
strong or prospectively strong economic growth with the attendant dangers of
rising inflation. In the pivotal United States Treasury market, the benchmark
ten-year bond rose some 1.79% from 4.65% at end - 1998 to 6.44% at end - 1999.
Eurozone bond markets saw these yields increase by some 1.50% on average - the
yield on the benchmark ten-year German bond ending the year at 5.32% as against
3.87% a year earlier. The United Kingdom exhibited a similar pattern with
ten-year yields ending the year at 5.48% - 1.12% higher than a year earlier.
The common theme of increasing rates of economic growth underlay these poor
performances. The economy of the United States remained strong confounding
consensus expectations throughout the year. The cumulative cuts of 0.75% to
4.75% in the Federal Funds rate in late 1998 to protect against any negative
impact the U.S. debt crisis in Russia, the difficulties of major hedge funds and
the travails of some Latin American economies might have had, were quickly
perceived by the Treasury bond market to have been sufficient and might soon be
reversed. Buoyant consumer demand, running on occasions, at annual rates of up
to 8% in real terms was the main engine of growth with the personal savings
ratio consistently falling during the year to finance this demand as strong
stock and real estate markets obviated requirement for high cash reserves. The
bond market moved quickly to discount this likely pattern of rising interest
rates and by mid-year the bellweather 30 - year bond had risen to 6%
approximately from 5.09% at end 1998. The ongoing strength of the stock market
by fuelling consumer demand, continued to undermine bond valuations and
increases of 1/4% each in U.S. Federal Funds in August and November were largely
seen as necessary, but insufficient, by bond investors. Towards the end of the
year indicators were pointing to record or near record levels of consumer
confidence and further increases in short-term rates by the U.S. Federal Reserve
were increasingly being viewed as inevitable once possible year-end difficulties
were overcome.
Eurozone bond markets started the year in positive mode. Returns averaged about
1.5% in January as the fallout form the Russian debt crisis were expected to
impact quite strongly on these countries particularly Germany. Deteriorating
prospects for growth were therefore the main factor behind these returns.
However, growing conflicts on the appropriate policy prescription and indeed
which agency to address the problem saw the bond markets give up these gains by
early March. The cut in early April of 1/2% to 2 1/2% in the new European
Central Bank in key short-term interest rate finally resolved this difficulty.
Like the Federal Reserve cuts of late 1998, this 1/2% cut in rates gradually
came to be seen to be the last in the current cycle and, with economic
indicators increasingly pointing to growth expanding, its reversal began to be
priced in bond markets. The depreciation of the new common currency of the zone
- - the Euro - particularly its loss of nearly 13% by mid-year against the U.S.
dollar was also a factor in causing yields to rise. Bond investors who had seen
the new currency as an alternative to the dollar sought, in part at least, to
minimize their losses and disinvest from the Eurozone bond markets.
This trend of improving economic prospects and a depreciating currency continued
to undermine the bond markets for the remainder of the year. Signs of conflict
within the ECB, diminishing its credibility as a substitute for the former
Bundesbank and some slowness in effecting necessary economic reforms, added to
the general malaise.
In the United Kingdom, pattern of events were similar to that of continental
Europe. The dangers from a credit "crunch" arising amongst others, from the
Russian debt crisis, saw short-term interest rates being cut aggressively from 6
1/4% at end - 1998 to 5% by June. These cuts provided some support for the
shorter maturity bonds but longer term bonds tended to follow the pattern of the
United States particularly as indicators of economic recovery, notably in
increasing house prices, were observed. The gradual recovery of the industrial
sector in spite of the strength of sterling was also a notable factor.
In Japan, the sharp rise in bond yields towards the end of 1998 was mainly
sparked by the heavy volume of issuance expected from the government's fiscal
stimuli proposals. However, with little other investment outlets, no notable
threat of inflation and a traditionally high saving rate, the market recovered
and delivered a positive return of over 5% for 1999. Potentially negative
factors, such as the proposal to "monetize" part of the government's bond
issuance program (i.e. financing the bonds by way of credit expansion rather
than savings absorption) do not seem to have been pursued as yet.
Fund Performance
For the year ended December 31, 1999, the total return at NAV of the Fund was
- -8.06%. [This figure represents reinvestment of distributions of 30 cents per
share]. In comparison the Salomon Smith Barney World Government Bond Index (the
"Index") produced a return of -4.27%.
Overall the funds duration positioning during the year was a marginal negative
contributor to performance. An above-index duration in the United States
Treasury bond market was almost fully offset by a similar negative position in
the Eurozone markets while the funds lack of exposure to Japanese bonds was a
minor negative as bond yields fall during the year. Allocation of the fund over
bond markets was, in the overall, a small negative. Currency positioning
accounted for the major differences from index performance. In this respect,
exposure to the Japanese Yen for much of the year was the major influence with
the gradual reductions in U.S. dollar and pound sterling exposures minor
contributors.
Current Strategy & Outlook for 2000
Above-index duration commitments to the United States Treasury and Eurozone
(largely via the German market) bonds are the main features of the funds current
strategy. This reflects our view that with end-year and emerging economies
complications now absent, the Federal Reserve is expected to be focused almost
exclusively on domestic considerations particularly the threat of inflation from
the significantly above-average pace of activity while in Europe, markets have
tended to over discount prospective inflation and interest rate pressures. In
Japan the expected continuance of the policy of very low short-term interest
rates should help underpin the bond market but evidence of monetization and/or
ongoing reliance on fiscal stimuli indicate sub-index positionings on the longer
view.
17
26
Fund's Country Allocation
Percentage of Fund's Total Net Assets as of December 31, 1999
Country Percent (%)
United States 40.3%
Italy 15.6%
Germany 9.2%
Ireland 7.5%
Sweden 6.6%
Norway 5.0%
Netherlands 4.2%
New Zealand 4.1%
Denmark 3.2%
Austria 2.7%
United Kingdom 1.8%
Other 1.2%
1/7/92 - 12/31/99 Change in Value of a $10,000 Investment in
Govett Global Income
Fund vs. Salomon Brothers World Government Bond Index.19
[GRAPHIC OMITTED]
Global Income
PLOT POINTS
Salomon Brothers Global Income NAV
01/07/1992 10,000 10,000
Jun-92 10,313 10,300
Dec-92 10,553 10,895
Jun-93 11,441 11,759
Dec-93 11,953 12,819
Jun-94 12,034 11,588
Dec-94 12,234 11,645
Jun-95 14,295 12,648
Dec-95 14,583 13,289
Jun-96 14,348 13,075
Dec-96 15,090 13,334
Jun-97 14,904 12,800
Dec-97 15,125 13,286
Jun-98 15,547 13,680
Dec-98 17,440 14,303
Jun-99 17,987 13,955
Dec-99 17,078 13,377
Fund's Average Annual At Net
Total Return Asset Value
One Year -8.06%
Three Year -0.59%
Five Year 2.41%
Since Inception (1/7/92) 3.48%
This graph compares the Fund's performance with Salomon Brothers World
Government Bond Index, a broad-based unmanaged index that represents the general
performance of government bonds in major bond markets. Total returns for the
Fund at NAV and the index include reinvestment of all dividends and capital
gains. The index does not include commissions or fees that an investor
purchasing the securities in the index would pay. The total return line for the
index does not include operating expenses (such as transactions costs,
management fees and sales charges) that reduce returns. Past performance is no
guarantee of future results, and the investment return and principal value of an
investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than the original cost. Although the
investment characteristics of the index are similar to those of the Fund, the
securities owned by the Fund and those composing the index are likely to be
different, and any securities that the Fund and the index have in common are
likely to have different weightings in the respective portfolios. Investors
cannot invest directly in the index.
18
27
Govett Global Income Fund
Schedule of Investments
December 31, 1999
Principal Description Value
Amount (See Note 1)
Corporate Bonds - 10.0%
Ireland - 5.0%
USD 200,000 BGB Finance
6.50%, 09/03/01 . . . . . . . $198,510
----------
Norway - 5.0%
USD 200,000 Telenor Series E
5.75%, 03/26/01 . . . . . . . 197,380
----------
Total Corporate Bonds
(Cost $399,829) 395,890
----------
Government Bonds and
Notes - 87.7%
Austria - 2.7%
EU 100,000 Republic of Austria
6.25%, 05/31/06 . . . . . . . 106,230
----------
Denmark - 3.2%
DKK 900,000 Kingdom of Denmark
6.00%, 11/15/09 . . . . . . . 125,267
----------
Germany - 9.2%
EU 50,000 Deutschland Republic
5.625%, 01/04/28 . . . . . . . 48,023
EU 100,000 Deutschland Republic
6.00%, 06/20/16 . . . . . . . 105,625
EU 200,000 Deutschland Republic
6.25%, 01/04/24 . . . . . . . 209,232
----------
362,880
----------
Italy - 15.6%
JPY 55,000,000 Government of Italy
3.75%, 06/08/05 . . . . . . . 613,699
----------
Netherlands - 4.2%
EU 150,000 Netherlands Government
7.00%, 06/15/05 . . . . . . . 164,487
----------
28
Principal Description Value
Amount (See Note 1)
New Zealand - 4.1%
NZD 300,000 New Zealand Government
8.00%, 11/15/06 . . . . . . . $163,170
----------
Sweden - 6.6%
SEK 2,000,000 Government of Sweden
13.00%, 06/15/01 . . . . . . 262,016
----------
United Kingdom - 1.8%
GBP 40,000 U.K. Treasury
9.75%, 08/27/02 . . . . . . . 69,449
----------
United States - 40.3%
USD 400,000 U.S. Treasury Bond
6.50%, 11/15/26 . . . . . . . 389,875
USD 400,000 U.S. Treasury Note
6.125%, 11/15/27 . . . . . . 372,000
USD 200,000 U.S. Treasury Note
6.50%, 08/31/01 . . . . . . . 200,813
USD 600,000 U.S. Treasury Note
7.50%, 02/15/05 . . . . . . . 625,875
----------
1,588,563
----------
Total - Government Bonds and Notes
(Cost $3,651,326) 3,455,761
----------
Preferred Stocks- 2.5%
Ireland - 2.5%
GBP 3,500 Bank of Ireland*- . . . . . . . . 99,631
----------
Total - Preferred Stocks (Cost $105,355) 99,631
----------
TOTAL INVESTMENTS - 100.2%
(Cost $4,156,510) 3,951,282
Other Assets and Liabilities (net) - (0.2)% (599)
----------
TOTAL NET ASSETS - 100.0% $3,950,683
==========
* Non-income producing security
Forward Foreign Currency Contracts
In Net
Settle Contracts to Exchange Unrealized
Date Currency Deliver/Receive Currency For Appreciation
-------------------------------------------------------------------------
Sales 1/26/00 EU 97,314 USD 98,321 $1,679
The principal amounts of each non-U.S. dollar denominated contract is stated in
the currency in which the contract is denominated.
DKK - Danish Krone
EU - Euro
GBP - British Pound
JPY - Japanese Yen
NZD - New Zealand Dollar
SEK - Swedish Krone
USD - United States Dollar
19
29
Statements of Assets and Liabilities
December 31, 1999
Emerging International
Markets Smaller Smaller International Global
Equity Companies Companies Equity Income
Fund Fund Fund Fund Fund
ASSETS:
Investments, at value (Note 1) -
(see accompanying Schedule of Investments) ........ $17,737,675 $72,981,939 $1,143,412 $21,244,694 $3,951,282
Cash ................................................ 292,611 -- 73,640 -- --
Foreign currency, at value (Note 1) ................ 118,135 107,669 54,296 -- 17,983
Receivable from:
Net open forward currency contracts ................. -- -- -- -- 1,679
Fund shares sold .................................... 7,144 5,265 -- 15,115 --
Dividends and interest .............................. 34,442 34,896 1,063 35,836 92,180
Reimbursement from investment manager (Note 2) ...... 32,981 -- 13,690 9,640 13,602
Other assets ........................................ 12,660 12,653 12,661 24,580 12,660
----------- ----------- ---------- ----------- ----------
Total assets ........................................ 18,235,648 73,142,422 1,298,762 21,329,865 4,089,386
----------- ----------- ---------- ----------- ----------
LIABILITIES:
Overdraft payable ................................... -- 58,998 -- 50,289 53,711
Payable for:
Fund shares repurchased ............................. 33,231 203,099 -- 53,284 24,742
Distributions declared .............................. -- -- -- -- 5,800
Investment manager (Note 2) ......................... 14,486 35,185 999 17,246 2,624
Professional fees ................................... 43,900 43,900 43,900 43,900 43,900
Accrued expenses and other liabilities .............. 85,232 126,162 20,185 27,761 7,926
----------- ----------- ---------- ----------- ----------
Total liabilities ................................... 176,849 467,344 65,084 192,480 138,703
----------- ----------- ---------- ----------- ----------
Net assets .......................................... $18,058,799 $72,675,078 $1,233,678 $21,137,385 $3,950,683
=========== =========== ========== =========== ==========
NET ASSETS CONSIST OF:
Paid-in-capital ..................................... $24,845,215 $72,413,404 $851,933 $15,381,480 $8,852,475
Undistributed net investment loss ................... (32,720) (1,994) (1,293) (7,670) (28,186)
Accumulated net realized gain (loss) on
investments and foreign currency transactions ...... (12,939,390) (26,914,018) 68,160 428,286 (4,666,147)
Net unrealized appreciation (depreciation)
on investments, forward currency contracts
and net other assets (net of accrued foreign
country tax unrealized appreciation) .............. 6,185,694 27,177,686 314,878 5,335,289 (207,459)
----------- ----------- ---------- ----------- ----------
Net assets .......................................... $18,058,799 $72,675,078 $1,233,678 $21,137,385 $3,950,683
=========== =========== ========== =========== ==========
Class A Retail Shares:
Net assets .......................................... $18,058,799 $72,675,078 $67,098 $12,717,966 $3,950,683
=========== =========== ========== =========== ==========
Shares outstanding .................................. 1,334,071 2,532,708 4,524 1,000,041 554,265
=========== =========== ========== =========== ==========
Net Asset Value, offering and redemption
price per share .................................... $13.54 $28.69 $14.83 $12.72 $7.13
=========== =========== ========== =========== ==========
Institutional Class Shares:
Net assets .......................................... $1,166,580 $8,419,419
========== ==========
Shares outstanding .................................. 78,543 658,771
========== ==========
Net Asset Value, offering and redemption
price per share .................................... $14.85 $12.78
========== ==========
Cost of investments ................................. $11,535,450 $45,813,428 $828,259 $15,908,723 $4,156,510
Cost of foreign currency ............................ $107,340 $107,784 $54,833 $-- $17,958
See accompanying notes to the financial statements.
20
30
Statements of Operations
For the year ended December 31, 1999
Emerging International
Markets Smaller Smaller International Global
Equity Companies Companies Equity Income
Fund Fund Fund Fund Fund
Investment income:
Interest* .................................... $21,669 $3,552 $1,363 $10,864 $315,576
Dividends* .................................. 294,132 299,064 8,568 341,838 --
---------- ----------- -------- ---------- ---------
Total investment income ...................... 315,801 302,616 9,931 352,702 315,576
---------- ----------- -------- ---------- ---------
Expenses:
Management fee (Note 2) ...................... 153,534 599,979 9,309 188,289 39,760
Custody and administration fees .............. 154,167 336,893 19,643 147,209 35,535
12b-1 fee Class A (Note 3) ................... 53,708 210,018 120 41,467 18,556
Professional fees ............................ 80,881 66,072 61,095 70,073 66,072
Transfer agency fee .......................... 120,753 487,350 6,334 51,264 17,710
Registration and filing fees ................. 20,967 43,535 14,396 15,745 13,602
Directors' fees and expenses ................. 31,534 34,100 34,220 34,100 34,100
Insurance .................................... 6,844 6,844 6,844 6,844 6,844
Other ........................................ 26,463 90,689 3,995 12,711 5,664
---------- ----------- -------- ---------- ---------
Total expenses ............................... 648,851 1,875,480 155,956 567,702 237,843
---------- ----------- -------- ---------- ---------
Less: Expenses reimbursable and fees waived
by the Manager (Note 2) .................... (345,286) (388,810) (140,717) (143,779) (110,796)
---------- ----------- -------- ---------- ---------
Net operating expenses ....................... 303,565 1,486,670 15,239 423,923 127,047
---------- ----------- -------- ---------- ---------
Net investment income (loss) ................. 12,236 (1,184,054) (5,308) (71,221) 188,529
---------- ----------- -------- ---------- ---------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investment transactions ...................... 1,335,161 17,231,136 146,914 2,229,275 19,672
Foreign currency transactions and forward
foreign currency contracts .................. (126,401) (32,057) (19,784) 8,198 77,182
---------- ----------- -------- ---------- ---------
Net realized gain ............................ 1,208,760 17,199,079 127,130 2,237,473 96,854
---------- ----------- -------- ---------- ---------
Net unrealized appreciation (depreciation) on:
Investments .................................. 7,012,635 16,956,926 315,415 2,595,273 (717,791)
Foreign currency translations ................ 20,246 (658) (537) (1,595) (15,537)
---------- ----------- -------- ---------- ---------
Net unrealized appreciation (depreciation)
during the period ........................... 7,032,881 16,956,268 314,878 2,593,678 (733,328)
---------- ----------- -------- ---------- ---------
Net realized and unrealized gain (loss) ...... 8,241,641 34,155,347 442,008 4,831,151 (636,474)
---------- ----------- -------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations ................... $8,253,877 $32,971,293 $436,700 $4,759,930 $(447,945)
========== =========== ======== ========== =========
*Net of foreign taxes withheld of ............ $13,618 $22,603 $1,040 $36,334 $1,428
========== =========== ======== ========== =========
See accompanying notes to the financial statements.
21
31
Statements of Changes in Net Assets
Emerging Markets Equity Fund Smaller Companies Fund
-----------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
-----------------------------------------------------------------
Increase (decrease) in net assets from:
Operations:
Net investment income (loss) ..................................... $12,236 $7,191 $(1,184,054) $(1,267,489)
Net realized gain (loss) on investment and
foreign currency transactions ................................... 1,208,760 (7,679,065) 17,199,079 (22,950,235)
Net change in unrealized appreciation (depreciation)
on investments, forward currency contracts, foreign
currency, and other assets ...................................... 7,032,881 (914,243) 16,956,268 15,277,839
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations .. 8,253,877 (8,586,117) 32,971,293 (8,939,885)
----------- ----------- ----------- -----------
Distributions to shareholders:
From net investment income: ......................................
Class A Retail Shares .......................................... -- (337,697) -- --
From net realized capital gains: .................................
Class A Retail Shares .......................................... -- -- -- --
Institutional Class Shares ..................................... -- -- -- --
Return of capital ................................................ -- -- -- --
----------- ----------- ----------- -----------
Total distributions to shareholders .............................. -- (337,697) -- --
----------- ----------- ----------- -----------
Fund share transactions (Note 5):
Class A Retail Shares:
Proceeds from shares sold ........................................ 1,150,426 2,989,068 3,160,642 56,126,236
Proceeds from shares issued in connection with
merger of Latin America Fund (Note 9) ........................... -- 1,238,739 -- --
Proceeds from shares issued in connection with
merger of Asia Fund (Note 9) .................................... -- 801,620 -- --
Net asset value of shares issued on reinvestment
of distributions ................................................ -- 313,058 -- --
Cost of shares repurchased ....................................... (6,079,257) (14,583,908) (24,408,684) (114,159,592)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from Class A Retail Shares ...................................... (4,928,831) (9,241,423) (21,248,042) (58,033,356)
----------- ----------- ----------- -----------
Institutional Class Shares:
Proceeds from shares sold ........................................ -- -- -- --
Proceeds from shares issued in connection with
merger of ARK International Equity Portfolio (Note 10) .......... -- -- -- --
Net asset value of shares issued on reinvestment
of distributions ................................................ -- -- -- --
Cost of shares repurchased ....................................... -- -- -- --
----------- ----------- ----------- -----------
Net increase in net assets resulting from
Institutional Class Shares ...................................... -- -- -- --
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from fund share transactions .................................... (4,928,831) (9,241,423) (21,248,043) (58,033,356)
----------- ----------- ----------- -----------
Total change in net assets ....................................... 3,325,046 (18,165,237) 11,723,251 (66,973,241)
Net Assets:
Beginning of period .............................................. 14,733,753 32,898,990 60,951,827 127,925,068
----------- ----------- ----------- -----------
End of Period* ...................................................$18,058,799 $14,733,753 $72,675,078 $60,951,827
=========== =========== =========== ===========
*Including undistributed net investment loss of .................. $(32,720) $(42,101) $(1,994) $(28,208)
(a) Commencement of Operations was December 31, 1998.
See accompanying notes to the financial statements.
22
32
International Smaller
Companies Fund International Equity Fund Global Income Fund
----------------------------------------------------------------------------------------
Year Ended Period Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998(a) 1999 1998 1999 1998
----------------------------------------------------------------------------------------
Increase (decrease) in net assets from:
Operations:
Net investment income (loss) .............. $(5,308) $-- $(71,221) $(92,294) $188,529 $359,699
Net realized gain (loss) on
investment and foreign currency
transactions ............................. 127,130 -- 2,237,473 2,926,017 96,854 (489,249)
Net change in unrealized appreciation
(depreciation) on investments, forward
currency contracts, foreign
currency, and other assets ............... 314,878 -- 2,593,678 112,226 (733,328) 724,064
---------- -------- ----------- ----------- ---------- ----------
Net increase (decrease) in net
assets resulting from operations ......... 436,700 -- 4,759,930 2,945,949 (447,945) 594,514
---------- -------- ----------- ----------- ---------- ----------
Distributions to shareholders:
From net investment income:
Class A Retail Shares ................... -- -- -- -- (143,931) (78,701)
From net realized capital gains: .......... (2,996) -- (1,385,617) (1,795,430) -- --
Class A Retail Shares ................... (51,959) -- (898,400) (792,286) -- --
Institutional Class Shares .............. -- -- -- -- (65,494) (276,101)
---------- -------- ----------- ----------- ---------- ----------
Return of capital ......................... (54,955) -- (2,284,017) (2,587,716) (209,425) (354,802)
---------- -------- ----------- ----------- ---------- ----------
Total distributions to shareholders ....... 92,586 -- 814,529 1,654,711 65,959 130,822
Fund share transactions (Note 5):
Class A Retail Shares:
Proceeds from shares sold ................. -- -- -- -- -- --
Proceeds from shares issued in
connection with merger of Latin
America Fund (Note 9) .................... -- -- -- -- -- --
Proceeds from shares issued in
connection with merger of
Asia Fund (Note 9) ....................... 2,928 -- 1,306,935 1,696,393 132,954 212,673
Net asset value of shares
issued on reinvestment of
distributions ............................ (45,523) -- (3,133,358) (5,574,274) (2,659,154) (3,791,557)
---------- -------- ----------- ----------- ---------- ----------
Cost of shares repurchased ................ 49,991 -- (1,011,894) (2,223,170) (2,460,241) (3,448,062)
---------- -------- ----------- ----------- ---------- ----------
Net increase (decrease) in
net assets resulting
from Class A Retail Shares ............... -- 749,983 2,175 1,775 -- --
Institutional Class Shares:
Proceeds from shares sold
Proceeds from shares issued in
connection with merger of
ARK International Equity
Portfolio (Note 10) ...................... -- -- -- 6,072,870 -- --
Net asset value of shares
issued on reinvestment
of distributions ......................... 51,959 -- 897,524 790,393 -- --
Cost of shares repurchased ................ -- -- (126,930) (51,851) -- --
---------- -------- ----------- ----------- ---------- ----------
Net increase in net assets
resulting from Institutional
Class Shares ............................. 51,959 749,983 772,769 6,813,187 -- --
---------- -------- ----------- ----------- ---------- ----------
Net increase (decrease) in net
assets resulting from
fund share transactions .................. 101,950 749,983 (239,125) 4,590,017 (2,460,241) (3,448,062)
---------- -------- ----------- ----------- ---------- ----------
Total change in net assets ................ 483,695 749,983 2,236,788 4,948,250 (3,117,611) (3,208,350)
Net Assets:
Beginning of period ....................... 749,983 -- 18,900,597 13,952,347 7,068,294 10,276,644
---------- -------- ----------- ----------- ---------- ----------
End of Period* ............................ $1,233,678 $749,983 $21,137,385 $18,900,597 $3,950,683 $7,068,294
========== ======== =========== =========== ========== ==========
*Including undistributed net
investment loss of ....................... $(1,293) $-- $(7,670) $-- $(93,680) $(149,966)
See accompanying notes to the financial statements.
23
33
Financial Highlights
For a Share Outstanding Throughout Each Period:
Emerging Markets Equity Fund
--------------------------------------------------------------------------------
Class A Retail Shares
--------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------
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 operating 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%
_________________________
Note A: For the years presented, AIB Govett, Inc., investment manager (or its
predecessors or affiliates thereof), waived a portion of its management
fee and reimbursed a portion of the other operating expenses of the
Funds. Without the waiver and reimbursement of expenses, the expense
ratios as a percentage of average net assets for the periods indicated
would have been:
Expenses 4.31% 4.09% 2.91% 2.62% 2.78%
(a) Commencement of Operations was May 25, 1999.
(b) Commencement of Operations was December 31, 1998.
* Annualized
** Not Annualized
+ 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.
24
34
Smaller Companies Fund International Smaller
Companies Fund
--------------------------------------------------------------------------------------------
Class A Retail Shares Class A Institutional
Retail Shares Class Shares
--------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995 1999(a) 1999(b)
Net asset value, beginning of period $16.85 $19.09 $21.83 $29.96 $19.06 $10.90 $10.00
------- ------- -------- -------- -------- ------ ------
Income from investment operations:
Net investment income (loss)+ (0.47) (0.35) (0.43) (0.44) (0.30) (0.09) (0.07)
Net realized and unrealized gain
(loss) on investments 12.31 (1.89) (2.31) (2.84) 13.32 4.71 5.61
------- ------- -------- -------- -------- ------ ------
Total from investment operations 11.84 (2.24) (2.74) (3.28) 13.02 4.62 5.54
------- ------- -------- -------- -------- ------ ------
Less distributions to shareholders:
From net investment income -- -- -- -- -- -- --
In excess of net investment income -- -- -- -- -- -- --
From net realized gain -- -- -- (4.85) (2.12) (0.69) (0.69)
In excess of net realized capital gain -- -- -- -- -- -- --
------- ------- -------- -------- -------- ------ ------
Total distributions -- -- -- (4.85) (2.12) (0.69) (0.69)
------- ------- -------- -------- -------- ------ ------
Net asset value, end of period $28.69 $16.85 $19.09 $21.83 $29.96 $14.83 $14.85
======= ======= ======== ======== ======== ====== ======
Total Return 70.27% (11.73)% (12.55)% (10.62)% 69.13% 42.49%** 55.51%
Ratios/Supplemental Data:
Net Assets, end of period (000's) $72,675 $60,952 $127,925 $259,735 $517,990 $67 $1,167
Net operating expenses to average
daily net assets (Note A) 2.35% 1.95% 1.95% 1.81% 1.95% 1.85%* 1.50%
Net investment income (loss) to
average daily net assets (1.97)% (1.51)% (1.64)% (1.40)% (1.64)% (1.22)%* (0.55)%
Portfolio turnover rate 76% 104% 77% 406% 280% 87% 87%
Expenses 3.16% 2.91% 2.59% 2.08% 2.12% 15.47%* 16.91%
See accompanying notes to the financial statements.
25
35
Financial Highlights (continued)
For a Share Outstanding Throughout Each Period:
International Equity Fund
--------------------------------------------------------------------------------------------
Class A Retail Shares Institutional Class Shares
--------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31
1999 1998 1997 1996 1995 1999 1998 (a)
--------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.17 $10.90 $11.19 $11.27 $10.16 $11.19 $12.85
------- ------- ------- ------- ------- ------ ------
Income from investment operations:
Net investment income (loss)+ (0.06) (0.08) (0.24) (0.11) (0.08) (0.02) (0.02)
Net realized and unrealized gain (loss)
on investments 3.11 2.15 0.18 1.45 1.20 3.11 (0.13)
------- ------- ------- ------- ------- ------ ------
Total from investment operations 3.05 2.07 (0.06) 1.34 1.12 3.09 (0.15)
------- ------- ------- ------- ------- ------ ------
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) (1.50) (1.51)
------- ------- ------- ------- ------- ------ ------
Return of capital -- -- -- -- -- -- --
Total distributions (1.50) (1.80) (0.23) (1.42) (0.01) (1.50) (1.51)
------- ------- ------- ------- ------- ------ ------
Net asset value, end of period $12.72 $11.17 $10.90 $11.19 $11.27 $12.78 $11.19
======= ======= ======= ======= ======= ====== ======
Total Return 27.95% 19.12% (0.71)% 12.13% 11.01% 28.25% (1.15)%**
Ratios/Supplemental Data:
Net Assets, end of period (000's) $12,718 $12,223 $13,952 $25,822 $28,546 $8,419 $6,678
Net operating expenses to average daily
net assets (Note A) 2.35% 2.45% 2.50% 2.39% 2.50% 2.00% 1.75%*
Net investment income (loss) to average
daily net asses (0.52)% (0.62)% (1.01)% (1.06)% (0.64)% (0.17)% (0.47)%*
Portfolio turnover rate 41% 109% 51% 84% 101% 41% 109%
Note A: For the years presented, AIB Govett, Inc., investment manager (or its
predecessors or affiliates thereof), waived a portion of its management
fee and reimbursed a portion of the other operating expenses of the
Funds. Without the waiver and reimbursement of expenses, the expense
ratios as a percentage of average net assets for the periods indicated
would have been:
Expenses 3.34% 3.30% 3.12% 3.09% 2.75% 2.98% 2.90%*
(a) Commencement of Operations was July 24, 1998.
* Annualized
** Not Annualized
+ 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.
See accompanying notes to the financial statements.
26
36
Global Income Fund
-------------------------------------------------------------------------------
Class A Retail Shares
-------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
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 -- -- -- -- --
Return of capital (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 operating 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%
Expenses 4.51% 3.54% 2.82% 2.38% 1.93%
See accompanying notes to the financial statements.
27
37
Notes to Financial Statements
Note 1-Significant Accounting Policies
The Govett Funds, Inc. (the "Company") consists of seven series (individually a
"Fund" and collectively the "Funds") which are registered with the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940, as
amended (the "1940 Act"). Five series are currently being offered to the public,
as diversified open-end investment companies, except Govett Global Income Fund,
which is a non-diversified investment company.
Each Fund has authorized the issuance of Retail Shares (Class A and Class B) and
Institutional Class shares. Presently, none of the Funds offer Class B shares
and only the International Equity Fund and International Smaller Companies Fund
have Institutional Class shares outstanding. Each class of shares has equal
rights as to assets and voting privileges. Class A and Class B have exclusive
voting rights for their respective distribution plan. Each class of shares
differs in its respective service, distribution and transfer agent expenses.
Each Fund, except Govett Global Income Fund, seeks long-term capital
appreciation by investing in certain geographical regions or companies. Govett
Global Income Fund seeks primarily a high level of current income, consistent
with preservation of capital.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Funds in the
preparation of their financial statements.
Portfolio Valuation-Portfolio securities listed or traded on domestic or foreign
securities exchanges are valued at the last quoted sales price. Securities
listed or traded on the over-the-counter market are valued at the mean between
the latest available current bid and asked prices. Bonds and short-term debt
securities 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, they are based on prices for securities of comparable
maturity, quality and type. Prices are obtained from pricing services as
authorized by the Company's Board of Directors. Short-term debt securities which
mature in 60 days or less are valued at amortized cost. Foreign securities
quoted in foreign currency are translated into U.S. dollars at the foreign
currency rates applicable on that day or at such other rates as AIB Govett, Inc.
("AIB Govett" or the "Manager") and AIB Govett Asset Management Limited ("AIB
Govett London" or the "Subadviser") may determine to be appropriate in computing
net asset value. Securities for which there are no representative quotations or
valuations are valued at fair value as determined in good faith by the Board of
Directors.
Repurchase Agreements-Under the terms of a typical repurchase agreement, the
Fund takes possession of an underlying debt obligation subject to an obligation
of the seller to repurchase, and the Fund to resell, the obligation at an
agreed-upon price and time. The value of the collateral is at least equal at all
times to the total amount of the repurchase obligations, including interest. The
Manager and Subadviser, acting under the supervision of the Board of Directors,
review the value of the collateral and the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to evaluate
potential risks.
Foreign Currency Translation-Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the foreign currency exchange rates applicable on that day. Purchases and
sales of securities, income receipts and expense payments are translated into
U.S. dollars at the prevailing exchange rate on the respective dates of the
transactions. Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and the
difference between the amount of net investment income accrued and the U.S.
dollar amount actually received. The effects of changes in foreign currency
exchange rates on investments in securities are not segregated in the Statement
of Operations from the effects of changes in market prices of those securities,
but are included with the net realized and unrealized gain or loss on investment
transactions.
Forward Foreign Currency Exchange Contracts-The Funds may enter into forward
foreign currency exchange contracts in connection with planned purchases or
sales of securities or to hedge the value of some or all of a Fund's portfolio
securities. Forward foreign currency contracts are marked-to-market daily using
the forward foreign currency exchange rates applicable on that day or at such
other rates as the Subadviser may determine to be appropriate.
Taxes - No provision has been made for income tax because each Fund's policy is
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute all of its taxable income.
At December 31, 1999, the following Funds had capital loss carryforwards for
Federal tax purposes available to offset future net capital gains through the
indicated expiration dates:
28
38
Notes to Financial Statements (continued)
Emerging Smaller
Expiration Date December 31, Markets Equity Companies Global Income
2002 . . . . . . . . . . . . . . $ -- $ -- $2,025,272
2003 . . . . . . . . . . . . . . 2,043,258 -- 170,438
2004 . . . . . . . . . . . . . . -- -- 1,412,148
2005 . . . . . . . . . . . . . . 755,041 -- 745,011
2006 . . . . . . . . . . . . . . 10,135,022 26,909,229 --
2007 . . . . . . . . . . . . . . -- -- 303,287
----------- ----------- ----------
Total . . . . . . . . . . . . . $12,933,321 $26,909,229 $4,656,156
=========== =========== ==========
Utilization of the capital loss carryforward of the Emerging Markets Equity Fund
may be limited because a portion of each capital loss is from a merger with
another fund.
For the year ended December 31, 1999, the Funds expect to pass through to
shareholders foreign tax credits of approximately $36,334 and $1,040 for the
International Equity Fund and the International Smaller Companies Fund,
respectively. In addition, for the year ended December 31, 1999, gross income
derived from sources within foreign countries amounted to $379,161 and $9,778
for the International Equity Fund and International Smaller Companies Fund,
respectively.
Net capital and net currency losses incurred after October 31, and within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. For the period from November 1, 1999 through December 31, 1999,
the following Funds incurred and elected to defer until January 1, 2000 for U.S.
Federal income tax purposes net capital and net currency losses as stated below:
Net Currency Net Capital
Losses Losses
Emerging Markets Equity ..................... $ 32,885 $ --
======== =======
Smaller Companies ........................... $ 1,993 $ --
======== =======
International Smaller Companies ............. $ 1,292 $ --
======== =======
International Equity ........................ $ 7,671 $ --
======== =======
Global Income ............................... $ 12,601 $ 9,991
======== =======
Distributions to Shareholders-All of the Funds except Govett Global Income Fund
intend to declare and pay distributions from net investment income and net
realized gains, if any, annually. The Global Income Fund seeks to declare
dividends daily and to pay dividends monthly from net investment income, if any,
and to declare and pay distributions from net realized gains, if any, annually.
Security Transactions and Related Investment Income-Security transactions are
recorded as of the trade date. Dividend income is recorded on the ex-dividend
date. Interest income is recorded on an accrual basis. The cost of securities
sold is determined on the identified cost basis. Original issue discount and
premium on debt securities is amortized using the yield to maturity method.
Market discount on debt securities is amortized on a straight-line basis.
Expenses-Fund expenses not directly attributable to the operations of specific
class of shares are allocated pro rata to each class on the basis of the
relative net assets of the respective classes. Expenses which are not readily
attributable to a specific Fund are allocated in such manner as deemed equitable
by the Company's Board of Directors, taking into consideration, among other
things, the nature and type of expense.
Note 2-Management Fees and Affiliated Service Providers
The Manager and Subadviser, pursuant to the terms of their respective investment
management contracts, provide all investment management services to the Funds.
As compensation for these services, the Manager earns a monthly fee computed at
an annual rate of 1.00% (0.75% for the Global Income Fund) of the value of the
average daily net assets of each Fund. The Manager agreed to waive a portion of
its management fee and to reimburse a portion of the other operating expenses to
the extent that the Funds' annual ordinary operating expenses exceed 2.35% for
Class A shares and 2.00% for Institutional Class shares for Smaller Companies
Fund, International Equity Fund and Global Income Fund and 1.85% for Class A
shares and 1.50% for Institutional Class Shares for the Emerging Markets Equity
Fund and International Smaller Companies Fund.
Note 3-Distribution Agreement/12b-1 Plan The Funds have adopted a Distribution
and Service Plan for their Class A shares pursuant to Rule 12b-1 of the 1940
Act. The Funds pay a distribution fee, computed daily and paid quarterly, equal
to an annual rate not to exceed 0.35% of the value of each Fund's average daily
net assets, attributable to Class A shares, for providing ongoing distribution
services and facilities to the Fund's Class A shares.
Note 4-Purchases and Sales of Securities Costs of purchases and proceeds from
sales of securities, excluding short-term obligations, for the year ended
December 31, 1999, were as follows. Only the Global Income Fund had long-term
U.S. Government securities transactions.
Purchases Sales
----------- -----------
Emerging Markets Equity .................... $ 9,585,687 $14,404,004
=========== ===========
Smaller Companies .......................... $46,705,600 $70,228,782
=========== ===========
International Smaller Companies ............ $ 1,430,011 $ 748,662
=========== ===========
International Equity ....................... $ 7,785,835 $ 9,877,667
=========== ===========
Global Income:
U.S Government securities .................. $ -- $ 829,280
Other Investments .......................... 1,696,425 2,843,007
----------- -----------
$ 1,696,425 $ 3,672,287
=========== ===========
29
39
Notes to Financial Statements (continued)
Note 5-Fund Share Transactions
The Company's Articles of Incorporation permit the Company's Board of Directors
to establish an unlimited number of series (or Funds), each of which may issue
one or more separate classes of shares. The Company can issue up to a total of
three billion shares and has authorized 250 million shares for each Fund.
Transactions in fund shares for the periods indicated below are as follows:
Smaller Companies Fund Global Income Fund
---------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/99 12/31/98 12/31/99 12/31/98
---------------------------------------------------------
Shares sold ................. 156,616 2,955,025 6,907 16,469
Shares issued on reinvestment
of distributions ........... -- -- 19,253 26,888
Shares repurchased .......... (1,241,105) (6,038,915) (348,297) (481,587)
---------- ---------- -------- --------
Net increase (decrease) ..... (1,084,489) (3,083,890) (322,137) (438,230)
========== ========== ======== ========
International Smaller Companies Fund
---------------------------------------
Institutional
Class A Retail Shares Class Shares
---------------------------------------
Period Ended Year Ended Period Ended
12/31/99 12/31/99 12/31/98
---------------------------------------
Shares sold ................. 7,642 -- 74,998
Shares issued on reinvestment
of distributions .......... 200 3,545 --
Shares repurchased .......... (3,318) -- --
----- ----- ------
Net increase (decrease) ..... 4,524 3,545 74,998
===== ===== ======
Emerging Markets Equity Fund
--------------------------------
Year Ended Year Ended
12/31/99 12/31/98
--------------------------------
Shares sold .................................. 109,581 263,337
Shares issued in connection with merger of
Asia Fund ............................... -- 105,054
Shares issued in connection with merger of
Latin America Fund ...................... -- 186,487
Shares issued on reinvestment of distributions -- 25,065
Shares repurchased ........................... (627,098) (1,416,740)
-------- ----------
Net increase (decrease) ...................... (517,517) (836,797)
======== ==========
International Equity Fund
------------------------------------------------------------------
Institutional
Class A Retail Shares Class Shares
------------------------------------------------------------------
Year Ended Year Ended Year Ended Period Ended
12/31/99 12/31/98 12/31/99 12/31/98
------------------------------------------------------------------
Shares sold ............ 68,159 135,936 182 1,224
Shares issued in
connection with merger
of ARK International
Equity Fund .......... -- -- -- 529,774
Shares issued on
reinvestment
of distributions ..... 105,584 149,566 72,178 70,892
Shares repurchased ..... (268,017) (471,046) (10,425) (5,054)
-------- -------- ------- --------
Net increase (decrease) (94,274) (185,544) 61,935 596,836
======== ======== ======= ========
40
At December 31, 1999, 3 shareholders held a total of 68% of the outstanding
Class A retail shares of the International Smaller Companies Fund (with each
shareholder holding more than 10% of outstanding shares) and 1 shareholder held
100% of the Institutional Class shares of the same fund.
Note 6-Federal Income Tax Cost
At December 31, 1999, the cost and gross unrealized appreciation and
depreciation in value of investments owned by the Funds, as computed on a
federal income tax basis, were as follows:
Emerging Smaller
Markets Equity Companies
Fund Fund
Aggregate cost .................. $11,541,366 $45,818,217
=========== ===========
Gross unrealized appreciation.... 6,544,202 29,525,270
Gross unrealized depreciation.... (347,893) (2,361,548)
----------- -----------
Net unrealized appreciation ..... $6,196,309 $27,163,722
=========== ===========
International Smaller International
Companies Equity
Fund Fund
-------- -----------
Aggregate cost .................... $828,259 $15,908,723
======== ===========
Gross unrealized appreciation...... 369,892 6,286,415
Gross unrealized depreciation...... (54,739) (950,444)
-------- -----------
Net unrealized appreciation ....... $315,153 $5,335,971
======== ===========
Global
Income
Fund
----------
Aggregate cost. . . . . . . . . . . . . . . . . . $4,156,510
==========
Gross unrealized appreciation . . . . . . . . . . 40,986
Gross unrealized depreciation . . . . . . . . . . (246,214)
----------
Net unrealized depreciation . . . . . . . . . . . $ (205,228)
==========
Note 7-Financial Instruments
The Funds regularly trade financial instruments with off-balance sheet risk in
the normal course of their investing activities to assist in managing exposure
to market risk, such as interest rates and foreign currency exchange rates.
These financial instruments include forward foreign currency exchange contracts
(see Schedule of Investments).
The notional or contractual amounts of these instruments represent the
investment the Funds have in particular classes of financial instruments and do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risk associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
30
41
Notes to Financial Statements (continued)
Note 8-Portfolio Investment Risks
Each Fund primarily purchases securities of foreign issuers other than Smaller
Companies Fund, which may purchase such securities. Investing in securities of
foreign issuers involves special risks not typically associated with investing
in securities of U.S. issuers. These risks and considerations may involve
adverse political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or restrictions.
In addition, the securities of some foreign companies and securities markets are
less liquid and at times more volatile than securities of comparable U.S.
companies and U.S. securities and most foreign securities are subject to the
risk of currency rate fluctuations.
Note 9-Merger of Asia and Latin America Funds
On December 18, 1998, Emerging Markets Equity Fund acquired all the net assets
of the Asia and Latin America Funds. The merger was accomplished by a tax-free
exchange of 291,541 shares of Emerging Markets Equity Fund (valued at
$2,235,733) for 182,159 shares of Asia Fund and 271,709 of Latin America Fund
outstanding on December 18, 1998. Asia and Latin America Funds' net assets at
that date ($805,627 and $1,430,106, respectively), including $4,007 and $191,367
of unrealized depreciation, respectively, were combined with those of Emerging
Markets Equity Fund. The aggregate net assets of Emerging Markets Equity Fund,
Asia Fund and Latin America Fund immediately before the merger were $12,325,440,
$805,627 and $1,430,106, respectively.
Note 10-Merger of ARK International Equity Fund
On July 24, 1998, International Equity Fund acquired all the net assets of the
ARK International Equity Portfolio. The merger was accomplished by a tax-free
exchange of 529,774 shares of International Equity Fund (valued at $6,808,077)
for 592,388 shares of ARK International Equity Portfolio outstanding on July 24,
1998. ARK International Equity Portfolio's net assets at that date $6,808,077,
including $735,207 of unrealized depreciation, were combined with those of
International Equity Fund. The aggregate net assets of International Equity Fund
and ARK International Equity Portfolio immediately before the merger were
$13,456,570 and $6,808,077, respectively.
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Federal Income Tax Information (unaudited):
Govett International Equity Fund hereby designates $1,609,992, at the 20% tax
bracket, as a long-term capital gain dividend for the purpose of the dividend
paid deduction on the Fund's Federal income tax return.
For the year ended December 31, 1999, Govett Global Income Fund earned 59.97% of
it's income from direct U.S. treasury obligations.
31
42
Report of Independent Accountants
To the Board of Directors and Shareholders
of The Govett Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Govett International Equity Fund,
Govett Emerging Markets Equity Fund, Govett Smaller Companies Fund, Govett
International Smaller Companies Fund, and Govett Global Income Fund
(constituting The Govett Funds, Inc., hereafter referred to as the "Funds") at
December 31, 1999, the results of each of their operations, the changes in each
of their net assets and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards gen-erally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
eval-uating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and broker, provide a reasonable basis for the
opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 11, 2000.
32
43
The Govett Funds, Inc.
Board of Directors
Patrick K. Cunneen, Chairman
Elliott L. Atamian
Sir Victor Garland
James M. Oates
Frank R. Terzolo
Govett Funds
P.O. Box 61503
King of Prussia, PA 19406-0903