<PAGE>
File Nos: 33-37783
811-6229
As filed with the Securities and Exchange Commission on October 7, 1997
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 19
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 22
THE GOVETT FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
(Address of Principal Executive Offices)
800-976-8109
(Registrant's Telephone Number)
Alice L. Schulman
AIB Govett, Inc.
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
(Name and Address of Agent for Service)
Copy to:
Regina M. Pisa, P.C.
Goodwin, Procter & Hoar LLP
One Exchange Place
Boston, MA 02109-2881
Attorneys
Approximate date of proposed sale to the public:
As soon as is practicable after the effective date of the Registration
Statement.
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)
[X] on December 22, 1997 pursuant to paragraph (a)(2) of rule 485
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2(a) under the Investment Company Act of 1940, the
Registrant hereby declares that an indefinite number of its shares are being
registered under the Securities Act of 1933. A Rule 24f-2 notice for the fiscal
year ended December 31, 1996 has been filed on or before February 28, 1997.
---------------
This Registration Statement shall hereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933.
================================================================================
<PAGE>
Subject to Completion, dated October 7, 1997.
The following refers to the Govett China, Govett Asian Smaller Companies and
Govett Europe Funds. Information contained herein is subject to completion or
amendment. A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities law of any such state.
GOVETT FUNDS
Institutional Class Shares
Prospectus dated _________, 1997
The Govett Funds, Inc. (the "Govett Funds" or the "Company") operates nine funds
(the "Funds"). Each of the Funds is managed by AIB Govett, Inc. ("AIB Govett"
or the "Investment Manager").
. GOVETT INTERNATIONAL EQUITY FUND seeks long-term capital appreciation by
investing primarily in equity securities of companies located throughout the
world.
. GOVETT EMERGING MARKETS EQUITY FUND seeks long-term capital appreciation by
investing primarily in equity securities of issuers located in emerging
markets.
. GOVETT SMALLER COMPANIES FUND seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies.
. GOVETT ASIA FUND (formerly Govett Pacific Strategy Fund) seeks long-term
capital appreciation by investing primarily in equity securities of companies
located in Asia.
. GOVETT LATIN AMERICA FUND seeks long-term capital appreciation by investing
primarily in equity and debt securities of issuers located in Latin America.
. GOVETT GLOBAL INCOME FUND seeks primarily a high level of current income,
consistent with preservation of capital, by investing primarily in foreign
debt securities. Its secondary objective is capital appreciation.
. GOVETT CHINA FUND seeks long-term capital appreciation by investing primarily
in equity securities of companies which have considerable exposure to the
Chinese economy.
. GOVETT ASIAN SMALLER COMPANIES FUND seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies located in the
Far East outside Japan.
. GOVETT EUROPE FUND seeks long-term capital appreciation by investing primarily
in equity securities of growth-oriented companies located in Europe.
Investing in emerging and developing markets involves a higher degree of risk
and expense than investing in domestic or developed markets. Investments in the
Funds should be considered long-term, and there can be no assurance that any
Fund will achieve its investment objective.
This prospectus relates only to Institutional Class shares, which are available
for purchase only by certain eligible investors and are offered at net asset
value without the imposition of a front-end or contingent deferred sales charge
and without a distribution (12b-1) charge.
Please read this Prospectus carefully before investing, and retain it for future
reference. It provides concise information to help an investor decide if a
Fund's goal matches his or her own. A Statement of Additional Information about
the Funds, dated _______, 1997, as amended from time to time, has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. For a free copy, call 800-634-6838, or write to the Funds'
Distributor at the address shown on the back cover.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
CONTENTS
ABOUT THE FUNDS
SUMMARY OF INVESTOR COSTS.......................
FINANCIAL HIGHLIGHTS............................
AN OVERVIEW OF THE FUNDS........................
INVESTMENT TECHNIQUES AND POLICIES..............
INVESTMENT RISKS................................
MANAGEMENT OF THE FUNDS.........................
ABOUT YOUR ACCOUNT
WHO CAN BUY INSTITUTIONAL SHARES................
HOW TO BUY SHARES...............................
HOW TO MAKE EXCHANGES...........................
HOW TO REDEEM SHARES............................
TELEPHONE TRANSACTIONS..........................
DIVIDENDS, CAPITAL GAINS AND TAXES..............
OTHER INFORMATION...............................
APPENDIX A: QUICK REFERENCE GUIDE...............
APPLICATION FORM
The Company also has authorized Class A shares and Class B (the "Retail
Classes") shares for each Fund, although it currently only offers Series A
shares. Shares of these classes are subject to sales charges and other expenses,
which may affect their performance. A prospectus for Retail Class shares may be
obtained by writing the Distributor, at the address shown on the back cover, or
by calling 800-634-6838.
2
<PAGE>
SUMMARY OF INVESTOR COSTS
The operating expenses and maximum transaction expenses expected to be
associated with an investment in Institutional Class shares in the Funds are
reflected in the following tables:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
INTERNATIONAL EMERGING MARKETS SMALLER COMPANIES ASIA LATIN AMERICA
EQUITY EQUITY FUND FUND FUND
FUND FUND
-----------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on None None None None None
Purchases (as a percentage of
offering price)
---------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on None None None None None
Dividend Reinvestment
---------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as None None None None None
a percentage of original purchase
price or redemption proceeds,
whichever is less)
- ----------------------------------------------------------------------------------------------------------------------
Redemption Fees None None None None None
- ----------------------------------------------------------------------------------------------------------------------
Exchange Fees None None None None None
- ----------------------------------------------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES: (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------
Distribution (12b-1 Fee) None None None None None
- ----------------------------------------------------------------------------------------------------------------------
Other Expenses (after any 0.75%/1/ 0.69% 0.12% 0.75%/1/ 0.75%/1/
reduction of expenses)
- ----------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses 1.75%/1/ 1.69% 1.12% 1.75%/1/ 1.75%/1/
(after any fee waiver and
reduction of expenses)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Investment Manager has agreed to reduce its management fees, and the
Investment Manager has agreed to pay certain Fund operating expenses, through at
least December 31, 1998 to the extent necessary to limit total annual Fund
Operating Expenses. With respect to all Funds other than Emerging Markets Equity
Fund, Smaller Companies Fund, China Fund, Asian Smaller Companies Fund, and
Europe Fund, the amount of that limitation is the percentage listed above under
"Total Fund Operating Expenses" for such Fund. With respect to Emerging Markets
Equity Fund, Smaller Companies Fund, China Fund, Asian Smaller Companies Fund,
and Europe Fund, that limitation is 1.75%, 1.20%, 1.75%, 1.75%, and 1.75% of net
assets, respectively.
3
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
GLOBAL INCOME CHINA ASIAN SMALLER EUROPE
FUND FUND COMPANIES FUND
FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on None None None None
Purchases (as a percentage of
offering price)
- -------------------------------------------------------------------------------------------------------------------------
Maximum Sasles Charge Imposed on None None None None
Dividend Reinvestment
- -------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as None None None None
a percentage of original purchase
price or redemption proceeds,
whichever is less)
- -------------------------------------------------------------------------------------------------------------------------
Redemption Fees None None None None
- -------------------------------------------------------------------------------------------------------------------------
Exchange Fees None None None None
- -------------------------------------------------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES: (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.75% 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------
Distribution (12b-1 Fee) None None None None
- -------------------------------------------------------------------------------------------------------------------------
Other Expenses (after any 0.40%/1/ 0.69% 0.69% 0.69%
reduction of expenses)
- -------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses 1.15%/1/ 1.69% 1.69% 1.69%
(after any fee waiver and
reduction of expenses)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The percentages in "Other Expenses" for the Institutional Class shares
of International Equity Fund, Emerging Markets Equity Fund, Smaller Companies
Fund, Asia Fund, Latin America Fund, and Global Income Fund are based on the
operating expense information for each Fund's Class A shares for the six month
period ended June 30, 1997, adjusted for estimated class specific expenses, and
after including estimated fee waivers and expense reimbursements by the
Investment Manager. Absent such waivers and reimbursements, estimated "Other
Expenses" as a percentage of net assets for the Institutional Class shares of
International Equity Fund, Asia Fund, Latin America Fund, and Global Income Fund
are anticipated to be 1.19%, 4.89%, 4.73%, and 0.97%, respectively. Absent such
waivers and reimbursements, estimated "Total Fund Operating Expenses" as a
percentage of net assets for the Institutional Class of shares of International
Equity Fund, Asia Fund, Latin America Fund, and Global Income Fund are
anticipated to be 2.19%, 5.89%, 5.73%, and 1.72%, respectively. The percentages
in "Other Expenses" for the Institutional Class shares of China Fund, Asian
Smaller Companies Fund, and Europe Fund are estimated and based on the operating
expense information for the Emerging Markets Equity Fund Class A shares,
adjusted for class specific expenses.
4
<PAGE>
Examples:
Assuming the current fee waivers and expense limitations remain in effect, you
would pay the following expenses on a $1,000 investment in Institutional Class
shares assuming (1) 5% annual return/1/ and (2) with or without a redemption at
the end of each time period:
<TABLE>
<CAPTION>
GOVETT INTERNATIONAL GOVETT EMERGING GOVETT SMALLER
-------------------- --------------- --------------
EQUITY FUND MARKETS EQUITY FUND COMPANIES FUND
----------- -------------------- --------------
<S> <C> <C> <C>
1 year............... $ 18 $ 17 $ 11
3 years.............. 55 53 36
5 years.............. 95 92 62
10 years............. 206 200 136
</TABLE>
<TABLE>
<CAPTION>
GOVETT GOVETT LATIN GOVETT GLOBAL
------ ------------ -------------
ASIA FUND AMERICA FUND INCOME FUND
--------- ------------ -----------
<S> <C> <C> <C>
1 year............... $ 18 $ 18 $ 12
3 years.............. 55 55 37
5 years.............. 95 95 63
10 years............. 206 206 140
</TABLE>
<TABLE>
<CAPTION>
GOVETT GOVETT ASIAN GOVETT
------ ------------ ------
CHINA FUND SMALLER COMPANIES FUND EUROPE FUND
---------- ---------------------- -----------
<S> <C> <C> <C>
1 year............... $ 17 $ 17 $ 17
3 years.............. 53 53 53
5 years.............. 92 92 92
10 years............. 200 200 200
</TABLE>
- --------------
/1/The 5% annual return assumption in this example is required by SEC
regulations applicable to all mutual funds; it does not represent a projection
of the Funds' actual performance. For a detailed discussion of these matters,
investors should refer to the relevant sections of this Prospectus.
The above tables are not intended to reflect precisely the fees and expenses
associated with a particular person's investment in Institutional Class shares
of the Funds. THE TABLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE FUND EXPENSES, AND ACTUAL FUND EXPENSES MAY BE GREATER OR LESSER THAN
THOSE SHOWN IN THE TABLES. Rather, the tables have been provided only to assist
investors in understanding the various costs and expenses that a shareholder
will bear, directly or indirectly, in connection with an investment in the
Funds.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides condensed information concerning income and capital
changes for one Class A share of International Equity Fund, Emerging Markets
Equity Fund, Smaller Companies Fund, Asia Fund, Latin America Fund, and Global
Income Fund for the periods shown. This information has been audited by Price
Waterhouse LLP, the Funds' independent accountants for these periods, whose
unqualified report thereon appears in the Annual Report to Shareholders of such
Funds for the periods shown below. The financial statements and related notes
contained in such Report (and no other portion of such Report) are incorporated
by reference into this Prospectus. This information should be read in
conjunction with such statements and notes.
The Company has introduced three new funds, China Fund, Asian Smaller Companies
Fund, and Europe Fund, which are described in detail within this Prospectus. See
"An Overview of the Funds" below.
Prior to June 27, 1997, Institutional Class shares had been designated as Class
C Shares. As of June 30, 1997, neither Institutional Class nor Class C shares
of any Fund had been offered or sold to the public. Accordingly, there are no
financial highlights with respect to the Funds for Institutional Class or Class
C shares for periods prior to the date of this prospectus.
The financial highlights presented below for periods prior to June 30, 1997
represent historical information for Class A shares of the Funds. Class A
shares were subject to Distribution (12b-1) plan fees of 0.50% of average net
assets (for Global Income Fund, the fee is 0.35% of average net assets) and
front-end sales loads of up to 4.95% of the offering price. Institutional Class
shares, however, are not subject to any Distribution (12b-1) plan fee, service
fee or sales load.
6
<PAGE>
INTERNATIONAL EQUITY FUND
- -------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) DEC. 31, DEC. 31, DEC. 31
1996 1995 1994
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.19 $ 11.27 $ 10.16 $ 13.23
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.08) (0.11)+ (0.08)+ (0.12)+
Net realized and unrealized gain (loss) on
investments 1.13 1.45 1.20 (0.94)
---------- ---------- ---------- ----------
Total from investment operations 1.05 1.34 1.12 (1.06)
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- (0.11) --- ---
In excess of net investment income --- (0.09) --- ---
From net realized gain --- (1.22) (0.01) (2.01)
In excess of net realized capital gain --- --- --- ---
---------- ---------- ---------- ----------
Total distributions --- (1.42) (0.01) (2.01)
---------- ---------- ---------- ----------
Net asset value, end of period $ 12.24 $ 11.19 $ 11.27 $ 10.16
========== ========== ========== ==========
TOTAL RETURN** 9.38% 12.03% 11.01% (8.44)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $22,485 $25,822 $28,546 $32,296
Net expenses to average daily net assets (Note A) 2.50%* 2.39% 2.5% 2.50%
Net investment income(loss) to average daily net
assets (0.89)%* (1.06)% (0.64)% (0.98)%
Portfolio turnover rate 34 % 84 % 101% 155%
Average commission rate++ $0.0047 $0.0158 N/A N/A
<CAPTION>
---------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31, DEC. 31,
1993 1992 (A)
----------- ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.31 $10.00
-------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0. 03) (0.01)
Net realized and unrealized gain (loss) on
investments 5.01 (0.52)
-------- ----------
Total from investment operations 4.98 (0.53)
-------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- (0.04)
In excess of net investment income --- ---
From net realized gain (1.06) (0.12)
In excess of net realized capital gain --- ---
-------- ----------
Total distributions (1.06) (0.16)
-------- ----------
Net asset value, end of period $ 13.23 $9.31
======== ==========
TOTAL RETURN** 54.50% (5.32)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $44,610 $1,328
Net expenses to average daily net assets (Note A) 2.50% 2.50%
Net investment income(loss) to average daily net
assets (0.79)% (0.10)%*
Portfolio turnover rate 151% 140%
Average commission rate++ N/A N/A
</TABLE>
Note A: AIB Govett Asset Management Limited ("AIB Govett (London)" formerly
John Govett & Co. Limited) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Expenses 3.14%* 3.09% 2.75% 2.74% 2.65% 13.85%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
7
<PAGE>
EMERGING MARKETS EQUITY FUND
- ----------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED
30, 1997 DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.66 $ 12.24 $ 13.29 $ 17.70
---------- -------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.03) (0.13)+ (0.06)+ (0.11)+
Net realized and unrealized gain (loss) on
investments 2.21 1.61 (0.98) (1.93)
---------- -------- ------- --------
Total from investment operations 2.18 1.48 (1.04) (2.04)
---------- -------- ------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- --- --- ---
In excess of net investment income --- (0.06) --- ---
From net realized gain --- --- (0.01) (2.33)
In excess of net realized capital gain --- --- --- (0.04)
---------- -------- ------- --------
Total distributions --- (0.06) (0.01) (2.37)
---------- -------- ------- --------
Net asset value, end of period $ 15.84 $ 13.66 $ 12.24 $ 13.29
========== ======== ======= ========
TOTAL RETURN** 15.96 % 12.08 % (7.92)% (12.65)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $59,755 $56,814 $75,887 $76,812
Net expenses to average daily net assets (Note A) 2.50 %* 2.38 % 2.50 % 2.50 %
Net investment income(loss) to average daily net
assets (0.44)%* (0.62)% (0.49)% (0.77)%
Portfolio turnover rate 64 % 122 % 115 % 140 %
Average commission rate++ $0.0028 $0.0011 N/A N/A
<CAPTION>
--------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31, DEC. 31,
1993 1992(A)
---------- ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.72 $10.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.05) (0.03)
Net realized and unrealized gain (loss) on
investments 8.36 0.75
---------- ----------
Total from investment operations 8.31 0.72
---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- ---
In excess of net investment income --- ---
From net realized gain (1.33) ---
In excess of net realized capital gain --- ---
---------- ----------
Total distributions (1.33) ---
---------- ----------
Net asset value, end of period $ 17.70 $10.72
---------- ----------
TOTAL RETURN** 79.73 % 7.20 %
========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $71,422 $5,625
Net expenses to average daily net assets (Note A) 2.50 % 2.50 %*
Net investment income(loss) to average daily net
assets (0.88)% (0.49)%*
Portfolio turnover rate 143 % 182 %
Average commission rate++ N/A N/A
</TABLE>
Note A: AIB Govett (London) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Expenses 2.84%* 2.62% 2.78% 2.65% 2.52% 7.52%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
8
<PAGE>
SMALLER COMPANIES FUND
- ----------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
30, 1997 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994 1993 (B)
------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.83 $ 29.96 $ 19.06 $ 15.85 $ 10.00
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.19) (0.44)+ (0.30)+ (0.10)+ (0.06)
Net realized and unrealized gain (loss) on investments (2.46) (2.84) 13.32 4.47 5.91
-------- -------- -------- ------- -------
Total from investment operations (2.65) (3.28) 13.02 4.37 5.85
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- --- --- --- ---
In excess of net investment income --- --- --- --- ---
From net realized gain --- (4.85) (2.12) (1.16) ---
In excess of net realized capital gain --- --- --- --- ---
-------- -------- -------- ------- -------
Total distributions --- (4.85) (2.12) (1.16) ---
-------- -------- -------- ------- -------
Net asset value, end of period $ 19.18 $ 21.83 $ 29.96 $ 19.06 $ 15.85
======== ======== ======== ======= =======
TOTAL RETURN** (12.14)% (10.87)% 69.08 % 28.74 % 58.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $152,502 $259,735 $517,990 $76,873 $39,681
Net expenses to average daily net assets (Note A) 1.95 %* 1.81 % 1.95 % 1.95 % 1.95 %
Net investment income(loss) to average daily net assets (1.57)%* (1.40)% (1.64)% (1.13)% (0.93)%
Portfolio turnover rate 46 % 406 % 280 % 519 % 483 %
Average commission rate ++ $ 0.0489 $ 0.0581 N/A N/A N/A
</TABLE>
Note A: AIB Govett (London) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C> <C>
Expenses 2.59 %* 2.08 % 2.12 % 2.40 % 2.44 %
</TABLE>
(b) Commencement of Operations was January 1, 1993.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
9
<PAGE>
ASIA FUND
- ---------
<TABLE>
<CAPTION>
----------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED
30, 1997 DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994 (C)
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.15 $ 8.53 $ 8.79 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.12) (0.26)+ (0.05)+ (0.18)+
Net realized and unrealized gain (loss) on investments 0.94 1.05 (0.21) (1.03)
------- ------- ------- -------
Total from investment operations 0.82 0.79 (0.26) (1.21)
------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- (0.12) --- ---
In excess of net investment income --- (0.05) --- ---
From net realized gain --- --- --- ---
In excess of net realized capital gain --- --- --- ---
------- ------- ------- -------
Total distributions --- (0.17) --- ---
------- ------- ------- -------
Net asset value, end of period $ 9.97 $ 9.15 $ 8.53 $ 8.79
======= ======= ======= =======
TOTAL RETURN** 8.96% 9.32% (2.96)% (12.10)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 2,717 $ 4,218 $12,491 $13,849
Net expenses to average daily net assets (Note A) 2.50%* 2.5% 2.50% 2.50%
Net investment income(loss) to average daily net assets (1.44)%* (1.51)% (0.67)% (1.33)%
Portfolio turnover rate 92% 170% 163% 213%
Average commission rate++ $0.0086 $0.0102 N/A N/A
</TABLE>
Note A: AIB Govett (London) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C>
Expenses 11.14%* 6.66% 3.62% 2.66%
</TABLE>
(c) Commencement of Operations was January 1, 1994.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
10
<PAGE>
LATIN AMERICA FUND
- ------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994 (D)
----------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.97 $ 6.44 $ 7.89 $ 10.00
--------- --------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.01 0.07+ (0.01)+ (0.09)+
Net realized and unrealized gain (loss) on investments 2.73 1.52 (1.44) (1.53)
--------- --------- ---------- ----------
Total from investment operations 2.74 1.59 (1.45) (1.62)
--------- --------- ---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- (0.06) --- ---
In excess of net investment income --- --- --- ---
From net realized gain --- --- --- (0.27)
In excess of net realized capital gain --- --- --- (0.22)
--------- --------- ---------- ----------
Total distributions --- (0.06) --- (0.49)
--------- --------- ---------- ----------
Net asset value, end of period $ 10.71 $ 7.97 $ 6.44 $ 7.89
========= ========= ========== ==========
TOTAL RETURN** 34.38% 24.10% (18.38)% (16.94)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 5,915 $ 4,261 $ 4,871 $ 7,096
Net expenses to average daily net assets (Note A) 2.50%* 2.50% 2.50% 2.50%*
Net investment income(loss) to average daily net assets 0.30%* 0.54% 0.00% (1.06)%*
Portfolio turnover rate 73% 150% 127% 185%
Average commission rate++ $0.0007 $0.0005 N/A N/A
</TABLE>
Note A: AIB Govett (London) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C>
Expenses 6.31%* 6.49% 5.66% 3.35%*
</TABLE>
(d) Commencement of Operations was March 7, 1994.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
11
<PAGE>
GLOBAL INCOME FUND
- ------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
30, 1997 DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994 1993 1992 (A)
------------ ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.32 $ 8.97 $ 8.48 $ 10.16 $ 9.77 $ 10.00
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.13 0.57+ 0.63+ 0.76+ 0.99 0.80
Net realized and unrealized gain (loss) on
investments (0.46) (0.54) 0.53 (1.67) 0.66 0.06
--------- --------- --------- --------- --------- ---------
Total from investment operations (0.33) 0.03 1.16 (0.91) 1.65 0.86
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.25) (0.66) (0.63) (0.24) (0.95) (0.78)
In excess of net investment income --- (0.02) (0.04) --- --- ---
From net realized gain --- --- --- --- (0.31) (0.31)
In excess of net realized capital gain --- --- --- --- --- ---
Tax return of capital --- --- --- (0.53) --- ---
--------- --------- --------- --------- --------- ---------
Total distributions (0.25) (0.68) (0.67) (0.77) (1.26) (1.09)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 7.74 $ 8.32 $ 8.97 $ 8.48 $ 10.16 $ 9.77
========= ========= ========= ========= ========= =========
TOTAL RETURN** (4.03)% 0.33% 14.11% (9.16)% 17.64% 8.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $12,997 $20,354 $41,181 $51,691 $82,000 $34,084
Net expenses to average daily net assets (Note A) 1.75% 1.64% 1.75% 1.75% 1.72% 1.75%*
Net investment income(loss) to average daily net
assets 4.20% 7.17% 7.45% 8.30% 9.66% 9.75%*
Portfolio turnover rate 55% 236% 249% 701% 328% 378%
Average commission rate++ N/A N/A N/A N/A N/A N/A
</TABLE>
Note A: AIB Govett (London) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Expenses 2.90%* 2.38% 1.93% 1.95% 1.72% 3.17%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
12
<PAGE>
PAST PERFORMANCE OF OFFSHORE FUNDS
MANAGED BY SUBADVISERS
The China, Asian Smaller Companies and Europe Funds (the "U.S. Funds") are newly
organized and have no performance record of their own. The table below presents
information about the performance of four comparable funds registered either in
the United Kingdom or Jersey, Channel Islands (the "Offshore Funds")./1/ This
information is included for illustrative purposes only and does not purport to
represent or predict the performance of any U.S. Fund. Actual performance may be
higher or lower.
The stated investment objective of each Offshore Fund is substantially similar
to that of the respective U.S. Fund (or portion thereof, in the case of Govett
European General Fund and New Europe Investment Company - see note 6 below). The
Offshore Funds are managed by the firm managing the comparable U.S. Fund (or
portion thereof). However, the Offshore Funds are not subject to the same
securities, tax and other laws applicable to investment companies registered in
the U.S., including diversification requirements. Notes 4, 5, and 6 describe
certain specific characteristics of each Offshore Fund. The historical
performance of the Offshore Funds would not have been materially affected by
difference in regulation. In addition, the investment mix changes over time, so
that the U.S Funds may not invest in countries, companies or industries in which
the Offshore Funds invested in the past. Each Fund, whether Offshore or U.S., is
managed as a separate entity, and is subject to an annual audit by independent
accountants. Each has a Board of Directors or Trustees which exercises oversight
of its affairs.
Total returns for the Offshore Funds, calculated in accordance with applicable
U.S. laws, are shown for various periods ended June 30, 1997. For each period,
the figures have been adjusted for U.S. dollars, where necessary, and include
reinvestment of dividends. No adjustment has been made to deduct initial sales
charges that would be payable on a U.S. Fund's Class A shares. Performance would
have been lower if adjusted for these charges. The expense ratios for the
Offshore Funds tend to be lower than that of domestic funds, so that the
performance of the comparable Offshore Fund could be higher than that of the U.
S. Fund./2/ The comparative indexes are unmanaged indexes considered to be
representative of the performance of Offshore Fund's investment universe.
_____________________________
Note: The following footnotes relate to the paragraphs above and the following
four bar graphs.
/1/ Each Offshore Fund's adviser (an "Adviser") is an affiliate of AIB Govett,
and a team employed by that Adviser has managed the respective fund since
its inception. The investment process used by each Adviser has been in
place since each Offshore Fund's inception. The U.S. Asian Smaller
Companies Fund is managed by individuals who have dual employee status with
AIB Govett (London) and AIB Govett (Asia) Pte. Limited, the manager of the
Offshore Asian Smaller Companies Fund, as described below.
/2/ The average expense ratio of each Offshore Fund since its inception is:
Govett Greater China - 2.04%; Govett Asian Smaller Companies - 1.97%;
Govett European General - 1.76%; and New Europe Investment Company - 1.62%.
/3/ All figures to June 30, 1997.
/4/ Performance for Govett Asian Smaller Companies Fund is quoted from March
31, 1993, when Fund's investment objectives, policies, and techniques
changed to the present structure. The primary differences between the
management of this type of fund and a U.S. mutual fund are the U.K. fund's
ability to borrow for purposes other than short-term liquidity; tax
treatment of any distributions; and the absence of (i) a statutory
requirement to distribute all income, (ii) a statutory limitation on
industry concentration, and (iii) a statutory security and country
diversification requirement. This is a closed-end fund whose shares are
traded on a stock exchange rather than being offered continuously by a
distributor, which may affect the amount of cash the fund holds in
anticipation of the need to meet redemptions. Performance is customarily
quoted in U.S. dollars.
/5/ The primary differences between Govett Greater China Fund and Govett
European General Fund and the U.S. Funds are: the 1.50% management fee, the
type of expenses that can be charged to the fund, and the absence of a
statutory limitation on country and industry concentration. The security
diversification policies are similar to those for a U.S. mutual fund. The
European General Fund's investment objective corresponds to the portion of
the Govett Europe Fund which invests in "core" Europe, including France,
Germany, Italy, the Netherlands, Spain, Switzerland and the Scandinavian
region. Performance is customarily quoted in British pounds.
/6/ New Europe Investment Company's investment objective corresponds to the
portion of the Govett Europe Fund which invests in "new" European
countries, including Croatia, Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Poland, Rumania, Slovakia, and Russia. This fund began as a
closed-end fund whose shares were traded on a stock exchange, rather than
being offered continuously by a distributor, which may have affected the
amount of cash the fund held in anticipation of the need to meet
redemptions. On March 26, 1997, it was re-structured as an open-end fund.
The primary differences between this fund and a U.S. mutual fund are a
1.50% management fee; the tax treatment of any distributions; and the
absence of (i) a statutory requirement to distribute all income, (ii) a
statutory limitation on industry concentration, and (iii) a statutory
security and country diversification requirement. The Offshore Fund may
borrow for purposes other than short-term liquidity, although presently no
borrowing arrangements are in place. There is currently no representative
index for the New Europe region. The Nomura Eastern European Index excludes
Russia, in which the Fund invests. Performance figures are cumulative, not
annualized. Performance is customarily quoted in U.S. dollars.
13
<PAGE>
GOVETT GREATER CHINA FUND /3,5/
ADVISER : TEAM AT AIB GOVETT ASSET MANAGEMENT LIMITED
UK REGISTERED OPEN END FUND
<TABLE>
<CAPTION>
Greater MSCI Pacific Basin Index
China Fund (Source:Datastream)
<S> <C> <C>
One Year 62.37% -4.34%
Three Year 20.14% -1.41%
Five Year 23.52% 10.64%
Ten Year 15.03% 2.60%
Inception (6.1.84) 19.71% 13.73%
</TABLE>
GOVETT ASIAN SMALLER COMPANIES INVESTMENT TRUST /3,4/
ADVISER : TEAM AT AIB GOVETT (ASIA) PTE LIMITED
JERSEY, CHANNEL ISLANDS REGISTERED CLOSED END FUND
<TABLE>
<CAPTION>
Asian Smaller Crosby Asia ex Japan
Companies (Source Socgen-Crosby)
<S> <C> <C>
One Year 12.36% -2.03%
Three Year 6.84% -2.82%
Inception 16.86% 8.13%
(3.31.93)
</TABLE>
14
<PAGE>
GOVETT EUROPEAN GENERAL FUND /3,5/
ADVISER : TEAM AT AIB INVESTMENT MANAGERS LIMITED
U.K. REGISTERED OPEN END FUND
<TABLE>
<CAPTION>
European MSCI Europe ex UK
General (Source: Datastream)
<S> <C> <C>
One Year 28.25% 27.95%
Three Year 22.68% 21.13%
Five Year 17.10% 16.38%
Ten Year 10.22% 12.30%
Inception 18.65% 15.66%
(6.30.84)
</TABLE>
NEW EUROPE INVESTMENT COMPANY LIMITED3,6
ADVISER: TEAM AT AIB GOVETT ASSET MANAGEMENT
LIMITED
JERSEY, CHANNEL ISLANDS REGISTERED OPEN END FUND
<TABLE>
<CAPTION>
New Europe Nomura Eastern Europe x
Inv Co Russia (Source Nomura)
<S> <C> <C>
Inception 26.00% -3.46%
(12.20.96)
</TABLE>
15
<PAGE>
AN OVERVIEW OF THE FUNDS
The following paragraphs summarize the Funds' objectives and investment
policies.
Although no Fund provides a complete or balanced investment program, investors
may use each Fund as part of a comprehensive program to meet their long-term
needs. Of course, there can be no assurance that any Fund will meet its
investment objective. Please refer also to "Investment Techniques and Policies",
below, and to the Statement of Additional Information.
The Statement of Additional Information provides the full text of these
restrictions and the Funds' other investment policies. Except for each Fund's
investment objective and those investment restrictions designated as
"fundamental," which only may be changed with shareholder approval, the
investment policies described in this Prospectus and in the Statement of
Additional Information are not fundamental policies and may be changed at any
time by the Company's Board of Directors.
INTERNATIONAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers located in some or all of the
following countries: Argentina, Austria, Australia, Belgium, Brazil, Canada,
Croatia (indirect investment only), Czech Republic, Denmark, Finland, France,
Germany, Hong Kong, India, Indonesia, Israel, Italy, Japan, Luxembourg,
Malaysia, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal,
Russia, Singapore, Slovakia, South Africa, South Korea, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey, and the United Kingdom. This list of
countries may change from time to time.
Under normal market conditions, this Fund will invest at least 65% of its total
assets in issuers located in not less than three different countries (other than
the U.S.). In addition, the Fund will normally invest at least 65% of its total
assets in common and preferred stocks, and warrants to acquire such stocks. The
Fund typically invests in equity securities listed on recognized foreign
securities exchanges, but it may hold securities which are not so listed. The
Fund may invest in debt obligations convertible into equity securities, and in
non-convertible debt securities when the Investment Manager believes such non-
convertible securities present favorable opportunities for capital appreciation.
See "Investment Techniques and Policies--Investment Techniques--Investment in
Debt Securities and Commercial Paper."
EMERGING MARKETS EQUITY FUND seeks long-term capital appreciation by providing
investors with broadly diversified, direct access to equity markets in those
developing nations anticipated to rank among the world's top-performing
economies in the future. An emerging or developing market is broadly defined as
one with low- to middle-range per capita income. AIB Govett uses the
classification system developed by the World Bank to determine the potential
universe of emerging markets for investment but with significant potential for
growth and development. This Fund currently expects to invest in issuers located
in some or all of the following emerging or developing market countries:
Argentina, Brazil, Chile, Colombia, Croatia (indirect investment only), Czech
Republic, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan, Lebanon,
Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland, Portugal,
Russia, Singapore, Slovakia, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela, and Zimbabwe. The list of countries in which this
Fund invests may change from time to time.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in securities of issuers located in at least three different countries
(other than the U.S.). Additionally, at least 65% of the Fund's total assets
will normally be invested in common and preferred stocks, and warrants to
acquire such stocks. The Fund typically invests in equity securities listed on
recognized foreign securities exchanges, but the Fund may also hold securities
that are not so listed. The Fund may invest in debt obligations convertible into
equity securities, and in non-convertible debt securities when the Investment
Manager believes such non-convertible securities present favorable opportunities
for capital appreciation. See "Investment Techniques and Policies--Investment
Techniques--Investment in Debt Securities and Commercial Paper."
SMALLER COMPANIES FUND seeks long-term capital appreciation by investing
primarily in equity securities of those smaller companies AIB Govett believes
may be the industry leaders of tomorrow. The Fund selects its portfolio
investments primarily from among U.S. and foreign companies with individual
market capitalizations which would, at the time of purchase, place them in the
same size range as companies included in the Russell 2000 Index. Based
16
<PAGE>
on this policy and recent share prices, as of the date of this Prospectus, the
companies in which the Fund invests typically will have individual market
capitalizations of less than $3.0 billion.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in smaller companies including foreign smaller companies, and at least
80% of its total assets in common stocks. The Fund may also invest up to 20% of
its total assets in other types of securities with equity characteristics such
as preferred stocks, convertible securities, warrants, units and rights. Under
normal market conditions, the Fund will not invest more than 35% of its total
assets in securities of issuers located in any one country (other than the
U.S.). The Fund may invest in exchange-listed and over-the-counter ("OTC")
securities.
ASIA FUND (formerly Pacific Strategy Fund) seeks long-term capital appreciation
by investing primarily in equity securities of issuers located in some or all of
the following Asian countries: Australia, China, Hong Kong, India, Indonesia,
Japan, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South Korea,
Sri Lanka, Taiwan, and Thailand. The list of countries in which the Fund invests
may change from time to time.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in issuers located in not less than three different Asian countries.
Additionally, at least 65% of the Fund's assets will normally be invested in
common and preferred stocks, and warrants to acquire such stocks. The Fund
typically invests in equity securities listed on recognized foreign exchanges,
but it may also hold securities which are not so listed. The Fund may also
invest in debt obligations convertible into equity securities, and in non-
convertible debt securities when the Investment Manager believes such non-
convertible instruments present a favorable opportunity for capital
appreciation. See "Investment Techniques and Policies--Investment Techniques--
Investment in Debt Securities and Commercial Paper."
LATIN AMERICA FUND seeks long-term capital appreciation by investing primarily
in equity and debt securities of issuers located in some or all of the following
Latin American countries: Argentina, Belize, Bolivia, Brazil, Chile, Colombia,
Costa Rica, Dominican Republic, Ecuador, El Salvador, French Guiana, Guatemala,
Guyana, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Suriname, Uruguay,
and Venezuela. The list of countries in which the Fund invests may change from
time to time.
Under normal market conditions, the Fund invests at least 65% of its assets in
issuers located in not less than three Latin American countries, with equity and
debt securities of issuers located in any one country representing no more than
40% of the Fund's total assets. There are two exceptions to this policy: (1) the
Fund may invest up to 60% of its total assets in issuers located in either
Mexico or Brazil; and (2) the Fund may invest up to 35% of its total assets in
any combination of equity and debt securities of issuers located in the U.S. In
evaluating investments in U.S. issuers, the Investment Manager will consider,
among other factors, the issuer's Latin American business activities and the
effect that developments in Latin America may have on the issuer's results.
The Fund may invest in common and preferred stocks, rights, warrants, and
securities convertible into common stocks and in other substantially similar
forms of equity securities with comparable risk characteristics. The securities
may be listed on exchanges, traded in various OTC markets, or there may be no
organized market for a particular security.
The Fund may also invest in a variety of debt securities, although under normal
market conditions it invests the majority of its assets in equities. These debt
securities include bonds, notes, and debentures (or other forms of indebtedness
that may be developed in the future), issued by banks and other corporations, or
issued or guaranteed by Latin American national, state or local governments or
their agencies and instrumentalities (including central banks). The proportion
of equity and debt may vary from country to country. Subject to prevailing
market conditions, the Fund may invest up to 35% of its total assets in debt
securities which are below investment grade at the time of purchase, that is,
securities rated Ba or lower by Moody's Investor Services, Inc. ("Moody's") or
BB+ or lower by Standard & Poor's Corporation ("Standard & Poor's"), or, if
unrated, determined to be of comparable quality by the Investment Manager. (A
description of Moody's and Standard & Poor's rating system is included in the
Statement of Additional Information as Appendix A.) Consequently, the Fund's
ability to achieve its investment objective depends more on the Investment
Manager's credit analysis than if the Fund were limited to investments in higher
quality, rated bonds. Lower quality debt securities involve a high degree of
risk and are predominantly speculative (see "Principal Risk Factors"). Such
securities are the equivalent of U.S. corporate debt securities commonly known
as "junk bonds." Many Latin American debt instruments are not rated by U.S.
rating agencies.
17
<PAGE>
Under normal market conditions, the Fund invests in debt securities only with
the intent to earn income and preserve capital. Favorable changes in relative
foreign exchange rates, interest rate levels or the creditworthiness of issuers,
however, may cause the market value of certain debt securities to appreciate.
Although, the Fund may realize appreciation in the market value of debt
securities it holds, it anticipates that such appreciation should not have a
material effect on the overall performance of the Fund.
GLOBAL INCOME FUND seeks to achieve its investment objective of high current
income (consistent with preservation of capital), with capital appreciation as a
secondary objective, by investing primarily in corporate and government debt
securities of issuers located in some or all of the following countries: the
U.S., Canada, Japan, Mexico, the European Nations (including Austria, Belgium,
France, Germany, Luxembourg, the Netherlands, and Poland), New Zealand,
Australia, South Africa, Turkey, and the United Kingdom, as well as securities
denominated in multinational currency units and in obligations issued by
supranational entities. The countries in which Global Income Fund invests may
change from time to time. This Fund is designed to provide the potential for
higher yields and greater capital appreciation than a U.S.-only bond fund, but
its strategy may involve certain risks that do not apply to a U.S.-only bond
fund, such as the special risks associated with investing in foreign securities.
Under normal market conditions, the Fund invests at least 65% of its total
assets in debt securities of issuers located in at least three countries
(including the U.S.). Normally, the securities of issuers located in any one
country (other than the U.S.) will represent no more than 40% of the Fund's
total assets. The debt securities in which the Fund invests include bonds,
debentures, notes, commercial paper, certificates of deposit, bankers'
acceptances, fixed time deposits and certain U.S. mortgage-related securities
and may be issued by supranational, U.S. or foreign companies and financial
institutions, or issued or guaranteed by U.S. or foreign national, state or
local governments or their agencies or instrumentalities. Consistent with its
investment objectives, Global Income Fund may invest up to 20% of its total
assets in common and preferred stocks and in warrants to acquire such stocks. In
addition, the Fund may invest in debt obligations convertible into equity
securities or which have attached warrants or rights to purchase equity
securities. The Fund may not invest in any debt securities issued by AIB Govett
or any of its affiliated persons (as such term is defined in the Investment
Company Act of 1940 (the "1940 Act")).
The Fund normally invests at least 75% of its total assets in debt securities
with ratings, at the time or purchase, of at least Baa by Moody's or BBB by
Standard & Poor's (or, if unrated, determined to be of comparable quality by the
Investment Manager) and in commercial paper rated, at the time of purchase, at
least Prime-2 by Moody's or A-2 by Standard & Poor's (or, if unrated, determined
to be of comparable quality by the Investment Manager).
AIB Govett's current policy is to maintain the average dollar-weighted maturity
of the Fund's portfolio comparable to maturities of intermediate-term debt
instruments (i.e., securities with maturities at time of issuance between five
to ten years). AIB Govett may adjust the Fund's average maturity from time to
time, and may decrease or increase the maximum maturity target. For example, if
AIB Govett anticipates an interest rate decline, it may increase the average
maturity of the Fund's portfolio of debt securities, or if it anticipates that
interest rates may rise it may decrease its portfolio's maturity.
CHINA FUND seeks long-term capital appreciation by investing primarily in equity
securities of companies which have considerable exposure to the Chinese economy.
Principally, the Fund invests in the equity securities of companies (a)
organized under the laws of China or Hong Kong, (b) whose shares are traded on
exchanges located in China or Hong Kong, (c) which derive approximately 50% of
their gross sales or gross profits from China, Hong Kong or both, or (d) which
have approximately 50% of their assets in China, Hong Kong, or both.
The Fund typically invests in listed and over-the-counter securities through
authorized stock exchanges in China and Hong Kong and through stock exchanges
outside China and Hong Kong. The Fund will invest in both new and existing
enterprises registered and operating in China, including wholly Chinese-owned
enterprises, wholly foreign-owned enterprises, and Sino-foreign joint ventures.
The Fund also will invest in the securities of companies that have business
relationships in China.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in securities of issuers located in at least three different countries
(other than the U.S.). Additionally, at least 65% of the Fund's total assets
will normally be invested in common and preferred stocks, and warrants to
acquire such stocks. The Fund may also invest in debt obligations convertible
into equity securities, and in non-convertible debt securities when AIB Govett
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believes such non-convertible securities present favorable opportunities for
capital appreciation. See "Investment Techniques and Policies--Investment
Techniques--Investment in Debt Securities and Commercial Paper."
ASIAN SMALLER COMPANIES FUND seeks long-term capital appreciation by investing
primarily in smaller companies in the Far East, outside Japan, that AIB Govett
believes may be the industry leaders of tomorrow. The Fund selects its portfolio
investments primarily from among companies with individual market
capitalizations which would, at time of purchase, be less than $1.0 billion. The
Fund currently expects to invest in issuers located in some or all of the
following Far Eastern countries: China, Hong Kong, India, Indonesia, Malaysia,
Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan, and
Thailand. The list of countries in which the Fund invests may change from time
to time.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in securities of issuers located in at least three different countries
(other than the U.S.). Additionally, at least 65% of the Fund's total assets
will normally be invested in common and preferred stock and warrants to acquire
such stock. The Fund typically invests in equity securities listed on recognized
foreign securities exchanges, but the Fund may also hold securities that are not
so listed. The Fund may invest in debt obligations convertible into equity
securities and in non-convertible debt securities when AIB Govett believes that
such non-convertible securities present favorable opportunities for capital
appreciation. See "Investment Techniques and Policies--Investment Techniques--
Investment in Debt Securities and Commercial Paper."
EUROPE FUND seeks long-term capital appreciation by investing primarily in
equity securities of growth-oriented issuers located in Europe. The Fund
currently expects to invest in issuers located in some of all of the following
European countries: Austria, Belgium, Croatia, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Italy, Ireland, Latvia, Lithuania,
Luxembourg, the Netherlands, Norway, Poland, Portugal, Rumania, Russia,
Slovakia, Slovenia, Spain, Sweden, Switzerland, and Turkey. The list of
countries in which the Fund invests may change from time to time.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in securities of issuers located in at least three different countries
(other than the U.S.). Additionally, at least 65% of the Fund's total assets
will normally be invested in common and preferred stock and warrants to acquire
such stock. The Fund typically invests in equity securities listed on recognized
foreign securities exchanges, but the Fund may also hold securities that are not
so listed. The Fund may invest in debt obligations convertible into equity
securities and in non-convertible debt securities when AIB Govett believes that
such non-convertible securities present favorable opportunities for capital
appreciation. See "Investment Techniques and Policies--Investment Techniques--
Investment in Debt Securities and Commercial Paper."
INVESTMENT TECHNIQUES AND POLICIES
Although no Fund provides a complete or balanced investment program, investors
can use each as part of an overall program to meet long-term objectives.
Although each Fund may receive current income from dividends, interest and other
sources, with the exception of the Global Income Fund, income is only an
incidental consideration in AIB Govett's selection of a Fund's investments. Of
course, there can be no assurance that any Fund will achieve its investment
objective. Each Fund's net asset value fluctuates as the value of its portfolio
securities fluctuates.
In interpreting each Fund's investment policies and objectives, AIB Govett
adheres to the following principles and definitions:
. Whenever an investment policy or limitation states a maximum percentage of a
Fund's assets that may be invested in a security or other asset, or sets forth
a policy regarding quality standards, such percentage limitation is determined
immediately after and as a result of the Fund's acquisition of that asset. Any
later increase or decrease resulting from a change in values, net assets or
other circumstances will not be considered when determining whether the asset
complies with the Fund's investment policies and limitations.
. The term "issuers located in" a particular country includes issuers (i) which
are organized under the laws of that country and which have their principal
office in that country; or (ii) which derive 50% or more of their total
revenues from business in that country; or (iii) the equity securities of
which are principally traded on a stock exchange of that country.
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. The term "indirect investment only," when referenced to a particular country,
means that the particular Fund will invest only in securities of issuers
domiciled or organized in that country which are purchased and sold on an
exchange or in an over-the-counter market located outside of that country.
General Limitations
International Equity Fund, Emerging Markets Equity Fund, Smaller Companies Fund,
Asia Fund, China Fund, Asian Smaller Companies Fund, and Europe Fund are
"diversified companies", as that term is defined in the 1940 Act. As diversified
companies, these Funds, with respect to 75% of its total assets, may not invest
more than 5% of their respective total assets in the securities of any one
issuer (excluding the U.S. Government and its agencies) or more than 10% of the
outstanding voting securities of any one issuer. Latin America and Global
Income Funds are not "diversified companies".
With respect to all Funds, no Fund may borrow money or mortgage or pledge any of
its assets, except that a Fund may borrow from banks, for temporary emergency
purposes, up to 33 1/3% of its total assets and pledge up to 33 1/3% of its
total assets in connection with such borrowing. Any borrowings that come to
exceed the 33 1/3% limitation will be reduced within three days. No Fund may
purchase securities when its borrowings exceed 5% of its total assets. No Fund
may make loans if, as a result, more than 33 1/3% of the Fund's total assets
would be lent to other parties, except (i) through the purchase of a portion of
a debt issue in accordance with the Fund's investment objectives, policies or
limitations, or (ii) by engaging in repurchase agreements with respect to
portfolio securities. No Fund may invest 25% or more of its total assets in any
one industrial classification. These limitations are fundamental and cannot be
changed without shareholder approval. As a non-fundamental policy, no Fund may
invest more than 5% of its respective net assets in securities restricted as to
resale or in illiquid securities, and no Fund may purchase a security if, as a
result, more than 5% of that Fund's net assets would be invested in warrants, or
more than 2% of the Fund's net assets would be invested in warrants not listed
on the American Stock Exchange or the New York Stock Exchange.
Investment Techniques
DEPOSITARY RECEIPTS. The Funds may invest in sponsored and unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs"), and similar global instruments. A U.S. or foreign
bank or trust company typically "sponsors" these depositary instruments, which
evidence ownership of underlying securities issued by a U.S. or foreign
corporation. Unsponsored programs are organized independently and without the
cooperation of the issuer of the underlying securities. As a result, information
about the issuer may not be as readily available or as current as for sponsored
depositary instruments, and prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
INVESTMENT IN DEBT SECURITIES AND COMMERCIAL PAPER. For Latin America and Global
Income Funds' policies on investing in debt and commercial paper, see the
"Overview" section for each Fund, above.
International Equity, Emerging Markets Equity, Smaller Companies, Asia, China,
Asian Smaller Companies, and Europe Funds may invest in debt obligations
convertible into equity securities. These seven Funds may also invest in non-
convertible debt securities when AIB Govett believes such non-convertible
securities present favorable opportunities for capital appreciation. At least
75% of each of these seven Funds' total assets invested in non-convertible debt
securities other than commercial paper must be rated, at the time of purchase,
at least A by Standard & Poor's or Moody's, or if unrated, determined to be of
comparable quality by AIB Govett. These seven Funds' commercial paper
investments must, at the time of purchase, be rated at least Prime-2 by Moody's
or A-2 by Standard & Poor's, or if unrated, determined to be of comparable
quality by AIB Govett. The subsequent downgrade of a debt security to a level
below the investment grade required for the Fund will not require a sale of that
security, but AIB Govett will consider such an event in determining whether to
hold that security.
TEMPORARY STRATEGIES. Pending investment of proceeds from sale of Fund shares to
meet ordinary daily cash needs and to retain flexibility to respond promptly to
changes in market and economic conditions, AIB Govett may use temporary
defensive strategies. Under such strategies, a Fund may hold cash (either U.S.
dollars, foreign currencies or multinational currency units), and/or invest any
portion or all of its assets in short-term, high quality debt securities. For
debt obligations other than commercial paper, such instruments must be rated, at
the time of
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purchase, at least AAA by Standard & Poor's or Aaa by Moody's or, if unrated,
determined to be of comparable quality by AIB Govett. For commercial paper, such
investments must be rated, at the time of purchase, at least A-2 by Standard &
Poor's or Prime-2 by Moody's or, if unrated, determined to be of comparable
quality by AIB Govett. It is impossible to predict when or for how long AIB
Govett may use such temporary strategies.
HEDGING STRATEGIES. Each Fund may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with its investments, although there can be no assurance that such efforts will
succeed. Among the types of transactions which may be used are: forward currency
contracts, writing of covered put and call options, purchase of put and call
options on currencies and equity and debt securities; stock index futures and
options thereon, interest rate or currency futures and options thereon, and
securities futures and options thereon. It is currently intended that no Fund,
except Global Income Fund, will place more than 5% of its net assets at risk in
any one of these transactions or securities. Global Income Fund may invest
significantly more than 5% of its net assets in forward currency contracts.
However, although there is no limit on the number of forward currency contracts
Global Income Fund may enter into, this Fund may not position hedge with respect
to a particular currency for an amount greater than the aggregate market value
(determined at the time the sale of any foreign currency is made) of the
securities held in its portfolio denominated or quoted in, or currently
convertible into, such currency.
REPURCHASE AGREEMENTS AND OVERNIGHT TIME DEPOSITS. Each Fund may enter into
repurchase agreements, in which the Fund acquires a high grade, liquid debt
security from a U.S. bank, broker-dealer or other financial institution that
simultaneously agrees to repurchase the security at a specified time and price.
Repurchase agreements are collateralized, in an amount at least equal to the
current value of the loaned securities, plus any accrued interest, by cash,
letters of credit, U.S. Government securities, or other high grade liquid debt
securities at the Fund's custodian (or designated subcustodian), segregated from
other Fund assets. In segregating such assets, the Fund's custodian either
places them in a segregated account or separately identifies them and makes them
unavailable for investment by the Fund. Each Fund may also invest in overnight
time deposits placed at competitive interest rates with creditworthy banks,
including the Funds' custodian.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. Emerging and developing markets
countries often limit foreign investments in equity securities of issuers
located in such countries. As a result, the Funds may be able to invest in such
countries solely or primarily through open- or closed-end investment companies.
In accordance with the 1940 Act, a Fund may invest up to 5% of its total assets
in any one investment company, and up to 10% of its total assets in the
aggregate in shares of other investment companies, as long as that investment
does not represent more than 3% of the total voting stock of the acquired
investment company at the time such shares are purchased. The Funds may not
invest in any investment companies managed by AIB Govett or any of its
affiliates. Investments in investment companies may involve a duplication of
certain expenses, such as management and administrative expenses.
INVESTMENT RISKS
The quality and quantity of historic economic and securities market data are, in
many foreign and emerging markets, limited, and many foreign markets are
inherently more volatile than the U.S. securities markets. AIB Govett utilizes
investment policies which involve the review and analysis of overall market
information to determine geographic and sector exposure and the investigation of
individual candidate companies within that strategic focus.
MARKET. Equity and bond markets outside the U.S. have significantly outperformed
U.S. markets from time to time. Consequently, AIB Govett believes that
investments in foreign securities may provide greater long-term investment
returns than would be available from investing solely in U.S. securities.
Nevertheless, each Fund's portfolio is subject to market risk--the possibility
that stock and bond prices will decline over short, or even extended, periods--
to a greater degree than domestic investments, as a result of a variety of
factors that can affect stock and bond prices.
For example, there may be less information publicly available about foreign
companies, and less government regulation and supervision of foreign stock
exchanges, securities dealers and publicly traded companies than is available
about comparable U.S. entities. Accounting, auditing and financial reporting
standards, practices and requirements are not uniform and may be less rigorous
than U.S. standards. Securities of some foreign companies
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are less liquid, and their prices are more volatile, than securities of
comparable U.S. companies. Trading settlement practices in some markets may be
slower or less frequent than in the U.S., which could affect liquidity of a
Fund's portfolio. Trading practices abroad may offer less protection to
investors. In some foreign countries, any or all of expropriation,
nationalization, and confiscation are risks. A foreign government's limits on
the repatriation of distributions and profits and on the removal of securities,
property, or other assets from that country may affect a Fund's liquidity and
the value of its assets. Political or social instability, including war or other
armed conflict, or diplomatic developments also could affect the Funds.
CURRENCY. The Funds, as are most foreign investors, are also exposed to currency
risk if the U.S. dollar value of securities denominated in other currencies is
adversely affected by exchange rate movements. Currency risk could affect the
value of a Fund's investments, the value of dividends and interest earned by a
Fund, and the value of gains which may be realized.
FOREIGN TAXATION. Some foreign governments levy brokerage taxes, increasing the
cost of securities subject to the tax and reducing any realized gain or
increasing any realized loss. Foreign governments also may withhold taxes from
dividends, distributions and interest paid (typically at a rate between 10% and
35% of the gross amount paid). Such taxes may adversely affect a Fund's net
asset value.
Economic structures and political systems in emerging and developing markets are
generally less diverse, mature and stable compared to more developed countries.
Historically, emerging and developing markets have been more volatile than the
markets of more mature economies, and although they pose greater risks to the
Funds, time to time they have provided higher rates of return. AIB Govett
believes that these characteristics can be expected to continue in the future.
In particular, in China, in certain other Asian countries, and in the countries
of the former "Eastern Bloc," the lack of a historical capital market structure
or market-oriented economy, together with the possible reversal of recent
favorable economic, political and social developments, pose greater risks than
those associated with the more developed, market-oriented countries.
INVESTING IN EMERGING MARKETS. The risks of investing in foreign securities are
intensified if the investments are in emerging or developing markets. In
general, these markets may offer special investment opportunities because their
securities markets, industries and capital structure are growing rapidly, but
investments in these countries involve special risks not present in the U.S. or
in mature foreign markets, such as Germany or the United Kingdom. Settlement of
securities trades may be subject to extended delays, so that a Fund may not
receive securities purchased or the proceeds of sales of securities on a timely
basis. Emerging markets generally have smaller, less developed trading markets
and exchanges, which may affect liquidity, so that the Fund may not be able to
dispose of those securities quickly and at a reasonable price. These markets may
also experience greater volatility, which can materially affect the value of a
Fund's portfolio and, therefore, its net asset value. Emerging market countries
may have relatively unstable governments or governments that recognize very
limited property rights. In such environments the risk of nationalization of
businesses or of prohibitions on repatriation of assets is greater than in more
stable, developed political and economic circumstances. This risk is especially
acute with respect to the Govett China Fund where AIB Govett may invest
significant Fund assets in China, Hong Kong, or both. The economy of a
developing market country may be predominantly based on only a few industries,
and it may be highly vulnerable to changes in local or global trade conditions.
The legal and accounting systems, and mechanisms for protecting property rights,
may not be as well developed as those in more mature economies. In addition,
some emerging markets countries have general or industry-specific restrictions
on foreign ownership that may limit or eliminate the Fund's opportunities to
acquire desirable securities. Please refer to the Statement of Additional
Information for a discussion of risks particular to investing in Russia.
INVESTING IN CHINA. Investing in China, Hong Kong, Taiwan, and other China
Region countries involves certain risks and special considerations not typically
associated with investing in other emerging markets or more established
economies ore securities markets. Among those risks are: a greater risk of
expropriation, nationalization, and confiscatory taxation of Fund assets because
China's totalitarian government has the power to make unilateral changes in
China's foreign investment laws; a greater risk of loss caused by illiquid
investments and price volatility because of the relatively small market
capitalization and trading volume of China Region securities; a greater risk of
loss caused by highly volatile exchange rates because the Chinese currency, the
Renminbi, is not freely convertible; and the related possibility that the
Chinese government may decide not to continue to support the economic reform
programs implemented since 1978, thus returning the country to the centrally
planned economy that existed prior to 1978.
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INVESTING IN SMALLER COMPANIES. The smaller companies in which the Funds invest,
and in which Smaller Companies Fund and Asian Smaller Companies Fund primarily
invest, often have rates of sales, earnings, and share price appreciation that
exceed those of larger companies. However, such companies also often have
limited product lines, markets or financial resources. Stocks of smaller
companies may have limited marketability and typically experience greater price
volatility than stocks of larger companies. The Fund's share price will reflect
this volatility.
INTEREST RATES AND CREDIT. The value of fixed income securities held by the
Funds generally fluctuates inversely with interest rate movements. Global Income
Fund and Latin America Fund normally diversify their portfolios by investing in
a number of issuers; however, each is a "non-diversified" series and may invest
more than 5% of their assets in the securities of one issuer. Consequently, each
Fund may experience greater interest rate and credit risk with respect to its
portfolio than funds with similar objectives which are more broadly diversified.
Latin America Fund and Global Income Fund also may invest in debt securities
rated below investment grade. These securities may be the equivalent of high
yield, high risk "junk bonds," which generally have greater potential for
default or price change than higher quality securities caused by changes in the
issuer's creditworthiness, economic downturns or interest rate increases. The
issuers of such debt securities may be unable or unwilling to repay principal or
interest when due, and a Fund may incur additional expenses if it is required to
seek recovery following a default in the payment of principal or interest on its
holdings. In addition, remedies for defaults on debt securities issued by
emerging market governments generally must be pursued in the courts of the
defaulting government, and legal recourse can therefore be significantly
diminished.
LIQUIDITY. Funds which may invest in sovereign debt obligations may have
difficulty disposing of and valuing them because there may be a limited trading
market for them. If reliable market quotations are not available, AIB Govett
values such securities in accordance with procedures established by the Board of
Directors. AIB Govett's judgment and credit analysis plays a greater role in
valuing high risk, high yield debt securities compared to securities for which
external sources for quotations and last sale information are available. Adverse
publicity and changing investor perceptions may affect the value of these
securities and the Funds' ability to dispose of them. Because there may be no
liquid secondary market for many of these securities, the Funds anticipate that
the securities could be sold only to a limited number of dealers or
institutional investors. See "Description of Securities, Investment Policies and
Risk Factors" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
Under the Company's Articles of Incorporation and the laws of Maryland, the
Board of Directors is responsible for overseeing the conduct of the Company's
business and the activities of each Fund. Under the Investment Management
Agreement dated ____________, 1997 (the "Investment Management Agreement"),
between Govett Funds and AIB Govett, and subject to such policies as the Board
may establish, AIB Govett provides the Funds with day-to-day management services
and makes, or supervises any subadviser who makes, investment decisions on their
behalf in accordance with each Fund's investment policies.
Advisers and Subadvisers
The Funds' investment manager is AIB Govett, 250 Montgomery Street, Suite 1200,
San Francisco, CA 94104, a Maryland corporation. AIB Govett is a wholly-owned
subsidiary of AIB Asset Management Holdings Limited ("AIBAMH"), which is a
majority-owned subsidiary of Allied Irish Banks, plc ("AIB"). AIB is the
largest bank in the Republic of Ireland, with assets of approximately $21
billion as of ______________________, 1997. AIB Govett has approximately
$______________ of assets under management as of _________________________,
1997.
In 1997, AIBAMH made several adjustments to its operating structure in order to
more effectively provide investment management services to its clients around
the world. A new U.S. company, AIB Govett, was formed to provide these services
to North American clients. In addition, John Govett & Co. Limited, which had
served as investment manager for the Funds, changed its name to AIB Govett Asset
Management Limited. AIB Govett has been appointed as advisor to the Funds. AIB
Govett (London) serves as subadviser to all Funds, and AIB Investment Managers
Limited ("AIBIM Dublin") serves as subadviser to Europe Fund (collectively, the
"Subadvisers"). AIB Govett, AIB Govett (London) and AIBIM (Dublin) are wholly-
owned subsidiaries of AIBAMH.
The reorganization did not result in any change of actual control or management
of AIB Govett (London) or in any change in management of the Funds. In
particular, the same individuals who provided services to the Funds prior to the
reorganization continue to provide the same services.
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AIB GOVETT (LONDON) (formerly John Govett & Co. Limited) is a U.K. company
located at Shackleton House, 4 Battle Bridge Lane, London SE1 2HR , England. A
money manager since the 1920s, it has developed special expertise in investing
in emerging markets and smaller companies worldwide. AIB Govett (London) had, as
of ______, 1997, approximately $_______ billion under management, primarily
offshore funds. AIB Govett (London) serves as investment subadviser to two U.S.
mutual fund portfolios in addition to the Funds.
AIBIM (DUBLIN) is an Irish company located at AIB Investment House, Percy Place,
Dublin 4, Ireland. As of ________________, 1997, AIBIM (Dublin) had
approximately $__________________ billion under management. It specializes in
managing larger cap equity and fixed income funds for a variety of offshore
clients, including pension funds and charitable institutions. AIBIM (Dublin)
also serves as investment subadviser to another U.S. mutual fund portfolio.
Peter Pejacsevich and Eileen Fitzpatrick, Joint Chief Investment Officers and
Directors of AIB Govett, are, respectively, Chief Investment Officer of AIB
Govett (London) and AIBIM (Dublin). Mr. Pejacsevich graduated from Cambridge
University with an MA in Economics. Prior to joining AIB Govett (London) in
1991 as Chief Investment Officer, he was Executive Vice President at Bessemer
Trust Co. N.A., responsible for managing equity portfolios and international
investments. He also served as Assistant Director at Guinness Mahon & Co. Ltd.
in charge of overseas equity investments and as Assistant Vice President at
Mellon Bank, USA, responsible for marketing their joint venture, Mellon Pictet
and Robert Fleming.
Ms. Fitzpatrick holds a Ph.D. in Science from University College, Dublin. After
two years with a Dublin-based fund management organization, she joined AIBIM
(Dublin) in 1988, becoming Head of International Equities and Associate Director
in 1993. She moved to NCB Stockbrokers and then, in 1995, to Goodbody
Stockbrokers (an affiliate of AIB), where she was Head of International Equities
Sales Division. In 1996 she rejoined AIBIM (Dublin) as Deputy Investment
Director and was appointed Investment Director in January, 1997.
Portfolio Management
AIB Govett and the Subadvisers are part of a broad network of offices worldwide,
including London, Dublin, Singapore, Budapest, Mexico City, San Francisco, and
Bangalore. Each of the Funds, except Smaller Companies Fund and Asian Smaller
Companies Fund, has been managed by a team headed by a lead portfolio manager
who is responsible for overseeing the activities of the respective Fund, and for
ensuring that the firm's strategy is executed in accordance with each Fund's
investment objectives, policies and regulatory requirements. Generally, each
team's investment process is based on interaction among regional specialist
teams.
The lead portfolio manager of Emerging Markets Equity Fund is Rachael Maunder,
who has performed this function since the Fund's inception in 1992. She joined
AIB Govett (London) in 1991 and is a Director of the firm. She graduated in
economics and politics from Bath University.
The lead portfolio manager of Asia Fund is Peter Robson, who has performed this
function since the Fund's inception in 1994. He joined AIB Govett (London) in
1990 and is a Director of the firm. He graduated in engineering from Oxford
University.
The lead portfolio manager of Latin America Fund is Caroline Lane, who has
performed this function since the Fund's inception in 1994. She joined AIB
Govett (London) in 1990 and is a Director of the firm. She graduated from Exeter
University with a degree in economic history.
A portfolio management team under the supervision of Peter Pejacsevich, Chief
Investment Officer of AIB Govett (London) has managed the Global Income Fund
since April, 1997.
The lead portfolio manager for China Fund is Christian Dangerfield. He joined
AIB Govett (London) in 1992, and is a Director of the firm. He graduated in
Modern History from Oxford University.
The co-lead portfolio managers for Europe Fund are Peter Kysel and Louise
McGuigan. Ms. McGuigan has been AIBIM's Head of European Equities since 1994.
Prior to that time she was a portfolio manager with Hill Samuel Fagen Investment
Management. She holds a Certified Diploma in Accounting and Finance. Mr. Kysel
joined AIB Govett (London) in 1994 and is a Director of the firm. Prior to that
time he was managing director of the Investment Banking Division at Komercni
Banka AS in Prague. He has also served as Director of International Investments
for Lloyds Merchant Bank Ltd. in London. He graduated from Prague University in
business economics and politics.
The portfolio manager for Smaller Companies Fund is Gareth Watts, who has
performed this function since January, 1997. Prior to that time he was a senior
member of the team managing International Equity Fund. Since joining AIB Govett
(London) as a Director in 1988, Mr. Watts has managed all of AIB Govett
(London)'s offshore funds investing in U.S. equities. He graduated in statistics
from the University of Wales.
The portfolio manager for Asian Smaller Companies Fund is Chua Teck Chye. He is
a dual employee of AIB Govett (London) and AIB Govett (Asia) Pte. Limited ("AIB
Govett (Asia)", formerly known as John Govett & Co. (Asia) Pte. Limited), a
Singapore subsidiary of AIBAMH. He graduated from London School of Economics in
Political Science in 1981. He entered the financial sector through commercial
banking and was Director of Research in the Singapore offices of several
regional stockbrokerage operations. He joined AIB Govett (Asia) as Chief
Investment Officer in 1993.
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AIB Govett and the Subadvisers permit their investment and other personnel to
purchase and sell securities for their own accounts, subject to a compliance
policy governing personal investing. This policy requires investment and other
personnel to conduct their personal investment activities in a manner that is
not detrimental to the Funds or to any of the group's other advisory clients.
Mr. Patrick Cunneen, a Director of the Company, is an officer of AIBAMH.
Advisory and Subadvisory Agreements
The terms of the New Advisory Agreements are substantially similar to the Former
Advisory Agreement. The investment management fees paid by the Original Funds
were not affected by the change in investment advisory responsibility from AIB
Govett (London) to AIB Govett.
The Funds pay AIB Govett a monthly fee based upon the average net assets of the
Funds, as determined at the close of each business day during the month, at an
annual rate of 1% of the average daily net assets of each Fund (0.75% for
Global Income Fund), for providing investment management and administrative
services to the Funds.
Pursuant to its Subadvisory Agreement with AIB Govett, AIB Govett (London)
receives a fee of __ basis points of average annual net assets as compensation
for serving as investment subadvisor to the Funds. Pursuant to its Subadvisory
Agreement with AIB Govett, AIBIM (Dublin) receives a fee of ___ basis points of
average annual net assets as compensation for its subadvisory services to Europe
Fund.
Overseeing international, emerging markets and smaller company investments is
complex, and the fees for servicing such funds are generally higher than fees
paid by funds with portfolios composed mostly of domestic securities. AIB
Govett waives and reimburses certain Fund expenses, including a portion of
management fees and service fees. The Funds pay all Fund expenses not waived or
reimbursed by AIB Govett or other entities, including but not limited to the
remainder of AIB Govett's investment management fees, outside directors' fees,
taxes, if any; auditing, legal, custodial, transfer agency and certain investor
servicing and shareholder reporting expenses; brokerage and commission expenses,
if any; interest charges on any borrowings; costs and expenses of accounting,
bookkeeping and recordkeeping; insurance premiums; trade association dues; fees
and expenses of complying with federal and state securities laws; costs
associated with shareholders' meetings and preparation and distribution of proxy
materials; printing and mailing prospectuses and statements of additional
information and reports to shareholders; and other expenses relating to the
Funds' operations plus any extraordinary and non-recurring Fund expenses.
Please see the Financial Highlights section of this Prospectus and the Statement
of Additional Information for more detailed descriptions of fees and
expenses.
Allocation of Portfolio Transactions
In placing orders for the Funds' portfolio transactions, each of AIB Govett and
the Subadvisers seeks best execution, analyzing such factors as price, size or
order, difficulty of execution and the operational capabilities of the brokerage
firm involved. Commissions on trades through foreign securities exchanges or
over-the-counter markets typically are fixed and higher than those made through
U.S. securities exchanges or over-the-counter markets. Consistent with the
obligation to obtain best execution, AIB Govett or the applicable Subadviser may
consider research and brokerage services provided by that broker. The Funds may
pay a broker who provides brokerage and research services to AIB Govett or the
applicable Subadviser a higher commission than that charged by other brokers if
AIB Govett or the applicable Subadviser determines in good faith that the amount
of the commission is reasonable in relation to the value of those services,
either in terms of the particular transaction or of the overall responsibility
of AIB Govett or the applicable Subadviser to the Funds and to any accounts over
which AIB Govett or the applicable Subadviser exercises investment
discretion.
Portfolio Turnover
The frequency of portfolio transactions--the "portfolio turnover rate"--varies
from year to year depending on market conditions. Because a high annual turnover
rate (over 100%) increases transaction costs and may lead to capital gains which
are subject to federal taxation, AIB Govett or the applicable Subadviser
carefully weighs anticipated benefits of a trade against expected transaction
costs and tax consequences. Neither AIB Govett nor any of the Subadvisers
engages in short-term trading except when necessary to manage the Funds'
portfolios. The
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portfolio turnover rates the Original Funds for the period from January 1, 1996
through December 31, 1996 were: International Equity Fund--84%; Emerging Markets
Equity Fund--122%; Smaller Companies Fund--406%; Asia Fund--170%; Latin America
Fund--150%; and Global Income Fund--236%. Each Fund's portfolio turnover rate
reflects market conditions affecting the economies in which that Fund invests.
Smaller Companies Fund's portfolio turnover rate also reflects portfolio
repositioning undertaken following the change in portfolio manager in January,
1996. Asia and Latin America Funds have also been affected by sizable asset
fluctuations that occurred during calendar year 1996. The portfolio turnover
rates of the Original Funds for the period from January 1, 1997 through June 30,
1997 (unaudited) were: International Equity Fund--34%; Emerging Markets Equity
Fund--64%; Smaller Companies Fund--46%; Asia Fund--92%; Latin America Fund--73%;
and Global Income Fund--55%.
Distribution Arrangements
FPS Broker Services, Inc. (the "Distributor") is the Funds' statutory
distributor and principal underwriter. FPS Services, Inc., an affiliate of the
Distributor, serves the Funds as transfer and shareholder services agent (the
"Transfer Agent").
Custodians
The Chase Manhattan Bank (the "Custodian") serves as the Funds' global
custodian. Hong Kong and Shanghai Banking Corporation, Taipei, Taiwan, provides
custody services for Fund assets held in Taiwan.
Transfer Agent
FPS Services, Inc., (the "Transfer Agent"), an affiliate of the Distributor,
provides transfer agent, shareholder services agent, and dividend disbursement
services to the Funds.
Accounting and Administration Services
Chase Global Funds Services Company, an affiliate of the Funds' global
custodian, provides the Funds with administration and accounting services.
HOW THE FUNDS VALUE THEIR SHARES
When share price is determined
At the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. Eastern Time) each day the New York Stock Exchange is open, each Fund
calculates its net asset value per share (the "NAV") of each class by dividing
the total value of the assets (securities plus cash or other assets, including
interest and dividends accrued but not yet received), attributable to the class,
less total liabilities attributable to the class, by the total number of shares
of the class outstanding.
How share price is determined
All securities traded on an exchange are valued at the last sale quotation on
the exchange prior to the time of valuation. Securities for which market
quotations are readily available are stated at market value. Short-term
investments maturing in 60 days or less are valued using amortized cost, which
the Board of Directors has determined approximates market value. Amortized cost
valuation means that a debt security with a maturity in excess of 60 days, which
currently has a maturity of 60 days or less, is valued at the market or fair
value of the security on the 61st day prior to maturity (each as adjusted for
amortization of premium or discount) rather than at current market value. All
other securities and assets are valued at fair value following procedures
approved by the Board of Directors.
Foreign securities may trade on days or at times other than those days and times
when the New York Stock Exchange is open. The prices of foreign securities
quoted in foreign currencies are translated into U.S. dollars at 1:00 p.m.
Eastern Time at the exchange rates in effect at that time, or at such other
rates as the Investment Manager may determine to be appropriate. As a result,
currency fluctuations in relation to the U.S. dollar may affect a Fund's net
asset value per share even though there has been no change in the market value
of portfolio holdings. In
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addition, because of time zone differences foreign exchanges and markets may
close before the New York Stock Exchange closes. However, events affecting
market values which may occur between the earlier closing of a foreign exchange
and the closing of the New York Stock Exchange may not be reflected in that
day's computation of a Fund's net asset value. If an event materially affecting
the value of a portfolio holding occurs during such period and the Investment
Manager becomes aware of it, then the holding will be valued at fair value as
determined in good faith, according to procedures adopted by the Board of
Directors.
ABOUT YOUR ACCOUNT
WHO CAN BUY INSTITUTIONAL SHARES
As of June 27, 1997 all of the previously outstanding Class C shares of each
Fund were redesignated "Institutional Class" shares without other changes. No
Class C shares had been offered to the public as of that date. This prospectus
only relates to Institutional Class Shares. Each class of shares of a Fund
represents an interest in the same portfolio of investments, and each class has
its own sales charge structure.
Shares of the Institutional Class are available for purchase only by: (a)
retirement plans introduced by persons not associated with brokers or dealers
that are primarily engaged in the retail securities business and rollover
individual retirement plans from such plans; (b) tax-exempt employee benefit
plans of AIB Govett or its affiliates and securities dealer firms with a
selling agreement with the Distributor; (c) institutional advisory accounts of
AIB Govett or its affiliates, as well as subsidiaries and related employee
benefit plans and certain rollover individual retirement accounts from such
institutional advisory accounts; (d) banks, trust companies and similar
financial institutions investing for their own account or for the account of
their trust customers for whom such financial institution is exercising
investment discretion in purchasing shares of the Institutional Class; and (e)
registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is not
affiliated or associated with a broker or dealer or derives compensation for its
services exclusively from its clients for such advisory services.
The following table summarizes certain terms of Institutional Class shares.
Sales Charges None
12b-1 Distribution Fee None
Service Fee None
Minimum Investment $500,000.
Exchangeability Institutional Class shares of one Fund may be
exchanged for Institutional Class shares of the
other Funds.
Dividends Calculated in the same manner and at the same
time for each class, except that the
Institutional Class will not incur distribution
fees under the Rule 12b-1 Plans that apply to the
Class A and Class B shares.
Conversion Institutional Class shares do not convert to any
other Class of shares of the Funds.
The Board of Directors has determined that currently no conflict of interest
exists between the classes of shares of any Fund. In accordance with their
fiduciary duties under the 1940 Act and state laws, the Directors will seek on
an ongoing basis to ensure that no such conflict arises.
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HOW TO BUY SHARES
Institutional Class shares of each of the Funds are offered continuously at the
NAV determined for each Fund as of the close of the regular trading session of
the New York Stock Exchange (currently 4:00 p.m. Eastern Time), following
receipt by the Transfer Agent of a purchase order in proper form.
Shares may be purchased through the Distributor, through authorized investment
dealers, or directly through the Transfer Agent. Authorized dealers may charge a
fee for effecting transactions. Completed applications should be sent to the
Transfer Agent at the address shown in the Services Guide in Appendix A to this
Prospectus. The minimum initial investment is $500,000. The Funds reserve the
right to refuse to accept any purchase order, and to suspend the offering of
shares for a period of time. Prospective investors and shareholders may call
800-821-0803 for additional information about their accounts or the Funds.
INVESTMENT INSTRUCTIONS GIVEN ON BEHALF OF PARTICIPANTS IN AN EMPLOYER-SPONSORED
RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH DIRECTIONS PROVIDED BY THE EMPLOYER.
EMPLOYEES CONSIDERING PURCHASING SHARES AS PART OF THEIR RETIREMENT PROGRAM
SHOULD CONTACT THEIR EMPLOYER FOR DETAILS.
Initial Purchases Through Authorized Dealers
Orders received by an authorized dealer before the New York Stock Exchange has
closed for a particular day will be executed at the public offering price
determined on that day, provided that the authorized dealer transmits the order
to the Transfer Agent by 5:00 p.m. Eastern Time on that day. Authorized dealers
are responsible for timely transmission of orders to the Transfer Agent. The
sales agreements between the Distributor and the authorized dealers provide that
all orders are subject to acceptance by the Funds, which retains the right to
reject any order. For wiring instructions, please see Appendix A.
Initial Purchases Through The Transfer Agent
Investors may open an account directly through the Transfer Agent by sending a
completed, signed application and a check in the amount of the purchase price,
made out to the Govett Funds, to the address shown in Appendix A. Third party
checks will not be accepted in payment for Fund shares. Shares may also be
purchased through the Transfer Agent by bank wire, provided that within seven
(7) days of an initial investment, the Transfer Agent has received an executed
Account Application showing the investor's taxpayer identification number. Bank
wire purchases are effected at the next computed public offering price after the
wire is received. A wire investment is considered received when the Transfer
Agent has been notified that the wire has been credited to a Fund. The investor
is responsible for providing prior telephone notice to the Transfer Agent that a
wire is being sent. The Transfer Agent will provide an account number which
should be referenced on the wire instructions.
Subsequent Investments Through The Transfer Agent
After an initial investment is made and a shareholder account is established
through an authorized dealer, subsequent purchases may be made, at the
investor's option, directly through the Transfer Agent. Investors should use the
investment stub located at the bottom of the Shareholder Statement Form or, if
one is not available, a check made payable to "Govett Funds" should be sent to
the Transfer Agent at the address indicated in Appendix A. Any check for
additional shares sent directly to the Transfer Agent should reference the
account number to which the money should be credited. Investments may also be
sent via bank wire. Please see Appendix A for wiring instructions.
Certificates
Certificates are not issued for Institutional shares. Purchases not involving
the issuance of certificates are confirmed to the shareholder and credited to
the shareholder's account on the books of the Transfer Agent. The shareholder
will have the same rights of ownership as if certificates had been issued.
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Directed Dividends
A shareholder may elect on the Account Application to have dividends from one
Fund paid to a third party or invested in shares of the same class of another
series of the Funds, provided that an existing account in such other Fund is
maintained by the shareholder or for the benefit of the shareholder in the same
employer-sponsored retirement plan. Distributions are invested into the selected
Fund at its NAV as of the payable date of the distribution.
HOW TO MAKE EXCHANGES
Exchange requests made on behalf of participants in an employer-sponsored
retirement plan are made in accordance with directions provided by the employer.
Employees should therefore contact their employer for details. Generally,
shareholders may exchange shares of one class of any Fund for shares of the same
class of any other Fund, based upon their respective NAVs, provided that the
account holder remains the same. Certain authorized dealers may be charged a fee
for handling exchanges. Each Fund may suspend, terminate or amend the terms of
the exchange privilege upon 60 days' written notice to shareholders.
Money Market Fund. Shares of the Zurich Kemper Cash Account Trust Money Market
Portfolio (the "Money Market Fund") may be exchanged for shares of any Fund.
The Money Market Fund is not a series of the Funds, but is available as an
exchange vehicle for Fund shareholders. Shares of one Fund class exchanged into
the Money Market Fund may not be exchanged, upon redemption of shares of the
Money Market Fund, for shares of another class, and the account registration and
type of account must remain the same (that is, retirement or non-retirement
account). Thus, Institutional Class shares of a Govett Fund exchanged into the
Money Market Fund will be exchanged for Institutional Class shares of the
designated Govett Fund registered identically for the same type of account.
Checkwriting privileges are not available for Fund investors who hold shares of
the Money Market Fund. The exchange privilege pertaining to the Money Market
Fund does not constitute an offering or recommendation of the shares of that
fund by Govett Funds or AIB Govett. Investors should obtain and read the current
prospectus for any fund into which they want to invest and carefully consider
that fund's investment objectives.
Investors interested in making an exchange for shares of the Money Market Fund
should write or call their authorized dealer or the Distributor to request the
current Money Market Fund prospectus.
Exchanges By Telephone. Exchange orders effected by telephone should
communicated to the Transfer Agent at the telephone number shown in Appendix A.
Exchanges By Mail. Exchange orders effected by mail should be sent to the
investor's authorized dealer or the Transfer Agent at the address set forth in
Appendix A.
Frequent Exchanges. As a general principle, purchases, redemptions, and
exchanges of Fund shares should be made for investment purposes only. A pattern
of frequent exchanges, purchases and sales may be deemed abusive by AIB Govett
and at its discretion can be limited by a Fund's refusal to accept purchase
and/or exchange orders from the investor. Although AIB Govett will consider all
factors it deems relevant in determining whether a pattern of frequent
purchases, redemptions, and/or exchanges by a particular investor is abusive and
not in the best interests of a Fund or its shareholders, as a general policy, a
pattern of more than one purchase-sale transaction during any 30-day period with
respect to any particular Fund may be deemed abusive.
HOW TO REDEEM SHARES
General Information
Redemption requests made on behalf of participants in an employer-sponsored
retirement plan are made in accordance with direction provided by the employer.
Employees should therefore contact their employer for details. Investors may
redeem all or a portion of their shares on any business day. Shares will be
redeemed at the NAV next computed after a properly completed and authorized
redemption request is received. Shareholders with accounts at authorized dealers
may redeem shares through the dealer or directly through the Transfer Agent. IF
THE SHARES ARE HELD IN THE DEALER'S "STREET NAME," THE REDEMPTION MUST BE MADE
THROUGH THE DEALER.
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Once an investor's shares are redeemed, the proceeds will normally be sent to
him or her the next business day if all redemption instructions described below
are followed and all documentation is received by the Transfer Agent. If making
immediate payment could affect a Fund adversely, it may take up to seven (7)
days (or such shorter period as may be required by law or regulation) to pay the
shareholder.
Shareholders requesting redemptions via bank wire should allow two (2) business
days from the time the redemption request is accepted by the Transfer Agent for
the proceeds to be deposited in the bank, although typically the wire will be
completed within one (1) business day.
The Funds may withhold redeeming a shareholder's account until they are
reasonably satisfied that investments initially made by check have been
collected (which may take up to 15 days from the date the Transfer Agent
receives the check). When the New York Stock Exchange is closed (or when trading
is restricted) for any reason other than its customary weekend or holiday
closings, or under any emergency circumstances as determined by the SEC to merit
such action, redemptions may be suspended or payment dates postponed. Under
limited circumstances described in the Statement of Additional Information,
redemptions may also be paid in securities or other assets of the redeeming
Fund.
Redemption requests may be transmitted to the Transfer Agent by telephone or by
mail, as described in Appendix A. Supporting documentation may be required from
corporations, executors, administrators, trustees, guardians and other
fiduciaries. Fiduciaries should contact the Transfer Agent for further
information. Redemption requests received after 4:00 p.m. Eastern Time will be
honored at the NAV calculated on the next business day (i.e., the next day the
New York Stock Exchange is open).
An original SIGNATURE GUARANTEE by a bank or trust company, broker-dealer,
credit union, national securities exchange, registered securities association,
clearing agency, savings and loan association or federal savings bank is
required under the following circumstances:
. The shareholder wishes to redeem $50,000 or more.
. The proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account.
. The proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, predesignated bank, savings and loan,
credit union, or brokerage firm account.
. The Transfer Agent believes that a signature guarantee would protect
against potential claims based on the transfer instructions, including, for
example, when (a) the current address of one or more joint owners of an
account cannot be confirmed; (b) multiple owners have a dispute or give
conflicting instructions to the Fund; (c) the Fund has been notified of an
adverse claim; (d) the instructions received by the Fund are given by an
agent, not the registered owner; (e) the Fund determines that joint owners
who are married to each other are separated or involved in divorce
proceedings; or (f) the authority of a representative of a corporation,
partnership, association or other entity has not been established to the
Fund's satisfaction.
. The proceeds are to be sent to the shareholder's address of record and that
address has changed within the preceding 30 days.
Or
. The shareholder requests that the proceeds be sent directly to a bank,
savings and loan, credit union, or brokerage firm account that has not been
predesignated in the "Bank Wiring Information" section of the Account
Application.
The Transfer Agent will accept signature guarantees from all eligible firms, as
defined by Rule 17Ad-15 under the Securities Act of 1934. The Fund reserves the
right to waive signature guarantees and to request additional information under
certain circumstances.
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Redemptions Through Authorized Dealers
Shareholders with accounts at authorized dealers may submit redemption requests
to the dealers. The Transfer Agent accepts redemption requests by telephone on
any business day from 9:00 a.m. to 5:00 p.m. Eastern Time, provided that the
dealer has received the request prior to 4:00 p.m. Eastern Time. This is known
as a repurchase. However, EVEN AFTER RECEIPT OF A REPURCHASE ORDER FROM A
DEALER, THE FUNDS STILL REQUIRE A SIGNED LETTER FROM THE SHAREHOLDER CONTAINING
REDEMPTION INSTRUCTIONS AND ALL OTHER DOCUMENTS REQUIRED FOR DIRECT REDEMPTION
REQUESTS, AS STATED ABOVE. The shareholder's letter should refer to the Fund
involved, the account from which the redemption is to be made, the fact that the
repurchase was ordered through a dealer and the dealer's name. Details of the
dealer-ordered trade, such as the trade date, confirmation number and the amount
of shares or dollars, will speed processing. The seven-day period within which
the proceeds of the shareholder's redemption will be sent will begin when the
Transfer Agent receives all documents required to complete (or "settle") the
repurchase in proper form. The redemption proceeds will not earn dividends or
interest during the time between receipt of by the Transfer Agent of the
dealer's repurchase order and the date the redemption is processed after all
necessary documents have been received. It is therefore in the shareholder's
best interest to have all required documentation completed and forwarded to the
Transfer Agent as soon as possible. The shareholder's dealer may charge a fee
for handling the order.
TELEPHONE TRANSACTIONS
Unless the Telephone Privilege is waived by the shareholder (by completing the
appropriate section of the Account Application), he or she may effect exchange,
redemption and certain types of account maintenance transactions by telephone.
The Telephone Privilege authorizes the Funds, the Transfer Agent and the
Distributor to act on instructions by telephone to exchange, redeem and
generally to maintain the account for which the Telephone Privilege applies. A
shareholder may give exchange instructions to the Transfer Agent by calling 800-
821-0803.
Shareholders who have accounts with the Funds through employer-sponsored
retirement plans may not redeem by telephone. The Telephone Privilege permits
redemptions of up to $50,000 per day if the proceeds are to be paid by check.
Amounts of $1,000 or more may be redeemed daily by bank wire. The proceeds must
be payable to the shareholder(s) of record and sent to the address of record for
the account or wired directly to their predesignated bank account. This
privilege is not available if the address of record has been changed within the
thirty days prior to a telephone redemption request. Proceeds from redemptions
are expected to be wired on the next business day following the date of the
redemption. The Funds reserve the right to terminate, limit or otherwise modify
the Telephone Privilege at any time.
In an effort to confirm that telephone requests are genuine, reasonable
Procedures are employed, which currently include recording all telephone
instructions and mailing a confirming account statement to the record address.
If reasonable procedures are followed, neither the Funds, the Distributor, nor
the Transfer Agent will be liable for following telephone instructions it
reasonably believes to be genuine. Any of the Funds, the Distributor, and the
Transfer Agent may be liable for losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges and
redemptions will be accepted from authorized dealers on behalf of a shareholder
by telephone.
Investors should be aware that they may have difficulties effecting telephone
transactions during unusual market conditions.
DIVIDENDS, CAPITAL GAINS AND TAXES
Dividends And Capital Gains
All of the Funds except the Global Income Fund will distribute at least annually
substantially all of their net investment income and net realized capital gains.
Distributions from net investment
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income, if any are expected to be small. Global Income Fund seeks to declare
dividends daily and to pay dividends monthly from net investment income. Such
distributions may include all or a portion of the Fund's net realized short-term
gains. At least annually, distributions of any realized long-term gains and any
remaining short-term gains will be declared.
With respect to all Funds, distributions from capital gains are made after
applying any available loss carryovers and other adjustments permitted under the
Internal Revenue Code of 1986, as amended (the "Code"). Each Fund may make
additional dividend or capital gain distributions as required to comply with
certain distribution requirements under the Code.
Dividends And Capital Gains Payment Options
Shareholders may choose one of four options:
. Reinvest all income dividends and capital gains distributions in additional
Fund shares.
. Receive income dividends in cash and accept capital gains distributions in
additional Fund shares.
. Receive capital gains distributions in cash and accept income dividends in
additional Fund shares.
. Receive income dividends and capital gains distributions in cash.
Unless designated otherwise in the account application, all income dividends and
capital gains distributions for which reinvestment has been elected will be
reinvested in shares of the Fund that paid the dividend or distribution.
An investor can change his or her distribution option by notifying the Transfer
Agent in writing prior to the distribution record date. If an option is not
selected, all dividends and distributions will be automatically reinvested.
Automatic reinvestment in additional shares are made as of the ex-dividend date
using the net asset value determined on the payment date.
United States Federal Taxation Of The Funds
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Code for federal income tax purposes and to meet all other
requirements that are necessary for it (but not its shareholders) to be exempt
from federal taxes on income and gains paid to shareholders in the form of
dividends. In order to accomplish this goal, each Fund must, among other things,
distribute substantially all of its ordinary income and net capital gains on a
current basis and maintain a portfolio of investments which satisfies certain
diversification criteria.
United States Federal Taxation Of Shareholders
For federal income tax purposes, any income dividends which the shareholder
receives from a Fund, as well as any distributions derived from the excess of
net short-term capital gains over net long-term capital losses, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares. Distributions derived from the excess of net long-term
capital gains over net short-term capital losses are treated as long-term
capital gains regardless of the length of time the shareholder has owned the
shares of a Fund and regardless of whether the shareholder receives such
distributions in cash or in additional shares.
Certain distributions which are declared in October, November, or December but
which, for operational reasons, may not be paid to the shareholder until the
following January, may be treated for federal tax purposes as if received by the
shareholder on December 31 of the calendar year in which the distributions are
declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. All or a portion of a loss realized upon
a redemption of shares will be disallowed to the extent other shares of a Fund
are purchased (through reinvestment of dividends or otherwise) within 30 days
before or after such redemption. If a shareholder receives a long-term capital
gain distribution on shares of a Fund and such shares are held for less than six
months and are sold at a loss, the portion of the loss equal to the amount of
the long-term capital gain distribution will be considered a long-term capital
loss for tax purposes.
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Each Fund will inform shareholders of the source of dividends and distributions
paid by the Fund at the time they are paid, and will promptly after the close of
each calendar year advise shareholders of the tax status for federal income tax
purposes of such dividends and distributions. Income received by the Funds may
give rise to withholding and other taxes imposed by foreign countries. If more
than 50% of the value of a Fund's assets at the close of a taxable year consists
of securities of foreign corporations, the Fund may make an election that will
permit shareholders to take a credit (or, if more advantageous, a deduction) for
foreign income taxes paid by the Fund, subject to limitations contained in the
Code. Shareholders would then include in gross income dividends paid to them by
the Fund as well as the foreign taxes paid by the Fund on their foreign
investments. The Funds cannot assure shareholders that they will be eligible for
the foreign tax credit. The Funds will advise shareholders annually of their
share of any creditable foreign taxes paid by the Funds.
Each Fund will be required to report to the Internal Revenue Service ("IRS") any
taxable dividend or other reportable payment (including share redemption
proceeds). Each Fund will also be required to withhold 31% of any such payments
made to individuals and other non-exempt shareholders who have not provided a
correct taxpayer identification number and made certain required certifications
that appear in the Account Application provided with this Prospectus. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Funds that the taxpayer identification number furnished by
the shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
It is recommended that shareholders consult their own tax advisers with respect
to the foregoing and the applicability of state and local income taxes to
distributions and redemption proceeds received from a Fund. Shareholders who are
not United States persons for purposes of federal income taxation should consult
with their financial or tax advisers regarding the applicability of United
States withholding taxes to distributions received by them from a Fund. More
detailed information regarding taxation of shareholders and taxation of the
Funds can be found in the Statement of Additional Information.
The foregoing discussion has been prepared by the management of the Company and
does not purport to be a complete description of all tax implications of an
investment in the Funds. Shareholders are advised to consult with their own tax
advisers concerning the application of foreign, federal, state and local taxes
to an investment in the Funds.
OTHER INFORMATION
Confirmations And Reports To Shareholders
Currently, each time a transaction is made that affects a shareholder's account-
- -such as an additional investment, redemption, exchange or payment of a dividend
or distribution--the Transfer Agent will send a confirmation reflecting the
transaction. Quarterly account statements will be sent for all Funds. In
addition, monthly statements will be provided for Global Income Fund.
After the end of the Funds' fiscal year on December 31 and half-year on June 30,
shareholders will receive an annual and semi-annual report, respectively. These
reports list securities held by each Fund and include financial statements for
each Fund.
The federal income tax status of Fund distributions to shareholders is reported
to each shareholder shortly after the end of each calendar on Form 1099-DIV.
Organization
The Govett Funds, Inc. is a Maryland corporation formed in 1990. It currently is
registered with the SEC as an open-end management company. Each Fund corresponds
to a distinct investment portfolio and a distinct series of shares. From time to
time the Board of Directors may, in its discretion, establish additional funds
and issue additional classes of shares. Shares of the Funds are entitled to one
vote per share (with proportional voting for fractional shares) and are freely
transferable subject to applicable federal and state securities laws.
Shareholders have no preemptive or conversion rights.
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Each Fund has designated three classes of shares: Class A, Class B and
Institutional Class shares. Each class represents interest in the assets of each
Fund and has identical voting, dividend, liquidation and other rights on the
same terms and conditions, except that expenses related to distributing each
class are borne solely by that class, and each class has exclusive voting rights
regarding provisions of distribution plan which pertains to that class.
The Company normally will not hold meetings of shareholders except as required
under the 1940 Act and Maryland law. On any matter submitted to a vote of
shareholders, shares are voted by a Fund when the matter affects the specific
interest of that Fund only, such as approval of a Fund's investment management
arrangements. On other matters, the shares of all of the Funds will be voted in
the aggregate on other matters, such as election of the Board of Directors or
ratification of the Board's selection of independent auditors.
A Director may be removed upon a majority vote of the shareholders qualified to
vote in the election. Shareholders holding 10% of the outstanding shares may
call a shareholder meeting. The Bylaws require that the Company assist
shareholders in calling such a meeting.
Pursuant to the Company's Articles of Incorporation, each Fund may issue up to
250 million shares. Each share represents an interest in that Fund only, has a
par value of one-thousandth of one cent per share, represents an equal
proportionate interest in the Fund with other shares of that Fund, and is
entitled to such dividends and distributions out of the income earned and gains
realized on that Fund's assets as may be declared by the Board of Directors.
Performance Information
Each Fund may from time to time include information on its investment results
and/or comparisons of its investment results of its Institutional class to
various managed or unmanaged indices or averages or results of other mutual
funds or groups of mutual funds in advertisements, sales literature or reports
furnished to present or prospective shareholders.
In such materials, a Fund may quote its average annual total return
("Standardized Return") of its Institutional Class. Standardized Return
represents the percentage rate reflecting the average annual change in the value
of an assumed investment in the Fund at the end of a one-year period and at the
end of five- and ten-year periods. If a one-, five- and/or ten-year period has
not yet elapsed, data will be provided as of the end of a shorter period
corresponding to the life of the Fund. The Standardized Return computation
assumes the reinvestment of all dividends and capital gain distributions at net
asset value.
In addition, a Fund may also include in advertisements, sales literature and
shareholder reports other than total return performance data ("Non-Standardized
Return") relating to its Institutional Class. Non-Standardized Return reflects
the percentage rates of return encompassing all elements of return (i.e., income
and capital appreciation or depreciation) and will assume reinvestment of all
dividends and capital gain distributions. Non-Standardized Return may be quoted
for the same or different periods as those for which Standardized Return is
quoted. It may consist of an aggregate or average annual percentage rate of
return, actual year-by-year rates or any combination thereof. It may or may not
take sales charges into account. A Fund's performance calculated without taking
the effect of sales charges into account will be better than such performance
including the effect of such charges.
Global Income Fund may also refer in advertising and promotional materials to
its yield. A Fund's yield shows the rate of income that it earns on its
investments, expressed as a percentage of the public offering price of its
shares. The Fund calculates yield by determining the investment income it earned
from its portfolio investments for a specified thirty-day period (net of
expenses), dividing such income by the average number of shares outstanding, and
expressing the result as an annualized percentage based on the public offering
price of its shares at the end of that thirty-day period. Yield accounting
methods differ from the methods used for other accounting purposes; accordingly,
a Fund's yield may not equal the dividend income actually paid to investors or
the income reported in its financial statements.
Yield and total return are calculated separately for Class A, Class B and
Institutional Class shares of each Fund. Unlike Class A and Class B shares,
total return figures for Institutional Class shares do not include any front-end
sales charge, CDSC, or distribution (12b-1) fees. Thus, the total returns for
each of the classes of the same Fund will differ.
34
<PAGE>
Each Fund's performance data reflects past performance and is not necessarily
indicative of future results. A Fund's investment results will vary from time to
time depending upon market conditions, the composition of its portfolio and its
operating expenses. These factors and possible differences in calculation
methods should be considered when comparing a Fund's investment results with
those published for other mutual funds, other investment vehicles and unmanaged
indices. A Fund's results also should be considered relative to the risks
associated with its investment objectives and policies. See "Performance" in the
Statement of Additional Information.
The Company's Annual Report for the fiscal year ended December 31, 1996 and the
Semi-Annual Report for the period ended June 30, 1997 contain additional
performance information on the International Equity Fund, Emerging Markets
Equity Fund, Smaller Companies Fund, Asia Fund, Latin America Fund, and Global
Income Fund. These Reports are available without charge upon request by calling
the Transfer Agent. See Appendix A.
Effect Of Banking Laws
The Glass-Steagall Act and other banking laws and regulations (the "Banking
Laws") presently prohibit member banks of the Federal Reserve System or their
non-bank affiliates (the "Member Banks") from sponsoring, organizing,
controlling or distributing shares of registered open-end investment companies,
such as the Funds. Under the Banking Laws, however, a Member Bank may act as an
investment adviser, transfer agent, administrator or custodian to a registered
open-end investment company, and it also may act as agent in connection with the
purchase of shares of such an investment company upon certain customer orders.
Each of AIB Govett and the Subadvisers is an affiliate of First National Bank of
Maryland, whose parent company, First Maryland Bancorp, is a wholly-owned
subsidiary of AIB, and, thus, is subject to compliance with the Banking
Laws.
Changes to the Banking Laws or future judicial or administrative decisions could
result in any of AIB Govett and the Subadvisers being prevented from continuing
to perform services required under its investment advisory agreement with the
Company, subadvisory agreement with AIB Govett, or the Sub-Administration
Agreement with the Distributor, as the case may be. If any of AIB Govett and the
Subadvisers were prevented from continuing to provide services called for under
any of those agreements, it is expected that the Board of Directors would
identify, and ask the Funds' shareholders to approve, a new investment adviser
or subadviser. If this were to occur, the Board of Directors would seek to take
action so that no shareholder of any Fund would suffer any adverse consequences.
35
<PAGE>
APPENDIX A
ADVISER AND SHAREHOLDER SERVICES REFERENCE GUIDE
Shareholders are encouraged to place purchase, exchange and redemption orders
through their securities dealers. Shareholders may place orders directly through
the Funds' Transfer Agent. Mail transactions sent by overnight private mail
service should always be sent to the address shown in "Transactions by Mail."
Failure to follow this instruction is likely to result in a delay in effecting
your transaction.
Adviser Services. Financial advisers may call 800-634-6838 to reach the Broker
Service Desk. For additional information about the Funds, Advisers are invited
to call 888-546-8388.
TRANSACTIONS BY MAIL . For NEW ACCOUNTS, send the completed Account Application
with a check to:
via U.S. Postal Service via overnight delivery service
THE GOVETT FUNDS, INC. THE GOVETT FUNDS, INC.
C/O FPS SERVICES, INC. C/O FPS SERVICES, INC.
P. O. BOX 61503 3200 HORIZON DRIVE
KING OF PRUSSIA, PA 19406-0903 KING OF PRUSSIA, PA 19406-0903
For SUBSEQUENT INVESTMENTS, send a letter stating the Fund's name, the name(s)
of the shareholder(s) in whose name(s) the account is registered, and the
account number, together with a check for each subsequent investment, to:
via U.S. Postal Service via overnight delivery service
THE GOVETT FUNDS, INC. THE GOVETT FUNDS, INC.
C/O FPS SERVICES, INC. C/O FPS SERVICES, INC.
P. O. BOX 412797 3200 HORIZON DRIVE
KANSAS CITY, MO 64141-2797 KING OF PRUSSIA, PA 19406-0903
Investments By Bank Wire. An investor opening a new account should call 800-
821-0803. Within seven days of purchase, the investor must send a completed
Account Application containing the investor's taxpayer identification number to
the Funds at the address stated under "Investments by Mail." Wire instructions
must state the Fund's name, the name(s) of the shareholder(s) in whose name(s)
the account is registered, and the account number. Bank wires should be sent
through the Federal Reserve Wire System to:
United Missouri Bank KC, N.A.
ABA #10-10-00695
For FPS Services, Inc.
Bank Account #9870370719
FBO Govett ________________ Fund
Shareholder Name and Account Number
Exchanges By Mail. Send complete instructions, including the name of the Funds
which shares are to be exchanged in and out of, the amount of the exchange, the
name(s) of the shareholder(s) in whose name(s) the account is registered, and
the account number, to:
via U.S. Postal Service via overnight delivery service
THE GOVETT FUNDS, INC. THE GOVETT FUNDS, INC.
C/O FPS SERVICES, INC. C/O FPS SERVICES, INC.
P. O. BOX 61503 3200 HORIZON DRIVE
KING OF PRUSSIA, PA 19406-0903 KING OF PRUSSIA, PA 19406-0903
Telephone Transactions. If you have not waived the Telephone Privilege on the
Account Application, you may call the Funds at 800-821-0803 to effect exchanges
and redemptions.
36
<PAGE>
THE GOVETT FUNDS, INC.
GOVETT INTERNATIONAL EQUITY FUND
GOVETT EMERGING MARKETS EQUITY FUND
GOVETT SMALLER COMPANIES FUND
GOVETT ASIA FUND
GOVETT LATIN AMERICA FUND
GOVETT GLOBAL INCOME FUND
GOVETT CHINA FUND
GOVETT ASIAN SMALLER COMPANIES FUND
GOVETT EUROPE FUND
TRANSFER AGENT CUSTODIAN
FPS Services, Inc, The Chase Manhattan Bank
3200 Horizon Drive 4 MetroTech Center
P.O. Box 61503 Brooklyn, New York 11245
King of Prussia, PA 19406-0903
800-821-0803 ACCOUNTING AND ADMINISTRATION SERVICES
Chase Global Funds Services Company
DISTRIBUTOR 73 Tremont Street
FPS Broker Services, Inc. 11th Floor
3200 Horizon Drive Boston, MA 02108
P. O. Box 61503
King of Prussia, PA 19406-0903 DIRECTORS
800-634-6838 Patrick Cunneen, Chairman
Broker Marketing Information Elliott Atamian
888-546-8388 Sir Victor Garland
James Oates
THE GOVETT FUNDS, INC. Frank Terzolo
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-976-8109
415-263-1865
INVESTMENT MANAGER
AIB Govett, Inc.
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-976-8109
415-263-1865
37
<PAGE>
Subject to Completion, dated October 7, 1997
The following refers to the Govett China, Govett Asian Smaller Companies, and
Govett Europe Funds. Information contained herein is subject to completion or
amendment. A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities law of any such state.
GOVETT FUNDS
Retail Shares
Prospectus dated _________, 1997
The Govett Funds, Inc. (the "Govett Funds" or the "Company") operates nine funds
(the "Funds"). Each of the Funds is managed by AIB Govett, Inc. ("AIB Govett"
or the "Investment Manager").
. GOVETT INTERNATIONAL EQUITY FUND seeks long-term capital appreciation by
investing primarily in equity securities of companies located throughout the
world.
. GOVETT EMERGING MARKETS EQUITY FUND seeks long-term capital appreciation by
investing primarily in equity securities of issuers located in emerging
markets.
. GOVETT SMALLER COMPANIES FUND seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies.
. GOVETT ASIA FUND (formerly Govett Pacific Strategy Fund) seeks long-term
capital appreciation by investing primarily in equity securities of companies
located in Asia.
. GOVETT LATIN AMERICA FUND seeks long-term capital appreciation by investing
primarily in equity and debt securities of issuers located in Latin America.
. GOVETT GLOBAL INCOME FUND seeks primarily a high level of current income,
consistent with preservation of capital, by investing primarily in foreign
debt securities. Its secondary objective is capital appreciation.
. GOVETT CHINA FUND seeks long-term capital appreciation by investing primarily
in equity securities of companies which have considerable exposure to the
Chinese economy.
. GOVETT ASIAN SMALLER COMPANIES FUND seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies located in the
Far East outside Japan.
. GOVETT EUROPE FUND seeks long-term capital appreciation by investing
primarily in equity securities of growth-oriented companies located in
Europe.
Investing in emerging and developing markets involves a higher degree of risk
and expense than investing in domestic or developed markets. Investments in the
Funds should be considered long-term, and there can be no assurance that any
Fund will achieve its investment objective.
Each Fund offers two retail classes of shares, Class A shares and Class B
shares. AS OF THE DATE OF THIS PROSPECTUS, ONLY CLASS A SHARES HAVE BEEN
OFFERED TO THE PUBLIC. The availability of the shares permits an investor to
choose the method of purchasing shares that is most suitable for his or her
needs. This prospectus relates only to the retail shares.
Investors may buy shares of the Funds through brokerage and securities firms
nationwide, or directly, by calling the Funds at 800-821-0803. Please read this
Prospectus carefully before investing, and retain it for future reference. It
provides concise information to help you decide if a Fund's goal matches your
own. A Statement of Additional Information about the Funds, dated the same date
as this Prospectus, as amended from time to time, has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus (which means that it is legally part of this Prospectus). For a free
copy, call 800-634-6838, or write to the Funds' Distributor at the address shown
on the back cover.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
CONTENTS
ABOUT THE FUNDS
SUMMARY OF INVESTOR COSTS..............
FINANCIAL HIGHLIGHTS...................
MULTIPLE CLASSES OF SHARES.............
AN OVERVIEW OF THE FUNDS...............
INVESTMENT TECHNIQUES AND POLICIES.....
INVESTMENT RISKS.......................
MANAGEMENT OF THE FUNDS................
ABOUT YOUR ACCOUNT
HOW TO BUY SHARES......................
HOW TO MAKE EXCHANGES..................
HOW TO REDEEM SHARES...................
TELEPHONE TRANSACTIONS.................
DIVIDENDS, CAPITAL GAINS AND TAXES.....
OTHER INFORMATION......................
APPENDIX A: QUICK REFERENCE GUIDE......
APPLICATION FORM
Each Fund also offers an Institutional Class, which is available for purchase
only by certain investors. A prospectus for the Funds' Institutional Class may
be obtained by writing to the Distributor at the address shown on the back
cover, or by calling 800-634-6838.
2
<PAGE>
SUMMARY OF INVESTOR COSTS
The operating expenses and maximum transaction expenses expected to be
associated with an investment in the Funds are reflected in the following
tables:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND* EMERGING MARKETS EQUITY FUND* SMALLER COMPANIES FUND*
---------------------------- ----------------------------- -----------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases (as a
percentage of
offering price)....... 4.95% None 4.95% None 4.95% None
Maximum Sales
Charge Imposed
on Dividend
Reinvestments......... None None None None None None
Maximum Deferred
Sales Charge (as a
percentage of
original purchase
price or
redemption
proceeds,
whichever is less).... None/1/ 4.00% None/1/ 4.00% None/1/ 4.00%
Redemption Fees........ None None None None None None
Exchange Fees.......... None None None None None None
ANNUAL
OPERATING
EXPENSES:
(as a percentage of
average net assets)
Management Fee/2/...... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Distribution
and Service Fees/3/... 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
Other Expenses
(after reduction of
expenses)/2/.......... 1.15% 1.15% 1.15% 1.15% 0.60% 0.60%
Total Fund Operating
Expenses (after fee
waiver and
reduction of
expenses)/2/.......... 2.50% 3.15% 2.50% 3.15% 1.95% 2.60%
</TABLE>
The Investment Manager has agreed to reduce its management fees, and the
Investment Manager has agreed to pay certain Fund operating expenses, through at
least December 31, 1998 to the extent necessary to limit total annual Fund
Operating Expenses to the percentages listed above under "Total Fund Operating
Expenses". Long-term Fund shareholders may pay more than the economic
equivalent of the maximum front-end sales charge otherwise permitted by the
National Association of Securities Dealers, Inc. ("NASD").
3
<PAGE>
<TABLE>
<CAPTION>
ASIA FUND* LATIN AMERICA FUND* GLOBAL INCOME FUND*
---------- ------------------- -------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases (as a
percentage of
offering price)....... 4.95% None 4.95% None 4.95% None
Maximum Sales
Charge Imposed
on Dividend
Reinvestments......... None None None None None None
Maximum Deferred
Sales Charge (as a
percentage of
original purchase
price or
redemption
proceeds,
whichever is less).... None/1/ 4.00% None/1/ 4.00% None/1/ 4.00%
Redemption Fees........ None None None None None None
Exchange Fees.......... None None None None None None
ANNUAL
OPERATING
EXPENSES:
(as a percentage of
average net assets)
Management Fee/2/...... 1.00% 1.00% 1.00% 1.00% 0.75% 0.75%
12b-1 Distribution
and Service Fees/3/... 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
Other Expenses
(after reduction of
expenses)/2/.......... 1.15% 1.15% 1.15% 1.15% 0.65% 0.65%
Total Fund Operating
Expenses (after fee
waiver and
reduction of
expenses)/2/.......... 2.50% 3.15% 2.50% 3.15% 1.75% 2.40%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CHINA FUND* ASIAN SMALLER COMPANIES FUND* EUROPE FUND*
----------- ----------------------------- ------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases (as a
percentage of
offering price)......... 4.95% None 4.95% None 4.95% None
Maximum Sales
Charge Imposed
on Dividend
Reinvestments........... None None None None None None
Maximum Deferred
Sales Charge (as a
percentage of
original purchase
price or
redemption
proceeds,
whichever is less)...... None/1/ 4.00% None/1/ 4.00% None/1/ 4.00%
Redemption Fees.......... None None None None None None
Exchange Fees............ None None None None None None
ANNUAL
OPERATING
EXPENSES:
(as a percentage of
average net assets)
Management Fee/2/........ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Distribution
and Service Fees/3/..... 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
Other Expenses
(after reduction of
expenses)/2/............ 1.15% 1.15% 1.15% 1.15% 1.15% 1.15%
Total Fund Operating
Expenses (after fee
waiver and
reduction of
expenses)/2/............ 2.50% 3.15% 2.50% 3.15% 2.50% 3.15%
</TABLE>
____________
1 Purchases of Class A Shares in the amount of $1 million or more are not
subject to a front-end sales charge, but redemptions of such amounts within one
year of purchase may be subject to a CDSC. See "How to Redeem Shares--CDSCs" for
an explanation of this charge.
2 The percentages in "Other Expenses" for the Class A shares of the
International Equity Fund, Emerging Markets Equity Fund, Smaller Companies Fund,
Asia Fund, Latin America Fund, and Global Income Fund are based on expenses
incurred by those Funds during the six month period ended June 30, 1997 after
fee waivers and expense reimbursements. Absent such waivers and reimbursements,
"Other Expenses" as a percentage of net assets for the Class A shares of the
International Equity Fund, Emerging Markets Equity Fund, Smaller Companies Fund,
Asia Fund, Latin America Fund, and Global Income Fund would have been 1.64%,
1.34%, 1.09%, 9.64%, 4.81%, and 1.80% (annualized), respectively, for the six
month period ended June 30, 1997. Absent such waivers and reimbursements, "Total
Fund Operating Expenses" as a percentage of net assets for the Class A shares of
the International Equity Fund, Emerging Markets Equity Fund, Smaller Companies
Fund, Asia Fund, Latin America Fund, and Global Income Fund would have been
3.14%, 2.84%, 2.59%, 11.14%, 6.31%, and 2.90% (annualized), respectively, for
the six month period ended June 30, 1997. The operating expense information for
the Class B shares of each Fund has been estimated based on the operating
expense information for that Fund's Class A shares for the above periods, after
estimated fee waivers and expense reimbursements by the Manager and Distributor.
Absent such waivers and reimbursements, estimated "Other Expenses" as a
percentage of net assets for the Class B shares of the International Equity
Fund, Emerging Markets Equity Fund, Smaller Companies Fund, Asia Fund, Latin
America Fund, and Global Income Fund would have been 1.64%, 1.34%, 1.09%, 9.64%,
4.81%, and 1.80% (annualized), respectively, and estimated "Total Fund Operating
Expenses" as a percentage of net assets for the Class B shares of the
International Equity, Emerging Markets, Smaller Companies, Pacific Strategy,
Latin America, and Global Income Funds would have been 3.64%, 3.34%, 3.09%,
11.64%, 6.81%, and 3.40% (annualized), respectively. The percentages in "Other
Expenses" for the Class A and Class B shares of the China Fund, Asian Smaller
Companies Fund, and Europe Fund are estimated and based on the operating expense
information for the Emerging Markets Equity Fund.
* AT PRESENT, CLASS B SHARES ARE NOT AVAILABLE FOR PURCHASE BY THE GENERAL
PUBLIC.
3 Service fee applies to Class B shares only.
5
<PAGE>
Examples:
Assuming the current fee waivers and expense limitations remain in effect, you
would pay the following expenses on a $1,000 investment assuming (1) 5% annual
return/4/ and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
GOVETT GOVETT GOVETT GOVETT GOVETT
------ ------ ------ ------ ------
INTERNATIONAL EMERGING MARKETS SMALLER ASIA LATIN
------------- ---------------- ------- ---- -----
EQUITY FUND EQUITY FUND COMPANIES FUND FUND AMERICA FUND
----------- ----------- -------------- ---- ------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------ ------- ------- ------- ------- ------- -------
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year....... $ 74 $ 72 $ 74 $ 72 $ 68 $ 66 $ 74 $ 72 $ 74 $ 72
3 years...... 123 127 123 127 108 111 123 127 123 127
5 years...... 176 185 176 185 150 158 176 185 176 185
10 years/5/.. 319 324 319 324 266 270 319 324 319 324
</TABLE>
<TABLE>
<CAPTION>
GOVETT GOVETT GOVETT GOVETT
------ ------ ------ ------
GLOBAL CHINA ASIAN SMALLER EUROPE
------ ----- ------------- ------
INCOME FUND FUND COMPANIES FUND FUND
----------- ---- -------------- ----
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- -------
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year........ $ 66 $ 64 $ 74 $ 72 $ 74 $ 72 $ 74 $ 72
3 years....... 102 105 123 127 123 127 123 127
5 years....... 140 148 176 185 176 185 176 185
10 years/5/... 246 250 319 324 319 324 319 324
</TABLE>
You would pay the following expenses on the same investment assuming no
redemption:
<TABLE>
<CAPTION>
GOVETT GOVETT GOVETT GOVETT GOVETT
------ ------ ------ ------ ------
INTERNATIONAL EMERGING MARKETS SMALLER ASIA LATIN
------------- ---------------- ------- ---- -----
EQUITY FUND EQUITY FUND COMPANIES FUND FUND AMERICA FUND
----------- ----------- -------------- ---- ------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------ ------- ------- ------- ------- ------- -------
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year........ $ 74 $ 32 $ 74 $ 32 $ 68 $ 26 $ 74 $ 32 $ 74 $ 32
3 years....... 123 97 123 97 108 81 123 97 123 97
5 years....... 176 165 176 165 150 138 176 165 176 165
10 years/5/... 319 324 319 324 266 270 319 324 319 324
</TABLE>
<TABLE>
<CAPTION>
GOVETT GOVETT GOVETT GOVETT
------ ------ ------ ------
GLOBAL CHINA ASIAN SMALLER EUROPE
------ ----- ------------- ------
INCOME FUND FUND COMPANIES FUND FUND
----------- ---- -------------- ----
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- -------
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year........ $ 66 $ 24 $ 74 $ 32 $ 74 $ 32 $ 74 $ 32
3 years....... 102 75 123 97 123 97 123 97
5 years....... 140 128 176 165 176 165 176 165
10 years/5/... 246 250 319 324 319 324 319 324
</TABLE>
_______________
4 The 5% annual return assumption in this example is required by SEC
regulations applicable to all mutual funds; it does not represent a projection
of the Funds' actual performance. For a detailed discussion of these matters,
investors should refer to the relevant sections of this Prospectus.
5 Ten-year figures assume conversion of Class B shares to Class A shares at
the beginning of the eighth year following date of purchase.
The above tables are not intended to reflect precisely the fees and expenses
associated with a particular person's investment in Class A, and Class B shares
of the Funds. THE TABLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE FUND EXPENSES, AND ACTUAL FUND EXPENSES MAY BE GREATER OR LESSER THAN
THOSE SHOWN IN THE TABLES. Rather, the tables have been provided only to assist
investors in understanding the various costs and expenses that a shareholder
will bear, directly or indirectly, in connection with an investment in the
Funds.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides condensed information concerning income and capital
changes for one Class A share of International Equity Fund, Emerging Markets
Equity Fund, Smaller Companies Fund, Asia Fund, Latin America Fund, and Global
Income Fund for the periods shown. This information has been audited by Price
Waterhouse LLP, the Funds' independent accountants for those periods, whose
unqualified report thereon appears in the Annual Report to Shareholders of such
Funds for the periods shown below. The financial statements and related notes
contained in such Report (and no other portion of such Report) are incorporated
by reference into this Prospectus. This information should be read in
conjunction with such statements and notes. CLASS B SHARES OF THE FUNDS HAD NOT
BEEN OFFERED AS OF JUNE 30, 1997, AND, ACCORDINGLY, NO FINANCIAL DATA IS
PRESENTED FOR THE CLASS B SHARES AT THIS TIME.
The Company has introduced three new funds (China Fund, Asian Smaller Companies
Fund, and Europe Fund) which are described in detail within this Prospectus. See
"An Overview of the Funds" below.
7
<PAGE>
INTERNATIONAL EQUITY FUND
- -------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
30, 1997 DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994 1993 1992 (A)
----------- ----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.19 $ 11.27 $ 10.16 $ 13.23 $ 9.31 $10.00
--------- -------- -------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.08) (0.11)+ (0.08)+ (0.12)+ (0.03) (0.01)
Net realized and unrealized gain (loss) on
investments 1.13 1.45 1.20 (0.94) 5.01 (0.52)
-------- -------- -------- -------- -------- ---------
Total from investment operations 1.05 1.34 1.12 (1.06) 4.98 (0.53)
-------- -------- -------- -------- -------- ---------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- (0.11) --- --- --- (0.04)
In excess of net investment income --- (0.09) --- --- --- ---
From net realized gain --- (1.22) (0.01) (2.01) (1.06) (0.12)
In excess of net realized capital gain --- --- --- --- --- ---
-------- -------- -------- -------- -------- ---------
Total distributions --- (1.42) (0.01) (2.01) (1.06) (0.16)
-------- -------- -------- -------- -------- ---------
Net asset value, end of period $ 12.24 $ 11.19 $ 11.27 $ 10.16 $ 13.23 $ 9.31
======== ======== ======== ======== ======== ========
TOTAL RETURN** 9.38% 12.03% 11.01% (8.44)% 54.50% (5.32)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $22,485 $25,822 $28,546 $32,296 $44,610 $1,328
Net expenses to average daily net assets
(Note A) 2.50%* 2.39% 2.50% 2.50% 2.50% 2.50%*
Net investment income(loss) to average
daily net assets (0.89)%* (1.06)% (0.64)% (0.98)% (0.79)% (0.10)%*
Portfolio turnover rate 34% 84% 101% 155% 151% 140%
Average commission rate++ $0.0047 $0.0158 N/A N/A N/A N/A
</TABLE>
Note A: AIB Govett Asset Management Limited ("AIB Govett (London)" formerly
John Govett & Co. Limited) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Expenses 3.14%* 3.09% 2.75% 2.74% 2.65% 13.85%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial
Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
8
<PAGE>
EMERGING MARKETS EQUITY FUND
- ----------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
30, 1997 DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994 1993 1992 (A)
----------- ----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.66 $ 12.24 $ 13.29 $ 17.70 $ 10.72 $10.00
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.03) (0.13)+ (0.06)+ (0.11)+ (0.05) (0.03)
Net realized and unrealized gain (loss) on
investments 2.21 1.61 (0.98) (1.93) 8.36 0.75
-------- -------- -------- -------- -------- -------
Total from investment operations 2.18 1.48 (1.04) (2.04) 8.31 0.72
-------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- --- --- --- --- ---
In excess of net investment income --- (0.06) --- --- --- ---
From net realized gain --- --- (0.01) (2.33) (1.33) ---
In excess of net realized capital gain --- --- --- (0.04) --- ---
-------- -------- -------- -------- -------- -------
Total distributions --- (0.06) (0.01) (2.37) (1.33) ---
-------- -------- -------- -------- -------- -------
Net asset value, end of period $ 15.84 $ 13.66 $ 12.24 $ 13.29 $ 17.70 $10.72
======== ======== ======== ======== ======== =======
TOTAL RETURN** 15.96% 12.08% (7.92)% (12.65)% 79.73% 7.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $59,755 $56,814 $75,887 $76,812 $71,422 $5,625
Net expenses to average daily net assets
(Note A) 2.50%* 2.38% 2.50% 2.50% 2.50% 2.50%*
Net investment income(loss) to average
daily net assets (0.44)%* (0.62)% (0.49)% (0.77)% (0.88)% (0.49)%*
Portfolio turnover rate 64% 122% 115% 140% 143% 182%
Average commission rate++ $0.0028 $0.0011 N/A N/A N/A N/A
</TABLE>
Note A: AIB Govett (London) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Expenses 2.84%* 2.62% 2.78% 2.65% 2.52% 7.52%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
9
<PAGE>
SMALLER COMPANIES FUND
- ----------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
30, 1997 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994 1993(B)
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.83 $ 29.96 $ 19.06 $ 15.85 $ 10.00
---------- --------- --------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.19) (0.44)+ (0.30)+ (0.10)+ (0.06)
Net realized and unrealized gain (loss) on
investments (2.46) (2.84) 13.32 4.47 5.91
---------- --------- --------- -------- --------
Total from investment operations (2.65) (3.28) 13.02 4.37 5.85
---------- --------- --------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- --- --- --- ---
In excess of net investment income --- --- --- --- ---
From net realized gain --- (4.85) (2.12) (1.16) ---
In excess of net realized capital gain --- --- --- --- ---
---------- --------- --------- -------- --------
Total distributions --- (4.85) (2.12) (1.16) ---
---------- --------- --------- -------- --------
Net asset value, end of period $ 19.18 $ 21.83 $ 29.96 $ 19.06 $ 15.85
========== ========= ========= ======== ========
TOTAL RETURN** (12.14)% (10.87)% 69.08% 28.74% 58.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $152,502 $259,735 $517,990 $76,873 $39,681
Net expenses to average daily net assets (Note A) 1.95%* 1.81% 1.95% 1.95% 1.95%
Net investment income(loss) to average daily net
assets (1.57)%* (1.40)% (1.64)% (1.13)% (0.93)%
Portfolio turnover rate 46% 406% 280% 519% 483%
Average commission rate++ $ 0.0489 $ 0.0581 N/A N/A N/A
</TABLE>
Note A: AIB Govett (London) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C> <C>
Expenses 2.59%* 2.08% 2.12% 2.40% 2.44%
</TABLE>
(b) Commencement of Operations was January 1, 1993.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial
Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
10
<PAGE>
ASIA FUND
- ---------
<TABLE>
<CAPTION>
------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED
30, 1997 DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994 (C)
-------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.15 $ 8.53 $ 8.79 $ 10.00
------------ ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.12) (0.26)+ (0.05)+ (0.18)+
Net realized and unrealized gain (loss) on investments 0.94 1.05 (0.21) (1.03)
------------ ---------- ---------- ----------
Total from investment operations 0.82 0.79 (0.26) (1.21)
------------ ---------- ---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- (0.12) --- ---
In excess of net investment income --- (0.05) --- ---
From net realized gain --- --- --- ---
In excess of net realized capital gain --- --- --- ---
------------ ---------- ---------- ----------
Total distributions --- (0.17) --- ---
------------ ---------- ---------- ----------
Net asset value, end of period $ 9.97 $ 9.15 $ 8.53 $ 8.79
============ ========== ========== ==========
TOTAL RETURN** 8.96% 9.32% (2.96)% (12.10)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 2,717 $ 4,218 $12,491 $13,849
Net expenses to average daily net assets (Note A) 2.50%* 2.50% 2.50% 2.50%
Net investment income(loss) to average daily net assets (1.44)%* (1.51)% (0.67)% (1.33)%
Portfolio turnover rate 92% 170% 163% 213%
Average commission rate++ $0.0086 $0.0102 N/A N/A
</TABLE>
Note A: AIB Govett (London) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C>
Expenses 11.14%* 6.66% 3.62% 2.66%
</TABLE>
(c) Commencement of Operations was January 1, 1994.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial Statements.
+ For the fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
11
<PAGE>
LATIN AMERICA FUND
- ------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED
30, 1997 DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994 (D)
-------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.97 $ 6.44 $ 7.89 $ 10.00
----------- ----------- --------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.01 0.07+ (0.01)+ (0.09)+
Net realized and unrealized gain (loss) on investments 2.73 1.52 (1.44) (1.53)
-------- --------- --------- ----------
Total from investment operations 2.74 1.59 (1.45) (1.62)
-------- --------- --------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income --- (0.06) --- ---
In excess of net investment income --- --- --- ---
From net realized gain --- --- --- (0.27)
In excess of net realized capital gain --- --- --- (0.22)
-------- --------- --------- ----------
Total distributions --- (0.06) --- (0.49)
-------- --------- --------- ----------
Net asset value, end of period $ 10.71 $ 7.97 $ 6.44 $ 7.89
========== ========== ========== ==========
TOTAL RETURN** 34.38% 24.10% (18.38)% (16.94)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 5,915 $ 4,261 $ 4,871 $ 7,096
Net expenses to average daily net assets (Note A) 2.50%* 2.50% 2.50% 2.50%*
Net investment income(loss) to average daily net assets 0.30%* 0.54% 0.00% (1.06)%*
Portfolio turnover rate 73% 150% 127% 185%
Average commission rate++ $0.0007 $0.0005 N/A N/A
</TABLE>
Note A: AIB Govett (London) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C>
Expenses 6.31%* 6.49% 5.66% 3.35%*
</TABLE>
(d) Commencement of Operations was March 7, 1994.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
12
<PAGE>
GLOBAL INCOME FUND
- ------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
SiX MONTH
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
30, 1997 DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1996 1995 1994 1993 1992 (A)
------------ ----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.32 $ 8.97 $ 8.48 $ 10.16 $ 9.77 $ 10.00
--------- ---------- ---------- ---------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.13 0.57 0.63 0.76 0.99 0.80
Net realized and unrealized gain (loss) on
investments (0.46) (0.54) 0.53 (1.67) 0.66 0.06
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations (0.33) 0.03 1.16 (0.91) 1.65 0.86
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.25) (0.66) (0.63) (0.24) (0.95) (0.78)
In excess of net investment income --- (0.02) (0.04) --- --- ---
From net realized gain --- --- --- --- (0.31) (0.31)
In excess of net realized capital gain --- --- --- --- --- ---
Tax return of capital --- --- --- (0.53) --- ---
---------- ---------- ---------- ---------- ---------- ----------
Total distributions (0.25) (0.68) (0.67) (0.77) (1.26) (1.09)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 7.74 $ 8.32 $ 8.97 $ 8.48 $ 10.16 $ 9.77
========== ========== ========== ========== ========== ==========
TOTAL RETURN** (4.03)% 0.33% 14.11% (9.16)% 17.64% 8.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $12,997 $20,354 $41,181 $51,691 $82,000 $34,084
Net expenses to average daily net assets (Note A) 1.75% 1.64% 1.75% 1.75% 1.72% 1.75%*
Net investment income(loss) to average daily net
assets 4.20% 7.17% 7.45% 8.30% 9.66% 9.75%*
Portfolio turnover rate 55% 236% 249% 701% 328% 378%
Average commission rate++ N/A N/A N/A N/A N/A N/A
</TABLE>
Note A: AIB Govett (London) waived a portion of its management fees and Govett
Financial Services Limited, a former distributor of the Funds, reimbursed a
portion of the other operating expenses of the Funds for the years ended
December 31, 1992, 1993 and 1994. For the years ended December 31, 1995, 1996
and the six months ended June 30, 1997, AIB Govett (London) 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Expenses 2.90%* 2.38% 1.93% 1.95% 1.72% 3.17%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
* Annualized
** Total return calculations exclude front end sales load.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial Statements.
++ For the fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
13
<PAGE>
PAST PERFORMANCE OF OFFSHORE FUNDS
MANAGED BY SUBADVISERS
The China, Asian Smaller Companies and Europe Funds (the "U.S. Funds") are newly
organized and have no performance record of their own. The table below presents
information about the performance of four comparable funds registered either in
the United Kingdom or Jersey, Channel Islands (the "Offshore Funds")./1/ This
information is included for illustrative purposes only and does not purport to
represent or predict the performance of any U.S. Fund. Actual performance may be
higher or lower.
The stated investment objective of each Offshore Fund is substantially similar
to that of the respective U.S. Fund (or portion thereof, in the case of Govett
European General Fund and New Europe Investment Company - see note 6 below). The
Offshore Funds are managed by the firm managing the comparable U.S. Fund (or
portion thereof). However, the Offshore Funds are not subject to the same
securities, tax and other laws applicable to investment companies registered in
the U.S., including diversification requirements. Notes 4, 5, and 6 describe
certain specific characteristics of each Offshore Fund. The historical
performance of the offshore Funds would not have been materially affected by the
differences in regulation. In addition, the investment mix changes over time, so
that the U.S Funds may not invest in countries, companies or industries in which
the Offshore Funds invested in the past. Each Fund, whether Offshore or U.S., is
managed as a separate entity, and is subject to an annual audit by independent
accountants. Each has a Board of Directors or Trustees which exercises oversight
of its affairs.
Total returns for the Offshore Funds, calculated in accordance with applicable
U.S. laws, are shown for various periods ended June 30, 1997. For each period,
the figures have been adjusted for U.S. dollars, where necessary, and include
reinvestment of dividends. No adjustment has been made to deduct initial sales
charges that would be payable on a U.S. Fund's Class A shares. Performance would
have been lower if adjusted for these charges. The expense ratios for the
Offshore Funds tend to be lower than that of domestic funds, so that the
performance of the comparable Offshore Fund could be higher than that of the U.
S. Fund./2/ The comparative indexes are unmanaged indexes considered to be
representative of the performance of Offshore Fund's investment universe.
_____________________________
Note: The following footnotes relate to the paragraphs above and the following
four bar graphs.
/1/ Each Offshore Fund's adviser (an "Adviser") is an affiliate of AIB Govett,
and a team employed by that Adviser has managed the respective fund since
its inception. The investment process used by each Adviser has been in
place since each Offshore Fund's inception. The U.S. Asian Smaller
Companies Fund is managed by individuals who have dual employee status with
AIB Govett (London) and AIB Govett (Asia) Pte. Limited, the manager of the
Offshore Asian Smaller Companies Fund, as described below.
/2/ The average expense ratio of each Offshore Fund since its inception is:
Govett Greater China - 2.04%; Govett Asian Smaller Companies - 1.97%;
Govett European General - 1.76%; and New Europe Investment Company - 1.62%.
/3/ All figures to June 30, 1997.
/4/ Performance for Govett Asian Smaller Companies Fund is quoted from March
31, 1993, when Fund's investment objectives, policies, and techniques
changed to the present structure. The primary differences between the
management of this type of fund and a U.S. mutual fund are the U.K. fund's
ability to borrow for purposes other than short-term liquidity; tax
treatment of any distributions; and the absence of (i) a statutory
requirement to distribute all income, (ii) a statutory limitation on
industry concentration, and (iii) a statutory security and country
diversification requirement. This is a closed-end fund whose shares are
traded on a stock exchange rather than being offered continuously by a
distributor, which may affect the amount of cash the fund holds in
anticipation of the need to meet redemptions. Performance is customarily
quoted in U.S. dollars.
/5/ The primary differences between Govett Greater China Fund and Govett
European General Fund and the U.S. Funds are: the 1.50% management fee, the
type of expenses that can be charged to the fund, and the absence of a
statutory limitation on country and industry concentration. The security
diversification policies are similar to those for a U.S. mutual fund. The
European General Fund's investment objective corresponds to the portion of
the Govett Europe Fund which invests in "core" Europe, including France,
Germany, Italy, the Netherlands, Spain, Switzerland and the Scandinavian
region. Performance is customarily quoted in British pounds.
/6/ New Europe Investment Company's investment objective corresponds to the
portion of the Govett Europe Fund which invests in "new" European
countries, including Croatia, Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Poland, Rumania, Slovakia, and Russia. This fund began as a
closed-end fund whose shares were traded on a stock exchange, rather than
being offered continuously by a distributor, which may have affected the
amount of cash the fund held in anticipation of the need to meet
redemptions. On March 26, 1997, it was re-structured as an open-end fund.
The primary differences between this fund and a U.S. mutual fund are a
1.50% management fee; the tax treatment of any distributions; and the
absence of (i) a statutory requirement to distribute all income, (ii) a
statutory limitation on industry concentration, and (iii) a statutory
security and country diversification requirement. The Offshore Fund may
borrow for purposes other than short-term liquidity, although presently no
borrowing arrangements are in place. There is currently no representative
index for the New Europe region. The Nomura Eastern European Index excludes
Russia, in which the Fund invests. Performance figures are cumulative, not
annualized. Performance is customarily quoted in U.S. dollars.
14
<PAGE>
GOVETT GREATER CHINA FUND/3,5/
ADVISER : TEAM AT AIB GOVETT ASSET MANAGEMENT LIMITED
UK REGISTERED OPEN END FUND
<TABLE>
<CAPTION>
Greater MSCI Pacific Basin Index
China Fund (Source:Datastream)
<S> <C> <C>
One Year 62.37% -4.34%
Three Year 20.14% -1.41%
Five Year 23.52% 10.64%
Ten Year 15.03% 2.60%
Inception (6.1.84) 19.71% 13.73%
</TABLE>
GOVETT ASIAN SMALLER COMPANIES INVESTMENT TRUST/3,4/
ADVISER : TEAM AT AIB GOVETT (ASIA) PTE LIMITED
JERSEY, CHANNEL ISLANDS REGISTERED CLOSED END FUND
<TABLE>
<CAPTION>
Asian Smaller Crosby Asia ex Japan (Source Socgen-
Companies Crosby)
<S> <C> <C>
One Year 12.36% -2.03%
Three Year 6.84% -2.82%
Inception (3.31.93) 16.86% 8.13%
</TABLE>
15
<PAGE>
GOVETT EUROPEAN GENERAL FUND/3,5/
ADVISER : TEAM AT AIB INVESTMENT MANAGERS LIMITED
U.K. REGISTERED OPEN END FUND
<TABLE>
<CAPTION>
European MSCI Europe ex UK (Source:
General Datastream)
<S> <C> <C>
One Year 28.25% 27.95%
Three Year 22.68% 21.13%
Five Year 17.10% 16.38%
Ten Year 10.22% 12.30%
Inception (6.30.84) 18.65% 15.66%
</TABLE>
NEW EUROPE INVESTMENT COMPANY LIMITED/3,6/
ADVISER : TEAM AT AIB GOVETT ASSET MANAGEMENT LIMITED
JERSEY, CHANNEL ISLANDS REGISTERED OPEN END FUND
<TABLE>
<CAPTION>
New Europe Inv Nomura Eastern Europe x
Co Russia (Source Nomura)
<S> <C> <C>
Inception (12.20.96) 26.00% -3.46%
</TABLE>
16
<PAGE>
MULTIPLE CLASSES OF SHARES
As of January 1, 1995, all of the previously outstanding shares of each Fund
were redesignated "Class A" shares without other changes, and Class B and Class
C shares were authorized for issuance. With effect from June 27, 1997, Class C
shares have been redesignated Institutional Class Shares which are available for
purchase only by certain eligible investors. A separate prospectus pertaining
to this class of shares is available upon request. AT PRESENT, ONLY CLASS A
SHARES ARE AVAILABLE TO THE PUBLIC. Each class of shares of a Fund represents
an interest in the same portfolio of investments, and each class has its own
sales charge structure. The following table compares some important differences.
Each class has distinct advantages and disadvantages for investors in different
financial circumstances and with different investment goals.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B/1/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Charges Initial sales charge up to 4.95%, No initial sales charge. Contingent deferred sales load
depending on amount of investment. ("CDSC") of 4% decreasing to 1% applies to shares redeemed
Certain purchases are eligible for within the first 6 years following purchase. Convert to A
reduced sales charges. shares at the beginning of the eighth year after purchase.
- ------------------------------------------------------------------------------------------------------------------------------------
12b-1 Distribution Fee 0.35% for all Funds 0.75% for first 7 years for all Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Service Fee None 0.25% for first 7 years for all Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Suitability May be more beneficial to investors Investors should consider whether, during the anticipated
who qualify for reduced initial sales life of their investment, accumulated distribution and
charges. service fees and CDSCs would be less than Class A initial
sales charge and accumulated distribution and service fee,
and to what extent potential higher yield of Class A shares
might offset this difference. Orders of $500,000 or more
not accepted for Class B shares.
- ------------------------------------------------------------------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of the same class of the other Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Calculated in the same manner and at the same time of day for each class. Due to higher distribution
charges and any incremental transfer agency costs relating to the B shares (if any), Class B dividends
are expected to be lower than Class A dividends.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/CLASS B SHARES CONVERT TO CLASS A SHARES at the beginning of the eighth
calendar year after purchase on the basis of net asset value per share ("NAV")
at the time of conversion, without sales loads, fees or other charges upon
conversion. Shares purchased through reinvestment of dividends and distributions
will be considered to be held in a separate sub-account. Each time any Class B
shares in the shareholder's account (other than those in the sub-account)
convert to Class A shares, an equal pro rata portion of the Class B shares in
the sub-account will also convert to Class A shares.
The Class B conversion feature is subject to the continuing availability of an
opinion of counsel or private letter ruling from the Internal Revenue Service
that (i) assessing higher distribution and transfer agency costs does not result
in the Funds' dividends or distributions constituting "preferential dividends"
under the Internal Revenue Code of 1986, as amended (the "Code"), and (ii)
conversion does not constitute a taxable event under federal income tax law. If
such opinion or private letter ruling is no longer available, the Funds may
suspend Class B conversions and the higher distribution charges would apply for
an indefinite period.
The Board of Directors has determined that currently no conflict of interest
exists between the classes of shares of any fund. In accordance with their
fiduciary duties under the Investment Company Act of 1940 (the "1940 Act") and
state laws, the Directors will seek on an ongoing basis to ensure that no such
conflict arises. AT THE PRESENT TIME, ONLY CLASS A SHARES ARE AVAILABLE TO THE
GENERAL PUBLIC.
AN OVERVIEW OF THE FUNDS
The following paragraphs summarize the Funds' objectives and investment
policies.
Although no Fund provides a complete or balanced investment program, investors
may use each Fund as part of a comprehensive program to meet their long-term
needs. Of course, there can be no assurance that any Fund will meet its
investment objective. Please refer also to "Investment Techniques and Policies,"
below, and to the Statement of Additional Information.
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The Statement of Additional Information provides the full text of these
restrictions and the Funds' other investment policies. Except for each Fund's
investment objective and those investment restrictions designated as
"fundamental," which only may be changed with shareholder approval, the
investment policies described in this Prospectus and in the Statement of
Additional Information are not fundamental policies and may be changed at any
time by the Company's Board of Directors.
INTERNATIONAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers located in some or all of the
following countries: Argentina, Austria, Australia, Belgium, Brazil, Canada,
Croatia (indirect investment only), Czech Republic, Denmark, Finland, France,
Germany, Hong Kong, India, Indonesia, Israel, Italy, Japan, Luxembourg,
Malaysia, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal,
Russia, Singapore, Slovakia, South Africa, South Korea, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey, and the United Kingdom. This list of
countries may change from time to time.
Under normal market conditions, this Fund will invest at least 65% of its total
assets in issuers located in not less than three different countries (other than
the U.S.). In addition, the Fund will normally invest at least 65% of its total
assets in common and preferred stocks, and warrants to acquire such stocks. The
Fund typically invests in equity securities listed on recognized foreign
securities exchanges, but it may hold securities which are not so listed. The
Fund may invest in debt obligations convertible into equity securities, and in
non-convertible debt securities when the Investment Manager believes such non-
convertible securities present favorable opportunities for capital appreciation.
See "Investment Techniques and Policies--Investment Techniques--Investment in
Debt Securities and Commercial Paper."
EMERGING MARKETS EQUITY FUND seeks long-term capital appreciation by providing
investors with broadly diversified, direct access to equity markets in those
developing nations anticipated to rank among the world's top-performing
economies in the future. An emerging or developing market is broadly defined as
one with low- to middle-range per capita income. AIB Govett uses the
classification system developed by the World Bank to determine the potential
universe of emerging markets for investment but with significant potential for
growth and development. This Fund currently expects to invest in issuers located
in some or all of the following emerging or developing market countries:
Argentina, Brazil, Chile, Colombia, Croatia (indirect investment only), Czech
Republic, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan, Lebanon,
Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland, Portugal,
Russia, Singapore, Slovakia, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela, and Zimbabwe. The list of countries in which this
Fund invests may change from time to time.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in securities of issuers located in at least three different countries
(other than the U.S.). Additionally, at least 65% of the Fund's total assets
will normally be invested in common and preferred stocks, and warrants to
acquire such stocks. The Fund typically invests in equity securities listed on
recognized foreign securities exchanges, but the Fund may also hold securities
that are not so listed. The Fund may invest in debt obligations convertible into
equity securities, and in non-convertible debt securities when the Investment
Manager believes such non-convertible securities present favorable opportunities
for capital appreciation. See "Investment Techniques and Policies--Investment
Techniques--Investment in Debt Securities and Commercial Paper."
SMALLER COMPANIES FUND seeks long-term capital appreciation by investing
primarily in equity securities of those smaller companies AIB Govett believes
may be the industry leaders of tomorrow. The Fund selects its portfolio
investments primarily from among U.S. and foreign companies with individual
market capitalizations which would, at the time of purchase, place them in the
same size range as companies included in the Russell 2000 Index. Based on this
policy and recent share prices, as of the date of this Prospectus, the companies
in which the Fund invests typically will have individual market capitalizations
of less than $3.0 billion.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in smaller companies including foreign smaller companies, and at least
80% of its total assets in common stocks. The Fund may also invest up to 20% of
its total assets in other types of securities with equity characteristics such
as preferred stocks, convertible securities, warrants, units and rights. Under
normal market conditions, the Fund will not invest more than 35% of its total
assets in securities of issuers located in any one country (other than the
U.S.). The Fund may invest in exchange-listed and over-the-counter ("OTC")
securities.
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<PAGE>
ASIA FUND (formerly Pacific Strategy Fund) seeks long-term capital appreciation
by investing primarily in equity securities of issuers located in some or all of
the following Asian countries: Australia, China, Hong Kong, India, Indonesia,
Japan, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South Korea,
Sri Lanka, Taiwan, and Thailand. The list of countries in which the Fund invests
may change from time to time.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in issuers located in not less than three different Asian countries.
Additionally, at least 65% of the Fund's assets will normally be invested in
common and preferred stocks, and warrants to acquire such stocks. The Fund
typically invests in equity securities listed on recognized foreign exchanges,
but it may also hold securities which are not so listed. The Fund may also
invest in debt obligations convertible into equity securities, and in non-
convertible debt securities when the Investment Manager believes such non-
convertible instruments present a favorable opportunity for capital
appreciation. See "Investment Techniques and Policies--Investment Techniques--
Investment in Debt Securities and Commercial Paper."
LATIN AMERICA FUND seeks long-term capital appreciation by investing primarily
in equity and debt securities of issuers located in some or all of the following
Latin American countries: Argentina, Belize, Bolivia, Brazil, Chile, Colombia,
Costa Rica, Dominican Republic, Ecuador, El Salvador, French Guiana, Guatemala,
Guyana, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Suriname, Uruguay,
and Venezuela. The list of countries in which the Fund invests may change from
time to time.
Under normal market conditions, the Fund invests at least 65% of its assets in
issuers located in not less than three Latin American countries, with equity and
debt securities of issuers located in any one country representing no more than
40% of the Fund's total assets. There are two exceptions to this policy: (1) the
Fund may invest up to 60% of its total assets in issuers located in either
Mexico or Brazil; and (2) the Fund may invest up to 35% of its total assets in
any combination of equity and debt securities of issuers located in the U.S. In
evaluating investments in U.S. issuers, the Investment Manager will consider,
among other factors, the issuer's Latin American business activities and the
effect that developments in Latin America may have on the issuer's results.
The Fund may invest in common and preferred stocks, rights, warrants, and
securities convertible into common stocks and in other substantially similar
forms of equity securities with comparable risk characteristics. The securities
may be listed on exchanges, traded in various OTC markets, or there may be no
organized market for a particular security.
The Fund may also invest in a variety of debt securities, although under normal
market conditions it invests the majority of its assets in equities. These debt
securities include bonds, notes and debentures (or other forms of indebtedness
that may be developed in the future), issued by banks and other corporations, or
issued or guaranteed by Latin American national, state or local governments or
their agencies and instrumentalities (including central banks). The proportion
of equity and debt may vary from country to country. Subject to prevailing
market conditions, the Fund may invest up to 35% of its total assets in debt
securities which are below investment grade at the time of purchase, that is,
securities rated Ba or lower by Moody's Investor Services, Inc. ("Moody's") or
BB+ or lower by Standard & Poor's Corporation ("Standard & Poor's"), or, if
unrated, determined to be of comparable quality by the Investment Manager. (A
description of Moody's and Standard & Poor's rating system is included in the
Statement of Additional Information as Appendix A.) Consequently, the Fund's
ability to achieve its investment objective depends more on the Investment
Manager's credit analysis than if the Fund were limited to investments in higher
quality, rated bonds. Lower quality debt securities involve a high degree of
risk and are predominantly speculative (see "Principal Risk Factors"). Such
securities are the equivalent of U.S. corporate debt securities commonly known
as "junk bonds." Many Latin American debt instruments are not rated by U.S.
rating agencies.
Under normal market conditions, the Fund invests in debt securities only with
the intent to earn income and preserve capital. Favorable changes in relative
foreign exchange rates, interest rate levels or the creditworthiness of issuers,
however, may cause the market value of certain debt securities to appreciate.
Although, the Fund may realize appreciation in the market value of debt
securities it holds, it anticipates that such appreciation should not have a
material effect on the overall performance of the Fund.
GLOBAL INCOME FUND seeks to achieve its investment objective of high current
income (consistent with preservation of capital), with capital appreciation as a
secondary objective, by investing primarily in corporate and government
19
<PAGE>
debt securities of issuers located in some or all of the following countries:
the U.S., Canada, Japan, Mexico, the European Nations (including Austria,
Belgium, France, Germany, Luxembourg, the Netherlands, and Poland), New Zealand,
Australia, South Africa, Turkey, and the United Kingdom, as well as securities
denominated in multinational currency units and in obligations issued by
supranational entities. The countries in which Global Income Fund invests may
change from time to time. This Fund is designed to provide the potential for
higher yields and greater capital appreciation than a U.S.-only bond fund, but
its strategy may involve certain risks that do not apply to a U.S.-only bond
fund, such as the special risks associated with investing in foreign securities.
Under normal market conditions, the Fund invests at least 65% of its total
assets in debt securities of issuers located in at least three countries
(including the U.S.). Normally, the securities of issuers located in any one
country (other than the U.S.) will represent no more than 40% of the Fund's
total assets. The debt securities in which the Fund invests include bonds,
debentures, notes, commercial paper, certificates of deposit, bankers'
acceptances, fixed time deposits and certain U.S. mortgage-related securities
and may be issued by supranational, U.S. or foreign companies and financial
institutions, or issued or guaranteed by U.S. or foreign national, state or
local governments or their agencies or instrumentalities. Consistent with its
investment objectives, Global Income Fund may invest up to 20% of its total
assets in common and preferred stocks and in warrants to acquire such stocks. In
addition, the Fund may invest in debt obligations convertible into equity
securities or which have attached warrants or rights to purchase equity
securities. The Fund may not invest in any debt securities issued by AIB Govett
or any of its affiliated persons (as such term is defined in the 1940 Act).
The Fund normally invests at least 75% of its total assets in debt securities
with ratings, at the time or purchase, of at least Baa by Moody's or BBB by
Standard & Poor's (or, if unrated, determined to be of comparable quality by the
Investment Manager) and in commercial paper rated, at the time of purchase, at
least Prime-2 by Moody's or A-2 by Standard & Poor's (or, if unrated, determined
to be of comparable quality by the Investment Manager).
AIB Govett's current policy is to maintain the average dollar-weighted maturity
of the Fund's portfolio comparable to maturities of intermediate-term debt
instruments (i.e., securities with maturities at time of issuance between five
to ten years). AIB Govett may adjust the Fund's average maturity from time to
time, and may decrease or increase the maximum maturity target. For example, if
AIB Govett anticipates an interest rate decline, it may increase the average
maturity of the Fund's portfolio of debt securities, or if it anticipates that
interest rates may rise it may decrease its portfolio's maturity.
CHINA FUND seeks long-term capital appreciation by investing primarily in equity
securities of companies which have considerable exposure to the Chinese economy.
Principally, the Fund invests in the equity securities of companies (a)
organized under the laws of China or Hong Kong, (b) whose shares are traded on
exchanges located in China or Hong Kong, (c) which derive approximately 50% of
their gross sales or gross profits from China, Hong Kong or both, or (d) which
have approximately 50% of their assets in China, Hong Kong, or both.
The Fund typically invests in listed and over-the-counter securities through
authorized stock exchanges in China and Hong Kong and through stock exchanges
outside China and Hong Kong. The Fund will invest in both new and existing
enterprises registered and operating in China, including wholly Chinese-owned
enterprises, wholly foreign-owned enterprises, and Sino-foreign joint ventures.
The Fund also will invest in the securities of companies that have business
relationships in China.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in securities of issuers located in at least three different countries
(other than the U.S.). Additionally, at least 65% of the Fund's total assets
will normally be invested in common and preferred stocks, and warrants to
acquire such stocks. The Fund may also invest in debt obligations convertible
into equity securities, and in non-convertible debt securities when AIB Govett
believes such non-convertible securities present favorable opportunities for
capital appreciation. See "Investment Techniques and Policies--Investment
Techniques--Investment in Debt Securities and Commercial Paper."
ASIAN SMALLER COMPANIES FUND seeks long-term capital appreciation by investing
primarily in smaller companies in the Far East, outside Japan, that AIB Govett
believes may be the industry leaders of tomorrow. The Fund selects its portfolio
investments primarily from among companies with individual market
capitalizations which would, at time of purchase, typically be less than $1.0
billion. The Fund currently expects to invest in issuers located in some or all
of the following Far Eastern countries: China, Hong Kong, India, Indonesia,
Malaysia, Pakistan, the
20
<PAGE>
Philippines, Singapore, South Korea, Sri Lanka, Taiwan, and Thailand. The list
of countries in which the Fund invests may change from time to time.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in securities of issuers located in at least three different countries
(other than the U.S.). Additionally, at least 65% of the Fund's total assets
will normally be invested in common and preferred stock and warrants to acquire
such stock. The Fund typically invests in equity securities listed on recognized
foreign securities exchanges, but the Fund may also hold securities that are not
so listed. The Fund may invest in debt obligations convertible into equity
securities and in non-convertible debt securities when AIB Govett believes that
such non-convertible securities present favorable opportunities for capital
appreciation. See "Investment Techniques and Policies--Investment Techniques--
Investment in Debt Securities and Commercial Paper."
EUROPE FUND seeks long-term capital appreciation by investing primarily in
equity securities of growth-oriented issuers located in Europe. The Fund
currently expects to invest in issuers located in some of all of the following
European countries: Austria, Belgium, Croatia, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Italy, Ireland, Latvia, Lithuania,
Luxembourg, the Netherlands, Norway, Poland, Portugal, Rumania, Russia,
Slovakia, Slovenia, Spain, Sweden, Switzerland, and Turkey. The list of
countries in which the Fund invests may change from time to time.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in securities of issuers located in at least three different countries
(other than the U.S.). Additionally, at least 65% of the Fund's total assets
will normally be invested in common and preferred stock and warrants to acquire
such stock. The Fund typically invests in equity securities listed on recognized
foreign securities exchanges, but the Fund may also hold securities that are not
so listed. The Fund may invest in debt obligations convertible into equity
securities and in non-convertible debt securities when AIB Govett believes that
such non-convertible securities present favorable opportunities for capital
appreciation. See "Investment Techniques and Policies--Investment Techniques--
Investment in Debt Securities and Commercial Paper."
INVESTMENT TECHNIQUES AND POLICIES
Although no Fund provides a complete or balanced investment program, investors
can use each as part of an overall program to meet long-term objectives.
Although each Fund may receive current income from dividends, interest and other
sources, with the exception of the Global Income Fund, income is only an
incidental consideration in AIB Govett's selection of a Fund's investments. Of
course, there can be no assurance that any Fund will achieve its investment
objective. Each Fund's NAV fluctuates as the value of its portfolio securities
fluctuates.
In interpreting each Fund's investment policies and objectives, AIB Govett
adheres to the following principles and definitions:
. Whenever an investment policy or limitation states a maximum percentage of
a Fund's assets that may be invested in a security or other asset, or sets
forth a policy regarding quality standards, such percentage limitation is
determined immediately after and as a result of the Fund's acquisition of
that asset. Any later increase or decrease resulting from a change in
values, net assets or other circumstances will not be considered when
determining whether the asset complies with the Fund's investment policies
and limitations.
. The term "issuers located in" a particular country includes issuers (i)
which are organized under the laws of that country and which have their
principal office in that country; or (ii) which derive 50% or more of their
total revenues from business in that country; or (iii) the equity
securities of which are principally traded on a stock exchange of that
country.
. The term "indirect investment only," when referenced to a particular
country, means that the particular Fund will invest only in securities of
issuers domiciled or organized in that country which are purchased and sold
on an exchange or in an over-the-counter market located outside of that
country.
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General Limitations
International Equity Fund, Emerging Markets Equity Fund, Smaller Companies Fund,
Asia Fund, China Fund, Asian Smaller Companies Fund, and Europe Fund are
"diversified companies," as that term is defined in the 1940 Act. As diversified
companies, these Funds, with respect to 75% of its total assets, may not invest
more than 5% of their respective total assets in the securities of any one
issuer (excluding the U.S. Government and its agencies) or more than 10% of the
outstanding voting securities of any one issuer. Latin America and Global
Income Funds are not "diversified companies".
With respect to all Funds, no Fund may borrow money or mortgage or pledge any of
its assets, except that a Fund may borrow from banks, for temporary emergency
purposes, up to 33 1/3% of its total assets and pledge up to 33 1/3% of its
total assets in connection with such borrowing. Any borrowings that come to
exceed the 33 1/3% limitation will be reduced within three days. No Fund may
purchase securities when its borrowings exceed 5% of its total assets. No Fund
may make loans if, as a result, more than 33 1/3% of the Fund's total assets
would be lent to other parties, except (i) through the purchase of a portion of
a debt issue in accordance with the Fund's investment objectives, policies or
limitations, or (ii) by engaging in repurchase agreements with respect to
portfolio securities. No Fund may invest 25% or more of its total assets in any
one industrial classification. These limitations are fundamental and cannot be
changed without shareholder approval. As a non-fundamental policy, no Fund may
invest more than 5% of its respective net assets in securities restricted as to
resale or in illiquid securities, and no Fund may purchase a security if, as a
result, more than 5% of that Fund's net assets would be invested in warrants, or
more than 2% of the Fund's net assets would be invested in warrants not listed
on the American Stock Exchange or the New York Stock Exchange.
Investment Techniques
DEPOSITARY RECEIPTS. The Funds may invest in sponsored and unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs"), and similar global instruments. A U.S. or foreign
bank or trust company typically "sponsors" these depositary instruments, which
evidence ownership of underlying securities issued by a U.S. or foreign
corporation. Unsponsored programs are organized independently and without the
cooperation of the issuer of the underlying securities. As a result, information
about the issuer may not be as readily available or as current as for sponsored
depositary instruments, and prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
INVESTMENT IN DEBT SECURITIES AND COMMERCIAL PAPER. For Latin America and Global
Income Funds' policies on investing in debt and commercial paper, see the
"Overview" section for each Fund, above.
International Equity, Emerging Markets Equity, Smaller Companies, Asia, China,
Asian Smaller Companies, and Europe Funds may invest in debt obligations
convertible into equity securities. These seven Funds may also invest in non-
convertible debt securities when AIB Govett believes such non-convertible
securities present favorable opportunities for capital appreciation. At least
75% of each of these seven Funds' total assets invested in non-convertible debt
securities other than commercial paper must be rated, at the time of purchase,
at least A by Standard & Poor's or Moody's, or if unrated, determined to be of
comparable quality by AIB Govett. These seven Funds' commercial paper
investments must, at the time of purchase, be rated at least Prime-2 by Moody's
or A-2 by Standard & Poor's, or if unrated, determined to be of comparable
quality by AIB Govett. The subsequent downgrade of a debt security to a level
below the investment grade required for the Fund will not require a sale of that
security, but AIB Govett will consider such an event in determining whether to
hold that security.
TEMPORARY STRATEGIES. Pending investment of proceeds from sale of Fund shares to
meet ordinary daily cash needs and to retain flexibility to respond promptly to
changes in market and economic conditions, AIB Govett may use temporary
defensive strategies. Under such strategies, a Fund may hold cash (either U.S.
dollars, foreign currencies or multinational currency units), and/or invest any
portion or all of its assets in short-term, high quality debt securities. For
debt obligations other than commercial paper, such instruments must be rated, at
the time of purchase, at least AAA by Standard & Poor's or Aaa by Moody's, or if
unrated, determined to be of comparable quality by AIB Govett. For commercial
paper, such investments must be rated, at the time of purchase, at least A-2 by
Standard & Poor's or Prime-2 by Moody's, or if unrated, determined to be of
comparable quality by AIB Govett. It is impossible to predict when or for how
long AIB Govett may use such temporary strategies.
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HEDGING STRATEGIES. Each Fund may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with its investments, although there can be no assurance that such efforts will
succeed. Among the types of transactions which may be used are: forward currency
contracts, writing of covered put and call options, purchase of put and call
options on currencies and equity and debt securities; stock index futures and
options thereon, interest rate or currency futures and options thereon, and
securities futures and options thereon. It is currently intended that no Fund,
except Global Income Fund, will place more than 5% of its net assets at risk in
any one of these transactions or securities. Global Income Fund may invest
significantly more than 5% of its net assets in forward currency contracts.
However, although there is no limit on the number of forward currency contracts
Global Income Fund may enter into, this Fund may not position hedge with respect
to a particular currency for an amount greater than the aggregate market value
(determined at the time the sale of any foreign currency is made) of the
securities held in its portfolio denominated or quoted in, or currently
convertible into, such currency.
REPURCHASE AGREEMENTS AND OVERNIGHT TIME DEPOSITS. Each Fund may enter into
repurchase agreements, in which the Fund acquires a high grade liquid debt
security from a U.S. bank, broker-dealer or other financial institution that
simultaneously agrees to repurchase the security at a specified time and price.
Repurchase agreements are collateralized, in an amount at least equal to the
current value of the loaned securities, plus any accrued interest, by cash,
letters of credit, U.S. Government securities, or other high grade liquid debt
securities at the Fund's custodian (or designated subcustodian), segregated from
other Fund assets. In segregating such assets, the Fund's custodian either
places them in a segregated account or separately identifies them and makes them
unavailable for investment by the Fund. Each Fund may also invest in overnight
time deposits placed at competitive interest rates with creditworthy banks,
including the Funds' custodian.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. Emerging and developing markets
countries often limit foreign investments in equity securities of issuers
located in such countries. As a result, the Funds may be able to invest in such
countries solely or primarily through open- or closed-end investment companies.
In accordance with the 1940 Act, a Fund may invest up to 5% of its total assets
in any one investment company, and up to 10% of its total assets in the
aggregate in shares of other investment companies, as long as that investment
does not represent more than 3% of the total voting stock of the acquired
investment company at the time such shares are purchased. The Funds may not
invest in any investment companies managed by AIB Govett or any of its
affiliates. Investments in investment companies may involve a duplication of
certain expenses, such as management and administrative expenses.
INVESTMENT RISKS
The quality and quantity of historic economic and securities market data are, in
many foreign and emerging markets, limited, and many foreign markets are
inherently more volatile than the U.S. securities markets. AIB Govett utilizes
investment policies which involve the review and analysis of overall market
information to determine geographic and sector exposure and the investigation of
individual candidate companies within that strategic focus.
MARKET. Equity and bond markets outside the U.S. have significantly
outperformed U.S. markets from time to time. Consequently, AIB Govett believes
that investments in foreign securities may provide greater long-term investment
returns than would be available from investing solely in U.S. securities.
Nevertheless, each Fund's portfolio is subject to market risk--the possibility
that stock and bond prices will decline over short, or even extended, periods--
to a greater degree than domestic investments, as a result of a variety of
factors that can affect stock and bond prices.
For example, there may be less information publicly available about foreign
companies, and less government regulation and supervision of foreign stock
exchanges, securities dealers and publicly traded companies than is available
about comparable U.S. entities. Accounting, auditing and financial reporting
standards, practices and requirements are not uniform and may be less rigorous
than U.S. standards. Securities of some foreign companies are less liquid, and
their prices are more volatile, than securities of comparable U.S. companies.
Trading settlement practices in some markets may be slower or less frequent than
in the U.S., which could affect liquidity of a Fund's portfolio. Trading
practices abroad may offer less protection to investors. In some foreign
countries, any or all of expropriation, nationalization, and confiscation are
risks. A foreign government's limits on the repatriation of distributions and
profits and on the removal of securities, property, or other assets from that
country may affect a
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Fund's liquidity and the value of its assets. Political or social instability,
including war or other armed conflict, or diplomatic developments also could
affect the Funds.
CURRENCY. The Funds, as are most foreign investors, are also exposed to currency
risk if the U.S. dollar value of securities denominated in other currencies is
adversely affected by exchange rate movements. Currency risk could affect the
value of a Fund's investments, the value of dividends and interest earned by a
Fund, and the value of gains which may be realized.
FOREIGN TAXATION. Some foreign governments levy brokerage taxes, increasing the
cost of securities subject to the tax and reducing any realized gain or
increasing any realized loss. Foreign governments also may withhold taxes from
dividends, distributions and interest paid (typically at a rate between 10% and
35% of the gross amount paid). Such taxes may adversely affect a Fund's net
asset value.
Economic structures and political systems in emerging and developing markets are
generally less diverse, mature and stable compared to more developed countries.
Historically, emerging and developing markets have been more volatile than the
markets of more mature economies, and although they pose greater risks to the
Funds, time to time they have provided higher rates of return. AIB Govett
believes that these characteristics can be expected to continue in the future.
In particular, in China, in certain other Asian countries, and in the countries
of the former "Eastern Bloc," the lack of a historical capital market structure
or market-oriented economy, together with the possible reversal of recent
favorable economic, political and social developments, pose greater risks than
those associated with the more developed, market-oriented countries.
INVESTING IN EMERGING MARKETS. The risks of investing in foreign securities are
intensified if the investments are in emerging or developing markets. In
general, these markets may offer special investment opportunities because their
securities markets, industries and capital structure are growing rapidly, but
investments in these countries involve special risks not present in the U.S. or
in mature foreign markets, such as Germany or the United Kingdom. Settlement of
securities trades may be subject to extended delays, so that a Fund may not
receive securities purchased or the proceeds of sales of securities on a timely
basis. Emerging markets generally have smaller, less developed trading markets
and exchanges, which may affect liquidity, so that the Fund may not be able to
dispose of those securities quickly and at a reasonable price. These markets may
also experience greater volatility, which can materially affect the value of a
Fund's portfolio and, therefore, its net asset value. Emerging market countries
may have relatively unstable governments. In such environments the risk of
nationalization of businesses or of prohibitions on repatriation of assets is
greater than in more stable, developed political and economic circumstances. The
risk is especially acute with respect to the Govett China Fund where AIB Govett
may invest significant Fund assets in China, Hong Kong, or both. The economy of
a developing market country may be predominantly based on only a few industries,
and it may be highly vulnerable to changes in local or global trade conditions.
The legal and accounting systems, and mechanisms for protecting property rights,
may not be as well developed as those in more mature economies. In addition,
some emerging markets countries have general or industry-specific restrictions
on foreign ownership may limit or eliminate the Fund's opportunities to acquire
desirable securities. Please refer to the Statement of Additional Information
for a discussion of risks particular to investing in Russia.
INVESTING IN CHINA. Investing in China, Hong Kong, Taiwan, and other China
Region countries involves certain risks and special considerations not typically
associated with investing in other emerging markets or more established
economies ore securities markets. Among those risks are: a greater risk of
expropriation, nationalization, and confiscatory taxation of Fund assets because
China's totalitarian government has the power to make unilateral changes in
China's foreign investment laws; a greater risk of loss caused by illiquid
investments and price volatility because of the relatively small market
capitalization and trading volume of China Region securities; a greater risk of
loss caused by highly volatile exchange rates because the Chinese currency, the
Renminbi, is not freely convertible; and the related possibility that the
Chinese government may decide not to continue to support the economic reform
programs implemented since 1978, thus returning the country to the centrally
planned economy that existed prior to 1978.
INVESTING IN SMALLER COMPANIES. The smaller companies in which the Funds invest,
and in which Smaller Companies Fund and Asian Smaller Companies Fund primarily
invest, often have rates of sales, earnings, and share price appreciation that
exceed those of larger companies. However, such companies also often have
limited product lines, markets or financial resources. Stocks of smaller
companies may have limited marketability and typically experience greater price
volatility than stocks of larger companies. The Fund's share price will reflect
this volatility.
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INTEREST RATES AND CREDIT. The value of fixed income securities held by the
Funds generally fluctuates inversely with interest rate movements. Global Income
Fund and Latin America Fund normally diversify their portfolio by investing in a
number of issuers; however, each is a "non-diversified" series and may invest
more than 5% of their assets in the securities of one issuer. Consequently, each
Fund may experience greater interest rate and credit risk with respect to its
portfolio than funds with similar objectives which are more broadly diversified.
Latin America Fund and Global Income Fund also may invest in debt securities
rated below investment grade. These securities may be the equivalent of high
yield, high risk "junk bonds," which generally have a greater potential for
default or price change than higher quality securities caused by changes in the
issuer's creditworthiness, economic downturns or interest rate increases. The
issuers of such debt securities may be unable or unwilling to repay principal or
interest when due, and a Fund may incur additional expenses if it is required to
seek recovery following a default in the payment of principal or interest on its
holdings. In addition, remedies for defaults on debt securities issued by
emerging market governments generally must be pursued in the courts of the
defaulting government, and legal recourse can therefore be significantly
diminished.
LIQUIDITY. Funds which may invest in sovereign debt obligations may have
difficulty disposing of and valuing them because there may be a limited trading
market for them. If reliable market quotations are not available, AIB Govett
values such securities in accordance with procedures established by the Board of
Directors. AIB Govett's judgment and credit analysis plays a greater role in
valuing high risk, high yield debt securities compared to securities for which
external sources for quotations and last sale information are available. Adverse
publicity and changing investor perceptions may affect the value of these
securities and the Funds' ability to dispose of them. Because there may be no
liquid secondary market for many of these securities, the Funds anticipate that
the securities could be sold only to a limited number of dealers or
institutional investors. See "Description of Securities, Investment Policies and
Risk Factors" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
Under the Company's Articles of Incorporation and the laws of Maryland, the
Board of Directors is responsible for overseeing the conduct of the Company's
business and the activities of each Fund. Under the Investment Management
Agreement dated ____________, 1997 (the "Investment Management Agreement"),
between Govett Funds and AIB Govett, and subject to such policies as the Board
may establish, AIB Govett provides the Funds with day-to-day management services
and makes, or supervises any subadviser who makes, investment decisions on their
behalf in accordance with each Fund's investment policies.
ADVISERS AND SUBADVISERS
The Funds' investment manager is AIB Govett, 250 Montgomery Street, Suite 1200,
San Francisco, CA 94104, a Maryland corporation. AIB Govett is a wholly-owned
subsidiary of AIB Asset Management Holdings Limited ("AIBAMH"), which is a
majority-owned subsidiary of Allied Irish Banks, plc ("AIB"). AIB is the
largest bank in the Republic of Ireland, with assets of approximately $21
billion as of ______________________, 1997. AIB Govett has approximately
$______________ of assets under management as of _________________________,
1997.
In 1997, AIBAMH made several adjustments to its operating structure in order to
more effectively provide investment management services to its clients around
the world. A new U.S. company, AIB Govett, was formed to provide these services
to North American clients. In addition, John Govett & Co. Limited, which had
served as investment manager for the Funds, changed its name to AIB Govett Asset
Management Limited. AIB Govett has been appointed as advisor to the Funds. AIB
Govett (London) serves as subadviser to all Funds, and AIB Investment Managers
Limited ("AIBIM Dublin") serves as subadviser to Europe Fund (collectively, the
"Subadvisers"). AIB Govett, AIB Govett (London) and AIBIM (Dublin) are wholly-
owned subsidiaries of AIBAMH.
The reorganization did not result in any change of actual control or management
of AIB Govett (London) or in any change in management of the Funds. In
particular, the same individuals who provided services to the Funds prior to the
reorganization continue to provide the same services.
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AIB GOVETT (LONDON) (formerly John Govett & Co. Limited) is a U.K. company
located at Shackleton House, 4 Battle Bridge Lane, London SE1 2HR , England. A
money manager since the 1920s, it has developed special expertise in investing
in emerging markets and smaller companies worldwide. AIB Govett (London) had, as
of ______, 1997, approximately $_______ billion under management, primarily
offshore funds. AIB Govett (London) serves as investment subadvisor to two U.S.
mutual fund portfolios in addition to the Funds.
AIBIM (DUBLIN) is an Irish company located at AIB Investment House, Percy Place,
Dublin 4, Ireland. As of ________________, 1997, AIBIM (Dublin) had
approximately $__________________ billion under management. It specializes in
managing larger cap equity and fixed income funds for a variety of offshore
clients, including pension funds and charitable institutions. AIBIM (Dublin)
also serves as investment subadvisor to another U.S. mutual fund portfolio.
Peter Pejacsevich and Eileen Fitzpatrick, Joint Chief Investment Officers and
Directors of AIB Govett, are, respectively, Chief Investment Officer of AIB
Govett (London) and AIBIM (Dublin). Mr. Pejacsevich graduated from Cambridge
University with an MA in Economics. Prior to joining AIB Govett (London) in
1991 as Chief Investment Officer, he was Executive Vice President at Bessemer
Trust Co. N.A., responsible for managing equity portfolios and international
investments. He also served as Assistant Director at Guinness Mahon & Co. Ltd.
in charge of overseas equity investments and as Assistant Vice President at
Mellon Bank, USA, responsible for marketing their joint venture, Mellon Pictet
and Robert Fleming.
Ms. Fitzpatrick holds a Ph.D. in Science from University College, Dublin. After
two years with a Dublin-based fund management organization, she joined AIBIM
(Dublin) in 1988, becoming Head of International Equities and Associate Director
in 1993. She moved to NCB Stockbrokers and then, in 1995, to Goodbody
Stockbrokers (an affiliate of AIB), where she was Head of International Equities
Sales Division. In 1996 she rejoined AIBIM (Dublin) as Deputy Investment
Director and was appointed Investment Director in January, 1997.
PORTFOLIO MANAGEMENT
AIB Govett and the Subadvisers are part of a broad network of offices worldwide,
including London, Dublin, Singapore, Budapest, Mexico City, San Francisco, and
Bangalore. Each of the Funds, except Smaller Companies Fund and Asian Smaller
Companies Fund, has been managed by a team headed by a lead portfolio manager
who is responsible for overseeing the activities of the respective Fund, and for
ensuring that the firm's strategy is executed in accordance with each Fund's
investment objectives, policies and regulatory requirements. Generally, each
team's investment process is based on interaction among regional specialist
teams.
The lead portfolio manager of Emerging Markets Equity Fund is Rachael Maunder,
who has performed this function since the Fund's inception in 1992. She joined
AIB Govett (London) in 1991 and is a Director of the firm. She graduated in
economics and politics from Bath University.
The lead portfolio manager of Asia Fund is Peter Robson, who has performed this
function since the Fund's inception in 1994. He joined AIB Govett (London) in
1990 and is a Director of the firm. He graduated in engineering from Oxford
University.
The lead portfolio manager of Latin America Fund is Caroline Lane, who has
performed this function since the Fund's inception in 1994. She joined AIB
Govett (London) in 1990 and is a Director of the firm. She graduated from Exeter
University with a degree in economic history.
A portfolio management team under the supervision of Peter Pejacsvich, Chief
Investment Officer of AIB Govett (London) has managed the Global Income Fund
since April, 1997.
The lead portfolio manager for China Fund is Christian Dangerfield. He joined
AIB Govett (London) in 1992, and is a Director of the firm. He graduated in
Modern History from Oxford University.
The co-lead portfolio managers for Europe Fund are Peter Kysel and Louise
McGuigan. Ms. McGuigan has been AIBIM's Head of European Equities since 1994.
Prior to that time she was a portfolio manager with Hill Samuel Fagen Investment
Management. She holds a Certified Diploma in Accounting and Finance. Mr. Kysel
joined AIB Govett (London) in 1994 and is a Director of the firm. Prior to that
time he was managing director of the Investment Banking Division at Komercni
Banka AS in Prague. He has also served as Director of International Investments
for Lloyds Merchant Bank Ltd. in London. He graduated from Prague University in
business economics and politics.
The portfolio manager for Smaller Companies Fund is Gareth Watts, who has
performed this function since January, 1997. Prior to that time he was a senior
member of the team managing International Equity Fund. Since joining AIB Govett
(London) as a Director in 1988, Mr. Watts has managed all of AIB Govett
(London)'s offshore funds investing in U.S. equities. He graduated in statistics
from the University of Wales.
The portfolio manager for Asian Smaller Companies Fund is Chua Teck Chye. He is
a dual employee of AIB Govett (London) and AIB Govett (Asia) Pte. Limited ("AIB
Govett (Asia)", formerly known as John Govett & Co. (Asia) Pte. Limited), a
Singapore subsidiary of AIBAMH. He graduated from London School of Economics in
Political Science in 1981. He entered the financial sector through commercial
banking and was Director of Research in the Singapore offices of several
regional stockbrokerage operations. He joined AIB Govett (Asia) as Chief
Investment Officer in 1993.
AIB Govett and the Subadvisers permit their investment and other personnel to
purchase and sell securities for their own accounts, subject to a compliance
policy governing personal investing. This policy requires investment and other
personnel to conduct their personal investment activities in a manner that is
not detrimental to the Funds or to any of the group's other advisory clients.
Mr. Patrick Cunneen, a Director of the Company, is an officer of AIBAMH.
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ADVISORY AND SUBADVISORY AGREEMENTS
The terms of the New Advisory Agreements are substantially similar to the Former
Advisory Agreement. The investment management fees paid by the Original Funds
were not affected by the change in investment advisory responsibility from AIB
Govett (London) to AIB Govett.
The Funds pay AIB Govett a monthly fee based upon the average net assets of the
Funds, as determined at the close of each business day during the month, at an
annual rate of 1% of the average daily net assets of each Fund (0.75% for
Global Income Fund), for providing investment management and administrative
services to the Funds.
Pursuant to its Subadvisory Agreement with AIB Govett, AIB Govett (London)
receives a fee of __ basis points of average annual net assets as compensation
for serving as investment subadvisor to the Funds. Pursuant to its Subadvisory
Agreement with AIB Govett, AIBIM (Dublin) receives a fee of ___ basis points of
average annual net assets as compensation for its subadvisory services to Europe
Fund.
Overseeing international, emerging markets and smaller company investments is
complex, and the fees for servicing such funds are generally higher than fees
paid by funds with portfolios composed mostly of domestic securities. AIB
Govett waives and reimburses certain Fund expenses, including a portion of
management fees and service fees. The Funds pay all Fund expenses not waived or
reimbursed by AIB Govett or other entities, including but not limited to the
remainder of AIB Govett's investment management fees, outside directors' fees,
taxes, if any; auditing, legal, custodial, transfer agency and certain investor
servicing and shareholder reporting expenses; brokerage and commission expenses,
if any; interest charges on any borrowings; costs and expenses of accounting,
bookkeeping and recordkeeping; insurance premiums; trade association dues; fees
and expenses of complying with federal and state securities laws; costs
associated with shareholders' meetings and preparation and distribution of proxy
materials; printing and mailing prospectuses and statements of additional
information and reports to shareholders; and other expenses relating to the
Funds' operations plus any extraordinary and non-recurring Fund expenses.
Please see the Financial Highlights section of this Prospectus and the Statement
of Additional Information for more detailed descriptions of fees and
expenses.
ALLOCATION OF PORTFOLIO TRANSACTIONS
In placing orders for the Funds' portfolio transactions, each of AIB Govett and
the Subadvisers seeks best execution, analyzing such factors as price, size or
order, difficulty of execution and the operational capabilities of the brokerage
firm involved. Commissions on trades through foreign securities exchanges or
over-the-counter markets typically are fixed and higher than those made through
U.S. securities exchanges or over-the-counter markets. Consistent with the
obligation to obtain best execution, AIB Govett or the applicable Subadviser may
consider research and brokerage services provided by that broker. The Funds may
pay a broker who provides brokerage and research services to AIB Govett or the
applicable Subadviser a higher commission than that charged by other brokers if
AIB Govett determines in good faith that the amount of the commission is
reasonable in relation to the value of those services, either in terms of the
particular transaction or of the overall responsibility of AIB Govett or the
applicable Subadviser to the Funds and to any accounts over which AIB Govett or
the applicable Subadviser exercises investment discretion.
PORTFOLIO TURNOVER
The frequency of portfolio transactions--the "portfolio turnover rate"--varies
from year to year depending on market conditions. Because a high annual turnover
rate (over 100%) increases transaction costs and may lead to capital gains which
are subject to federal taxation, AIB Govett or the applicable Subadviser
carefully weighs anticipated benefits of a trade against expected transaction
costs and tax consequences. Neither AIB Govett nor any of the Subadviser engages
in short-term trading except when necessary to prudently manage the Funds'
portfolios. The portfolio turnover rates for the Original Funds for the period
from January 1, 1996 through December 31, 1996 were: International Equity Fund--
84%; Emerging Markets Equity Fund--122%; Smaller Companies Fund--406%; Asia
Fund--170%; Latin America Fund--150%; and Global Income Fund--236%. Each Fund's
portfolio turnover rate reflects market conditions affecting the economies that
Fund invests in. Smaller Companies Fund's portfolio turnover rate also reflects
portfolio repositioning undertaken following the change in portfolio manager in
January, 1996. Asia and Latin America Funds have also been affected by sizable
asset fluctuations that occurred during
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calendar year 1996. The portfolio turnover rates of the Original Funds for the
period from January 1, 1997 through June 30, 1997 (unaudited) were:
International Equity Fund--34%; Emerging Markets Equity Fund--64%; Smaller
Companies Fund--46%; Asia Fund--92%; Latin America Fund--73%; and Global Income
Fund--55%.
DISTRIBUTION ARRANGEMENTS
FPS Broker Services, Inc. (the "Distributor") is the Funds' statutory
distributor and principal underwriter. FPS Services, Inc., an affiliate of the
Distributor, serves the Funds as transfer and shareholder services agent (the
"Transfer Agent").
From time to time programs may be implemented under which a broker, dealer or
financial intermediary's sales force may be eligible to win nominal awards for
certain sales efforts or under which certain reallowances (not exceeding the
total applicable sales charges on the sales generated by the broker, dealer or
financial intermediary) may be paid to such entities. Other programs provide,
among other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Funds. The Distributor may, from
time to time, pursuant to objective criteria it establishes, pay fees to, and
sponsor seminars for, qualifying brokers, dealers, or financial intermediaries
for certain services or activities which are primarily intended to result in the
sale of Fund shares. Any such programs will not change the price an investor
will pay for shares or the amount that a Fund will receive from such a sale. No
such programs or additional compensation will be offered to the extent that they
are prohibited by the laws of any state or any self-regulatory agency with
jurisdiction over the Distributor, such as the National Association of
Securities Dealers, Inc. (the "NASD").
DISTRIBUTION PLANS
Rule 12b-1 adopted by the SEC under the 1940 Act permits a mutual fund to pay
expenses associated with distributing its shares ("distribution expenses") in
accordance with a plan adopted by the Company's Board of Directors and approved
by its shareholders. Pursuant to Rule 12b-1, the Board of Directors and the
shareholders of each class of each Fund have adopted two Distribution Plans
referred to in this Prospectus as the "Class A Plan," and the "Class B Plan".
ONLY CLASS A SHARES ARE CURRENTLY OFFERED TO THE GENERAL PUBLIC. Each
distribution plan complies with the NASD Rules of Fair Practice applicable to
mutual fund sales charges. These rules regulate the distribution and service
charges that the Funds may impose on a class of shares. The Class B service fees
are used to compensate authorized dealers for personal service and for the
maintenance of shareholder accounts. There is no service fee paid under the
Class A Plan.
Under the Class A Plan, each Fund pays an ongoing distribution fee to the
Distributor at an annual rate of 0.35% of each Fund's aggregate average daily
net assets attributable to its Class A shares. Under the Class B Plan each Fund
pays the Distributor an ongoing distribution fee of 0.75%, and an ongoing
service fee of 0.25%, of the Fund's aggregate average daily net assets
attributable to its Class B shares to reimburse the Distributor for service fees
it pays to authorized dealers, and for its distribution costs.
Each Plan allows the Funds to compensate the Distributor for services provided
and expenses incurred in the distribution of Fund shares, including advertising
expenses and printing costs (e.g., sales materials used to offer shares to the
public). The Distributor may reallow all or a portion of the payments received
under the Plan to third parties, including securities dealers, and banks
("Service Organizations"), for rendering shareholder support and administrative
services. AIB Govett, pursuant to a Sub-Administration Agreement, provides
certain services to the Distributor, including as a Service Organization under
each of the three Plans.
If the Class A Plan is terminated, the Distributor would not be compensated for
costs incurred but not yet recovered. Payments under the Class A Plan of a Fund
may not be increased to more than 0.35% of the Fund's average daily net assets
attributable to Class A shares without prior approval of the Class A and Class B
shareholders. At present, the Board of Directors has approved payments under the
Class A and Class B Plans for the purpose of compensating the distributor for
payments of commissions to the Funds' dealers as well as for certain additional
expenses related to shareholder services and the distribution of shares of the
respective Class (including payments for travel, telephone, and overhead
expenses related to distribution), subject to the overall percentage limitations
described above.
The Class B Plan provides that the Distributor may use 0.25% of the net assets
of Class B (i) to compensate Service
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Organizations for providing distribution assistance or services with respect to
the Class B shares; (ii) to otherwise promote the sale of Fund shares, including
personal services and/or maintenance of shareholder accounts. The Distributor
receives additional payments from the Funds at the annual rate equal to 0.75% of
the net assets of the Class B shares as compensation for providing distribution
services. Expenditures for such services may include payment of (i) front-end
commissions of up to 4% of the purchase price of Class B shares; and (ii) other
distribution expenses as described in the Statement of Additional Information.
Payments made to the Distributor under a Distribution Plan may be more or less
than the amount it spends for distribution of the shares covered by a Plan,
resulting in a profit or loss for the Distributor. The Distributor may use
payments made to it by a Fund under a Distribution Plan to defray distribution
expenses related to the covered class of shares of one or more of the other
Funds. Distribution expenses related to a particular class of shares will be
allocated among the Funds based on each Fund's outstanding shares in such class.
The Directors determined that there was a reasonable likelihood that the
Distribution Plans would benefit the Funds and their shareholders. Information
about distribution revenues and expenses is provided to the Directors each year,
in connection with their consideration of continuing the Distribution Plans. In
this review, the Directors take into account expenses incurred in connection
with distributing each class of shares separately. The distribution charge and
the sales charge of a particular class will not be used to subsidize the sale of
the other classes.
The Class B distribution and service fees are designed to permit an investor to
purchase such shares without the assessment of a front-end sales charge and at
the same time to permit the Distributor to compensate any Service Organization
as permitted by the Class B Plan. In this regard, the purpose and function of
the combined CDSC and distribution and service fee are the same as those of the
initial sales charge and distribution fee for the Class A shares, that is
provide for financing distribution of fund shares.
CUSTODIANS
The Chase Manhattan Bank (the "Custodian") serves as the Funds' global
custodian. Hong Kong and Shanghai Banking Corporation, Taipei, Taiwan, provides
custody services for Fund assets held in Taiwan.
TRANSFER AGENT
FPS Services, Inc., (the "Transfer Agent"), an affiliate of the Distributor,
provides transfer agent, shareholder services agent, and dividend disbursement
services to the Funds.
ACCOUNTING AND ADMINISTRATION SERVICES
Chase Global Funds Services Company, an affiliate of the Funds' global
custodian, provides the Funds with administration and accounting services.
HOW THE FUNDS VALUE THEIR SHARES
When share price is determined
At the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. Eastern Time) each day the New York Stock Exchange is open, each Fund
calculates its net asset value per share (the "NAV") of each class by dividing
the total value of the assets (securities plus cash or other assets, including
interest and dividends accrued but not yet received), attributable to the class,
less total liabilities attributable to the class, by the total number of shares
of the class outstanding.
How share price is determined
All securities traded on an exchange are valued at the last sale quotation on
the exchange prior to the time of valuation. Securities for which market
quotations are readily available are stated at market value. Short-term
investments maturing in 60 days or less are valued using amortized cost, which
the Board of Directors has determined approximates market value. Amortized cost
valuation means that a debt security with a maturity in excess of 60 days, which
currently has a maturity of 60 days or less, is valued at the market or fair
value of the
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security on the 61st day prior to maturity (each as adjusted for amortization of
premium or discount) rather than at current market value. All other securities
and assets are valued at fair value following procedures approved by the Board
of Directors.
Foreign securities may trade on days or at times other than those days and times
when the New York Stock Exchange is open. The prices of foreign securities
quoted in foreign currencies are translated into U.S. dollars at 1:00 p.m.
Eastern Time at the exchange rates in effect at that time, or at such other
rates as the Investment Manager may determine to be appropriate. As a result,
currency fluctuations in relation to the U.S. dollar may affect a Fund's net
asset value per share even though there has been no change in the market value
of portfolio holdings. In addition, because of time zone differences foreign
exchanges and markets may close before the New York Stock Exchange closes.
However, events affecting market values which may occur between the earlier
closing of a foreign exchange and the closing of the New York Stock Exchange may
not be reflected in that day's computation of a Fund's net asset value. If an
event materially affecting the value of a portfolio holding occurs during such
period and the Investment Manager becomes aware of it, then the holding will be
valued at fair value as determined in good faith, according to procedures
adopted by the Board of Directors.
ABOUT YOUR ACCOUNT
HOW TO BUY SHARES
Shares of each of the Funds are offered continuously at the NAV determined for
each Fund as of the close of the regular trading session of the New York Stock
Exchange (currently 4:00 p.m. Eastern Time), following receipt by the Transfer
Agent of a purchase order in proper form plus, in the case of the Class A shares
of each Fund, an initial sales charge imposed at the time of purchase, or
subject to contingent deferred sales charge upon redemption in the case of Class
B shares, and certain redemptions in the case of Class A shares. AN UNSPECIFIED
PURCHASE ORDER WILL BE CONSIDERED AN ORDER FOR CLASS A SHARES. AT PRESENT, ONLY
CLASS A SHARES ARE AVAILABLE TO THE GENERAL PUBLIC.
Shares may be purchased through brokers, investment advisers and other financial
intermediaries ("authorized dealers") which have selling group agreements with
the Distributor, or directly through the Transfer Agent. Authorized dealers may
charge a fee for effecting transactions. Completed applications should be sent
to the Transfer Agent at the address shown in the Services Guide in Appendix A
to this Prospectus. Effective as of ______, 1997, for new investors in the Funds
("Second Stage Shareholders"), the minimum initial investment is $5,000, and
subsequent investments must be $1,000 or more. For existing shareholders of
record of any Govett Fund as of ______, 1997 ("First Stage Shareholders"), the
investment minimums remain those in effect when they initially invested in any
Govett Fund; specifically, $500 minimum initial investment into another Funds of
the Company and subsequent investments of $25 or more. Identical purchase
minimums are required for IRAs. Both minimums may be waived by the Distributor
for plans involving periodic investments. The Funds reserve the right to refuse
to accept any purchase order, and to suspend the offering of shares for a period
of time. Prospective investors and shareholders may call 800-821-0803 for
additional information about their accounts or the Funds.
INITIAL PURCHASES THROUGH AUTHORIZED DEALERS
Orders received by an authorized dealer before the New York Stock Exchange has
closed for a particular day will be executed at the public offering price
determined on that day, provided that the authorized dealer transmits the order
to the Transfer Agent by 5:00 p.m. Eastern Time on that day. Authorized dealers
are responsible for timely transmission of orders to the Transfer Agent. The
sales agreements between the Distributor and the authorized dealers provide that
all orders are subject to acceptance by the Funds, which retains the right to
reject any order. For wiring instructions, please see "Appendix A".
INITIAL PURCHASES THROUGH THE TRANSFER AGENT
Investors may open an account directly through the Transfer Agent by sending a
completed, signed application and a check in the amount of the purchase price,
made out to the Govett Funds, to the address shown in Appendix A. In such
cases, the sales charge is paid to the Distributor. Third party checks will not
be accepted in payment for Fund shares. Shares may also be purchased through the
Transfer Agent by bank wire, provided that within seven (7) days
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of an initial investment, the Transfer Agent has received an executed account
application showing the investor's taxpayer identification number. Bank wire
purchases are effected at the next computed public offering price after the wire
is received. A wire investment is considered received when the Transfer Agent
has been notified that the wire has been credited to a Fund. The investor is
responsible for providing prior telephone notice to the Transfer Agent that a
wire is being sent. The Transfer Agent will provide an account number which
should be referenced on the wire instructions.
Subsequent Investments Through the Transfer Agent
After an initial investment is made and a shareholder account is established
through an authorized dealer, subsequent purchases of $1,000 or more may be made
($25 or more for First Stage Shareholders), at the investor's option, directly
through the Transfer Agent. Investors should use the investment stub located at
the bottom of the Shareholder Statement Form or, if one is not available, a
check made payable to the specific Fund should be sent to the Transfer Agent at
the address indicated in Appendix A. Any check for additional shares sent
directly to the Transfer Agent should reference the account number to which the
money should be credited.
Certificates
No share certificates will be offered for Class B shares. In the interest of
economy and convenience, the Funds do not issue certificates for Class A unless
a shareholder or his or her authorized dealer submits a written request to the
Transfer Agent. Shareholders of Class A shares who do not receive certificates
have the same rights as if certificates had been issued to them. Redemptions by
shareholders who hold certificates may take longer than redemptions of non-
certificated shares because physical delivery and processing of the certificates
is necessary. The Funds and the Distributor recommend that shareholders of Class
A shares refrain from requesting certificates.
Directed Dividends
A shareholder may elect on the Account Application to have his or her dividends
from one Fund paid to a third party or invested in shares of the same class of
another series of the Funds, provided that an existing account in such other
Fund is maintained by the shareholder. Both Fund accounts must be of the same
type, either non-retirement or retirement. If the accounts are retirement
accounts, they must both be for the same type of retirement plan and for the
benefit of the same individual. Distributions are invested into the selected
Fund at its NAV as of the payable date of the distribution.
Automatic Investment Plan
Investors may buy shares of a Fund through the Automatic Investment Plan
("AIP"), which allows an investor to specify an amount at least $5,000
initially, and $100 thereafter, per Fund to be invested on a regular basis (for
First Stage Shareholders these amounts remain $100 initially, and $25
thereafter). The specified amount will be transferred directly from the
investor's bank for investment into the designated Fund(s) on the designated
investment day. These transfers are processed on the 10th, 15th and 20th of each
month (or on the next business day if the designated day falls on a holiday or a
weekend). To participate in the AIP, investors should complete the appropriate
portion of the Account Application. An AIP may be terminated by the Transfer
Agent or the Funds upon 30 days written notice, or by the participant at any
time without penalty upon written notice to the Funds or the Transfer Agent.
Systematic Withdrawal Plan
See "How to Redeem Shares," below.
Sales Charges
Investments in each Fund are subject to initial sales charges or to contingent
deferred sales charges ("CDSCs"), depending upon the class of shares. ONLY CLASS
A SHARES ARE CURRENTLY OFFERED TO THE PUBLIC. If a shareholder is eligible for
reduced or waived sales charges, as described below, the shareholder or his or
her dealer must communicate the circumstances to the Transfer Agent so that a
reduction or waiver may be applied.
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<PAGE>
Class A Shares
The following table states the total front-end sales charges and dealer
concessions applicable to certain Class A share purchases. Dealer concessions
represent the amount of any sales charges reallowed by the Distributor to
authorized dealers selling Class A shares. ONLY CLASS A SHARES ARE CURRENTLY
OFFERED TO THE GENERAL PUBLIC.
<TABLE>
<CAPTION>
Amount of Sales
---------------
Amount of Purchases at Sales Charge Charge Reallowed to
---------------------- ------------ -------------------
Public Offering Price As a Percentage of Dealers as a % of
--------------------- ------------------ -----------------
Offering Price
--------------
Offering Net
-------- ---
Price Investment
----- ----------
<S> <C> <C> <C>
Less than $100,000 4.95% 5.21% 4.25%
$100,000 to less than $250,000 3.95% 4.11% 3.25%
$250,000 to less than $500,000 3.00% 3.09% 2.50%
$500,000 to less than $1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more** 0.00% 0.00% 0.00%
</TABLE>
** Commissions will be paid to authorized dealers who initiate and are
responsible for purchases of Class A shares of $1 million or more as follows:
1% on sales to $2 million, plus 0.80% on the next $1 million, plus 0.20% on the
next $2 million and 0.08% on the excess over $5 million. Quantity purchases of
Class A shares of $1 million or more may be subject to a CDSC. See "How to
Redeem Shares CDSCs," below.
Aggregating shares to determine "Amount of Purchase"
The following purchases of Class A shares may be aggregated for the purposes of
determining the "Amount of Purchase". It is the shareholder's or his or her
dealer's responsibility to communicate the circumstances so that the transfer
agent can properly identify account records:
a) Individual purchases on behalf of a single purchaser, the purchaser's
spouse or their minor children. This includes shares purchased in
connection with an employee benefit plan(s) exclusively for the benefit of
such individual(s), such as an IRA, individual Section 403(b) plan or
single participant Keogh-type plan. This also includes purchases made by a
company controlled by such individual(s).
b) Individual purchases by a trustee or other fiduciary purchasing shares for
a single trust, estate or fiduciary account, including an employee benefit
plan (such as employer-sponsored pension, profit-sharing, and stock bonus
plans, including Section 401(k) plans, and medical, life and disability
insurance trusts) other than a plan described in (a) above.
c) Individual purchases by a trustee or other fiduciary purchasing shares
concurrently for two or more employee benefit plans of a single employer or
of employers affiliated with each other (again excluding an employee
benefit plan described in (a) above).
Or
d) Purchases made concurrently by certain fiduciary entities (such as
investment advisers, bank trust departments and bank custodians) for the
account of clients.
In addition to the reallowances from the applicable public offering price
described in this Prospectus, the Distributor may, from time to time, pay or
allow additional reallowances or promotional incentives, in the form of cash or
other compensation, to authorized dealers that sell shares of the Funds.
Authorized dealers which are reallowed substantially all of the sales charges
may be deemed to be underwriters for the purposes of the Securities Act of 1933.
The Distributor may also pay any Service Organization a transaction fee up to
the level of the reallowance permitted to authorized dealers as described in
this Prospectus.
32
<PAGE>
Waivers of Front-end Sales Charges on Class A shares
The Funds sell Class A shares at net asset value without imposition of sales
charges to the following classes of investors. It is a shareholder's or his or
her dealer's responsibility to communicate the circumstances to the Transfer
Agent so that the account records can be properly identified:
. Current or retired trustees, directors or employees of funds advised by AIB
Govett or any of its affiliated companies, or of any subadviser to any such
fund (including their families and beneficial accounts).
. Current or retired directors, trustees, officers, and employees of AIB
Govett and its affiliated companies, the Transfer Agent, and the
Distributor.
. Shareholders who purchased shares of any of the Funds at NAV as a result of
their affiliation with the prior distributor or Transfer Agent, or any of
their affiliated companies, and who have maintained their investment in
such shares.
. Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor, and
their spouses and minor children purchasing for any accounts they
beneficially own, or in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.
. Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients. The
Distributor may pay Service Organizations through which purchases are made
an amount up to 0.50% of the amount invested over a 12-month period
following such transaction.
. Trustees and other fiduciaries purchasing shares for retirement plans. The
Distributor may pay commissions of up to 1% for such purchases.
. Accounts as to which a bank or broker-dealer charges a management or
administrative fee ("wrap accounts"), provided that the bank or broker-
dealer has a separate agreement with the Distributor, sponsored
arrangements and so-called "mutual fund supermarkets" among other programs.
The Funds reserve the right to make variations in, or eliminate sales
charges at any time, or to revise the terms of or to suspend or discontinue
sales pursuant to sponsored arrangements or similar programs at any
time.
. Investors purchasing shares of a Fund with the redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption occurred no more than 30 days prior to the
purchase of Fund shares.
. Investment accounts managed by AIB Govett or its affiliated companies. AIB
Govett and its affiliates will waive fees on any such account to ensure
that clients do not pay duplicate fees.
. Purchases made by or on behalf of participants in employee benefit,
retirement or pension plans with North American Trust Company or persons
who have purchased annuity contracts with London Pacific Life & Annuity
Company (each a former affiliate of AIB Govett).
The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.
Reduced Sales Charges on Class A Shares
Investors who agree to purchase a certain dollar amount of Fund shares, or who
already have purchased certain dollar amounts of Fund shares, may qualify for
reduced sales charge rates. These programs allow an investor to receive a
reduced offering price based on the assets held or pledged by the investor. The
term "investor" refers to (1) an individual, (2) an individual and spouse
purchasing shares of a Fund for their own account or for the trust or custodial
accounts of their minor children, or (3) a fiduciary purchasing for any one
trust, estate or fiduciary account, including employee benefit plans of a single
employer.
33
<PAGE>
LETTER OF INTENT ("LOI"). An investor may execute a Letter of Intent (which is
part of the Account Application provided in this Prospectus) which indicates an
aggregate investment amount he or she intends to invest in the Class A shares of
a Fund in the following thirteen (13) months. The sales charge applicable to
that aggregate amount then becomes the applicable sales charge on all Class A
shares purchased concurrently with the execution of the LOI and in the thirteen
(13) months following that execution. If an investor signs an LOI within 90 days
of a prior Class A purchase, that purchase may be included under the LOI, and an
appropriate adjustment, if any, with respect to the sales charges paid for the
prior purchase will be made, based on the then-current NAV(s) of the relevant
Funds. Registered investment advisers, trust companies, and bank trust
departments may be eligible to receive commissions on certain LOI purchases. The
investor will be required to pay the difference between the reduced sales
charges and the sales charges applicable to the purchases actually made if the
total amount does not equal the total amount of Class A shares covered by the
LOI at the end of the thirteen (13) month period. During the thirteen (13) month
period, the Transfer Agent will hold in escrow Class A shares having a value
equal to 5% of the amount specified in the LOI. These shares remain in the
investor's name but are subject to redemption by the Transfer Agent to assure
any necessary payment of a higher applicable sales charge. Any dividends accrued
on the escrowed shares will accrue to the shareholder's account.
RIGHT OF ACCUMULATION. Investors are permitted to purchase Class A shares at the
sales charge applicable to the total of (a) the dollar amount then being
purchased plus (b) the dollar amount of the investor's concurrent purchases of
Class A shares of the other Funds plus (c) the current value of all Class A
shares of any Fund already held by the investor. To qualify for the Right of
Accumulation privilege, investors must, at the time of purchase, give their
authorized dealer, the Shareholder Services Agent or the Distributor sufficient
information to permit confirmation that they qualify.
CLASS B SHARES (CURRENTLY, CLASS B SHARES ARE NOT AVAILABLE TO THE GENERAL
PUBLIC.)
CDSCs
Investors may pay a CDSC on redemptions of Class B shares within 6 years of
purchase. The CDSC is charged as a percentage of the dollar amount subject to
the charge, and is based on an amount equal to the current market value or the
cost of the Class B shares being redeemed, whichever is less. Thus, no CDSC is
imposed on increases in net asset value above the initial purchase price. No
CDSC is charged on shares purchased through reinvestment of dividends or capital
gains distributions on Class B shares, or on certain redemptions under a
Systematic Withdrawal Plan, as described below. The calculation is determined in
the manner that results in the lowest possible rate being charged. For purposes
of determining the number of years from the time of any payment for the purchase
of the shares, all payments during a month are aggregated and deemed to have
been made on the last day of that month.
The schedule of CDSCs for Class B shares is:
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF DOLLAR
------------------------------
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
- ------------------- ------------------------
<S> <C>
First.................... 4%
Second................... 4%
Third.................... 3%
Fourth................... 3%
Fifth.................... 2%
Sixth.................... 1%
Seventh and Eighth....... 0%
</TABLE>
A commission or transaction fee equal to 4% of the purchase amount will be paid
to authorized dealers and other Service Organizations at the time of purchase.
Additionally, promotional incentives may be offered, in the form of cash or
other compensation, to Service Organizations selling Class B shares.
Waiver of CDSCs
CDSCs are waived under the following circumstances. See also the section on
"Reinstatement Privilege", below.
34
<PAGE>
CONDITION FOR WAIVER APPLIES TO:
-------------------- ----------
. Death or disability of the Class A and Class B
shareholder (as defined in Section
72(m)(7) of the IRS Code
. Minimum required distribution Class A and Class B
from certain IRA or retirement
plan distributions
. Pursuant to Reinstatement See "Reinstatement Privilege"
Privilege, which may be EXERCISED section, below. Amount reinvested
ONLY ONCE for each Fund will be subject to the same CDSC
investment. Class B reinstatement to which that amount was subject
proceeds can only be reinvested in prior to the redemption, and the
Class A shares. 12-month CDSC period will continue
to run from the original
reinvestment date, extended by
the number of days between the
redemption and reinvestment dates.
. Redemptions made pursuant to Class A and Class B
the Funds' systematic withdrawal
plan, but limited to 10% and 12%
of the initial value of the account
(annually) for Class A and B,
respectively
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who redeemed Class A
or Class B shares of a Fund may reinstate any portion or all of the net proceeds
of such redemption in CLASS A shares of any other Fund. CLASS B REDEMPTION
PROCEEDS CANNOT BE REINSTATED IN CLASS B SHARES.
Any such reinstatements will be made at the NAV (without sales charge except as
described under "How to Make Exchanges") next determined after the reinstatement
request is received, which must be within 120 days after the date of the initial
redemption. The redemption is a taxable event, but some or all of the loss on
redemption may be disallowed under certain "wash sale" rules for federal income
tax purposes. See "Dividends, Distributions and Federal Income Taxation U.S.
Federal Taxation of Shareholders," below. It is the investor's responsibility or
the responsibility of his broker to notify the Transfer Agent of the investor's
intent to exercise the reinstatement privilege. Reinstatement at NAV is also
offered to participants and eligible retirement plans held or administered by
Semper Trust Company for repayment of principal (and interest) on their
borrowings on such plans. The Funds may modify or terminate the reinstatement
privilege at any time upon notice to shareholders.
HOW TO MAKE EXCHANGES
Generally, shareholders may exchange shares of one class of any Fund for shares
of the same class of any other Fund, based upon their respective NAVs, without
imposition of any sales charges provided that the account holder remains the
same. Certain authorized dealers may be charged a fee for handling exchanges. If
investors do not surrender all of their shares in an exchange, the remaining
balance in the account after the exchange must be at least $500, or the Fund may
automatically redeem the account in full as described in "How to Redeem Shares,"
below. The Funds may suspend, terminate or amend the terms of the exchange
privilege upon 60 days' written notice to shareholders.
MONEY MARKET FUND. Shares of the Zurich Kemper Cash Account Trust Money Market
Portfolio (the "Money Market Fund") may be exchanged for shares of any Fund. The
sales charge will be imposed if the shareholder's initial investment in the
Govett Funds, Inc. is a purchase of Money Market Fund shares. The Money Market
Fund is not a series of the Funds, but is available as an exchange vehicle for
Fund shareholders. Shares of one Fund class exchanged into the Money Market Fund
may not be exchanged upon redemption of shares of the Money Market
35
<PAGE>
Fund for shares of another class, and the account registration and type of
account must remain the same (that is, retirement or non-retirement account).
Thus, Class B shares of a Govett Fund exchanged into the Money Market Fund will
be exchanged for Class B shares of the designated Govett Fund registered
identically for the same type of account. Checkwriting privileges are not
available for Fund investors who hold shares of the Money Market Fund. The
exchange privilege pertaining to the Money Market Fund does not constitute an
offering or recommendation of the shares of that fund by Govett Funds or AIB
Govett. Investors should obtain and read the current prospectus for any fund
into which they want to invest and carefully consider that fund's investment
objectives.
CLASS A SHARES SUBJECT TO A CDSC AND CLASS B MAY BE EXCHANGED INTO THE MONEY
MARKET FUND. HOWEVER, THESE SHARES DO NOT "AGE" WHILE INVESTED IN THE MONEY
MARKET FUND. Investors interested in making an exchange for shares of the Money
Market Fund should write or call their authorized dealer or the Distributor to
request the current Money Market Fund prospectus.
Exchanges by Telephone. Exchange orders effected by telephone should be
communicated to the Transfer Agent at the telephone number shown in Appendix
A.
Automatic Exchange Plan. Investors may exchange Fund shares through the
Automatic Exchange Plan. Both accounts must be of the same type and class. To
participate in this plan, investors should complete the appropriate portion of
the Account Application, and should contact the Transfer Agent for more
information. There is a $100 minimum for an existing account and $5,000 minimum
for establishing a new account (for First Stage Shareholders, the minimums
remain $100 for a new account and $25 of an existing account). These
transactions are effected on the 25th of each month. If the 25th falls on a
weekend or a holiday, the transaction will be effected on the next business
day.
Exchanges by Mail. Exchange orders effected by mail should be sent to the
investor's authorized dealer or the Transfer Agent at the address set forth in
Appendix A.
Frequent Exchanges. As a general principle, purchases, redemptions and exchanges
of Fund shares should be made for investment purposes only. A pattern of
frequent exchanges, purchases and sales may be deemed abusive by AIB Govett and
at its discretion can be limited by a Fund's refusal to accept purchase and/or
exchange orders from the investor. Although AIB Govett will consider all factors
it deems relevant in determining whether a pattern of frequent purchases,
redemptions, and/or exchanges by a particular investor is abusive and not in the
best interests of a Fund or its shareholders, as a general policy, a pattern of
more than one purchase-sale transaction during any 30-day period with respect to
any particular Fund may be deemed abusive.
Exchanges of Class B Shares. For purposes of computing the CDSC that would be
payable if the new shares were redeemed, the CDSC is based on the holding period
requirements of the original Fund, and the holding period for the original
shares is added to the holding period of the new shares.
HOW TO REDEEM SHARES
General Information
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the NAV next computed after your properly completed and
authorized redemption request is received, less any applicable sales charges.
Shareholders with accounts at authorized dealers may redeem shares through the
dealer or directly through the Transfer Agent. IF THE SHARES ARE HELD IN THE
DEALER'S "STREET NAME," THE REDEMPTION MUST BE MADE THROUGH THE DEALER. Please
refer also to the "Reinstatement Privilege" section above.
Once your shares are redeemed, the proceeds will normally be sent to you the
next business day if all redemption instructions described below are followed
and all documentation is received by the Transfer Agent. If making immediate
payment could affect a Fund adversely, it may take up to seven (7) days (or such
shorter period as may be required by law or regulation) to pay you.
Shareholders requesting redemptions via bank wire should allow two (2) business
days from the time the redemption request is accepted by the Transfer Agent for
the proceeds to be deposited in the bank. A $9.00 processing fee will be
deducted from the proceeds of redemptions wired from the Funds.
36
<PAGE>
The Funds may withhold redeeming a shareholder's account until they are
reasonably satisfied that investments initially made by check have been
collected (which may take up to 15 days from the date the Transfer Agent
received the check). When the New York Stock Exchange is closed (or when trading
is restricted) for any reason other than its customary weekend or holiday
closings, or under any emergency circumstances as determined by the SEC to merit
such action, redemptions may be suspended or payment dates postponed. Under
limited circumstances described in the Statement of Additional Information,
redemptions may also be paid in securities or other assets of the redeeming
Fund.
Each Fund may automatically redeem the shares of any shareholder who does not
maintain at least $500 in the account. Automatic redemption will not occur if
the account's value falls below $500 due to fluctuations in the value of the
Fund's portfolio holding. The proceeds from such a redemption will be mailed to
the shareholder's address of record. A shareholder will receive at least 30
days' prior written notice that their account will be closed unless they make an
additional investment to bring their account to the minimum. Any applicable CDSC
will be deducted from the proceeds of this redemption.
Redemption requests may be transmitted to the Transfer Agent by telephone or by
mail, as described in Appendix A. Supporting documentation may be required from
corporations, executors, administrators, trustees, guardians and other
fiduciaries. Fiduciaries should contact the Transfer Agent for further
information. Redemption requests received after 4:00 p.m. Eastern Time will be
honored at the NAV (less any applicable CDSC) calculated on the next business
day (i.e., the next day the New York Stock Exchange is open).
An original SIGNATURE GUARANTEE by a bank or trust company, broker-dealer,
credit union, national securities exchange, registered securities association,
clearing agency, savings and loan association or federal savings bank is
required under the following circumstances:
. The shareholder wishes to redeem $50,000 or more.
. The proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account.
. The proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, predesignated bank, savings and loan,
credit union, or brokerage firm account.
. The Transfer Agent believes that a signature guarantee would protect
against potential claims based on the transfer instructions, including, for
example, when (a) the current address of one or more joint owners of an
account cannot be confirmed; (b) multiple owners have a dispute or give
conflicting instructions to the Fund; (c) the Fund has been notified of an
adverse claim; (d) the instructions received by the Fund are given by an
agent, not the registered owner; (e) the Fund determines that joint owners
who are married to each other are separated or involved in divorce
proceedings, or (f) the authority of a representative of a corporation,
partnership, association or other entity has not been established to the
Fund's satisfaction.
. The proceeds are to be sent to the shareholder's address of record and that
address has changed within the preceding 30 days.
Or
. The shareholder requests that the proceeds be sent directly to a bank,
savings and loan, credit union, or brokerage firm account that has not been
predesignated in the "Bank Wiring Information" section of the Account
Application.
The Transfer Agent will accept signature guarantees from all eligible firms, as
defined by Rule 17Ad-15 under the Securities Act of 1934. The Fund reserves the
right to waive signature guarantees and to request additional information under
certain circumstances.
When shares to be redeemed are represented by a SHARE CERTIFICATE, the
certificate must accompany the redemption request, together with a share
assignment form signed by the registered shareholders EXACTLY as the account is
registered, with signature guarantees as described above. For their own
protection, shareholders should send the
37
<PAGE>
share certificate and assignment form in separate envelopes.
Redemptions Through Authorized Dealers
Shareholders with accounts at authorized dealers may submit redemption requests
to the dealers. Orders received from securities dealers must be at least $500,
unless submitted through Fund/SERV. The Transfer Agent accepts redemption
requests by telephone on any business day from 9:00 a.m. to 5:00 p.m. Eastern
Time, from dealers which have a dealer agreement with the Distributor or from
other qualified brokers, provided that the dealer has received the request prior
to 4:00 p.m. Eastern Time. This is known as a repurchase. However, EVEN AFTER
RECEIPT OF A REPURCHASE ORDER FROM A DEALER, THE FUNDS STILL REQUIRE A SIGNED
LETTER FROM THE SHAREHOLDER CONTAINING REDEMPTION INSTRUCTIONS AND ALL OTHER
DOCUMENTS REQUIRED FOR DIRECT REDEMPTION REQUESTS, AS STATED ABOVE. The
shareholder's letter should refer to the Fund involved, the account from which
the redemption is to be made, the fact that the repurchase was ordered through a
dealer, and the dealer's name. Details of the dealer-ordered trade, such as the
trade date, confirmation number, and the amount of shares or dollars, will speed
processing. The seven-day period within which the proceeds of the shareholder's
redemption will be sent will begin when the Transfer Agent receives all
documents required to complete (or "settle") the repurchase in proper form. The
redemption proceeds will not earn dividends or interest during the time between
receipt of by the Transfer Agent of the dealer's repurchase order and the date
the redemption is processed after all necessary documents have been received. It
is therefore in the shareholder's best interest to have all required
documentation completed and forwarded to the Transfer Agent as soon as possible.
The shareholder's dealer may charge a fee for handling the order.
Systematic Withdrawal Plan
A Systematic Withdrawal Plan is available to shareholders whose accounts total
$50,000 or more (for First Stage Shareholders the minimum account balance is
$5,000). Under the Systematic Withdrawal Plan, the Transfer Agent will make
specified monthly, quarterly, semi-annual or annual payments to a designated
party of any amount selected (minimum of $100) (for First Stage Shareholders the
minimum is $25). The withdrawal will occur on the 25th of each month, or on
the first business day following the 25th if the 25th is not a normal
business day on the New York Stock Exchange. Changes concerning the Systematic
Withdrawal Plan must be received by the Transfer Agent at least two weeks prior
to the next scheduled withdrawal. No CDSC is assessed on withdrawals under this
Plan up to an annual total of 10% of the value of the shareholder's account. The
Funds reserve the right to change the terms and conditions of the Systematic
Withdrawal Plan and the ability to offer it. For further information about the
Systematic Withdrawal Plan, its requirements and its tax consequences, call the
Transfer Agent at 800-821-0803.
Class B shareholders who establish a Systematic Withdrawal Plan may redeem up to
12% annually of the shareholder's amount invested without incurring a CDSC.
"Amount invested" for these purposes means the amount of the shareholder's
investment in the Class B shares on the date the plan for that class is
established.
There is no front-end sales charge on Class A shares when $1 million or more is
invested. However, a CDSC of 1% will be imposed, subject to the exceptions
described in the section "Waiver of CDSCs" on page _______ of this prospectus,
on certain redemptions made within the first 12 months following the investment.
All CDSCs incurred upon redemption of a fund's shares are paid to the
Distributor in reimbursement for distribution-related expenses.
TELEPHONE TRANSACTIONS
Unless the Telephone Privilege is waived by the shareholder (by completing the
appropriate section of the Account Application), he or she may effect exchange,
redemption and certain types of account maintenance transactions by telephone.
The Telephone Privilege authorizes the Funds, the Transfer Agent and the
Distributor to act on instructions by telephone to exchange, redeem and
generally to maintain the account for which the Telephone Privilege applies. A
shareholder may give exchange instructions to the Transfer Agent by calling 800-
821-0803.
Shareholders who have retirement accounts with the Funds or hold certificated
shares may not redeem by telephone. The Telephone Privilege permits redemptions
of up to $50,000 per day if the proceeds are to be paid by check. Amounts of at
least $1,000 up to $1 million may be redeemed daily by bank wire. The proceeds
must be payable to the shareholder(s) of record and sent to the address of
record for the account or wired directly to their predesignated bank account.
This privilege is not available if the address of record has been changed within
the thirty days prior to
38
<PAGE>
a telephone redemption request. Proceeds from redemptions are expected to be
wired on the next business day following the date of the redemption. The Funds
reserve the right to terminate, limit or otherwise modify the Telephone
Privilege at any time.
In an effort to confirm that telephone requests are genuine, reasonable
procedures are employed, which currently include recording all telephone
instructions and mailing a confirming account statement to the record address.
If reasonable procedures are followed, neither the Funds, the Distributor, nor
the Transfer Agent will be liable for following telephone instructions it
reasonably believes to be genuine. Any of the Funds, the Distributor, and the
Transfer Agent may be liable for losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges and
redemptions will be accepted from authorized dealers on behalf of a shareholder
by telephone, provided that the exchange or redemption involves only
uncertificated shares on deposit in the shareholder's account or shares for
which certificates have previously been deposited.
Investors should be aware that they may have difficulties effecting telephone
transactions during unusual market conditions.
DIVIDENDS, CAPITAL GAINS AND TAXES
Dividends and Capital Gains
All of the Funds except the Global Income Fund will distribute at least annually
substantially all of their net investment income and net realized capital gains.
Distributions from net investment income, if any, are expected to be small.
Global Income Fund seeks to declare dividends daily and to pay dividends monthly
from net investment income, if any. Such distributions may include all or a
portion of the Fund's net realized short-term gains. At least annually,
distributions of any net realized long-term gains and any remaining short-term
gains will be declared.
With respect to all Funds, distributions from capital gains are made after
applying any available loss carryovers and other adjustments permitted under the
Code. Each Fund may make additional dividend or capital gain distributions as
required to comply with certain distribution requirements under the Code.
Dividends and Capital Gains Payment Options
Shareholders may choose one of four options:
. Reinvest all income dividends and capital gains distributions in additional
Fund shares.
. Receive income dividends in cash and accept capital gains distributions in
additional Fund shares.
. Receive capital gains distributions in cash and accept income dividends in
additional Fund shares.
. Receive income dividends and capital gains distributions in cash.
Unless you designate otherwise in your account application, all income dividends
and capital gains distributions for which reinvestment has been elected will be
reinvested in shares of the Fund that paid the dividend or distribution.
You can change your distribution option by notifying the Transfer Agent in
writing prior to the distribution record date. If you do not select an option,
all dividends and distributions will be automatically reinvested. Automatic
reinvestments in additional shares are made without a sales charge as of the ex-
dividend date using the net asset value determined on the payment date.
United States Federal Taxation of the Funds
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Code for federal income tax purposes and to meet all other
requirements that are necessary for it (but not its shareholders) to be exempt
from federal taxes on income and gains paid to shareholders in the form of
dividends. In order to accomplish this goal, each Fund must, among other things,
distribute substantially all of its ordinary income and net capital gains on a
current basis and maintain a portfolio of investments which satisfies certain
diversification
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criteria.
United States Federal Taxation of Shareholders
For federal income tax purposes, any income dividends which the shareholder
receives from a Fund, as well as any distributions derived from the excess of
net short-term capital gains over net long-term capital losses, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares. Distributions derived from the excess of net long-term
capital gains over net short-term capital losses are treated as long-term
capital gains regardless of the length of time the shareholder has owned the
shares of a Fund and regardless of whether the shareholder receives such
distributions in cash or in additional shares.
Certain distributions which are declared in October, November, or December but
which, for operational reasons, may not be paid to the shareholder until the
following January, may be treated for federal tax purposes as if received by the
shareholder on December 31 of the calendar year in which the distributions are
declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. All or a portion of a loss realized upon
a redemption of shares will be disallowed to the extent other shares of a Fund
are purchased (through reinvestment of dividends or otherwise) within 30 days
before or after such redemption. If a shareholder receives a long-term capital
gain distribution on shares of a Fund and such shares are held for less than six
months and are sold at a loss, the portion of the loss equal to the amount of
the long-term capital gain distribution will be considered a long-term capital
loss for tax purposes.
All or a portion of the sales charge incurred in purchasing shares of a Fund
will not be included in the federal tax basis of any such shares sold within 90
days of their purchase (for the purpose of determining gain or loss upon the
sale of such shares) if the sales proceeds are reinvested in the Fund and a
sales charge that would otherwise apply to the reinvestment is reduced or
eliminated because the sales proceeds were reinvested in the Fund. The portion
of the sales charge so excluded from the tax basis of the shares sold will equal
the amount by which the sales charge that would otherwise be applicable upon the
reinvestment is reduced. Of course, any portion of such sales charge excluded
from the tax basis of the shares sold will be added to the tax basis of the
shares acquired in the reinvestment.
Each Fund will inform shareholders of the source of dividends and distributions
paid by the Fund at the time they are paid, and will promptly after the close of
each calendar year advise shareholders of the tax status for federal income tax
purposes of such dividends and distributions. Income received by the Funds may
give rise to withholding and other taxes imposed by foreign countries. If more
than 50% of the value of a Fund's assets at the close of a taxable year consists
of securities of foreign corporations, the Fund may make an election that will
permit shareholders to take a credit (or, if more advantageous, a deduction) for
foreign income taxes paid by the Fund, subject to limitations contained in the
Code. Shareholders would then include in gross income dividends paid to them by
the Fund as well as the foreign taxes paid by the Fund on their foreign
investments. The Funds cannot assure shareholders that they will be eligible for
the foreign tax credit. The Funds will advise shareholders annually of their
share of any creditable foreign taxes paid by the Funds.
Each Fund will be required to report to the Internal Revenue Service ("IRS") any
taxable dividend or other reportable payment (including share redemption
proceeds). Each Fund will also be required to withhold 31% of any such payments
made to individuals and other non-exempt shareholders who have not provided a
correct taxpayer identification number and made certain required certifications
that appear in the Account Application provided with this Prospectus. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Funds that the taxpayer identification number furnished by
the shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
It is recommended that shareholders consult their own tax advisers with respect
to the foregoing and the applicability of state and local income taxes to
distributions and redemption proceeds received from a Fund. Shareholders who are
not United States persons for purposes of federal income taxation should consult
with their financial or tax advisers regarding the applicability of United
States withholding taxes to distributions received by them from a Fund. More
detailed information regarding taxation of shareholders and taxation of the
Funds can be found in the Statement of Additional Information.
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The foregoing discussion has been prepared by the management of the Company and
does not purport to be a complete description of all tax implications of an
investment in the Funds. Shareholders are advised to consult with their own tax
advisers concerning the application of foreign, federal, state and local taxes
to an investment in the Funds.
OTHER INFORMATION
Confirmations and Reports to Shareholders
Currently, each time a transaction is made that affects a shareholder's account-
such as an additional investment, redemption, exchange or payment of a dividend
or distribution--the Transfer Agent will send a confirmation reflecting the
transaction. Quarterly account statements will be sent for all Funds. In
addition, monthly statements will be provided for Global Income Fund.
After the end of the Funds' fiscal year on December 31 and half-year on June 30,
shareholders will receive an annual and semi-annual report, respectively. These
reports list securities held by each Fund and include financial statements for
each Fund.
The federal income tax status of Fund distributions to shareholders is reported
to each shareholder shortly after the end of each calendar on Form 1099-DIV.
Organization
The Govett Funds, Inc. is a Maryland corporation formed in 1990. It currently is
registered with the SEC as an open-end management company. Each Fund corresponds
to a distinct investment portfolio and a distinct series of shares. From time to
time the Board of Directors may, in its discretion, establish additional funds
and issue additional classes of shares. Shares of the Funds are entitled to one
vote per share (with proportional voting for fractional shares) and are freely
transferable subject to applicable federal and state securities laws.
Shareholders have no preemptive or conversion rights.
Each Fund has designated two retail classes of shares: Class A and Class B
shares. AS OF THE DATE OF THIS PROSPECTUS, ONLY CLASS A SHARES ARE AVAILABLE TO
THE GENERAL PUBLIC. Each Fund has also designated an Institutional Class, which
is described in a separate prospectus, and is available for purchase only by
certain investors. Each class represents interest in the assets of each Fund
and has identical voting, dividend, liquidation and other rights on the same
terms and conditions, except that expenses related to distributing each class
are borne solely by that class, and each class has exclusive voting rights
regarding provisions of distribution plan which pertains to that class.
The Company normally will not hold meetings of shareholders except as required
under the 1940 Act and Maryland law. On any matter submitted to a vote of
shareholders, shares are voted by a Fund when the matter affects the specific
interest of that Fund only, such as approval of a Fund's investment management
arrangements. On other matters, the shares of all of the Funds will be voted in
the aggregate on other matters, such as election of the Board of Directors or
ratification of the Board's selection of independent auditors.
A Director may be removed upon a majority vote of the shareholders qualified to
vote in the election. Shareholders holding 10% of the outstanding shares may
call a shareholder meeting. The Bylaws require that the Company assist
shareholders in calling such a meeting.
Pursuant to the Company's Articles of Incorporation, each Fund may issue up to
250 million shares. Each share represents an interest in that Fund only, has a
par value of one-thousandth of one cent per share, represents an equal
proportionate interest in the Fund with other shares of that Fund, and is
entitled to such dividends and distributions out of the income earned and gains
realized on that Fund's assets as may be declared by the Board of Directors.
Performance Information
Each Fund may from time to time include information on its investment results
and/or comparisons of its investment results to various managed or unmanaged
indices or averages or results of other mutual
41
<PAGE>
funds or groups of mutual funds in advertisements, sales literature or reports
furnished to present or prospective shareholders.
In such materials, a Fund may quote its average annual total return
("Standardized Return"). Standardized Return represents the percentage rate
reflecting the average annual change in the value of an assumed investment in
the Fund at the end of a one-year period and at the end of five- and ten-year
periods, reduced by the maximum applicable front-end sales charge imposed on
sales of Fund shares (Class A shares only). Performance information with respect
to a Fund will also reflect that any applicable CDSC has been paid. If a one-,
five- and/or ten-year period has not yet elapsed, data will be provided as of
the end of a shorter period corresponding to the life of the Fund. The
Standardized Return computation assumes the reinvestment of all dividends and
capital gain distributions at net asset value.
In addition, a Fund may also include in advertisements, sales literature and
shareholder reports other than total return performance data ("Non-Standardized
Return"). Non-Standardized Return reflects the percentage rates of return
encompassing all elements of return (i.e., income and capital appreciation or
depreciation) and will assume reinvestment of all dividends and capital gain
distributions. Non-Standardized Return may be quoted for the same or different
periods as those for which Standardized Return is quoted. It may consist of an
aggregate or average annual percentage rate of return, actual year-by-year rates
or any combination thereof. It may or may not take sales charges into account. A
Fund's performance calculated without taking the effect of sales charges into
account will be better than such performance including the effect of such
charges.
Global Income Fund may also refer in advertising and promotional materials to
its yield. A Fund's yield shows the rate of income that it earns on its
investments, expressed as a percentage of the public offering price of its
shares. The Fund calculates yield by determining the investment income it earned
from its portfolio investments for a specified thirty-day period (net of
expenses), dividing such income by the average number of shares outstanding, and
expressing the result as an annualized percentage based on the public offering
price of its shares at the end of that thirty-day period. Yield accounting
methods differ from the methods used for other accounting purposes; accordingly,
a Fund's yield may not equal the dividend income actually paid to investors or
the income reported in its financial statements.
Yield and total return are calculated separately for Class A and Class B shares
of each Fund. Class A total return figures include the maximum front-end sales
charge of 4.95%; Class B total return figures include any applicable CDSC.
Because of the differences in sales charges and distribution charges, the total
returns for each of the classes of the same Fund will differ.
Each Fund's performance data reflects past performance and is not necessarily
indicative of future results. A Fund's investment results will vary from time to
time depending upon market conditions, the composition of its portfolio and its
operating expenses. These factors and possible differences in calculation
methods should be considered when comparing a Fund's investment results with
those published for other mutual funds, other investment vehicles and unmanaged
indices. A Fund's results also should be considered relative to the risks
associated with its investment objectives and policies. See "Performance" in the
Statement of Additional Information.
The Company's Annual Report for the fiscal year ended December 31, 1996 and
Semi-Annual Report for the period ended June 30, 1997 contain additional
performance information on the International Equity Fund, Emerging Markets
Equity Fund, Smaller Companies Fund, Asia Fund, Latin America Fund, and Global
Income Fund. These Reports are available without charge upon request by calling
the Transfer Agent. See Appendix A.
Effect of Banking Laws
The Glass-Steagall Act and other banking laws and regulations (the "Banking
Laws") presently prohibit member banks of the Federal Reserve System or their
non-bank affiliates (the "Member Banks") from sponsoring, organizing,
controlling or distributing shares of registered open-end investment companies,
such as the Funds. Under the Banking Laws, however, a Member Bank may act as an
investment adviser, transfer agent, administrator or custodian to a registered
open-end investment company, and it also may act as agent in connection with the
purchase of shares of such an investment company upon certain customer orders.
Each of AIB Govett and the Subadvisers is an affiliate of First National Bank of
Maryland, whose parent company, First Maryland Bankcorp, is a wholly-owned
subsidiary of AIB, and, thus, is subject to compliance with the Banking
Laws.
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<PAGE>
Changes to the Banking Laws or future judicial or administrative decisions could
result in any of AIB Govett and the Subadvisers being prevented from continuing
to perform services required under its investment advisory agreement with the
Company, subadvisory agreement with AIB Govett, or the Sub-Administration
Agreement with the Distributor, as the case may be. If any of AIB Govett and the
Subadvisers were prevented from continuing to provide services called for under
any of those agreements, it is expected that the Board of Directors would
identify, and ask the Funds' shareholders to approve, a new investment adviser
or subadviser. If this were to occur, the Board of Directors would seek to take
action so that no shareholder of any Fund would suffer any adverse consequences.
43
<PAGE>
APPENDIX A
ADVISER AND SHAREHOLDER SERVICES REFERENCE GUIDE
Shareholders are encouraged to place purchase, exchange and redemption orders
through their securities dealers. Shareholders may place orders directly through
the Funds' Transfer Agent. Mail transactions sent by overnight private mail
service should always be sent to the address shown in "Transactions by Mail."
Failure to follow this instruction is likely to result in a delay in effecting
your transaction.
ADVISER SERVICES. Financial advisers may call 800-634-6838 to reach the Broker
Service Desk. For additional information about the Funds, Advisers are invited
to call 888-546-8388.
TRANSACTIONS BY MAIL. For NEW ACCOUNTS, send the completed Account Application
with a check to:
via U.S. Postal Service via overnight delivery service
GOVETT FUNDS, INC. GOVETT FUNDS, INC.
C/O FPS SERVICES, INC. C/O FPS SERVICES, INC.
P. O. BOX 61503 3200 HORIZON DRIVE
KING OF PRUSSIA, PA 19406-0903 KING OF PRUSSIA, PA 19406-0903
For SUBSEQUENT INVESTMENTS, send a letter stating the Fund's name, the name(s)
of the shareholder(s) in whose name(s) the account is registered, and the
account number, together with a check for each subsequent investment, to:
via U.S. Postal Service via overnight delivery service
GOVETT FUNDS, INC. GOVETT FUNDS, INC.
C/O FPS SERVICES, INC. C/O FPS SERVICES, INC.
P. O. BOX 412797 3200 HORIZON DRIVE
KANSAS CITY, MO 64141-2797 KING OF PRUSSIA, PA 19406-0903
INVESTMENTS BY BANK WIRE. An investor opening a new account should call 800-
821-0803. Within seven days of purchase, the investor must send a completed
Account Application containing the investor's taxpayer identification number to
the Funds at the address stated under "Investments by Mail." Wire instructions
must state the Fund's name, the name(s) of the shareholder(s) in whose name(s)
the account is registered, and the account number. Bank wires should be sent
through the Federal Reserve Wire System to:
United Missouri Bank KC, N.A.
ABA #10-10-00695
For FPS Services, Inc.
Bank Account #9870370719
FBO Govett ________________ Fund
Shareholder Name and Account Number
EXCHANGES BY MAIL. Send complete instructions, including the name of the Funds
which shares are to be exchanged in and out of, the amount of the exchange, the
name(s) of the shareholder(s) in whose name(s) the account is registered, and
the account number, to:
via U.S. Postal Service via overnight delivery service
GOVETT FUNDS, INC. GOVETT FUNDS, INC.
C/O FPS SERVICES, INC. C/O FPS SERVICES, INC.
P. O. BOX 61503 3200 HORIZON DRIVE
KING OF PRUSSIA, PA 19406-0903 KING OF PRUSSIA, PA 19406-0903
TELEPHONE TRANSACTIONS. If you have not waived the Telephone Privilege on the
Account Application, you may call the Funds at 800-821-0803 to effect exchanges
and redemptions.
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GOVETT FUNDS, INC.
GOVETT INTERNATIONAL EQUITY FUND
GOVETT EMERGING MARKETS EQUITY FUND
GOVETT SMALLER COMPANIES FUND
GOVETT ASIA FUND
GOVETT LATIN AMERICA FUND
GOVETT GLOBAL INCOME FUND
GOVETT CHINA FUND
GOVETT ASIAN SMALLER COMPANIES FUND
GOVETT EUROPE FUND
TRANSFER AGENT CUSTODIAN
FPS Services, Inc. The Chase Manhattan Bank
3200 Horizon Drive 4 MetroTech Center
P. O. Box 61503 Brooklyn, New York 11245
King of Prussia, PA 19406-0903
800-821-0803 ACCOUNTING AND ADMINISTRATION SERVICES
Chase Global Funds Services Company
DISTRIBUTOR 73 Tremont Street
FPS Broker Services, Inc. 11th Floor
3200 Horizon Drive Boston, MA 02108
P. O. Box 61503
King of Prussia, PA 19406-0903 DIRECTORS
800-634-6838 Patrick Cunneen, Chairman
Broker Marketing Information Elliott Atamian
888-546-8388 Sir Victor Garland
James Oates
GOVETT FUNDS, INC. Frank Terzolo
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-976-8109
415-263-1865
INVESTMENT MANAGER
AIB Govett, Inc.
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-976-8109
415-263-1865
45
<PAGE>
Govett Funds
Statement of Additional Information
DATED ________, 1997
Relating to the prospectus of Govett Funds (Retail Shares)
and the
prospectus of Govett Funds (Institutional Class)
each dated __________, 1997
The Govett Funds, Inc. (the "Govett Funds" or the "Company") is an open-end,
management investment company. The Company presently consists of a series of
nine funds, each a separate investment portfolio with its own investment
objective and policies, as follows: GOVETT INTERNATIONAL EQUITY FUND, GOVETT
EMERGING MARKETS EQUITY FUND, GOVETT SMALLER COMPANIES FUND, GOVETT ASIA FUND,
GOVETT LATIN AMERICA FUND, GOVETT CHINA FUND, GOVETT ASIAN SMALLER COMPANIES
FUND, GOVETT EUROPE FUND, each of which seeks long-term capital appreciation,
and GOVETT GLOBAL INCOME FUND, which seeks primarily a high level of current
income, consistent with preservation of capital, and has a secondary objective
of capital appreciation (individually a "Fund", and together the "Funds"). There
can, of course, be no assurance that a Fund's investment objective will be
achieved.
The Funds' investment manager is AIB Govett, Inc. ("AIB Govett" or the
"Investment Manager"), a Maryland corporation. AIB Govett is an affiliate of
Allied Irish Banks plc ("AIB"), the parent of the AIB Group of Companies. The
AIB Group provides a diverse range of banking, financial and related services,
principally in Ireland, the United States and the United Kingdom.
A prospectus for the Class A and Class B shares of Funds and a prospectus for
Institutional Class shares of the Funds, each dated the same date as this
Statement of Additional Information, as amended from time to time, provide the
basic information that a prospective shareholder should know before investing in
the Funds. Each prospectus is incorporated by reference herein and may be
obtained without charge by calling (800) 821-0803 or by writing to:
The Govett Funds, Inc.
c/o FPS Services, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
This Statement of Additional Information is not a prospectus. It contains
information in addition to and in more detail than is set forth in the
prospectuses. It should be read in conjunction with the prospectuses.
1
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CONTENTS
<TABLE>
<S> <C>
ABOUT THE FUNDS......................................................... 3
INVESTMENT OBJECTIVES AND POLICIES...................................... 3
OTHER POLICIES..........................................................
DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS.........
DIRECTORS AND OFFICERS..................................................
MANAGEMENT OF THE FUNDS.................................................
BROKERAGE ALLOCATION....................................................
THE COMPANY AND ITS SHARES..............................................
ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION...............
ADDITIONAL DISTRIBUTION AND TAXATION INFORMATION........................
DISTRIBUTION ARRANGEMENTS...............................................
PERFORMANCE.............................................................
FINANCIAL STATEMENTS....................................................
APPENDIX A: DESCRIPTION OF DEBT RATINGS.................................
</TABLE>
2
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ABOUT THE FUNDS
Definitions
The "Company" or the "Govett Funds"
The Govett Funds, Inc., a Maryland corporation
The "Funds"
Govett International Equity Fund, Govett Emerging Markets Equity
Fund, Govett Smaller Companies Fund, Govett Asia Fund, Govett
Latin America Fund, Govett Global Income Fund, Govett China Fund,
Govett Asian Smaller Companies Fund, and Govett Europe Fund
"AIB Govett" or the "Investment Manager"
AIB Govett, Inc. (formerly the U.S. offices of John Govett & Co.
Limited)
"AIB Govett (London)", and AIBIM (Dublin), or collectively, the
"Subadvisers" AIB Govett Asset Management Limited (formerly John
Govett & Co. Limited) and AIB Investment Managers Limited
"FPS" or the "Distributor"
FPS Broker Services, Inc.
"AIB Group"
Allied Irish Banks plc and its subsidiaries
"Custodians"
The Chase Manhattan Bank
Hong Kong and Shanghai Banking Corporation (Taiwan only)
"Transfer Agent"
FPS Services, Inc.
The Govett Funds, Inc. is an open-end management investment company, commonly
called a "mutual fund", incorporated in Maryland on November 13, 1990. The
Company is organized in series form, presently consisting of nine portfolios:
GOVETT INTERNATIONAL EQUITY FUND, GOVETT EMERGING MARKETS EQUITY FUND, GOVETT
SMALLER COMPANIES FUND, GOVETT ASIA FUND, GOVETT LATIN AMERICA FUND, GOVETT
GLOBAL INCOME FUND, GOVETT CHINA FUND, GOVETT ASIAN SMALLER COMPANIES, and
GOVETT EUROPE FUND. Each Fund is a separate and distinct investment portfolio,
with its own separate investment objective and policies.
INVESTMENT OBJECTIVES AND POLICIES
As noted in the prospectuses, each Fund has its own investment objective and
follows policies designed to achieve that objective. The following investment
policies and limitations for the Funds supplement those set forth in the
prospectuses. Whenever an investment policy or limitation states a maximum
percentage of a Fund's assets that may be invested in any security or other
asset, or sets forth a policy regarding quality standards, such standard or
percentage limitation shall be determined immediately after and as a result of
the Fund's acquisition of such security or other asset. Accordingly, any later
increase or decrease resulting from a change in values, net assets or other
circumstances will not be considered when determining whether the investment
complies with the Fund's investment policies and limitations.
A Fund's fundamental investment limitations cannot be changed without approval
by a majority of the outstanding voting securities, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), of that Fund. Except for the
numbered limitations set forth immediately below, the investment policies and
limitations described in
3
<PAGE>
this Statement of Additional Information are not fundamental policies, and may
be changed without consent of shareholders. These limitations, except as
otherwise indicated, apply separately to each Fund.
The following are the Funds' fundamental investment limitations. No Fund may:
1. Borrow money or mortgage or pledge any of its assets, except that a Fund may
borrow from banks, for temporary or emergency purposes, up to 33-1/3% of its
total assets and pledge up to 33-1/3% of its total assets in connection
therewith. Any borrowings that come to exceed 33-1/3% of the value of the Fund's
total assets at any time will be reduced within three days (exclusive of Sundays
and legal holidays) to the extent necessary to comply with the 33-1/3%
limitation. No Fund may purchase securities when borrowings exceed 5% of its
assets. Borrowings for purposes of this restriction include reverse repurchase
agreements.
2. Purchase any securities on "margin," or underwrite securities, except that a
Fund may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of securities and except that the Funds may make margin
deposits in connection with futures contracts and options.
3. Make loans if, as a result, more than 33-1/3% of a Fund's total assets would
be lent to other parties except (i) through the purchase of a portion of an
issue of debt securities in accordance with its investment objectives, policies,
and limitations, or (ii) by engaging in repurchase agreements with respect to
portfolio securities. Portfolio securities may be loaned only if continuously
collateralized at least 100% by "marking-to-market" daily.
4. Invest 25% or more of its total assets in the securities of issuers in a
single industry (excluding securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities).
5. Purchase from, or sell any portfolio securities to, a Fund's officers or
Directors, or any firm of which any such officer or Director is a member, as
principal, except that a Fund may deal with such persons or firms as securities
dealers and pay a customary brokerage commission; or retain securities of any
issuer, if to the knowledge of a Fund, one or more of its officers, Directors or
investment managers own beneficially more than one-half of 1% of the securities
of such issuer and all such persons together own beneficially more than 5% of
such securities.
6. Purchase the securities of any issuer if, as a result thereof, more than 5%
of the value of total assets of any Fund (other than the Smaller Companies Fund
and the Asian Smaller Companies Fund) would be invested in the securities of
companies which, including predecessors, have a record of less than three years'
continuous operations.
7. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result thereof, any such Fund, or the Company as a whole, would own
more than 10% of the outstanding voting securities of such issuer.
8. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit a Fund from (a) making any otherwise
permitted borrowings, mortgages or pledges, or (b) entering into option
contracts, futures contracts, forward contracts or repurchase transactions.
9. With respect to 75% of its total assets, invest in securities of any one
issuer if immediately after, and as a result of such investment, more than 5% of
the total assets of the Fund, taken at market value, would be invested in the
securities of such issuer, provided that the Latin America and Global Income
Funds are not restricted in this regard. This restriction does not apply to
investments in U.S. government or agency securities.
10. Make investments for the purpose of exercising control, or underwrite the
securities of other issuers, except insofar as a Fund may be technically deemed
an underwriter in connection with the disposition of its portfolio securities.
11. Purchase interests in oil, gas or other mineral exploration or development
programs, including mineral leases, although the Funds may invest in common
stocks of companies which invest in or sponsor such programs.
4
<PAGE>
12. Purchase or sell real estate or real estate limited partnerships or
securities issued by companies that invest in real estate or interests therein.
13. Purchase commodities or commodity contracts (including futures contracts),
except that the Funds may purchase securities of issuers which invest or deal in
commodities or commodity contracts, and except that the Funds may enter into
futures and options contracts only for hedging purposes.
In order to change any restriction which is a fundamental policy, approval must
be obtained from the respective Fund's shareholders; this would require the
affirmative vote of the lesser of (i) 67% or more of the respective Fund's
outstanding voting securities that are represented at the meeting if more than
50% of the outstanding voting securities of the respective Fund are represented,
or (ii) more than 50% of the respective Fund's outstanding voting securities.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITH THE APPROVAL OF THE BOARD OF DIRECTORS AND WITHOUT PRIOR SHAREHOLDER
APPROVAL (THEY TOO APPLY TO EACH FUND).
The Funds do not currently intend to:
1. Engage in any reverse repurchase agreements if, as a result, more than 5% of
a Fund's net assets would be subject to reverse repurchase agreements.
2. Purchase or otherwise acquire any security or enter into a repurchase
agreement with respect to any security if, as a result, more than 5% of a Fund's
net assets (taken at current value) would be invested in repurchase agreements
not entitling the holder to payment of interest and principal within seven days,
or in securities that are illiquid by virtue of legal or contractual
restrictions on resale or for which there is no readily available market.
3. Purchase securities of another investment company, except as permitted by
the 1940 Act and other applicable laws.
4. Lend assets, other than portfolio securities, to other parties, except by
purchasing debt securities and engaging in repurchase agreements. Portfolio
securities may be loaned only if continuously collateralized at least 100% by
"marking-to-market" daily. The Funds, however, do not currently intend to lend
their portfolio securities during the current fiscal year.
5. Make short sales of securities or maintain a short position, unless at all
times when a short position is open the respective Fund owns an equal amount of
such securities or securities convertible or exchangeable into, without payment
of any further consideration, securities of the same issuer as, and equal in
amount to, the securities sold short ("short sales against the box"), and unless
not more than 5% of the Fund's net assets (taken at market value) is held as
collateral for such sales at any one time.
6. Purchase a security if, as a result thereof, more than 5% of a Fund's net
assets would be invested in warrants or more than 2% of such Fund's net assets
will be invested in warrants which are not listed on the American or New York
Stock Exchange.
7. Purchase the securities of any issuer if, as a result thereof, more than 5%
of the value of the total assets of the Smaller Companies Fund or the Asian
Smaller Companies Fund would be invested in the securities of companies which,
including predecessors, have a record of less than three years' continuous
operations.
8. Invest 25% or more of the Global Income Fund's total assets in asset-backed
securities.
The U.S. Government has from time to time imposed restrictions, through taxation
and otherwise, on foreign investments by U.S. entities such as the Funds. If
such restrictions should be reinstituted for a Fund, it might become necessary
for the Fund to invest all or substantially all of its securities in securities
issued by U.S. entities. In such event, the Board of Directors would reevaluate
each Fund's investment objective and policies, but would adopt any
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revised investment objectives and fundamental policies only after approval by
the shareholders holding a majority (as defined in the 1940 Act) of the shares
of the Fund.
The Funds' ability to borrow money creates special risks not associated with
funds that have similar investment objectives and policies but do not have the
ability to borrow money or borrow at the same level as the Funds. Borrowings by
the Funds may have either a positive or negative effective on their respective
levels of investment income. Any investment income or gains earned from amounts
borrowed which is in excess of the interest due on and other costs of such
borrowings may cause the Funds' investment income to be greater than would
otherwise be the case. Conversely, if the investment performance of any amounts
borrowed fails to cover the interest due on and other costs of such borrowings,
the Funds' investment income will be less than would otherwise be the case.
OTHER POLICIES
AIB Govett and the Subadvisers generally evaluates foreign currencies on the
basis of fundamental economic criteria (e.g., relative inflation and interest
rate levels and trends, growth rate forecasts, balance of payments status and
economic policies) as well as technical and political data. If the currency in
which a security is denominated appreciates against the U.S. dollar, or (in the
case of debt securities) if interest rates decline, the dollar value of the
security will generally increase. Conversely, if other factors remain constant,
a rise in interest rates or a decline in the exchange rate of the currency will
adversely affect the value of the security expressed in dollars.
The Funds will not invest in securities denominated in a foreign currency if, at
the time of investment, such currency is not considered by AIB Govett or the
Subadvisers to be fully exchangeable into U.S. dollars without significant legal
restriction. The Funds may purchase securities issued by the government of, or
a corporation or financial institution located in, one nation but denominated in
the currency of another nation (or in a multinational currency unit).
The Funds retain the flexibility to respond promptly to changes in market and
economic conditions. Accordingly, in the interest of preserving shareholders'
capital and consistent with the Funds' investment objectives, AIB Govett and the
Subadvisers may employ a temporary defensive investment strategy for one or more
of the Funds if AIB Govett and the Subadvisers determines such a strategy to be
warranted. It is impossible to predict when or for how long AIB Govett and the
Subadvisers may employ such defensive strategies. Under a defensive strategy,
the Funds may hold cash (U.S. dollars, foreign currencies or multinational
currency units) and/or invest any portion or all of their respective assets in
high quality money market instruments. For debt obligations other than
commercial paper, this includes securities rated, at the time of purchase, at
least AA by Standard & Poor's Corporation ("Standard & Poors") or Aa by Moody's
Investor Services, Inc. ("Moody's"), or if unrated, determined to be of
comparable quality by AIB Govett or the Subadvisers. For commercial paper, this
includes securities rated, at the time of purchase, at least A-2 by Standard &
Poor's or Prime-2 by Moody's or, if unrated, determined to be of comparable
quality by AIB Govett or the Subadvisers.
Pending investment of proceeds from new sales of Fund shares or to meet their
ordinary daily cash needs, the Funds may hold cash (U.S. dollars, foreign
currencies or multinational currency units) and may invest in short-term high
quality money market instruments. Money market instruments in which the Funds
may invest include, but are not limited to, U.S. or foreign government and
agency securities, commercial paper, bank certificates of deposit, and bankers'
acceptances.
The Funds' prospectuses and this Statement of Additional Information omit
certain information contained in the Funds' Registration Statement filed with
the Securities and Exchange Commission ("SEC"). Copies of such information may
be obtained from the SEC upon payment of the prescribed fee.
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DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS
FOREIGN SECURITIES. All of the Funds (except the Smaller Companies Fund) will
invest primarily in securities issued by companies or other issuers whose
principal activities are outside the U.S.; such investments involve significant
risks not present in U.S. investments. The Smaller Companies Fund invests in
the securities of issuers located in the U.S. and/or foreign countries. At any
point in time, all or substantially all of the Smaller Companies Fund's assets
may be invested in issuers located (1) solely in the U.S., or (2) solely in
countries other than the U.S., or (3) in the U.S. and foreign countries. The
value of securities denominated in foreign currencies and of dividends and
interest paid with respect to such securities will fluctuate based on the
relative strength of the U.S. dollar. In addition, less information is generally
available about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
companies are not bound by uniform accounting, auditing, and financial reporting
requirements and standards of practice comparable to those applicable to U.S.
companies. Investments in foreign securities also involve the risk of possible
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the repatriation of monies or other assets
of the Funds, political or financial instability or diplomatic and other
developments which could affect such investments. Further, the economies of
particular countries or areas of the world may perform less favorably than the
economy of the U.S., and the U.S. dollar value of securities denominated in
currencies other than the U.S. dollar may be affected unfavorably by exchange
rate movements. Each of these factors could influence the value of a Fund's
shares, as well as the value of dividends and interest earned by the Fund and
the gains and losses which it realizes. It is anticipated that in most cases the
best available market for foreign securities will be on exchanges or in over-
the-counter markets located outside of the U.S. However, foreign securities
markets, while growing in volume and sophistication, are generally not as
developed as those in the U.S., and securities of some foreign companies
(particularly those located in developing countries) are generally less liquid
and more volatile than securities of comparable U.S. companies. Foreign security
trading practices, including those involving securities settlement where Fund
assets may be released prior to receipt of payment, may expose the Funds to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. In addition, foreign brokerage commissions and other fees are
generally higher than on securities traded in the U.S. and may be non-
negotiable. There is less overall governmental supervision and regulation of
securities exchanges, securities dealers, and listed companies in most foreign
markets than in the U.S.
The Funds may invest in foreign securities that are restricted against transfer
within the U.S. or to U.S. persons. Although securities subject to such transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions. Unless
these securities are acquired directly from the issuer or its underwriter, the
Funds treat such foreign securities whose principal market is abroad as not
being subject to investment limitation (2) on page 5.
SPECIAL EMERGING MARKETS EQUITY CONSIDERATIONS
As stated in the Prospectuses, investing in emerging and developing markets
countries presents special risks that do not affect investments in the U.S. or
in mature economies of developed markets, for example Western Europe. This
section briefly outlines some of the risk factors that pertain particularly to
some of the major emerging and developing market regions.
LATIN AMERICA is a region rich in natural resources such as silver, gold,
copper, steel, tin, oil and coffee. The regions' large population represents a
pool of low cost labor and a large domestic market. During the 1960s and 1970s,
Latin America grew at an average Gross Domestic Product ("GDP") of over 5.6%.
The 1980s, however, was a decade of economic stagnation due to state protection
of inefficient enterprises and spiraling budget deficits that led to chronic
inflation and social unrest in several countries. As economic growth slowed
dramatically in the 1980s, there were political reforms in most Latin America
countries that led to civilian democratic governments. While there is an
overall trend toward democratic government in Latin America, some countries,
such as Peru, Brazil and Venezuela, are in the midst of reforms. Many of these
new democratic governments in Latin America have adopted an agenda of aggressive
market oriented economic reform, including the privatization of state owned
companies.
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Along with trade, fiscal and monetary reforms, international discussions have
focused on establishing free trade zones in the region, including the North
American Free Trade Agreement between Mexico, the U.S. and Canada. Over the
last twenty years debt burdens as a proportion of GDP have been reduced.
Efforts to control inflation have also been implemented. Most Latin American
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had, and may continue to have, negative effects on the
economies and securities markets of certain Latin American countries. In 1995
the Latin American markets were recovering from the effects of the devaluation
of the Mexican peso at the end of 1994.
In the PACIFIC RIM, it is unknown how the Pacific Rim economies, generally, and
the Hong Kong economy, in particular, will be affected the return of political
control of Hong Kong to China. Sovereignty over Hong Kong was transferred from
the United Kingdom to China on July 1, 1997, when Hong Kong became a Special
Administrative Region of China. Under the agreement providing for such
transfer, China, among other things, agreed not to levy taxes on Hong Kong, to
keep the Hong Kong dollar fully convertible, and to keep Hong Kong as a free
port. Moreover, it was intended that foreign enterprises would be treated
virtually the same as domestic enterprises and these was to be no restriction on
exchange of foreign currencies or on the repatriation of profits. There is a
risk that certain or all of the terms of that transfer agreement will not be
met, thus affecting the value of one or more companies in which some of the
Funds, especially the China Fund, have invested.
The political and economic relationship between China and Taiwan is complex and
could be problematic. Although there are official prohibitions on direct trade
between China and Taiwan, Taiwan has become a signification investor in China,
and China has become on of the largest markets for Taiwanese goods. However,
China does not currently recognize Taiwan's political independence. Any change
in the relationship could affect the value of one ore more companies in which
some of the Funds, especially the China Fund, have invested.
In mid-1997 currency devaluations in South Asia, including Thailand and
Malaysia, indicate certain weaknesses in the economies of some of the less
developed Pacific Rim countries.
AFRICAN political and economic development has been tumultuous. Certain
countries, such as South Africa and Zimbabwe, have economic sectors, such as
mining and banking, that are sufficiently mature to permit direct investment.
In other countries, such as Kenya and Ghana, investment risks posed by political
uncertainty outweigh the potential opportunities presented by the more developed
sectors. Similarly, the MIDDLE EASTERN economies remain volatile.
In the former Communist bloc countries of CENTRAL, and EASTERN EUROPE, the
political democratization that began in 1989 has led to radical economic
reforms. While these reforms released vigorous competitive forces, the roots of
market economic behavior are not equally well-established in each country, and
continued economic growth in these countries depends in part on their
integration into the community of developed nations. Investing in these
countries involves the risk that securities may be relatively illiquid and may
trade only on regional stock exchanges. In addition, the lack of effective
environmental controls in heavy industry in this region led to serious,
widespread pollution of the air and of ground and water resources. The
legislative framework for liability for this pollution has not been established,
and such liability could ultimately have a significant adverse effect on a
company's performance. Diverse criminal groups in certain of these countries
often succeed in extorting protection money from businesses. Commercial
activities are often impossible without bribing government executives, and a
company's management may be bribed or otherwise pressured into defrauding their
company.
The Funds intend to invest in Russian issuers. Investments in Russia involve
the risks associated with other foreign emerging markets. In particular,
settlement, clearing, and registration of securities in Russia are in an
underdeveloped state. Ownership of shares (except those held through
depositories that meet the requirements of the Investment Company Act) is
defined according to entries in the issuer's share register and normally
evidenced by extracts from that register, which have no legal enforceability.
Furthermore, share registration is carried out either by the issuer or
registrars located throughout Russia, which are not necessarily subject to
effective government supervision. As a result, it is possible for a Fund to lose
its registration and thus its ownership of these securities due to fraud,
illegal amendment, negligence or even mere oversight. This system also may cause
a delay in a Fund's sale
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of Russian securities to a potential purchaser and subject the Fund to the risk
of loss in connection with the insolvency of a registrar. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for the Funds to enforce any
rights it may have against the registrar or issuer in the event of the loss of
share registration.
To ensure that its interest continues to be appropriately recorded, the Funds
will invest only in those companies whose registrars have entered into a
contract with the Funds' Russian sub-custodian, which gives the sub-custodian
the right, among others, to inspect the share register and to obtain extracts of
shares registers through regular audits. While these procedures reduce the risk
of loss to the Funds, there can be no assurance that they will be effective.
This limitation may prevent the Fund from investing in the securities of certain
Russian issuers otherwise deemed suitable by the Investment Manager or
Subadviser.
EMERGING MARKETS SOVEREIGN DEBT. The Latin America Fund may invest in
sovereign debt securities of emerging market governments. Investments in such
securities involve special risks. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal or interest when due in accordance with the terms of the debt.
Periods of economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn the Fund's net asset value, to a greater extent than
the volatility inherent in domestic fixed income securities.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Governments of emerging or developing markets
could default on their sovereign debt. Such sovereign debtors also may be
dependent on expected disbursements from foreign governments, multilateral
agencies and other entities abroad to reduce principal and interest arrearages
on their debt. The commitment on the part of these governments, agencies and
others to make such disbursements may be conditioned on a sovereign debtor's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms,
achieve such levels of economic performance or repay principal or interest when
due, could result in the cancellation of such third parties' commitments to lend
funds to the sovereign debtor, which may further impair such debtor's ability or
willingness timely to service its debt.
LOWER QUALITY DEBT SECURITIES. Under normal market conditions, Global Income
Fund may invest up to 25% of its total assets in debt securities of below
investment grade quality, and Latin America Fund may invest up to 35% of its
total assets in such securities. Such investments involve a high degree of
risk. Debt rated BB, B, CCC, CC and C, and debt rated Ba, B, Caa, Ca and C is
regarded by Standard & Poor's and Moody's, respectively, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. For
Standard & Poor's, BB indicates the lowest degree of speculation and C the
highest degree of speculation. For Moody's, Ba indicates the lowest degree of
speculation and C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or Standard & Poor's is the lowest quality debt that is not in
default as to principal or interest, and such issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Such securities are also generally considered to be subject to greater risk than
higher quality securities with regard to a deterioration of general economic
conditions. These securities are the equivalent of high yield, high risk "junk"
bonds.
The market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality debt
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality debt securities. Issuers of lower quality debt securities are
often highly leveraged, and issuers of such securities may not have available to
them more traditional methods of financing.
The market for lower rated debt securities may be thinner and less active than
that for higher rated securities, which can adversely affect the prices at which
these securities can be sold. If market quotations are not available, these
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securities are valued in accordance with procedures established by the Board of
Directors, including the use of outside pricing services. Judgment plays a
greater role in valuing high yield debt securities than is the case for
securities for which more external sources for quotations and last sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services used by Global Income Fund
and Latin America Fund to value their portfolio securities, and the Funds'
ability to dispose of these lower rated debt securities.
Factors having an adverse effect on the market value of lower rated debt
securities of their equivalents purchased by Global Income Fund and Latin
America Fund will adversely affect the net asset value of those Funds. In
addition to the foregoing, such factors may include: (i) potential adverse
publicity; (ii) heightened sensitivity to general economic or political
conditions; and (iii) the likely adverse impact of a major economic recession.
Global Income Fund and Latin America Fund may incur additional expenses to the
extent they are required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings, and the Funds may have limited
legal recourse in the event of a default. Debt securities issued by an emerging
market government can differ from debt obligations issued by private entities in
that remedies from defaults generally must be pursued in the courts of the
defaulting government, and legal recourse can therefore be significantly
diminished. Political conditions, in terms of a government's willingness to meet
the terms of its debt obligations, also are of considerable significance. There
can be no assurance that the holders of commercial bank debt may not contest
payments to the holders of debt securities issued by governments in emerging or
developing markets in the event of default by the governments under commercial
bank loan agreements.
BRADY BONDS. Latin America Fund may invest in "Brady Bonds," which are debt
restructurings that provide for the exchange of cash and loans for newly issued
bonds. Brady Bonds recently have been issued by the governments of Costa Rica,
Mexico, Uruguay and Venezuela, and are expected to be issued by Argentina,
Brazil and the Philippines and other emerging markets countries. Brady Bonds
may be rated below investment grade. As of the Date of this Statement of
Additional Information, AIB Govett is not aware of the occurrence of any payment
defaults on Brady Bonds. Investors should recognize, however, that Brady Bonds
have been issued only recently and, accordingly, do not have a long payment
history. Brady Bonds may be collateralized or uncollateralized, are issued in
various currencies (primarily the U.S. dollar) and are actively traded in the
secondary market for Latin American debt. The Salomon Brothers Brady Bond Index
provides a bench-mark that can be used to compare returns of emerging market
Brady Bonds with returns in other markets, e.g., U.S. bond markets.
Latin America Fund may invest in either collateralized or uncollateralized Brady
Bonds. U.S. dollar denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discounts bonds, are collateralized in full as
to principal by U.S. Treasury zero coupon bonds having the same maturity as the
Brady Bonds. Interest payments on such bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments, or in the case of floating
rate bonds, initially is equal to at least one year of rolling interest payments
based on the applicable interest rate at that time, and is adjusted at regular
intervals thereafter.
OPTIONS ON FOREIGN AND U.S. CURRENCIES AND SECURITIES. In an effort to reduce
the fluctuations in their respective net asset value, the Funds may write
covered put and call options and purchase put and call options on U.S. and
foreign currencies and securities that are traded on U.S. and foreign securities
exchanges and over-the-counter. Call options written by the Funds give the
holder the right to buy the underlying currency or security from the Funds at a
stated exercise price upon exercising the option at any time prior to its
expiration. A call option written by the Funds is "covered" if the Funds own or
have an absolute right (such as by conversion) to the underlying currency or
security covered by the call. A call option is also covered if the Funds hold a
call on the same currency or security and in the same principal amount as the
call written and the exercise price of the call held is (a) equal to or less
than the exercise price of the call written, or (b) greater than the exercise
price of the call written if the difference is maintained by the Funds in cash,
U.S. government securities or other liquid high grade debt obligations in a
segregated account with its Custodian. Put options written by the Funds give the
holder the right to sell the underlying currency or security to the Funds at a
stated exercise price. A put option written by the Funds is "covered" if the
Fund maintains cash or liquid high grade debt obligations with a value equal to
the exercise price in a segregated account with its Custodian, or else holds a
put on the same currency or security and in the same principal amount as
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the put written, and the exercise price of the put held is equal to or greater
than the exercise price of the put written. Premiums for currency options held
by any Fund may not exceed 5% of its total assets.
The writer of an option who wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing authority or otherwise
economically nullified. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option. Likewise, a
holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. The Funds may enter into closing transactions
to terminate an options position. The Funds will realize a profit from a closing
transaction if the price of the transaction is less than the premium received
from writing the option or is more than the premium paid to purchase the option;
the Funds will realize a loss from closing a transaction if the price of the
transaction is more than the premium received from writing the option or is less
than the premium paid to purchase the option.
The Funds may write options in connection with buy-and-write transactions, that
is, the Funds may purchase a currency or security and then write a call option
against that currency or security. The exercise price of the call will depend
upon the expected price movement of the underlying currency or security. The
exercise price of a call option may be below ("in-the-money") or equal to ("at-
the-money") or above ("out-of-the-money") the current price of the underlying
currency or security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected by
AIB Govett that the price of the underlying currency or security will remain
flat or decline moderately during the option period. Buy-and-write transactions
using at-the-money call options may be used when it is expected by AIB Govett
that the price of the underlying currency or security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when AIB Govett expects that the
premiums received from writing the call option plus the appreciation in the
market price of the underlying currency or security up to the exercise price
will be greater than the appreciation in the price of the underlying currency or
security alone. If the call options are exercised in such transactions, a Fund's
maximum gain will be the premium received by it for writing the option, adjusted
upward or downward by the difference between the Fund's purchase price for the
currency or security and the exercise price. If the options are not exercised
and the price of the underlying currency or security declines, the amount of
such decline will be mitigated by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying currency or security rises or otherwise is above the exercise price,
the put option will expire worthless and the Fund's gain will be limited to the
premium received. If the market price of the underlying currency or security
declines or otherwise is below the exercise price, the Fund may elect to close
the position or wait for the option to be exercised and take delivery of the
currency or security at the exercise price. The Fund's return will be the
premium received from the put option minus the amount by which the market price
of the currency or security is below the exercise price. Out-of-the-money, at-
the-money, and in-the-money put options may be used by the Funds in the same
market environments that call options are used in equivalent buy-and-write
transactions.
In addition to the matters discussed in the prospectuses, shareholders should be
aware that when trading options on foreign exchanges or in the over-the-counter
market, many of the protections afforded to U.S. option exchange participants
will not be available. For example, there are no daily price fluctuation limits
in such exchanges or markets, and adverse market movements could therefore
continue to an unlimited extent over a period of time. Although the purchaser of
an option cannot lose more than the amount of the premium plus related
transaction costs, this entire amount could be lost. Moreover, the Fund as an
option writer could lose amounts substantially in excess of its initial
investment, due to the margin and collateral requirements typically associated
with such option writing. The ability of any Fund to engage in options
transactions is subject to the following limitations: (a) not more than 5% of
the net assets of the Fund may be invested in options purchased by the Fund; (b)
the obligations of the Fund under put options written by the Fund may not exceed
5% of the net assets of the Fund; and (c) the obligations of the Fund under call
options written by the Fund may not exceed 5% of the net assets of the Fund.
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The staff of the SEC has taken the position that purchased over-the-counter
("OTC") options and the assets used as "cover" for written OTC options are
illiquid securities. However, the Funds may treat the securities they use as
cover for written OTC options as liquid provided the Funds follow a specified
procedure. The Funds may sell OTC options only to qualified dealers who agree
that the Funds may repurchase any OTC options written for a maximum price to be
calculated by a predetermined formula. In such cases, the OTC option would be
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Since investments in companies whose
principal business activities are located outside of the U.S. will frequently
involve currencies of foreign countries, and since assets of a Fund may
temporarily be held in bank deposits in foreign currencies during the completion
of investment programs, the value of the Funds' assets as measured in U.S.
dollars generally will be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Although the
Funds value their assets daily in terms of U.S. dollars, they do not intend to
convert their holdings of foreign currencies into U.S. dollars on a daily basis.
The Funds may conduct their foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into contracts to purchase or sell foreign currencies
at a future date (i.e., a forward foreign currency contract or forward
contract). Foreign currency futures contracts and options on foreign currencies
may also be used. The Funds will convert currency on a spot basis from time to
time, and shareholders should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the spread) between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Funds at one rate, while offering a lesser
rate of exchange should the Funds desire to resell that currency to the dealer.
A forward currency exchange contract ("Forward Contract") involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract, agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A Forward Contract generally has no
deposit requirement, and no commissions are charged at any stage for trades. A
Fund will cover a Forward Contract that it has sold by establishing and
maintaining with its Custodian a segregated account, consisting of cash, cash
equivalents or liquid, short-term high quality debt securities from its
portfolio.
The Funds may enter into Forward Contracts in order to fix a definite U.S.
dollar price for securities denominated in foreign currencies, in connection
with a purchase or sale of those securities. For example, if a Fund placed a
purchase order for securities denominated in Japanese Yen, it would be required
to pay for the securities with Yen on the date the transaction settles. If the
Fund has U.S. dollar-denominated cash or securities on hand, it can enter into a
Forward Contract to exchange its dollars for Yen, with the exchange taking place
on the settlement date of the security purchase order, so that the Fund would
have sufficient Yen to pay for the securities it has purchased. This type of
currency strategy is often referred to as a "transaction hedge."
The Funds may also enter into Forward Contracts to hedge securities in their
portfolios that are denominated in foreign currency against losses caused by a
decline in foreign currency values. For example, if a Fund owns securities
denominated in French Francs, and AIB Govett anticipates a decline in the
Franc's value relative to the U.S. dollar, the Fund can enter into a contract to
exchange Francs for dollars in order to lock in the current exchange rate for
the term of the contract. By locking in an exchange rate, the Fund would seek to
protect itself against a decline in the Franc's value relative to the U.S.
dollar, but would also give up the opportunity to profit from an increase in its
value. This type of transaction is often termed "position hedging." Of course, a
position hedge does not protect against price changes caused by other factors
such as a change in an issuer's prospects--it only hedges against losses caused
by currency movements relative to the U.S. dollar.
At the maturity of a Forward Contract, the Funds may either sell the portfolio
security and make delivery of the foreign currency, or they may retain the
security and terminate their contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obliging it to purchase, on the same maturity date, the same amount of the
foreign currency.
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<PAGE>
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of the Forward Contract. Accordingly, it may be
necessary for the Funds to purchase additional foreign currency on the spot
market (and bear the expense of such purchases) if the market value of the
security is less than the amount of foreign currency the Funds are obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Funds are obliged to
deliver.
If the Funds retain the portfolio security and engage in an offsetting
transaction, they will incur a gain or a loss to the extent that there has been
a movement in Forward Contract prices. If the Funds engage in an offsetting
transaction, they may subsequently enter into a new Forward Contract to sell the
foreign currency. Should forward prices decline during the period between the
date the Funds enter into a Forward Contract for the sale of the foreign
currency and the date they enter into an offsetting contract for the purchase of
the foreign currency, the Funds will realize a gain to the extent the price of
the currency they have agreed to sell exceeds the price of the currency they
have agreed to purchase. Such gain may be offset by a corresponding change in
the value of the underlying securities if they are retained by the Funds and if
an offset is effected. Should forward prices increase, the Funds will suffer a
loss to the extent that the price of the currency they have agreed to purchase
exceeds the price of the currency they have agreed to sell. Although there are
no limits on the number of Forward Contracts which a Fund may enter into, no
Fund may position hedge with respect to a particular currency for an amount
greater than the aggregate market value (determined at the time of making any
sale of foreign currency) of the securities held in its portfolio, denominated
or quoted in, or currently convertible into, such currency.
FUTURES CONTRACTS. The Funds may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies, or
contracts based on financial indexes including any index of U.S. government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC"), and
must be executed through a futures commission merchant, or brokerage firm, which
is a member of the relevant contract market. Futures contracts trade on a
number of exchange markets, and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the clearing members
of the exchange. The Funds may enter into futures contracts which are based on
debt securities that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury bonds, Treasury notes, GNMA modified
pass-through mortgage backed securities and three month U.S. Treasury bills.
The Funds may also enter into futures contracts which are based on bonds issued
by entities other than the U.S. government.
The Funds will not enter into Futures Contracts for speculation and will only
enter into Futures Contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal interest rate and currency Futures exchanges in the U.S. are the Board
of Trade of the City of Chicago and the Chicago Mercantile Exchange. U.S.
futures exchanges and trading are regulated under the Commodity Exchange Act by
the CFTC. Futures are also exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could be
used to reduce the Funds' exposure to interest rate, currency exchange rate and
stock price fluctuations, the Funds may be able to hedge their exposure more
effectively and at a lower cost through using Futures Contracts. A Fund will not
enter into Futures Contracts if, as a result thereof, more than 5% of a Fund's
total assets (taken at market value at the time of entering into the contract)
would be committed to "margin" (down payment) deposits on such Futures
Contracts.
An interest rate Futures Contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (debt security or currency) for a specified price at a designated
date, time and place. A stock index Futures Contract provides for the delivery,
at a designated date, time and place, of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck; no physical delivery of the stocks comprising the index is
made. Most stock index futures and options are based on broad-based stock
indexes reflecting the prices of a broad variety of common stocks, such as the
Nikkei Keizai Shimbun (the Nikkei Dow).
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<PAGE>
Some index options are based on narrow industry averages or market segments. A
foreign currency Futures Contract provides for the purchase or sale for future
delivery of a currency. Brokerage fees are incurred when a Futures Contract is
bought or sold, and margin deposits must be maintained at all times the Futures
Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment for
financial instruments and currencies, or the delivery of cash, they are usually
closed out before the delivery date. Closing out an open Futures Contract sale
or purchase is effected by entering into an offsetting Futures Contract purchase
or sale, respectively, for the same aggregate amount of the identical financial
instrument, currency or stock index and the same delivery date. If the
offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance, however,
that a Fund will be able to enter into an offsetting transaction with respect to
a particular Futures Contract at a particular time. If a Fund is not able to
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations arising
from the sale of one Futures Contract of September Treasury Bills on an exchange
may be fulfilled at any time before delivery under the Futures Contract is
required (i.e., on a specified date in September, the "delivery month") by the
purchase of another Futures Contract of September Treasury Bills on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Fund.
Persons who trade in Futures Contracts may be broadly classified as "hedgers"
and "speculators." Hedgers, such as the Funds, whose business activity involves
investment or other commitment in securities or other obligations, use the
futures markets primarily to offset unfavorable changes in value that may occur
because of fluctuations in the value of the securities and obligations held or
expected to be acquired by them or fluctuations in the value of the currency in
which the securities or obligations are denominated. Debtors and other obligors
may also hedge the interest cost of their obligations. The speculator, like the
hedger, generally expects neither to deliver nor to receive the financial
instrument underlying the Futures Contract, but, unlike the hedger, hopes to
profit from fluctuations in prevailing interest rates, the underlying stock
index, or currency exchange rates. A Fund's Futures transactions will be
entered into for traditional hedging purposes; that is, Futures Contracts will
be sold to protect against a decline in the price of securities or currencies
that the Fund owns, or Futures Contracts will be purchased to protect the Fund
against an increase in the price of securities or currencies it has committed to
purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by a Fund with a securities dealer in order to initiate Futures
trading and to maintain the Fund's open positions in Futures Contracts. A margin
deposit made when the Futures Contract is entered into ("initial margin") is
intended to assure the Fund's performance of the Futures Contract. The margin
required for a particular Futures Contract is set by the exchange on which the
Futures Contract is traded, and may be significantly modified from time to time
by the exchange during the term of the Futures Contract. Futures Contracts are
customarily purchased and sold on margins that may range upward from less than
5% of the value of the Futures Contract being traded.
If the price of an open Futures Contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the securities dealer will require an increase in the margin
deposit ("margin variation"). However, if the value of a position increases
because of favorable price changes in the Futures Contract so that the margin
deposit exceeds the required margin, the securities dealer will pay the excess
to the Fund. In computing daily net asset values, a Fund will mark-to-market the
current value of its open Futures Contracts. The Funds expect to earn interest
income on their margin deposits.
The prices of Futures Contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates, which in turn are
affected by fiscal and monetary policies and national and international
political and economic events. At best, the correlation between changes in
prices of Futures Contracts and of the securities or currencies being hedged can
be only approximate. The degree of imperfection of correlation depends upon
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<PAGE>
circumstances such as: variations in speculative market demand for Futures and
for debt securities or currencies, including technical influences in Futures
trading; and differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading. A
decision of whether, when, and how to hedge involves skill and judgment and even
a well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, or
gain, to the investor. For example, if at the time of purchase, 10% of the value
of the Futures Contract is deposited as margin, a subsequent 10% decrease in the
value of the Futures Contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the contract were closed out. Thus, a purchase or
sale of a Futures Contract may result in losses in excess of the amount invested
in the Futures Contract. However, the Fund would presumably have sustained
comparable losses if, instead of the Futures Contract, it had invested in the
underlying financial instrument and sold it after the decline.
Furthermore, in the case of a Futures Contract purchase, in order to be certain
that the Fund has sufficient assets to satisfy its obligations under a Futures
Contract, the Fund segregates and commits to back the Futures Contract with an
amount of cash, U.S. government securities or other liquid, high-grade debt
securities equal in value to the current value of the underlying instrument less
the margin deposit.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in Futures
Contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a Futures Contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of Futures Contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures Contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of Futures positions and subjecting some
Futures traders to substantial losses.
The Funds will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fiscal year) on Futures transactions. Such
distributions will be combined with distributions of capital gains realized on a
Fund's other investments and shareholders will be advised of the nature of
payments.
REGULATORY ASPECTS OF HEDGING. The Funds are not commodity pools. Each Fund's
transactions in futures and options thereon will constitute bona fide hedging or
other permissible transactions under regulations promulgated by the CFTC. In
addition, no Fund may engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired futures and options
thereon would exceed 5% of the fair market value of the Fund's assets, with
certain exclusions as defined in the applicable CFTC rules.
SPECIAL RISKS OF HEDGING. Participation in the options or futures markets and in
currency exchange transactions involves investment risks and transactions costs
to which the Funds would not be subject absent the use of these strategies. If
the Investment Manager's prediction of movements in the direction of interest
rates, securities prices, or currency markets are inaccurate, the adverse
consequences to the Funds may leave the Funds in a worse position than if such
strategies were not used. Risks inherent in the use of options, foreign currency
and futures contracts and options on futures contracts include: (1) dependence
on the Investment Manager's ability to predict correctly movements in the
direction of interest rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities or currencies
being hedged; (3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences.
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WARRANTS OR RIGHTS. Warrants or rights may be acquired by a Fund in connection
with other securities or separately, and provide the Fund with the right to
purchase at a later date other securities of the issuer. As a condition of its
continuing registration in a state, each Fund has undertaken that its
investments in warrants or rights, valued at the lower of cost or market, will
not exceed 5% of the value of its net assets and not more than 2% of such assets
will be invested in warrants and rights which are not listed on the American or
New York Stock Exchange. Warrants or rights acquired by a Fund in units or
attached to securities will be deemed to be without value for purpose of this
restriction. These limits are not fundamental policies of the Funds and may be
changed by the Company's Board of Directors without shareholder approval.
SECURITY FORWARD COMMITMENTS. Global Income Fund may buy or sell "when issued"
or "delayed delivery" securities (collectively called "Forward Commitments").
Forward Commitments occur when the Fund buys or sells securities with payment
and delivery taking place in the future (typically a month or more after the
deal is struck). The price is fixed on the date of the commitment, and the
seller continues to accrue interest on the securities until delivery and payment
takes place. At the time of settlement, the market value of the securities may
be more or less than the purchase or sale price.
A Forward Commitment may either be settled according to its original terms, or
it may be resold or repurchased on or before the settlement date, if AIB Govett
deems it advisable to do so. When engaging in Forward Commitments, the Fund
relies on the other party to complete the transaction. If the other party fails
to do so, the Fund may lose a purchase or sale opportunity that could be more
advantageous than alternative opportunities at the time of the failure. The
amount at risk to the Fund for an uncompleted Forward Commitment is the
difference between the purchase price and the current marked-to-market price.
To minimize this risk, for each Forward Commitment purchase, Global Income Fund
maintains appropriate liquid securities, or cash, in a segregated account (which
is marked to market daily) with the Fund's custodian. The aggregate amount of
this account must be equal to the amount of the commitment as long as the
purchase obligation continues. Since the market value of the securities or
currency subject to the Forward Commitment and the securities or currency held
in the segregated account may fluctuate, the use of Forward Commitments may
magnify the effect of interest rate changes on the Fund's net asset value.
A Forward Commitment sale is "covered" if the Fund owns or has the right to
acquire the underlying securities or currency subject to the Forward Commitment.
A Forward Commitment is for cross-hedging if it is not covered but is designed
to hedge against a decline in value of a security or currency which the Fund
owns or has the right to acquire. In either circumstance, the Fund maintains in
a segregated account (which is marked to market daily) either the security or
currency covered by the Forward Commitment or other appropriate liquid
securities, in an aggregate amount equal to the amount of its commitment, as
long as the obligation to sell continues. By entering into a Forward Commitment
sale transaction, the Fund foregoes or reduces the potential for gain and loss
in the holding which is being hedged.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which the Funds
purchase a security and simultaneously commit to resell that security to the
seller at an agreed upon price on an agreed upon date within a specified number
of days (usually not more than seven) from the date of purchase. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value (at least equal to the amount
of the agreed upon resale price and marked to market daily) of the underlying
security. In the event of the seller's default, the Funds could suffer a loss if
the fair market value of the security "purchased" is less than the amount paid
for the security. The Investment Manager will consider the creditworthiness of
sellers before causing a Fund to enter into repurchase agreements with them, and
will review such creditworthiness periodically. In the event of the bankruptcy
of the other party to a repurchase agreement, a Fund could experience delays in
recovering either the securities or the cash lent. To the extent that, in the
meantime, the value of the securities purchased had decreased, the Fund could
experience a loss. In all cases, the Investment Manager must find the
creditworthiness of the other party to the transaction satisfactory.
The purpose of engaging in repurchase agreements is to earn a return on
uninvested cash. The Funds may engage in a repurchase agreement with respect to
any security in which they are authorized to invest. Whether a repurchase
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<PAGE>
agreement is the purchase and sale of a security or a collateralized loan has
not been definitively established. This might become an issue in the event of
the bankruptcy of the other party to the transaction. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the underlying
securities, as well as delays and costs to the Funds in connection with
bankruptcy proceedings), it is currently the policy of the Funds to enter into
repurchase agreements only with those member banks of the Federal Reserve System
and primary dealers in U.S. government securities whose creditworthiness has
been reviewed and found satisfactory by the Investment Manager, pursuant to
policies established by the Company's Board of Directors.
The Funds may in the future wish to invest in foreign repurchase agreements.
Currently, markets for foreign repurchase agreements are in the developing stage
in various countries and it can be expected that new markets will continue to be
developed in the future. The Funds do not have any current intention of engaging
in foreign repurchase agreements, and will not do so until general guidelines
and criteria have been approved by the Company's Board of Directors.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a Fund
temporarily transfers possession of a security to another party, such as a bank,
in return for cash. At all times that a reverse repurchase agreement is
outstanding, the Fund will maintain cash and liquid high grade debt securities
in a segregated account at its custodian bank with a value at least equal to its
obligation under the agreement. Reverse repurchase agreements are considered to
be borrowings for purposes of investment limitation 1. on page 4 of this
Statement of Additional Information, and therefore are subject to the overall
percentage limitations on borrowings and the restrictions on the purposes of
borrowings contained in that limitation. As of the date of this Statement of
Additional Information, the Funds do not invest in reverse repurchase
agreements, and will not do so until the Board of Directors has approved
guidelines for such investments.
PORTFOLIO TURNOVER. The Company's Board of Directors periodically reviews the
Investment Manager's performance of their respective responsibilities in
connection with the placement of portfolio transactions on behalf of the Funds,
and reviews the commissions paid by the Funds to determine whether such
commissions are reasonable in relation to what the directors believe are the
benefits to the Funds. See "Allocation of Portfolio Transactions" in the
prospectuses for information on the Funds' portfolio turnover rates.
MONEY MARKET INSTRUMENTS. As noted in the Funds' prospectuses, the Funds may,
from time to time, invest excess cash in the following "money market"
securities:
U.S. Government Securities. The Funds may invest in the various types of short-
- --------------------------
term marketable securities issued by or guaranteed as to principal and interest
by the U.S. government and supported by the full faith and credit of the U.S.
Treasury. U.S. Treasury obligations differ mainly in the length of their
maturity. Treasury bills, the most frequently issued marketable government
securities, have a maturity of up to one year and are issued on a discount
basis.
U.S. Government Agency Securities. The Funds may invest in short-term U.S.
- ---------------------------------
government agency securities which are debt securities issued by government-
sponsored enterprises and federal agencies. Examples are the Federal National
Mortgage Association and the Federal Intermediate Credit Bank. Such securities
are not direct obligations of the Treasury but involve U.S. government
sponsorship or guarantees by U.S. government agencies or enterprises. Such
securities are subject to fluctuations in market value due to fluctuations in
market interest rates. Certain types of these securities are subject to
fluctuations in yield due to early prepayments on mortgages underlying such
securities. The Funds may invest in all types of U.S. government agency
securities currently outstanding or to be issued in the future.
Bank Obligations. These obligations include, but are not limited to, negotiable
- ----------------
certificates of deposit, bankers' acceptances and fixed time deposits. The Funds
will limit their investment in U.S. bank obligations to obligations of U.S.
banks (including foreign branches) which have more than $1 billion in total
assets at the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits are insured
by the Federal Deposit Insurance Corporation. The Funds will limit their
investments in foreign bank
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obligations to U.S. dollar denominated obligations of foreign banks which at the
time of investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
foreign banks in the world; (iii) have branches or agencies in the U.S.; and
(iv) in the opinion of the Investment Manager are of an investment quality
comparable with obligations of U.S. banks which may be purchased by the Funds.
Fixed time deposits are obligations of U.S. banks, of foreign branches of U.S.
banks, or of foreign banks which are payable at a stated maturity date and bear
a fixed rate of interest. Generally, fixed time deposits may be withdrawn on
demand by the investor, but they may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have a market, there are no
contractual restrictions on the Funds' right to transfer a beneficial interest
in the deposit to a third party. It is the policy of each Fund not to invest in
(i) fixed time deposits subject to withdrawal penalties, other than overnight
deposits; (ii) repurchase agreements with more than seven days to maturity; or
(iii) other illiquid securities, if in the aggregate more than 5% of the value
of its net assets would be so invested.
Obligations of foreign banks and foreign branches of U.S. banks involve somewhat
different investment risks from those affecting obligations of U.S. banks,
including the possibilities that liquidity could be impaired because of future
political and economic developments, that the obligations may be less marketable
than comparable obligations of U.S. banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions (such as foreign exchange controls) may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks, or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks differ from those applicable to U.S.
banks. In that connection, foreign banks are not subject to examination by any
U.S. government agency or instrumentality.
Short-Term Corporate Debt Instruments. The Funds may invest in commercial paper,
- -------------------------------------
which refers to short-term, unsecured promissory notes issued by U.S. and
foreign corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months.
The Funds may also invest in non-convertible corporate debt securities (e.g.,
bonds and debentures) with no more than one year remaining to maturity at the
date of settlement. Corporate debt securities with a remaining maturity of less
than one year tend to become extremely liquid and are traded as money market
securities. The Funds' commercial paper investments at the time of purchase will
be rated at least A-2 by Standard & Poor's or Prime-2 by Moody's, or if unrated,
will be of comparable quality as determined by the Investment Manager. The
Funds' short-term investments in corporate bonds and debentures (which must have
maturities at the date of purchase of one year or less) must be rated at the
time of settlement at least AA by Standard & Poor's or Aa by Moody's or if
unrated, will be of comparable quality as determined by the Investment Manager.
See Appendix A to this Statement of Additional Information for information about
Moody's and Standard & Poor's ratings.
DIRECTORS AND OFFICERS
The Company's Board of Directors has the responsibility for the overall
management of the Funds, including general supervision and review of their
investment activities. The Board of Directors, in turn, appoints the officers
who are responsible for administering the day-to-day operations of the Funds.
Listed below are the directors and officers of the Funds, and their affiliations
and principal occupations for the past five years. Directors who may be
"interested persons" of the Funds, as defined in the 1940 Act, are designated by
an asterisk(*).
DIRECTORS
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ELLIOTT L. ATAMIAN (24 Country Drive, Weston, MA 02193) is a private investor,
and has served on the Board of Directors of Rogers Foam Corp. since 1989 and
Brookline Savings Bank since 1978. He was a Professor of
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Finance at Northeastern University from 1972 to 1991 and served on the Board of
Directors of certain mutual funds managed by John Hancock Advisors, Inc. from
1972 to 1991. He is 78.
PATRICK CUNNEEN * (c/o AIB Investment Managers Limited, AIB Investment House,
Percy Place, Dublin, Ireland 4) graduated from University College, Dublin with a
Bachelor of Commerce degree in 1967. He joined AIBIM (Dublin) as Managing
Director in 1991 and currently holds the office of Vice Chairman of AIB Asset
Management Holdings (UK). AIBIM (Dublin) is a subsidiary of Allied Irish Banks
plc, the majority owner of AIB Govett. Prior to joining AIBIM (Dublin), Mr.
Cunneen was Investment Director of New Ireland Assurance Company Limited, where
he had been since 1972. He has been a member of the Society of Investment
Analyst since 1974, and is a former Chairman of the Irish Association of
Investment Managers. He is 51.
SIR VICTOR GARLAND (15 Wilton Place, Knightsbridge, London, SW1X 8RL) has been a
private investor since 1984, and currently serves as a director of a number of
U.K. public companies. He is the former Australian Ambassador to the U.K. and a
former director of Prudential Assurance Corporation in the U.K. He is 62.
JAMES M. OATES (c/o IBEX Capital Management, 60 State Street, Suite 950,
Boston, MA 02109) is currently Managing Director of The Wydown Group and
Chairman of IBEX Capital Markets, LLC. His present Board affiliations include:
Blue Cross and Blue Shield of New Hampshire, Director; Phoenix Mutual Funds,
Director, Member of the Audit Committee; Phoenix Duff & Phelps, Director,
Chairman of the Compensation Committee; The Govett Funds, Director, Member of
the Audit Committee; Investors Bank & Trust, Director, Member of Executive
Committee, Chairman of the Compensation Committee; Investor Financial Services
Corp., Director; Member of the Executive Committee, Chairman of the Compensation
Committee, and Member of the Nominating Committee; Plymouth Rubber Company,
Director; Stifel Financial, Director, and Member of Compensation, Audit and
Finance Committees; Emerson Investment Management, Inc., Director and Member of
the Executive Committee; Massachusetts Housing Partnership, Director;
Massachusetts General Hospital, Member of the Corporation; Middlesex School
(Concord, MA), President of the Board of Trustees; Chief Executive Organization,
Member. He is 49.
FRANK R. TERZOLO (c/o C.R.T. Strategies, 3420 East Shea Boulevard, Suite 200,
Phoenix, AZ 85028) is presently President and Chief Executive Office of C.R.T.
Strategies, a company that designs and implements charitable remainder trusts.
From 1989 to 1996 he was President and Chief Executive Officer of Ameritrust
Network, Inc., which also designed and implemented charitable remainder trusts.
From 1988 to 1989, he was President and Chief Executive Officer of American
Equities, and from 1984 to 1988 he was President and Chief Operating Officer for
Equitec Securities Company, a financial services company. He is 63.
OFFICERS
- --------
BRIAN M. LEE, (c/o AIB Govett Asset Management Limited, Shackleton House, 4
Battle Bridge Lane, London SE1 2HR, England) President of the Company, graduated
from the University of Wales in 1980 and qualified as a Chartered Accountant
with Deloitte Haskins & Sells in 1982. He joined AIB Govett (London) in 1987
and was appointed Finance Director in 1991. From November 1993 until January
1995, he was on secondment in the U.S. to as Chief Financial Officer of an
insurance company affiliate of AIB Govett (London). Currently, as Managing
Director, Operations, he is responsible for the financial control, compliance
and administrative functions at AIB Govett (London). He is also a Director of
AIB Govett He is 39.
COLIN KREIDEWOLF, (c/o AIB Govett Asset Management Limited, Shackleton House, 4
Battle Bridge Lane, London SE1 2HR, England) Vice President and Treasurer of the
Company, joined AIB Govett (London) in 1981. He became a member of The
Institute of Chartered Secretaries and Administrators in England and Wales in
1986. Currently, he is responsible for management of U.S. operations at AIB
Govett (London) and is Treasurer and Senior Vice President at AIB Govett. He is
37.
ALICE L. SCHULMAN, (c/o AIB Govett, Inc., 250 Montgomery Street, Suite 1200, San
Francisco, CA 94104) is Vice President and Secretary of the Company, and she is
Vice President/Administration of AIB Govett (London) and Secretary and Vice
President at AIB Govett. From 1993 until she joined Berkeley Capital Management
in
19
<PAGE>
1994, Ms. Schulman was the Compliance Officer at BZW Barclays Global Investment
Advisors, and from 1989 to 1993, she was a compliance manager for The Benham
Group. Prior to 1989, she served in various compliance management and
administration functions at McKesson Corporation and Kaiser Aluminum
Corporation. She is 47.
ANDREW BARNETT, (c/o AIB Govett Asset Management Limited, Shackleton House, 4
Battle Bridge Lane, London SE1 2HR, England)Vice President of the Company,
joined AIB Govett (London) in 1987. Mr. Barnett graduated from Manchester
University in 1970 with a BA (Hons) in History, Economics and Politics. In 1974
he became a member of the Institute of Chartered Accountants in England and
Wales. Mr. Barnett was appointed Operations Director in 1991. He is 48.
As indicated above, a director and officer may hold other positions with the
Investment Manager and its affiliates. The President of the Company is a
resident of the United Kingdom and has appointed the Company, located at 250
Montgomery Street, Suite 1200, San Francisco, CA, 94104, as his agent for
notice.
Directors not affiliated with the Investment Manager are paid fees of $20,000
per year, plus a fee of $1,000 per Board meeting, with the independent Board
member who serves on the Pricing Committee to receive a retainer of $1,000. Each
member of the Committee on Administration, which is comprised of all of the
independent directors, is compensated in the amount of $1,000 for each meeting,
except when its meetings are held in conjunction with regular or special Board
meetings or for short telephonic meetings. Directors not affiliated with the
Investment Manager are reimbursed for expenses incurred in connection with
attending Board of directors meetings.
These fees are paid equally by all Fund. No officer or director receives any
other compensation directly from the Funds. As of September 30, 1997, the
directors and officers, as a group, owned of record and beneficially less than
1% of the total outstanding shares of any Fund. The officers and directors of
the Company who are not U.S. residents have appointed the Company, 250
Montgomery Street, Suite 1200, San Francisco, California 94104, as their agent
for notice.
The holders of a majority of the outstanding shares of the Company can elect all
of the Company's directors and can remove one or more of the directors. The
holders of a majority of the outstanding shares of a Fund can change the Fund's
investment objective and fundamental investment policies and restrictions, and
can approve, disapprove, or amend the Management Contract and Distribution
Agreement, with respect to that Fund. The holders of a majority of the
outstanding shares of any class of a Fund can approve, disapprove, or amend the
Distribution Plan for such class. Shareholders holding at least 10% of the
Company's outstanding shares may call a meeting of shareholders. Large
redemptions by one or more shareholders in a Fund could give rise to significant
transaction costs which will be borne by the remaining shareholders in the Fund,
and could otherwise adversely affect the performance of the Fund.
The following table summarizes the above information relating to the directors
and officers of the Company, and the total compensation paid to them by the
Funds during 1996. The Govett Funds have not established any pension,
retirement or deferred compensation plans for directors or officers. No officers
of the Company received any compensation from any Fund or the Fund Complex
during 1996.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation By Fund:
----------------------------------------------------------------------------------------------------------------------
Govett Govett Govett Govett Govett Govett Total
International Emerging Smaller Pacific Latin Global Compensation
Name, Age, Equity Fund Markets Fund Companies Fund Strategy Fund America Fund Income Fund From Funds*
Position
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Elliott L. Atamian, $3,929.63 $4,533.84 $8,215.04 $3,687.40 $3,708.08 $3,926.01 $28,000.00
78, Director
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick K. Cunneen N/A N/A N/A N/A N/A N/A N/A
51, Chairman and Director
- ------------------------------------------------------------------------------------------------------------------------------------
Sir Victor Garland $3,792.44 $4,372.46 $7,906.45 $3,559.94 $3,579.77 $3,788.94 $27,000.00
62, Director
- ------------------------------------------------------------------------------------------------------------------------------------
James M. Oates $3,792.44 $4,372.46 $7,906.45 $3,559.94 $3,579.77 $3,788.94 $27,000.00
49, Director
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Frank R. Terzolo $3,792.44 $4,372.46 $7,906.94 $3,559.94 $3,579.77 $27,000.00
63, Director
- -------------------------------------------------------------------------------------------------------
</TABLE>
* based on fiscal year ending December 31, 1996
MANAGEMENT OF THE FUNDS
Investment Manager
- ------------------
AIB Govett is the investment manager of the Funds. On ________, 1997, the
Company's Board of Directors approved a new investment management agreement (the
"Investment Management Contract") between the Company and AIB Govett whereby AIB
Govett was appointed to serve as investment manager to the Original Funds and
the three new Funds: China Fund, Asian Smaller Companies Fund, and Europe Fund.
The terms of the Investment Management Contract between the Company and AIB
Govett with respect to the Original Funds are substantially similar to, and with
respect to the China Fund, Asian Smaller Companies Fund, and Europe Fund are
substantially consistent with, the former investment management agreement
between the Company and AIB Govett (London) ( the "Former Advisory
Agreement").
The Former Advisory Agreement with respect to the International Equity Fund, the
Emerging Markets Equity Fund and the Global Income Fund was approved by the
Company's Board of Directors (including a majority of the Directors who are not
"interested persons" of the Funds or the Investment Manager) on November 25,
1991 and by the initial shareholder of those Funds on November 26, 1991. The
Former Advisory Agreement with respect to the Smaller Companies Fund was
approved by the Company's Board of Directors (including a majority of the
Directors who are not "interested persons" of that Fund or the Investment
Manager) on November 6, 1992 and by the initial shareholder of the Smaller
Companies Fund on December 28, 1992. The Former Advisory Agreement with respect
to the Asia Fund was approved by the Company's Board of Directors (including a
majority of the Directors who are not "interested persons" of the Funds or the
Investment Manager) on November 5, 1993, and by the initial shareholder of that
Fund on December 15, 1993. The Former Advisory Agreement with respect to the
Latin America Fund was approved by the Company's Board of Directors (including a
majority of the Directors who are not "interested persons" of the Funds or the
Investment Manager) on March 4, 1994, and by the initial shareholder of that
Fund on March 4, 1994. The Investment Management Contract, which applies to the
Original Funds and China Fund, Asian Smaller Companies Fund, and Europe Fund,
was approved by the Company's Board of Directors (including a majority of the
Directors who are not "interested persons" of the Funds or the Investment
Manager) on _________, 1997.
Subadvisers
- -----------
On ______, 1997, the Board of Directors also approved an investment subadvisory
agreement dated ______, 1997, between AIB Govett and each of AIB Govett (London)
and AIBIM (Dublin) pursuant to which AIB Govett (London) was appointed to serve
as an investment subadviser with respect to the Original Funds and China Fund
and Asian Smaller Companies Fund; and AIB Govett (London) and AIBIM (Dublin)
were appointed as co-investment subadvisers to the Europe Fund. The terms of the
Subadvisory Agreements also are substantially consistent with the terms of the
Former Advisory Agreement. None of the investment management fees paid by any of
the Original Funds was affected by the change in investment manager from AIB
Govett (London) to AIB Govett.
AIB Govett (London) is a U.K. company located at Shackleton House, 4 Battle
Bridge Lane, London SE1 2HR, England. AIBIM (Dublin) is an Irish company located
at AIB Investment House, Percy Place, Dublin, Ireland 4. The Subadvisers and the
Investment Manager are affiliates of each other and members of the AIB
Group.
Transfer Agent
- --------------
FPS Services, Inc. ("FPS" or the "Transfer Agent") provides the Company and each
Fund with certain services, including the following: (1) preparation and
maintenance of accounts and records for each Fund and performance of
21
<PAGE>
certain related functions; and (2) provision of transfer agency services to each
Fund. These services are provided at cost plus a profit. The Transfer Agent is
an affiliate of the Distributor.
Fund Administrator and Accountant
- ---------------------------------
Chase Global Funds Services Company, Inc., 73 Tremont Street, Boston, MA 02108
(the "Fund Administrator and Accountant") provides the Company with certain
administration and accounting services.
Custodians
- ----------
The Chase Manhattan Bank, 4 MetroTech Center, Brooklyn, NY 11245 (the
"Custodian") is the Funds' global custodian. Hong Kong and Shanghai Banking
Corporation, Taipei, Taiwan, provides custody for the Funds' assets held in
Taiwan.
The Custodian and the Fund Administrator and Accountant do not participate in
decisions relating to the purchase and sale of portfolio securities. These
entities provide services in connection with the sale, exchange, substitution,
transfer and other dealings with the Funds' investments, receive and disburse
all funds and perform various other duties upon receipt of proper instructions
from the Funds. The Custodian also acts as Custodian for certain cash and
securities of the Funds maintained outside of the U.S. in certain countries
through certain foreign subcustodians pursuant to the requirements of a
Securities and Exchange Commission rule. The Custodian charges custody fees
which are believed to be competitive within the industry.
Independent Accountant
- ----------------------
Coopers & Lybrand LLP, 333 Market Street, San Francisco, CA, 94105, acts as the
Funds' independent accountants.
Fund Counsel
- ------------
Goodwin, Procter & Hoar LLP, One Exchange Place, Boston, MA 02109-2881, serves
as Fund counsel. The validity of the shares of the Funds offered pursuant to
the Prospectus and Statement of Additional Information will be passed upon by
Goodwin, Procter & Hoar LLP.
Principal Shareholders and Control Persons
- ------------------------------------------
The following persons are known by the Company to own of record or beneficially
5% or more of the Class A securities of the indicated Funds as of September 30,
1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Name and Address Fund/Class Percentage of Outstanding Shares
of Shareholder as of September 30, 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Boston Company International Equity Fund/A 14.67%
FBO M.J. Murdock Charitable Trust
Attn: Mutual Funds Operations
P. O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. Latin America Fund/A 13.91%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------------------------------------------
James G. Lindell Asia Fund/A 5.34%
9257 Wedgewook Drive
Wodbury, MN 55125-9373
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
St. Elizabeth Hospital Global Income Fund/A 9.48%
1501 Hartford
P. O. Box 7501
Lafayette, IN 47904-2126
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Expenses: Investment Management and Subadvisory Arrangements
- ------------------------------------------------------------
In addition to the investment management fee payable to the Investment Manager
(described below) and the compensation payable to the Transfer Agent, the Funds
pay all of their own expenses, including, without limitation, the costs and
expenses attributable to the preparation, typesetting, printing and mailing of
their proxy materials to existing shareholders, their legal expenses, and the
fees of their custodians, auditor and non-interested directors. The Funds'
Investment Management Contract with the Investment Manager also provides that
the Funds will pay for the typesetting, printing and mailing of prospectuses,
Statements of Additional Information and reports to existing shareholders. Other
expenses paid by the Funds include interest, taxes, brokerage commissions, and
other portfolio transactions fees and charges, the Funds' proportionate share of
insurance premiums and dues, and the costs of registering shares under federal
and state securities laws. The Funds are also responsible for such nonrecurring
expenses as may arise, including costs of litigation to which the Funds are
party and any obligations they may have to indemnify their officers and
directors with respect to such litigation.
Pursuant to the Investment Management Contract, each Fund is obligated to pay
the Investment Manager a monthly fee computed at the close of business on the
last business day of each month equal to a monthly rate of approximately .08%,
or 1% per year (.06% monthly or .75% per year for the Global Income Fund), of
the average daily net assets of the Fund. Given the added complexities involved
in managing international and smaller company investments, this fee is higher
than that paid by most other investment companies.
During the fiscal years ending December 31, 1994, 1995, and 1996 the Investment
Manager was entitled to receive management fees as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
FUND 1994 1995 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
International Equity $ 365,679 $ 302,657 $ 238,566
- ------------------------------------------------------------------------------
Emerging Markets Equity 837,173 745,285 652,671
- ------------------------------------------------------------------------------
Smaller Companies 417,857 3,173,782 3,144,746
- ------------------------------------------------------------------------------
Asia 208,445 118,565 62,037
- ------------------------------------------------------------------------------
Latin America 73,186 47,489 56,499
- ------------------------------------------------------------------------------
Global Income 546,289 338,596 180,905
- ------------------------------------------------------------------------------
</TABLE>
Of these fees, the Investment Manager waived the following amounts:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
FUND 1994 1995 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
International Equity $ 86,528 $ 76,145 $ 174,141
- ------------------------------------------------------------------------------
Emerging Markets Equity 121,674 207,496 137,788
- ------------------------------------------------------------------------------
Smaller Companies 190,035 559,632 1,022,796
- ------------------------------------------------------------------------------
Asia 32,472 133,040 316,924
- ------------------------------------------------------------------------------
Latin America 61,909 150,934 262,753
- ------------------------------------------------------------------------------
Global Income 148,986 80,573 218,527
- ------------------------------------------------------------------------------
</TABLE>
The Investment Management Contract remains in effect until the second
anniversary of its effective date with respect to such Fund. Thereafter, it
continues in effect for successive annual periods, provided such continuance is
specifically approved at least annually by a vote of the Company's Board of
Directors or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority of the Company's directors
who are not parties to the agreement or interested persons of any such party
(other than as directors of the Company), cast in person at a meeting called for
that purpose. The Investment Management Contract may be terminated without
penalty at any
23
<PAGE>
time by one or more of the Funds or by the Investment Manager on sixty days
written notice without penalty, and will automatically terminate in the event of
its assignment, as defined in the 1940 Act.
Pursuant to the Subadvisory Agreements with the Investment Manager, the
Subadvisers provide day-to-day investment advisory services to the Funds. The
Subadvisers furnish an investment program and make investment decisions for the
Funds, subject to the supervision of the Investment Manager and the Company's
Board of Directors. Under the Subadvisory Agreement, AIB Govett, out of the
investment advisory fees received for each particular fund, pays AIB Govett
(London) an annual fee, computed daily and paid monthly, equal to __% of average
daily net assets for the International Equity Fund, Emerging Markets Equity
Fund, Smaller Companies Fund, Asia Fund, Latin America Fund, China Fund, Asian
Smaller Companies Fund and Europe Fund and equal to __% of average daily net
assets for the Global Income Fund. Under its Subadvisory Agreement, AIB Govett,
out of the investment advisory fees received for the particular fund, pays AIBIM
(Dublin) an annual fee, computed daily and paid monthly, equal to __% of average
daily net assets for the Europe Fund.
BROKERAGE ALLOCATION
Under the Funds' Investment Management Contract, the selection of securities
dealers to execute transactions in the portfolios of the Funds is made by the
Investment Manager in accordance with criteria set forth in the prospectuses,
the Investment Management Contract, and policies adopted by the Company's' Board
of Directors. The following procedures followed by the Investment Manager and
the Subadvisers for the International Equity Fund, Emerging Markets Equity Fund,
Smaller Companies Fund, Asia Fund, Latin America Fund, Global Income Fund, China
Fund, Asian Smaller Companies Fund, and Europe Fund.
The Investment Manager and the Subadvisers place portfolio transactions for the
Funds with those securities broker-dealers which the Investment Manager believes
will provide best value in transaction and research services for the Funds,
either in a particular transaction or over a period of time. Although some
transactions involve only brokerage services, many involve research services as
well.
In valuing brokerage services, the Investment Manager and the Subadvisers make
judgments as to which securities broker-dealers are capable of providing the
most favorable net price (not necessarily the lowest commission) and the best
execution in a particular transaction. Best execution connotes not only general
competence and reliability of a securities broker-dealer, but specific expertise
and effort of a securities broker-dealer in overcoming the anticipated
difficulties and fulfilling the requirements of particular transactions, because
the problems of execution and the required skills and effort vary greatly among
transactions.
In valuing research services, the Investment Manager and the Subadvisers makes a
judgment as to the usefulness of research and other information provided by a
securities broker-dealer to the Investment Manager and the Subadvisers in
managing the Funds' investment portfolios. In some cases, the information,
e.g., data for recommendations concerning particular securities, relates to the
specific transaction placed with the securities broker-dealer, but for the
greater part the research consists of a wide variety of information concerning
companies, industries, investment strategy and economic, financial and political
conditions and prospects, useful to the Investment Manager and the Subadvisers
in advising the Funds. The Funds may pay to those securities broker-dealers
which provide brokerage and research services to the Investment Manager and the
Subadvisers a higher commission than that charged by other securities broker-
dealers if the Investment Manager and the Subadvisers determines in good faith
that the amount of the commission is reasonable in relation to the value of
those services in terms either of the particular transaction, or in terms of the
overall responsibility of the Investment Manager and the Subadvisers to the
Funds and to any other accounts over which the Investment Manager and the
Subadvisers exercises investment discretion.
The reasonableness of brokerage commissions paid by the Funds in relation to
transaction and research services received is evaluated by the staff of the
Investment Manager and the Subadvisers on an ongoing basis. The general level
of brokerage charges and other aspects of the Funds' portfolio transactions are
reviewed periodically by the Company's Board of Directors.
24
<PAGE>
The Investment Manager and the Subadvisers is the principal source of
information and advice to the Funds, and is responsible for making and
initiating the execution of investment decisions for the Funds. However, the
Investment Manager and the Subadvisers believe that it is important for the
Investment Manager and the Subadvisers, in performing its responsibilities to
the Funds, to continue to receive and evaluate the broad spectrum of economic
and financial information that many securities broker-dealers have customarily
furnished in connection with brokerage transactions, and that in compensating
securities broker-dealers for their services, it is in the interest of the Funds
to take into account the value of the information received for use in advising
the Funds. The extent, if any, to which the obtaining of such information may
reduce the expenses of the Investment Manager and the Subadvisers in providing
management services to a Fund is not readily determinable. In addition, other
clients of the Investment Manager and the Subadvisers, including other Funds,
might also benefit from the information obtained for a particular Fund, in the
same manner that Fund might also benefit from information obtained by the
Investment Manager and the Subadvisers in performing services to others,
including one or more of the other Funds.
The Investment Manager and the Subadvisers will ordinarily place orders for the
purchase and sale of over-the-counter securities on a principal rather than
agency basis with a principal market maker unless, in the opinion of the
Investment Manager and the Subadvisers, a better price and execution can
otherwise be obtained. Purchases of portfolio securities from underwriters will
include a commission or concession paid by the issuer to the underwriter, and
purchases from securities broker-dealers will include a spread between the bid
and asked prices. Subject to the requirement of best execution, the sale of
Fund shares may also be considered as a factor in the selection of securities
broker-dealers to execute the Funds' portfolio transactions.
Investment decisions for each Fund are made independently from those of other of
the Investment Manager's or the Subadvisers' client accounts or other funds
managed or advised by the Investment Manager or the Subadvisers, including the
other Funds. Nevertheless, it is possible that at times identical securities
will be acceptable for both one or more Funds and one or more of such client
accounts or other funds. In such event, the position of the Fund and such other
client accounts or other funds in the same issuer may vary. The length of time
that each may choose to hold its investment in the same issuer may also vary.
However, to the extent any of these client accounts or other funds seeks to
acquire the same security as a Fund at the same general time, the Fund may not
be able to acquire as large a part of such security as it desires, or it may
have to pay a higher price or obtain a lower yield for such security.
Similarly, the Fund may not be able to obtain as high a price for, or as large
an execution of, an order to sell any particular security at the same general
time. The Investment Manager or the Subadvisers seeks to provide fair and
equitable treatment for each Fund in the selection of investments and allocation
of investment opportunities between the Fund and the Investment Manager's or the
Subadvisers' other investment management clients, including the other
Funds.
Total brokerage commissions paid by the Funds during 1994, 1995 and 1996 were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
FUND 1994 1995 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
International Equity $ 518,373 $ 203,906 $ 161,651
- ------------------------------------------------------------------------------
Emerging Markets Equity 1,145,847 763,407 939,277
- ------------------------------------------------------------------------------
Smaller Companies 383,985 1,098,810 1,166,106
- ------------------------------------------------------------------------------
Asia 541,681 202,580 214,836
- ------------------------------------------------------------------------------
Latin America 139,205 53,126 77,244
- ------------------------------------------------------------------------------
Global Income 429 n/a n/a
- ------------------------------------------------------------------------------
</TABLE>
THE COMPANY AND THE SHARES
Each Fund is a series of The Govett Funds, Inc. (the "Company"). The Company was
organized as a Maryland corporation on November 13, 1990.
The Company's Articles of Incorporation permit the Directors to create an
unlimited number of series (funds). There are currently nine funds which
comprise the Company. They are: Govett International Equity Fund, Govett
Emerging Markets Equity Fund, Govett Smaller Companies Fund, Govett Asia Fund,
Govett Latin America Fund, Govett Global Income Fund, Govett China Fund, Govett
Asian Smaller Companies Fund, and Govett Europe Fund.
25
<PAGE>
Each Fund has designated three classes of shares. Class A shares are sold with
an initial sales charge; Class B shares are sold without an initial sales charge
but are subject to a contingent deferred sales charge ("CDSC") upon certain
redemptions. Institutional Class Shares are sold without any sales charge. See
"Additional Purchase, Exchange and Redemption Information Alternative Sales
Arrangements" below.
VOTING RIGHTS. The total authorized capital stock of the Company consists of
three billion shares. Currently, the Company issues nine series of shares, each
of which corresponds to one of the Funds. Each Fund has authorized 250 million
shares for issuance. The shares have no preemptive or conversion rights; the
voting and dividend rights, and the right of exchange or redemption with respect
to each class of shares of the Funds are described in the Funds' prospectuses.
Upon issuance and payment as described in the prospectuses, shares of each Fund
will be fully paid and nonassessable. Shareholders holding 10% or more of the
outstanding shares of the Funds may, as set forth in the Articles of
Incorporation, call meetings for any purpose, including the purpose of voting on
removal of one or more of the Company's Directors. Separate votes are taken by a
Fund when a matter affects only that Fund. The Funds normally will not hold
meetings of shareholders except as required under the 1940 Act and Maryland law.
The Funds would be required to hold a shareholders' meeting in the event that,
at any time, less than a majority of the directors holding office have been
elected by shareholders. Directors will continue to hold office until their
successors are elected and have qualified. Shares of the Funds do not have
cumulative voting rights, which means that the holders of a majority of the
shares voting for the election of Directors can elect all of the Directors. A
Fund may be terminated upon the sale of its assets to another diversified, open-
end management investment company, or upon liquidation and distribution of its
assets, if approved by the requisite vote of the holders of the outstanding
shares of that Fund. If not so terminated, the portfolios are expected to
continue indefinitely.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
Please see the section entitled "About Your Account" in the prospectus relevant
to the Class of shares you hold for general information and explanations about
how to purchase, redeem and exchange shares of the Funds, including information
about sales charges and special shareholder services such the telephone
privilege, systematic withdrawal plans, and automatic investment plans. The
information included in this Statement of Additional information supplements the
information included in the prospectuses.
MULTIPLE CLASSES OF SHARES
Each Fund has designated three classes of shares. Class A shares are sold with
an initial sales charge; Class B shares are sold without an initial sales charge
but are subject to a CDSC upon certain redemptions. Institutional Class
shares are sold without any sales charge but are subject to minimum purchase
requirements. The three classes of shares of each Fund represent interests in
the same portfolio of investments of the Fund, have the same rights and are
identical in all material respects, except that the Class B shares bear the
expenses of their deferred sales arrangements, a higher distribution and
servicing charge, and any expenses (including incremental transfer agency costs)
resulting from such deferred sales arrangements and except that Institutional
Class shares bear no expenses related to sale arrangements, bear no distribution
or service charge other than specifically allocable transfer agency costs. In
addition, each class other than Institutional Class has exclusive voting rights
with respect to the Rule 12b-1 distribution plan pursuant to which the
distribution fee for such class is paid. When purchasing shares of a Fund,
investors must specify whether the purchase is for Class A, Class B or
Institutional Class shares. AN UNSPECIFIED PURCHASE ORDER WILL BE CONSIDERED AN
ORDER FOR CLASS A SHARES.
WAIVER OF CDSCS. CDSCs may be waived under the following circumstances:
REDEMPTION UPON DISABILITY OR DEATH. The Funds will waive any otherwise
applicable CDSC on redemptions following the death or disability of a Class
B shareholder. An individual will be considered disabled for this purpose
if he or she meets the definition thereof in Section 72(m)(7) of the Code,
which in pertinent part defines a person as disabled if such person "is
unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected
to result in death or to be of long-continued and indefinite duration."
While the Funds do not specifically adopt the balance of Code's definition
which pertains to furnishing the Secretary of Treasury with proof as he or
she
26
<PAGE>
may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC.
In cases of disability or death, the CDSC may be waived when the descendent
or disabled person is either an individual shareholder or owns the shares
as a joint tenant with right of survivorship or is the beneficial owner of
a custodial or fiduciary account, and where the redemption is made within
one year of the death or initial determination of disability. This waiver
of the CDSC applies to a total or partial redemption.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS.
The Funds will waive the CDSC when a total or partial redemption is made in
connection with certain distributions from the following types of
retirement plans: deferred compensation plans under Section 451 of the
Code; custodial accounts maintained pursuant to Section 403(b)(7) of the
Code, and pension or profit sharing plans qualified under Section 401(a) of
the Code. The charge may be waived upon the tax-free rollover or transfer
of assets to another retirement plan invested in one or more of the Funds;
in such event, as described below, the Funds will "tack" the period for
which the original shares were held on to the holding period of the shares
acquired in the transfer or rollover for purposes of determining what, if
any, CDSC is applicable in the event that such acquired shares are redeemed
following the transfer or rollover. The CDSC also will be waived on any
redemption which results from the return of an excess contribution pursuant
to Section 408(d)(4) or (5) of the Code, the return of excess deferral
amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death
or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii). In addition, the CDSC may be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).
The Funds do not currently intend to waive the CDSC for any distributions
from IRAs or other retirement plans not specifically described above.
REINVESTMENT OF REDEMPTION PROCEEDS IN SHARES OF THE SAME FUND WITHIN 120
DAYS AFTER REDEMPTION (CLASS A AND CLASS B) . A Class A or Class B
shareholder who has redeemed Class A or Class B shares of a Fund may
reinstate any portion or all of the net proceeds of such redemption in
Class A shares of any other Fund. Class B redemption proceeds cannot be
reinstated in Class B shares. Any such reinstatements of Class A or Class B
shares will be made at the net asset value next determined after the
reinstatement request is received, which must be within 120 days after the
date of the initial redemption. Reinstatement at net asset value is also
offered to participants and those eligible retirement plans held or
administered by Semper Trust Company for repayment of principal (and
interest) on their borrowings on such plans.
REDEMPTION BY INVESTMENT MANAGER. The Funds may waive CDSCs when a total
or partial redemption is made by the Investment Manager with respect to its
investments in a Fund.
INVOLUNTARY REDEMPTION OF CLASS A AND CLASS B SHARES IN ACCOUNTS THAT DO
NOT HAVE THE REQUIRED MINIMUM BALANCE. The Funds reserve the right to
redeem shareholder accounts with balances of less than a specified dollar
amount as set forth in the relevant prospectus. Prior to such redemptions,
shareholders will be notified in writing and allowed a specified period of
time to purchase additional shares to bring the account up to the required
minimum balance. The Funds will waive the Class B CDSC upon any such
involuntary redemption.
REDEMPTIONS IN KIND
The Funds have committed themselves to pay in cash all requests for redemption
of Fund shares by any shareholder of record, limited in amount, however, during
any 90-day period to the lesser of $250,000 or 1% of the value of each Fund's
net assets at the beginning of such period. This commitment is irrevocable
without the prior approval of the SEC. In the case of requests for redemption in
excess of such amounts, in an emergency, or if the payment of such a redemption
in cash would be detrimental to the existing shareholders of the Fund, the Board
of Directors reserves the right to make payments in whole or in part in
securities or other assets held by the Fund from which the shareholder is
redeeming. In such circumstances, the assets distributed would be valued using
the same methods used to determine the
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Fund's net asset value. Should a Fund make a redemption in kind, the recipient
shareholder may incur brokerage fees and additional tax costs in converting the
securities to cash.
SUSPENSION OF REDEMPTION PRIVILEGE
The Funds may suspend redemption privileges or postpone the date of payment of
redemptions for more than seven days after a redemption order is received during
any period (1) when the New York Stock Exchange is closed other than customary
weekend and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the SEC; (2) when an emergency exists as defined by
the SEC, which makes it not reasonably practicable for the Funds to dispose of
securities owned by it or fairly to determine the value of its assets; or (3) as
the SEC may permit.
LETTER OF INTENT -- CLASS A SHARES
A Letter of Intent ("LOI") is not a binding obligation to purchase the indicated
amount of Class A Fund shares. During such time as Fund shares are held in
escrow under an LOI to assure payment of applicable front-end sales charges if
the indicated amount of Class A is not purchased, all dividends and capital gain
distributions on the escrowed shares will be reinvested in additional shares or
paid in cash, as specified by the shareholder. If the intended investment is not
completed within the specified 13-month period, the purchaser must remit to the
Transfer Agent the difference between the front-end sales charge actually paid
and the sales charge which would have been applicable if the total purchases of
Class A shares had been made at a single time. If this amount is not paid to the
Transfer Agent within 20 days after written request, the appropriate number of
escrowed shares will be redeemed by the Transfer Agent.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA)
Shares of the Funds may also be purchased as the underlying investment for an
individual retirement account meeting the requirements of Section 408(a) of the
Code of 1986, as amended. IRA applications are available from securities dealers
who sell Fund shares or from the Transfer Agent.
CALCULATION OF NET ASSET VALUE
The Funds are open for business, and each Fund's net asset value per share
("NAV") is calculated, on every day the New York Stock Exchange is open for
trading. The New York Stock Exchange is closed on the following days: New Year's
Day, Dr. Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The close of
trading and the determination of NAV will coincide with the close of business of
the New York Stock Exchange (normally considered 4:00 p.m. Eastern Time). When
the New York Stock Exchange is closed or when trading is restricted or suspended
for any reason other than its customary weekend or holiday closings, or under
emergency circumstances as determined by the SEC to merit such action, the Funds
will determine NAV at the close of business, the exact time of which will
coincide with the closing of the New York Stock Exchange. If there is such a
restriction or suspension, any shareholder may withdraw any demand for
redemption or any tender of shares which has been received by the Transfer Agent
during any such period, the applicable NAV of which would but for such
restriction or suspension be calculated as of a time during such period. Upon
such withdrawal, the Transfer Agent shall return to the shareholder the share
certificates tendered, if any.
Securities listed or traded on the New York Stock Exchange or on a foreign
securities exchange ("Listed Securities") are valued at the last quoted sales
price on that exchange prior to the time when the Funds' assets are valued.
Securities listed or traded on certain foreign exchanges whose operations are
similar to the U.S. over-the-counter market are valued at the price within the
limits of the latest available current bid and asked prices deemed by the
Investment Manager best to reflect a fair value. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at the spot exchange rates
at 1:00 p.m. Eastern Time or at such other rates as the Investment Manager may
determine to be appropriate in computing NAV. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security by the Investment Manager.
Listed securities that are not traded on a particular day, and securities
regularly traded in the over-the-counter market, are valued at the price within
the limits of the latest available current bid and asked prices deemed by the
Investment Manager best to reflect a fair value. In instances where the price of
a security determined above is deemed by the
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Investment Manager not to be representative, the security is valued in such a
manner as prescribed by the Funds' Board of Directors to reflect the security's
fair value. Because the Funds invest in securities that are traded in foreign
markets on days the Funds are not open for business, the Funds' NAV may be
significantly affected on days when shareholders do not have access to the Funds
to purchase or redeem shares. For purposes of determining the Funds' NAV, all
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at exchange rates quoted by a major bank. If such quotations
are not available, the rate of exchange will be determined in accordance with
policies established in good faith by the Board of Directors. The Board of
Directors monitors the Funds' method of valuation on an ongoing basis.
Long-term debt obligations are valued at the mean of representative quoted bid
and asked prices for such securities or, if such prices are not available, at
prices for securities of comparable maturity, quality and type; however, when
the Investment Manager deems it appropriate, prices obtained for the day of
valuation from a bond pricing service will be used. Short-term debt obligations
with remaining maturities in excess of 60 days are valued at the mean of
representative quoted bid and asked prices for such securities or, if such
prices are not available, such securities are valued using the prices for
securities of comparable maturity, quality, and type.
Options are valued at the last sale price on the exchange on which they are
listed, unless no sales of such options have taken place that day, in which case
they will be valued at the mean between their closing bid and asked prices. If
an option exchange closes later than 4:00 p.m. Eastern Time, the options traded
on it are valued based on the sale price, or on the mean between the bid and
asked prices, as the case may be, as of 4:00 p.m. Eastern Time. When the seller
writes a call, an amount equal to the premium received is included as an asset,
and an equivalent deferred credit is included as a liability. If a call written
by a Fund is exercised, the proceeds are increased by the premium received. If a
call expires, a Fund has a gain in the amount of the premium; if a Fund enters
into a closing purchase transaction, the Fund will have a gain or loss depending
on whether the premium was more or less than the cost of the closing
transaction. If a put held by a Fund is exercised, the amount the Fund receives
on sale of the underlying investment is reduced by the amount of the premium
paid by the Fund.
Futures are valued at the last sale price as of the close of the commodities
exchange on which they are traded, unless such exchange closes later than 4:00
p.m. Eastern Time, in which case such Futures are valued at the last sale price
as of 4:00 p.m. Eastern Time. Should the Board of Directors determine that such
price does not reflect the instrument's fair value, such instruments will be
valued at their fair market value as determined by, or in accordance with
valuation procedures and guidelines established by, the Board of Directors.
As noted in each prospectus, the purchase and redemption prices of a Fund's
shares are based upon the Fund's NAV of each such class. Each Fund determines
its NAV of each class by subtracting the Fund's liabilities (including accrued
expenses and dividends payable) attributable to that class from its total assets
(the value of the securities the Fund holds plus cash and the value of other
assets, including income accrued but not yet received) attributable to that
class and dividing the result by the total number of shares outstanding. The NAV
per share of the Fund is calculated at the close of trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern Time) every day the Exchange is
open.
REINVESTMENT DATE
The dividend reinvestment date is the date on which additional Fund shares are
purchased for shareholders who have elected to have their Fund dividends
reinvested. Automatic reinvestments in additional shares are made without a
sales charge as of the ex-dividend date using the relevant Fund's NAV determined
on that date, and are credited to your account on that date.
RESTRICTIONS ON TIMED EXCHANGES
With regard to accounts that are administered by market timing services ("Timing
Firms") to purchase or redeem shares based on changing economic and market
conditions ("Timing Accounts"), the Funds reserve the right to refuse any new
timing arrangements, as well as any new purchases (as opposed to exchanges) of
Fund shares from Timing Firms. The Funds also reserve the right to temporarily
or permanently terminate the exchange privilege or to reject any specific
purchase order for any person whose transactions seem to follow a timing pattern
who (i) makes an exchange request
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out of a Fund within two weeks of an earlier exchange request out of such fund,
or (ii) makes more than two exchanges out of a Fund per calendar quarter, or
(iii) exchanges shares equal in value to at least $5 million, or more than 1/4
of 1% of a Fund's net assets. Accounts under common ownership or control,
including accounts administered so as to redeem or purchase shares based upon
certain predetermined market indicators, will be aggregated for purposes of the
exchange limits.
Each Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person or group if, in the Investment Manager's
judgment, a Fund would be unable to invest effectively in accordance with its
investment object and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with
a "market timing" strategy may be disruptive to a Fund and therefore may be
refused.
ADDITIONAL DISTRIBUTION AND TAXATION INFORMATION
The following information is a supplement to and should be read in conjunction
with the section in the Funds' prospectuses entitled "Dividends, Distributions
and Federal Income Taxation."
TAX STATUS OF THE FUNDS. The Funds intend to qualify each year as "regulated
investment companies" for federal income tax purposes, to avoid liability for
federal income tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company, the Funds intend to declare
at least annually distributions of substantially all of their net taxable income
and net realized capital gains within each calendar year to shareholders of
their Class A and Class B and Institutional Class shares. The Company's Board of
Directors retains the right to determine, for any particular year, that one or
more of the Funds should not qualify as a regulated investment company. In any
year in which a Fund does not so qualify, the Fund will be subject to federal
and state income tax as a regular corporation, and all distributions of its
current or accumulated earnings and profits (including distributions derived
from net realized long-term capital gains) will be taxed to shareholders as
ordinary income. Global Income Fund seeks to pay monthly dividends from net
investment income, if any, which may include all or a portion of their
respective net realized short-term gains. The Funds also intend to comply with
other tax rules that may be applicable to regulated investment companies.
DIVIDENDS. Gains (losses) attributable to foreign currency fluctuations are
generally taxable as ordinary income and therefore increase (decrease) dividend
income. Because the Funds invest primarily in foreign securities (including
Smaller Companies Fund, which from time to time may invest primarily in foreign
securities), corporate shareholders should not expect dividends from the Funds
to qualify for the dividends received deduction. If the Funds earn qualifying
dividends from U.S. corporations, they will notify corporate shareholders
annually of the percentage of the Funds' dividends which qualify for the
dividends received deduction. Dividends are declared annually (Global Income
Fund seeks to declare monthly dividends out of net investment income, if any).
The Funds will send each shareholder a notice promptly after the end of the
calendar year describing the tax status of dividends and capital gain
distributions made during the prior year. The per share dividend on Class B
shares are expected to be lower than the per share dividends on Class A shares
and Institutional Class shares as a result of the higher distribution fees and
expenses and incremental transfer agency fees applicable to Class B.
CAPITAL GAINS DISTRIBUTIONS. Long-term capital gains earned by the Funds on the
sale of securities and distributed to shareholders are generally taxable as
long-term capital gains, regardless of the length of time that the shareholders
have held their shares. If a shareholder receives a long-term capital gain
distribution on shares of a Fund and such shares are held for less than six
months and are sold at a loss, the portion of the loss equal to the amount of
the long-term capital gain distribution will be considered a long-term capital
loss for tax purposes. Short-term capital gains distributed by the Funds are
taxable to shareholders as dividends, not as capital gains. Distributions from
the short-term capital gains do not qualify for the dividends received
deduction.
FEDERAL INCOME TAX TREATMENT OF OPTIONS. Certain option transactions have
special tax implications for the Funds. Listed non-equity options, including
options on currencies, will be considered to have been closed out at the end of
the Funds' taxable year, and any gains or losses will be recognized for tax
purposes at that time. Such gains or losses will
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be characterized as 60% long-term capital gain or loss and 40% short-term
capital gain or loss regardless of the holding period of the option. Gains or
losses on unlisted currency options will not be subject to this treatment and
will generally result in ordinary income or loss. In addition, losses on
purchased puts and written covered calls, excluding "qualified covered call
options" on equity securities, to the extent they do not exceed the unrealized
gains on the securities or currencies covering the options, may be subject to
deferral until the securities or currencies covering the options have been sold.
The holding period of the securities covering these options will be deemed not
to begin until the option is terminated. For securities covering a purchased
put, this adjustment of the holding period may increase the gain from sales of
securities held for less than three months prior to January 1, 1998. The holding
period of the security covering an "in-the-money-qualified covered call" option
on an equity security will not include the period of time the option is
outstanding. Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital losses, if the security covering the option was held for more
than twelve months prior to the writing of the option.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. Except for transactions the Funds
have identified as hedging transactions, the Funds are required for federal
income tax purposes to recognize as income for each taxable year their net
unrealized gains and losses on listed Futures Contracts as of the end of the
year, as well as those actually realized during the year. Except for
transactions in Futures Contracts which are classified as part of a "mixed
straddle," any gain or loss recognized with respect to a Futures Contract is
considered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the Futures Contract. In
the case of a Futures transaction classified as a "mixed straddle," the
recognition of losses may be deferred to a later taxable year.
Sales of Futures Contracts which are intended to hedge against a change in the
value of securities or currencies held by the Funds may affect the holding
period of such securities or currencies and, consequently, the nature of the
gain or loss on such securities or currencies upon disposition.
In order for each Fund to continue to qualify for federal income tax treatment
as a "regulated investment company" under the Code, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or certain currency positions. It is anticipated that any net
gain realized from the closing out of Futures Contracts will be considered gain
from the sale of securities or currencies and therefore be qualifying income for
purposes of the 90% requirements. In addition, gains realized on the sale or
other disposition of securities or certain currency positions before January 1,
1998 and that are held for less than three months must be limited to less than
30% of the Fund's annual gross income.
The Funds will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fiscal year) on Futures transactions. Such
distributions will be combined with distributions of capital gains realized on a
Fund's other investments and shareholders will be advised of the nature of such
distributions.
FOREIGN TAXES. Income received by the Funds may give rise to withholding and
other taxes imposed by foreign countries. If more than 50% of the value of a
Fund's assets at the close of a taxable year consists of securities of foreign
corporations, the Fund may make an election that will permit its shareholders to
take a credit (or, if more advantageous, a deduction) for foreign income taxes
paid by the Fund, subject to limitations contained in the Code. Shareholders
would then include in gross income both dividends paid to them by the Fund and
the foreign taxes paid by the Fund on its foreign investments. The Funds cannot
assure shareholders that they will be eligible for the foreign tax credit. The
Funds will advise shareholders annually of their share of any creditable foreign
taxes paid by the Funds.
The foregoing discussion and the related discussion in the prospectuses have
been prepared by management of the Company and do not purport to be a complete
description of all tax implications of an investment in the Funds. Shareholders
are advised to consult with their own tax advisors concerning the application of
foreign, federal, state, and local taxes to an investment in the Funds. Goodwin
Procter & Hoar LLP have expressed no opinion in respect thereof.
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DISTRIBUTION ARRANGEMENTS
UNDERWRITING AGREEMENT / 12B-1 DISTRIBUTION PLANS
Pursuant to an Underwriting Agreement that is subject to annual renewal,
effective April 1, 1997, FPS Broker Services, Inc. (the "Distributor") acts as
statutory principal underwriter and distributor in a continuous public offering
of the Funds' shares. The Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc.
The Distributor pays the expenses of distribution of the Funds' shares,
including advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Funds pay the expenses of
preparing and printing amendments to their registration statements and
prospectuses (other than those necessitated by the activities of the
Distributor) and of sending prospectuses and reports to existing shareholders.
The Underwriting Agreement continues in effect with respect to a Fund for
successive annual periods provided that its continuance is specifically approved
at least annually by a vote of the Company's Board of Directors, or by a vote of
the holders of a majority of a Fund's outstanding voting securities, and in
either event by a majority of the Company's directors who are not parties to the
Underwriting Agreement or interested persons of any such party (other than as
Directors of the Company), cast in person at a meeting called for that purpose.
The Underwriting Agreement may be terminated without penalty by either party as
to one or more of the Funds on 60 days' written notice.
Pursuant to the Underwriting Agreement and the previous underwriting agreements
between the Funds and former distributors, the Distributor is, and former
distributors have been, entitled to receive a sales charge in connection with
certain sales of Fund shares. During the fiscal year ended December 31, 1993,
Govett Financial Services Limited ("Services") a former distributor of Fund
shares, received front-end sales charges of $704,654, after reallowances of
front-end sales charges to dealers of $384,019 for sales of Class A shares of
the International Equity Fund, Emerging Markets Equity Fund, Smaller Companies
Fund, and Global Income Fund. During the period from January 1, 1994 through
October 2, 1994, Services received sales charges of $222,723 after reallowances
of front-end sales charges to dealers of $6,341,249 for sales of Class A shares
of the International Equity Fund, Emerging Markets Equity Fund, Smaller
Companies Fund, Asia Fund, Latin America Fund, and Global Income Fund. During
the period from October 3, 1994 through December 31, 1994, Van Kampen American
Capital received sales charges of $163,601.00 after reallowances of front-end
sales charges to dealers of $847,100.00 for sales of Class A shares of the
International Equity Fund, Emerging Markets Equity Fund, Smaller Companies Fund,
Asia Fund, Latin America Fund, and Global Income Fund. These sales charges also
include charges applicable to the Govett Developing Markets Bond Fund, which was
open for investments during 1994 but which was closed to new investment on
February 1, 1995 and was merged into Global Income Fund on June 29, 1995.
During the fiscal year ended December 31, 1995, the Van Kampen American Capital
received sales charges of $3,699,507 after reallowances of front-end sales
charges to dealers of $20,922,480 for Class A shares of the International Equity
Fund, Emerging Markets Equity Fund, Smaller Companies Fund, Asia Fund, Latin
America Fund, and Global Income Fund. During the fiscal year ended December 31,
1996, the Van Kampen American Capital received sales charges of $494,920 after
reallowances of front-end sales charges to dealers of $3,891,506 for Class A
shares of International Equity Fund, Emerging Markets Equity Fund, Smaller
Companies Fund, Asia Fund, Latin America Fund, and Global Income Fund.
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to pay expenses associated with the distribution of its shares ("distribution
expenses") in accordance with a plan adopted by the investment Company's Board
of Directors and approved by its shareholders. Pursuant to such Rule, the
Company's Board of Directors, and the shareholders of each class of each Fund,
have adopted two Distribution Plans hereinafter referred to as the "Class A
Plan", and the "Class B Plan" and together as the "Plans." Under the Class A
Plan, each Fund pays a distribution fee to the Distributor at an annual rate of
0.35% of each Fund's aggregate average daily net assets attributable to its
Class A shares. Under the Class B Plan, each Fund pays a distribution and
service fee to the Distributor at an annual rate of 1% of the Fund's aggregate
average daily net assets attributable to its Class B shares. During the period
from January 1, 1994 through October 2, 1994, Govett Financial Services Limited,
the Funds' former distributor, was entitled to receive distribution fees from
the International Equity Fund, Emerging Markets Equity Fund, Smaller Companies
Fund, Global Income Fund, Asia Fund (from inception), and Latin America Fund
with respect to their Class A shares in the amounts
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of $139,291, $300,038, $138,948, $204,218, $85,171, and $24,092, respectively.
During the period from October 3, 1994 through December 31, 1994, Van Kampen
American Capital was entitled to receive distribution fees from International
Equity Fund, Emerging Markets Equity Fund, Smaller Companies Fund, Asia Fund,
Latin America Fund and Global Income Fund with respect to their Class A shares
in the amounts of $43,548, $118,548, $69,981, $19,052, $12,501, and $50,717,
respectively. During the period from January 1, 1995 through December 31, 1995,
Van Kampen American Capital was entitled to receive distribution fees from
International Equity Fund, Emerging Markets Equity Fund, Smaller Companies Fund,
Asia Fund, Latin America Fund and Global Income Fund with respect to their Class
A shares in the amounts of $156,106, $374,718, $1,601,106, $59,626, $23,877 and
$158,798, respectively. During the period from January 1, 1996 through December
31, 1996, Van Kampen American Capital was entitled to receive distribution fees
from International Equity Fund, Emerging Markets Equity Fund, Smaller Companies
Fund, Asia Fund, Latin America Fund and Global Income Fund with respect to their
Class A shares in the amounts of $140,462, $392,612, $1,889,748, $40,672,
$33,405 and $105,247, respectively.
The Plans are deemed by the Staff of the SEC to be "compensation plans" because
payments made are not tied directly to actual expenses incurred, and the
Distributor is given discretion concerning what expenses are payable under the
Plans. The fees received by the Distributor pursuant to the Plans may exceed or,
particularly in the early years of the Funds, be less than the estimated direct
and indirect costs incurred by the Distributor in providing its services under
the Plans and its Underwriting Agreement with the Funds. If the fees received
exceed expenses incurred, the Distributor may be deemed to have received a
"profit" to the extent of such excess. For example, if the Distributor pays $1
for distribution expenses and receives $2 under the Class A Plan, the $1
difference could be said to be a profit for the Distributor. If the fees
received are less than expenses incurred, the Plans do not carry over any excess
costs over fees to a subsequent annual period.
Under the Plans, the Distributor receives distribution fees from the Funds at
the annual rates described in the prospectuses as compensation for providing
services and incurring expenses in the distribution of Fund shares. Such
expenditures may include payment of (1) commissions to certain financial
institutions, securities dealers and other industry professionals (collectively,
"Service Organizations") for providing services on behalf of the Funds, (2) out-
of-pocket expenses of printing and distributing prospectuses and annual and
semiannual shareholder reports to other than existing shareholders, (3) out-of-
pocket and overhead expenses for preparing, printing and distributing
advertising material and sales literature, (4) expenses for promotional
incentives to securities dealers and financial and industry professionals, and
(5) advertising and promotional expenses, including conducting and organizing
sales seminars, marketing support salaries and bonuses, and travel-related
expenses.
The distribution and service fees attributable to Class B shares are designed to
permit an investor to purchase such shares without the assessment of a front-end
sales charge and at the same time permit the Distributor to compensate Service
Organizations with respect to such shares. In this regard, the purpose and
function of the combined CDSC and distribution and service fees are the same as
those of the initial sales charge and distribution fee with respect to the Class
A shares of the Funds in that in both cases the sales charge and distribution
charge provide for the financing of the distribution of the Funds' shares.
As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements and selling agreements were approved by the Company's Board
of Directors, including a majority of the Directors who are not interested
persons (as defined in the 1940 Act) of the Company and who have no direct or
indirect financial interest in the operation of any of the Plans or in any
agreements related to a Plan (the "Independent Directors"). In approving each
Plan in accordance with the requirements of Rule 12b-1, the Directors determined
that there is a reasonable likelihood that each Plan will benefit the Funds and
their respective shareholders. Information with respect to distribution
revenues and expenses is presented to the Directors each year for their
consideration in connection with their deliberations as to the continuance of
the Plans. In their review of the Plans, the Directors are asked to take into
consideration expenses incurred in connection with the distribution of each
class of shares separately. The distribution charge and the sales charge of a
particular class will not be used to subsidize the sale of the other classes.
Each Plan requires the Distributor to provide the Company's Board of Directors
at least quarterly with a written report of the amounts expended pursuant to the
Plan and the purposes for which such expenditures were made. Unless sooner
terminated in accordance with their terms, the Plans will continue in effect
initially for a period of one year, and
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thereafter will continue in effect so long as such continuance is specifically
approved at least annually by the Company's Board of Directors, including a
majority of the Independent Directors.
Each Plan may be terminated with respect to a class of any Fund by vote of a
majority of the Independent Directors, or by vote of a majority of the
outstanding voting shares of the respective class. Any change in a Distribution
Plan that would materially increase the distribution expenses borne by a Fund
requires shareholder approval, voting separately by class; otherwise, each Plan
may be amended by a majority of the Board of Directors, including a majority of
the Independent Directors, by vote cast in person at a meeting called for the
purpose of voting upon such amendment. So long as any Plan is in effect, the
selection or nomination of the Independent Directors is committed to the
discretion of the Independent Directors.
The Glass-Steagall Act generally prohibits banks and their affiliates from
engaging in the business of underwriting, selling or distributing securities.
Although the scope of this prohibition under the Glass-Steagall Act has not been
clearly defined by the courts or appropriate regulatory agencies, applicable
precedents do not preclude a bank from performing shareholder support, servicing
and recordkeeping functions. The Distributor intends to engage banks to perform
only such functions with respect to the Funds. However, changes in federal or
state statutes and regulations pertaining to the permissible activities of banks
and their affiliates or subsidiaries, as well as further judicial or
administrative decisions or interpretations, could prevent a bank from
continuing to perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Company's Board of Directors would consider what
actions, if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the operation of the
Funds might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences. The Funds may execute transactions with and purchase
securities issued by depository institutions that receive payments under the
Plans. No preference will be shown in the selection of Fund investments for the
securities of such depository institutions.
ARRANGEMENTS WITH BROKERS
From time to time programs may be implemented under which a broker, dealer or
financial intermediary's sales force may be eligible to win nominal awards for
certain sales efforts or under which certain reallowances (not exceeding the
total applicable sales charges on the sales generated by the broker, dealer or
financial intermediary) may be paid to such entities. Other programs provide,
among other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Funds. The Distributor may, from
time to time, pursuant to objective criteria it establishes, pay fees to, and
sponsor seminars for, qualifying brokers, dealers, or financial intermediaries
for certain services or activities which are primarily intended to result in the
sale of Fund shares. Any such programs will not change the price an investor
will pay for shares or the amount that a Fund will receive from such a sale. No
such programs or additional compensation will be offered to the extent that they
are prohibited by the laws of any state or any self-regulatory agency with
jurisdiction over the Distributor, such as the National Association of
Securities Dealers, Inc. (the "NASD").
PERFORMANCE
As noted in the prospectuses, the Funds may from time to time quote various
performance figures to illustrate the Funds' past performance. They may also
occasionally cite statistics to reflect the volatility or risk of their
portfolios.
A Fund's "Standardized Return," as referred to in the prospectuses (see
"Performance Information") is calculated as follows: Standardized Return ("T")
is computed by using the value at the end of the period ("V") of a hypothetical
initial investment of $1,000 ("P") over a period of years ("n") according to the
following formula as required by the SEC: P(1 + T)n=EV (the ending redeemable
value of initial investment). The following assumptions will be reflected in
computations made in accordance with this formula: (1) deduction of the maximum
front-end sales charge of 4.95% from the $1,000 initial investment (Class A
shares only); (2) reinvestment of dividends and distributions at net asset value
on the reinvestment date determined by the Company's Board of Directors; (3) a
complete redemption at the end of any period illustrated, and (4) deduction of
any applicable CDSC. The Standardized Returns of the Class A shares of the
following Funds for the periods indicated are:
34
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Time Period International Emerging Smaller Pacific Latin Global
Equity Markets Companies Strategy America Income
Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1/1/97 - 6/30/97 3.97% 10.22% -16.49% 3.57% 27.73% -8.78%
- --------------------------------------------------------------------------------------------------------------------------------
1/1/96 - 12/31/96 6.49% 6.53% -15.28% 3.91% 17.96% -4.63%
- --------------------------------------------------------------------------------------------------------------------------------
1/1/95 - 12/31/95 5.51% - 12.46% 60.73% -7.78% -22.41% 8.48%
- --------------------------------------------------------------------------------------------------------------------------------
3/7/94 - 12/31/94 n/a n/a n/a n/a -21.04% n/a
- --------------------------------------------------------------------------------------------------------------------------------
1/1/94 - 12/31/94 -12.98% - 16.97% 22.31% -16.44% n/a -13.66%
- --------------------------------------------------------------------------------------------------------------------------------
1/1/93 - 12/31/93 46.85% 70.83% 50.65% n/a n/a 11.79%
- --------------------------------------------------------------------------------------------------------------------------------
1/7/92 - 12/31/92 18.10% 35.72% n/a n/a n/a 10.47%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
"Non-Standardized Return," as referred to in the prospectuses, is calculated for
a specified period of time by assuming the investment of $1,000 in Fund shares
and further assuming the reinvestment of all dividends and distributions made to
Fund shareholders in additional Fund shares at their net asset value. Percentage
rates of return are then calculated by comparing this assumed initial investment
to the value of the hypothetical account at the end of the period for which the
Non-Standardized Return is quoted. The Funds do not take sales charges into
account in calculating Non-Standardized Return, and the inclusion of such
charges would reduce such return.
Current yield ("YIELD") is computed by dividing the difference between dividends
and interest earned during a one-month period ("a") and expenses accrued for the
period (net of reimbursements) ("b") by the product of the average daily number
of shares outstanding during the period that were entitled to receive dividends
("c") and the maximum offering price per share on the last day of the period
("d") according to the following formula as required by the SEC:
YIELD = 2[(a-b + 1)/6/ - 1]
---
cd
The YIELD of the Class A shares of Global Income Fund for the one month period
ended June 30, 1997 was 3.78%.
As of January 1, 1995, all of the outstanding shares of each Fund were
redesignated as Class A shares without any other changes, and Class B and Class
C shares were authorized for issuance. As of June 27, 1997, all Class C shares
were redesigned as Institutional Class shares. Yield and total return are
calculated separately for Class A, Class B shares and Institutional Class shares
of each Fund. Class A total return figures included the maximum front-end sales
charge of 4.95%; Class B total return figures include any applicable CDSC. No
sales charge applies to Institutional Class shares. Because of the differences
in sales charges and distribution charges, the total returns for each of the
classes of the same Fund will differ. Each Fund will include performance data
for its Class A, Class B and Institutional Class shares in any advertisement or
information including performance data of the Fund.
Each Fund's investment results will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund, so that current or past yield or total return should not be considered
representations of what an investment in a Fund may earn in any future period.
These factors and possible differences in the methods used in calculating
investment results should be considered when comparing a Fund's investment
results with those published for other investment companies and other investment
vehicles. A Fund's results also should be considered relative to the risks
associated with such Fund's investment objectives and policies. Each Fund and
the Distributor may from time to time compare the Funds with the following:
(1) Various Salomon Brothers World Bond Indices, which measure the
total return performanof high-quality securities in major sectors of the
worldwide bond markets.
(2) The Shearson Lehman Government Corporate Bond Index, which is a
comprehensive measure of all public obligations of the U.S. Treasury (excluding
flower bonds and foreign targeted issues), all publicly issued debt of agencies
of the U.S. government (excluding mortgage backed securities), and all public,
fixed rate, non-convertible
35
<PAGE>
investment grade domestic corporate debt rated at least Aa by Moody's or AA by
Standard & Poor's, or, in the case of bonds not rated by Moody's or Standard &
Poor's, BBB by Fitch Investors Service (excluding Collateralized Mortgage
Obligations).
(3) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures supplied
by the U.S. League of Savings Institutions). Savings accounts offer a guaranteed
rate of return on principal, but no opportunity for capital growth. During a
portion of the period, the maximum rates paid on some savings deposits were
fixed by law.
(4) The Consumer Price Index, which is a measure of the average
change in prices over time in a fixed market basket of goods and services (e.g.,
food, clothing, shelter, fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
(5) Data and mutual fund rankings and comparisons published or
prepared by Lipper Analytical Data Services, Inc. ("Lipper"), Morningstar Inc.
("Morningstar"), Micropal, Inc. ("Micropal"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Company Services ("Wiesenberger") and/or other
companies that rank or compare mutual funds by overall performance, investment
objectives, assets, expense levels, periods of existence and/or other factors.
In this regard, each Fund may be compared to its "peer group" as defined by
Lipper, Morningstar, Micropal, CDA, Wiesenberger and/or other firms, as
applicable or to specific funds or groups of funds within or without such peer
group.
(6) Bear Stearns Foreign Bond Index, which provides simple average
returns for individual countries and a GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
(7) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(8) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500 of the
largest publicly traded stocks in the U.S., and Russell 2000 Index, NASDAQ
Composite Index and the Wilshire 500 Stock Index, which are recognized indices
composed of capitalization-weighted average share prices of smaller company
stocks.
(9) Salomon Brothers Broad Investment Grade Index, which is a widely
used index composed of U.S. domestic government, corporate, and mortgage-backed
fixed income securities.
(10) Dow Jones Industrial Average.
(11) Financial News Composite Index.
(12) Morgan Stanley Capital International World Indices, including,
among others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of more than 800
companies located in Europe, Australia and the Far East.
(13) International Finance Corporation (IFC) Emerging Markets Equity
Data Base which provides detailed statistics on bond and stock markets in
developing countries.
(14) J.P. Morgan & Co. Bond Indices, including, among others, the J.P.
Morgan Traded Government Bond Index which is an index composed of liquid non-
U.S. fixed income securities based on market weightings and currency since 1986.
(15) Chemical Emerging Markets Equity Debt Index.
(16) Morgan Stanley Capital International Latin America Emerging
Market Indices, including the Morgan Stanley Emerging Markets Equity Free Latin
America Index (which excludes securities issued by Mexican banks and
36
<PAGE>
securities companies which cannot be purchased by foreigners) and the Morgan
Stanley Emerging Markets Equity Global Latin America Index. Both indices include
60% of the market capitalization of the following countries: Argentina, Brazil,
Chile, and Mexico. The indices are weighted by market capitalization and are
calculated without dividends reinvested.
(17) International Financial Corporation ("IFC") Latin American
Indices which include 60% of the market capitalization in the covered countries
and are market weighted. One index includes reinvestment of dividends and one
does not.
(18) MSCI Pacific Index (which includes Japan).
(19) Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith,
Inc.; Bear Stearns & Co., Inc; Morgan Stanley; and Ibbottson Associates may be
used, as well as information provided by the Federal Reserve Board. In addition,
performance rankings and ratings reported periodically in national financial
publications, including but not limited to Money Magazine, Forbes, Business
Week, The Wall Street Journal and Barron's may also be used.
The Funds may, from time to time, publish information describing a Funds'
largest holdings, country weightings, and sector allocations. The Funds may
also publish information concerning the average maturity of bond holdings in a
Fund.
FINANCIAL STATEMENTS
Audited financial statements for the fiscal year ended December 31, 1996 and
unaudited financial statements for the semi-annual period ended June 30, 1997
for the International Equity Fund, Emerging Markets Equity Fund, Smaller
Companies Fund, Asia Fund, Latin America Fund, and Global Income Fund are
included in those Funds' Annual Report to Shareholders dated December 31, 1996
and the Semi-Annual Report to Shareholders dated June 30, 1997, respectively.
Such financial statements (but no other portion of such Reports) are
incorporated herein by this reference.
Any person who desires a copy of the most recent financial statements for Govett
Funds should call 800-821-0803, or write the Funds c/o FPS Services, Inc., 3200
Horizon Drive, King of Prussia, PA 19406, to obtain a free copy.
37
<PAGE>
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE DEBT
RATINGS
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues; AA. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group, they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which made the long term risks appear
somewhat larger than in Aaa securities; A. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future; BAA. Bonds which are rated Baa are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well; BA. Bonds which are rated Ba have speculative elements
and their future cannot be considered to be well assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class; B. Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; CAA. Bonds which are rated Caa are in poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest; CA. Bonds which are rated Ca are speculative in a high
degree. Such issues are often in default or have other marked shortcomings; C.
Bonds which are rated C are the lowest rated class of bonds. Issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
DESCRIPTION OF STANDARD & POOR'S CORPORATION CORPORATE DEBT RATINGS
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong; AA. Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree; A. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories; BBB. Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories; BB. Debt rated BB has less near-term vulnerability to default than
other speculative issues; however, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB--" rating; B. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB--" rating; CCC. Debt
rated CCC has a currently indefinable vulnerability to default, and is dependent
upon favorable business, financial and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B--" rating; CC. Debt rated CC typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating; C. Typically
applied to debt subordinated to senior debt which is assigned an actual or
implied "CCC--" debt rating. The "C" rating may be used to cover a situation
where a bankruptcy petition has been
38
<PAGE>
filed, but debt service payments are continued; D. In payment default. The "D"
rating is used when interest payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
COMMERCIAL PAPER RATINGS
Moody's employs the designations "Prime-1" and "Prime-2" to indicate commercial
paper having the highest capacity for timely repayment. Issuers rated Prime-1
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protections; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and well-
established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong capacity for repayment
of short-term promissory obligations. This will normally be evidenced by many of
the characteristics cited above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Standard & Poor's ratings of commercial paper are graded into four categories
ranging from "A" for the highest quality obligations to "D" for the lowest. A--
Issues assigned its highest rating are regarded as having the greatest capacity
for timely payment. Issues in this category are delineated with numbers 1 and 2
to indicate the relative degree of safety. A-1--This designation indicates that
the degree of safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety characteristics
will be denoted with a plus (+) sign designation. A-2--Capacity for timely
payments on issues with this designation is strong. However, the relative degree
of safety is not as high as for issues designated "A-1."
* * *
Ratings of debt securities represent the rating agency's opinion regarding their
quality and are not a guarantee of quality. Subsequent to its purchase by a
Fund, the rating of an issue of debt securities may be reduced below the minimum
rating required for purchase by that Fund. AIB Govett will consider such an
event in determining whether the Fund should continue to hold the security.
Credit ratings attempt to evaluate the safety of principal and interest payments
and do not evaluate the risks of fluctuations in market value. Also, rating
agencies may fail to make timely changes in credit ratings in response to
subsequent events, so that an issuer's current financial condition may be better
or worse than the rating indicates.
39
<PAGE>
THE GOVETT FUNDS, INC.
PART C TO FORM N-1A DATED DECEMBER ____, 1997
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) The following audited financial statements for the Govett
International Equity Fund, Govett Emerging Markets Fund, Govett
Smaller Companies Fund, Govett Asia Fund (formerly Govett Pacific
Strategy Fund), Govett Latin America Fund, and Govett Global
Income Fund series of Registrant are incorporated in Part B by
this reference to such Funds' Annual Report to Shareholders for
the year ended December 31, 1996:
Schedule of Investments as of December 31, 1996; Statement of
Assets and Liabilities as of December 31, 1996; Statement of
Operations for the year ended December 31, 1996; Statements of
Changes in Net Assets for the years or indicated periods, ended
December 31, 1996; Financial Highlights (For A Share Outstanding
Throughout the years or indicated periods Ending December 31,
1996, December 31, 1995, December 31, 1994, December 31, 1993 and
December 31, 1992); related Notes to Financial Statements; and
the Report of the Independent Certified Public Accountants.
(2) The following unaudited financial statements for the Govett
International Equity Fund, Govett Emerging Markets Fund, Govett
Smaller Companies Fund, Govett Asia Fund (formerly Govett
Pacific Strategy Fund), Govett Latin America Fund, and Govett
Global Income Fund series of Registrant are incorporated in Part
B by this reference to such Funds' Semi-Annual Report to
Shareholders for the period ended June 30, 1997:
Schedule of Investments as of June 30, 1997; Statement of Assets
and Liabilities as of June 30, 1997; Statement of Operations for
the period ended June 30, 1997; Statements of Changes in Net
Assets for the years or indicated periods, ended June 30, 1997;
Financial Highlights (For A Share Outstanding Throughout the
years or indicated periods Ending June 30, 1997, December 31,
1996, December 31, 1995, December 31, 1994, December 31, 1993 and
December 31, 1992); related Notes to Financial Statements.
(b) Exhibits
1a. Articles of Amendment and Restatement
1b. Articles Supplementary
2. By-Laws (3)
3. Voting Trust Agreement (Not Applicable)
4. Specimen Share Certificate (To be provided by amendment)
5a. Investment Management Contract
5b. Investment Subadvisor Contract
5c. Investment Subadvisor Contract
6a. Underwriting Agreement (5)
1
<PAGE>
6b. Form of Multi-Class Selling Group Agreement (5)
6c. Form of Soliciting Financial Institution Sales Contract (To
be provided by amendment)
7. Copy of Bonus, Profit Sharing, etc. (Not Applicable)
8. Global Custody Agreement (2)
9. Transfer Agency Agreement (5)
10a. Opinion and Consent of Counsel, Heller, Ehrman, White &
McAuliffe, counsel to the Funds (2)
10b. Opinion and Consent of Counsel, Goodwin, Procter & Hoar, counsel
to the Funds
11. Opinion and Consent of Independent Public Accountants
12. All Financial Statements Omitted from Item 23 (Not
Applicable)
13. Investment Intent Letter (2)
14. Copy of Model Plan Used in Establishment of Any Retirement Plan
(1)
15a. Class A Distribution and Service Plan Pursuant to Rule 12b-1
15b. Class B Distribution Plan of the Registrant(3)
16. Schedule of Computation of Each Performance Quotation
17. Financial Data Schedule
18. Rule 18f-3 Plan (5)
19. Power of Attorney (4)
(1) Incorporated by reference to like-numbered exhibits filed with Pre-
Effective Amendment No. 2 to this Registration Statement on September
23, 1991.
(2) Incorporated by reference to like-numbered exhibits filed with Pre-
Effective Amendment No. 3 to this Registration Statement on December
19, 1991.
(3) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 16 to this Registration Statement on April
24, 1996.
(4) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 17 to this Registration Statement on May 1,
1997.
(5) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 18 to this Registration Statement on
September 1, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following information is provided for Class A Shares only. As of
the date of this Amendment, Class B and Institutional shares have not
been offered to the public.
<TABLE>
<CAPTION>
Class A Shares Number of Record holders
-------------- as of September 30, 1997
-------------------------
<S> <C>
International Equity Fund 2,237
Emerging Markets Fund 7,396
Smaller Companies Fund 33,953
Pacific Strategy Fund 643
Latin America Fund 995
Global Income Fund 1,016
</TABLE>
2
<PAGE>
ITEM 27. INDEMNIFICATION
Article VIII of the Registrant's Articles of Incorporation provides as
follows:
"Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Registrant shall have
any liability to the Registrant or its shareholders for damages. This
limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Registrant whether or
not such person is a director or officer at the time of any proceeding
in which liability is asserted.
"Section 2. The Registrant shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses
to its officers to the same extent as its directors and to such
further extent as is consistent with law. The Board of Directors may
by Bylaw, resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to the
fullest extent permitted by the Maryland General Corporation Law.
"Section 3. No provision of this Article shall be effective to protect
or purport to protect any director or officer of the Registrant
against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
"Section 4. References to the Maryland General Corporation Law in this
Article are to the law as from time to time amended. No further
amendment to the Articles of Incorporation of the Registrant shall
decrease, but may expand, any right of any person under this Article
based on any event, omission or preceding prior to such amendment."
Article VII of the Registrant's Bylaws also provide for
indemnification by the Registrant of its officers and directors and
others to the fullest extent permitted by Maryland law and the
Investment Company Act of 1940. The Bylaws also provide for the
advance of certain expenses incurred by such persons under certain
circumstances.
"Section 11 of the Investment Management Contract filed as Exhibit 5
to this Registration Statement provides that AIB Govett, Inc. (the
"Manager") shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Registrant or any of its
portfolios in connection with the matters to which the contract
relates, except for losses resulting from the willful misfeasance, bad
faith or gross negligence of the Manager in the performance of its
duties or from reckless disregard by the Manager of its obligations
and duties under the contract.
Registrant also participates in a policy of insurance which insures
Registrant, the Manager and Distributor, and their respective present,
past and future directors, partners, officers, trustees and employees
against liability incurred on account of any breach of duty, neglect,
error, misstatement, misleading statement, omission or other wrongful
act done or attempted by any insured (each a "Wrongful Act") in
connection with the management and operation of Registrant, or the
provision of investment advisory or distribution
3
<PAGE>
services to or on behalf of Registrant, but excluding losses incurred
by reason of actual fraud, dishonesty, criminal or malicious acts or
omissions finally adjudicated. No coverage is provided for any
Wrongful Act committed with knowledge that it was a Wrongful Act.
The Underwriting Agreement between Registrant and FPS Broker Services,
Inc., (the "Distributor") filed as Exhibit 6a to Post-Effective
Amendment No. 18 provides that Registrant shall indemnify the
Distributor against any and all claims, demands, liabilities and
expenses which the Distributor may incur under the Securities Act (as
defined below), at common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in any
registration statement or prospectus of Registrant, or any omission to
state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or
omission was made in reliance upon, and in conformity with,
information furnished to Registrant in connection therewith by or on
behalf of the Distributor.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") may be
permitted to directors and officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification by Registrant is against
public policy as expressed in the Securities Act, and therefore may be
unenforceable. In the event that a claim for such indemnification
(except insofar as it provides for the payment by Registrant of
expenses incurred or paid by a director, officer or controlling person
in the successful defense of any action, suit or proceeding) is
asserted against Registrant by any director, officer or controlling
person and the Securities and Exchange Commission is still of the same
opinion, Registrant will, unless in the opinion of its counsel the
matter has been settled by a controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act, and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
28a. AIB Govett, Inc. ("AIB Govett") serves as investment advisor to all of
the series of the Registrant. A description of the directors and
officers of AIB Govett, and other required information, is included in
AIB Govett's Form ADV and schedules thereto, as amended, which is on
file at the SEC (File No. 801-54821). AIB Govett's Form ADV, as
amended, is incorporated herein by reference.
28b. AIB Govett Asset Management Limited ("AIB Govett (London)", formerly
John Govett & Co. Limited) serves as investment subadvisor to all of
the series of the Registrant. A description of the directors and
officers of AIB Govett (London), and other required information, is
included in AIB Govett (London)'s Form ADV and schedules thereto, as
amended, which is on file at the SEC (File No. 801-34730). AIB Govett
(London)'s Form ADV, as amended, is incorporated herein by reference.
28c. AIB Investment Managers Limited ("AIBIM (Dublin)") serves as
investment subadvisor to the Europe Fund of the Registrant, in
conjunction with AIB Govett (London). A description of the directors
and officers of AIBIM (Dublin), and other required information, is
included in AIBIM (Dublin)'s Form ADV and schedules thereto, as
4
<PAGE>
amended, which is on file at the SEC (File No. 801-41173). AIBIM
(Dublin)'s Form ADV, as amended, is incorporated herein by
reference.
ITEM 29. PRINCIPAL UNDERWRITER
FPS Broker Services, Inc. ("FPSB"), the principal underwriter for
the Registrant's securities, currently acts as principal
underwriter for the following entities:
29a. Bjurman Funds
First Mutual Funds
Focus Trust, Inc.
The Govett Funds, Inc.
IAA Trust Mutual Funds
Matthews International Funds
McM Funds
Polynous Trust
Sage/Tso Trust
Smith Breeden Series Fund
Smith Breeden Short Duration U.S. Government Fund
Smith Breeden Trust
The Stratton Funds, Inc.
Stratton Monthly Dividend Shares, Inc.
29b. The table below sets forth certain information as to the
Underwriter's Officers and Control Persons: Directors,
<TABLE>
<CAPTION>
Position Position and
Name and Principal and Offices Offices with
with Underwriter with Underwriter Registrant
---------------- ---------------- ----------
<S> <C> <C>
Kenneth J. Kempf
3200 Horizon Drive Director and None
P.O. Box 61503 President
King of Prussia, 19406-0903
Lynne M. Cannon
3200 Horizon Drive Vice President None
P.O. Box 61503 19406-0903 and Principal
Rocky C. Cavalieri Director and
3200 Horizon Drive Vice President
P.O. Box 61503 None
King of Prussia, PA 19406-0903
</TABLE>
5
<PAGE>
<TABLE> <C> <C>
<S>
Gerald J. Holland Director, Senior None
3200 Horizon Drive Vice President
P.O. Box 61503 and Principal
King of Prussia, PA 19406-0903
Joseph M. O'Donnell, Esq. Director and None
3200 Horizon Drive Vice President
P.O. Box 61503
King of Prussia, PA 19406-0903
Sandra L. Adams Assistant Vice None
3200 Horizon Drive President and
P.O. Box 61503 Principal
King of Prussia, PA 19406-0903
Mary P. Efstration Secretary None
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
John H. Leven Treasurer None
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
</TABLE>
James W. Stratton may be considered a control person of the Underwriter due
to his direct or indirect ownership of FPS Services, Inc., the parent of
the underwriter.
29c. Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records required to be maintained by Rule 31a-1(b)(4)
under the Investment Company Act of 1940 will be maintained by the
Registrant at 250 Montgomery Street, Suite 1200, San Francisco,
California 94104. Pursuant to Rule 31a-3 under the 1940 Act, all
other records required by Rule 31a-1 will be maintained at one or more
of the following offices:
Name/Address
------------
AIB Govett, Inc. (Investment Advisor)
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
AIB Govett Asset Management Limited (Subadvisor)
Shackleton House
4 Battle Bridge Lane
London SEI 2HR England
6
<PAGE>
AIB Investment Managers Limited (Subadvisor)
AIB Investment House
Percy Place
Dublin, Ireland 4
The Chase Manhattan Bank (Global Custodian)
4 Chase Metro Tech Center
Brooklyn, NY 11245
Chase Global Funds Services Company, Inc. (Fund Accounting/Administration)
73 Tremont Street, 11th Floor
Boston, MA 02108
FPS Services, Inc. (Transfer Agent)
FPS Broker Services, Inc. (Distributor)
3200 Horizon Drive
King of Prussia, PA 19406-0903
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to furnish each person to whom a prospectus
for a series of registrant is delivered with a copy of Registrant's most recent
annual report to shareholders with respect to such series, upon request and
without charge.
b. Registrant hereby undertakes to file a post-effective amendment containing
financial statements for each of China , Asian Smaller Companies, and Europe
Funds, which need not be certified, within four to six months from the effective
date of Registrant's 1933 Act registration statement.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of San Francisco, State of California, on the 7th
day of October, 1997
THE GOVETT FUNDS, INC.
/s/ Brian M. Lee
- ------------------------
Brian M. Lee, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Elliott L. Atamian *
- ---------------------------
Elliott L. Atamian Director October 7, 1997
/s/ Patrick Cunneen *
- ---------------------------
Patrick Cunneen Chairman, Director October 7, 1997
/s/ Sir Victor Garland *
- ---------------------------a
Sir Victor Garland Director October 7, 1997
/s/ Colin Kreidewolf
- ---------------------------
Colin Kreidewolf Treasurer October 7, 1997
(Principal Financial and Accounting Officer)
/s/ Brian M. Lee
- ---------------------------
Brian M. Lee President October 7, 1997
/s/ James M. Oates *
- ---------------------------
James M. Oates Director October 7, 1997
/s/ Frank R. Terzolo *
- ---------------------------
Frank R. Terzolo Director October 7, 1997
* By /s/ Alice L. Schulman October 7, 1997
-----------------------------------
Alice L. Schulman, Attorney In Fact
</TABLE>
8
<PAGE>
Exhibit 24(b)1a
THE GOVETT FUNDS, INC.
ARTICLES OF AMENDMENT
CHANGING NAME OF SERIES
PURSUANT TO MGCL SECTION 2-605(B)
The Govett Funds, Inc., a Maryland corporation having its principal office
in Baltimore City, Maryland (which is hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Charter of the Corporation is hereby amended as follows:
(a) The name and designation of the Govett Emerging Markets Fund
is hereby changed to the "Govett Emerging Markets Equity Fund" series of Common
Stock of the Corporation.
(b) The name and designation of the Govett Pacific Strategy Fund
is hereby changed to the "Govett Asia Fund" series of Common Stock of the
Corporation.
SECOND: The amendment does not change the outstanding capital stock of the
Corporation or the aggregate par value thereof.
THIRD: The foregoing amendment to the Charter of the Corporation has been
approved by the Board of Directors and is limited to a change expressly
permitted by Section 2-605 of the Maryland General Corporation Law to be made
without action by the stockholders.
FOURTH: The Corporation is registered as an open-end company under the
Investment Company Act of 1940.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed
in its name and on its behalf by its Vice President and attested by its
Secretary on this 30th day of September, 1997.
THE GOVETT FUNDS, INC.
By: /s/ Colin Kreidewolf
---------------------
Colin J. Kreidewolf
Vice President
ATTEST:
/s/ Alice L. Schulman
- ---------------------
Alice L. Schulman
Secretary
<PAGE>
The undersigned, Vice President of The Govett Funds, Inc., who executed on
behalf of said Corporation the foregoing Articles of Amendment of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles of Amendment to be the corporate act of
said Corporation and hereby certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/ Colin Kreidewolf
--------------------
Colin J. Kreidewolf
Vice President
-2-
<PAGE>
Exhibit 24(b)1b
THE GOVETT FUNDS, INC.
ARTICLES SUPPLEMENTARY
The Govett Funds, Inc., a Maryland corporation having its principal office
in Baltimore City, Maryland (which is hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: (a) The Board of Directors of the Corporation has classified
750,000,000 unissued shares of the authorized Common Stock, par value $.00001
per share, of the Corporation as three series, designated the "Govett Asian
Smaller Companies Fund", the "Govett China Fund" and the "Govett Europe Fund",
each such series having 250,000,000 authorized shares, and has divided and
further classified the authorized shares of each such series into three classes,
designated Class A, Class B and Institutional Class, each such class of a
particular series consisting, until further changed, of the lesser of (x)
250,000,000 shares and (y) the number of shares that could be issued by issuing
all of the authorized shares of that series less the total number of shares of
all other classes of the series then issued and outstanding.
(b) The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the Class A, Class B and Institutional Class shares
of the Govett Asian Smaller Companies Fund, the Govett China Fund and the Govett
Europe Fund are set forth in the Charter of the Corporation.
SECOND: The foregoing amendment to the Charter of the Corporation does not
increase the authorized capital stock of the Corporation.
THIRD: The aforesaid shares have been duly classified by the Board of
Directors pursuant to authority and power contained in the Charter of the
Corporation.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed
in its name and on its behalf by its Vice President and attested by its
Secretary on this 30th day of September, 1997.
THE GOVETT FUNDS, INC.
By: /s/ Colin Kreidewolf
--------------------
Colin J. Kreidewolf
Vice President
ATTEST:
/s/ Alice L. Schulman
- ---------------------
Alice L. Schulman
Secretary
<PAGE>
The undersigned, Vice President of The Govett Funds, Inc., who executed on
behalf of said Corporation the foregoing Articles Supplementary of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles Supplementary to be the corporate act of
said Corporation and hereby certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/ Colin Kreidewolf
--------------------
Colin J. Kreidewolf
Vice President
-2-
<PAGE>
Exhibit 24(b)5a
INVESTMENT MANAGEMENT CONTRACT
CONTRACT made this ___ day of ___________ 1997, by and between The Govett
Funds, Inc. (the "Company"), a Maryland corporation, and AIB Govett, Inc. (the
"Manager"), a Maryland corporation, which amends and restates the Investment
Management Contract dated November 23, 1996, between the Company and John Govett
& Co. Limited (now, AIB Govett Asset Management Limited), a U.K. company.
WHEREAS, the Company is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and AIB Govett, Inc. and John Govett & Co. Limited are registered
investment advisers under the Investment Advisers Act of 1940, as amended (the
"Advisers Act");
WHEREAS, the Company offers separate series of Common Stock, each series
representing interests in a separate investment portfolio (such series referred
to individually as a "Portfolio" and collectively as "Portfolios"), the names of
which are identified on Schedule A hereto; and the Company may offer additional
----------
series of Common Stock from time to time by notifying the Manager, and if the
Manager is willing to render such services on the terms provided herein, such
series of shares shall become a Portfolio hereunder;
WHEREAS, AIB Asset Management Holdings Limited, the parent company of John
Govett & Co. Limited and AIB Govett, Inc., has decided to reorganize its
investment management operations by (i) consolidating all of John Govett & Co.
Limited's U.S. operations into AIB Govett, Inc., an entity organized under the
laws of the United States for the purpose of facilitating the reorganization and
managed by substantially the same officers and directors as John Govett & Co.
Limited, and (ii) changing the name of John Govett & Co. Limited to AIB Govett
Asset Management Limited;
WHEREAS, as part of the reorganization, and subject to the approval of the
Board of Directors of the Company, (i) AIB Govett, Inc. desires to assume the
responsibilities of John Govett & Co. Limited under this Contract as Manager to
the Portfolios of the Company immediately prior to this amendment and
restatement, and (ii) John Govett & Co. Limited, now AIB Govett Asset Management
Limited, desires to become a Subadviser to those Portfolios pursuant to an
Investment Subadvisory Contract;
WHEREAS, the Board of Directors of the Company, upon a finding that the
reorganization will not result in any change of actual control or management of
the manager to the Portfolios, has consented to AIB Govett, Inc. assuming the
<PAGE>
Exhibit 24(b)5a
responsibilities of John Govett & Co. Limited as Manager under the terms of this
Contract to render investment advisory and administrative services to the
Company and to each of the Portfolios; and
WHEREAS, the Manager is willing to render such services under the terms of
this Contract;
NOW THEREFORE, it is hereby agreed:
1. Appointment of Manager. The Company hereby appoints the Manager to act
as investment adviser and administrator to the Company and its Portfolios for
the period and on such terms as are set forth in this Contract. The Manager
hereby accepts such appointment and agrees to render the services herein set
forth for the compensation herein provided.
2. Duties as Investment Adviser. Subject to the supervision of the
Company's Board of Directors ("Board"), the Manager will be responsible for
providing a continuous investment program for each of the Company's Portfolios,
including the provision of investment research and management with respect to
all securities and investments and cash equivalents purchased, sold or held in
the Portfolios and the selection of brokers and dealers through which securities
transactions for the respective Portfolios will be executed. In carrying out its
responsibilities under this Contract, the Manager will at all times act in
accordance with the investment objectives, policies and restrictions of each
Portfolio as stated in the current Registration Statement as it may be amended
from time to time ("Registration Statement") as well as all applicable rules and
regulations of the Securities and Exchange Commission.
The Manager further agrees that it will:
(a) oversee the maintenance of all books and records with respect to
the securities transactions of each Portfolio and furnish to the Board such
special reports as the Board may request from time to time; and
(b) oversee the computation of the net asset value and the net income
of each Portfolio in accordance with the procedures described in the
Registration Statement or as more frequently requested by the Board.
3. Orders and Commissions. In placing orders with brokers and dealers,
the Manager shall obtain the most favorable execution of such orders. However,
the Manager may, in its discretion, purchase and sell portfolio securities to
and from brokers and dealers who provide the Manager with research, analysis,
advice and similar services, and the Manager may cause the Company to pay to
those brokers or dealers, in return for research and analysis, a higher
commission or spread than may be
<PAGE>
Exhibit 24(b)5a
charged by other brokers or dealers, provided that the Manager determines in
good faith that such commission or spread is reasonable in terms either of the
particular transaction or of the overall responsibility of the Manager to the
Company and any other accounts with respect to which the Manager exercises
investment discretion. In no instance will securities be purchased from or sold
to the Manager or any affiliated person of the Manager except in accordance with
the rules and regulations promulgated by the Securities and Exchange Commission
pursuant to the Investment Company Act.
4. Duties as Administrator. The Manager will assist in administering the
Company's affairs subject to the supervision of the Board and the following
understanding:
(a) The Manager will supervise the Company's operations as set forth
herein; provided, however, that nothing herein contained shall be deemed to
relieve or deprive the Board of its responsibility for and control of the
conduct of the Company's affairs;
(b) In all matters relating to the performance of this Contract, the
Manager will act in conformity with the Company's Articles of
Incorporation, Bylaws and Registration Statement and with the instructions
and directions of the Board and will conform to and comply with the
requirements of the Investment Company Act and all other applicable Federal
or state laws and regulations;
(c) The Manager will provide the Company with such administrative and
clerical services as are deemed necessary or advisable by the Board,
including supervision of the maintenance of the Company's books and records
as provided above;
(d) The Manager will arrange, but not pay for, the periodic updating
of prospectuses and supplements thereto, statements of additional
information, proxy materials, tax returns and reports to the Company's
stockholders and the Securities and Exchange Commission; and
(e) The Manager will provide the Company with, or obtain for it,
adequate office space and all necessary office equipment and services,
including telephone service, heat, utilities, stationary supplies and
similar items.
5. Delegation. The Manager may delegate any of its duties as described
in, or derived from, the duties set forth in paragraphs 2 and 4 of this
Contract, provided that those duties set forth in paragraph 2 of this Contract
may be delegated by the Manager only pursuant to written agreements which
satisfy the requirements of the Investment Company Act and shall have been
approved by the Company's Board, and by the shareholders of each Portfolio to
which such agreement applies, in accordance
<PAGE>
Exhibit 24(b)5a
with the provisions of the Investment Company Act.
6. Services Not Exclusive. The services furnished by the Manager
hereunder are not to be deemed exclusive, and the Manager shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby.
7. Books and Records. In compliance with the requirements of Rule 31a-3
under the Investment Company Act, the Manager hereby agrees that all records
which it maintains for the Company and/or the Portfolios are the property of the
Company and further agrees to surrender promptly to the Company any of such
records upon request by the Company. The Manager further agrees to preserve for
the periods prescribed by Rule 31a-2 under the Investment Company Act the
records required to be maintained by it pursuant to Rule 31a-1 under the
Investment Company Act.
8. Expenses of the Company. All expenses shall be allocated among the
Portfolios in accordance with the Company's Articles of Incorporation and the
provisions of the Investment Company Act. During the term of this Contract, the
Company will bear all expenses, not specifically assumed by the Manager, or
another person, incurred in the conduct of its operations, including, without
limitation, responsibility for the following:
(a) the cost (including brokerage commissions) of securities
purchased or sold by the Portfolios and any losses incurred in connection
therewith;
(b) fees payable to, and expenses incurred on behalf of the Company
by, the Manager (other than fees payable by the Manager pursuant to a
delegation of its duties provided in Paragraph 5 hereof);
(c) expenses of organizing the Company;
(d) filing fees and expenses relating to the registration and
qualification of the Company's shares and the Company under Federal and/or
state securities laws and maintaining such registrations and
qualifications;
(e) fees and salaries payable to the Company's disinterested
directors and officers;
(f) taxes (including any income or franchise taxes) and governmental
fees;
(g) costs of any liability and other insurance, or fidelity bonds;
<PAGE>
Exhibit 24(b)5a
(h) any costs, expenses or losses arising out of any liability of, or
claim for damages or other relief asserted against, the Company for
violation of any law;
(i) legal, accounting and auditing expenses, including legal fees of
special counsel at any time retained for those directors who are not
interested persons of the Company and expenses relating to the use of
consulting services by the Company provided that the use of such services
is approved by the Company's directors;
(j) charges of custodians, transfer agents and other agents;
(k) costs of preparing share certificates;
(l) expenses of setting in type and printing prospectuses and
supplements thereto for existing shareholders, reports, shareholder
reports, and proxy materials;
(m) costs of mailing prospectuses, statements of additional
information, and supplements thereto to existing shareholders as well as
shareholder reports and proxy materials;
(n) any extraordinary expenses (including fees and disbursements of
counsel) incurred by the Company;
(o) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; and
(p) costs of mailing and tabulating proxies and costs of
shareholders' and directors' meetings.
The Company may pay directly any expense incurred by it in its normal
operations and, if any such payment is consented to by the Manager and
acknowledged as otherwise payable by the Manager pursuant to this Contract, the
Company may reduce the fee payable to the Manager pursuant to this Contract by
such amount. To the extent that such deductions exceed the fee payable to the
Manager for any monthly payment period, such excess shall be carried forward and
deducted in the same manner from the fee payable on succeeding monthly payment
dates.
9. Expenses of the Manager. The Manager will bear all expenses incurred
by it in performing its duties as investment adviser and administrator pursuant
to paragraphs 2 and 4 respectively, of this Contract, including, without
limitation, compensation payable to persons or organizations retained by the
Manager in accordance with paragraph 5 of the Contract. The Manager may, but is
not required to,
<PAGE>
Exhibit 24(b)5a
voluntarily assume any portion or all of the expenses that the Company is
required to pay under paragraph 8 hereof. In addition, if the expenses borne by
the Company in any fiscal year exceed the applicable expense limitations imposed
by the securities regulations of any state in which shares are registered or
qualified for sale to the public, the Manager will reimburse the Company for any
excess up to the amount of the fee payable to it during that fiscal year
pursuant to this Contract.
10. Compensation. For the services provided and the expenses assumed
pursuant to this Contract, the Company will pay to the Manager a monthly fee
calculated at the per annum rate reflected on Schedule A to this Contract.
----------
11. Limitation of Liability of the Manager. The Manager shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Company or any of its Portfolios in connection with the matters to which
this Contract relates including, without limitation, losses that may be
sustained in connection with the purchase, holding, redemption, or sale of any
security on behalf of any Portfolio of the Company, except a loss resulting from
the willful misfeasance, bad faith or gross negligence of the Manager in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Contract. Any person, even though also an officer,
director, partner, employee, or agent of the Manager, who may be or become an
officer, director, employee or agent of the Company shall be deemed, when
rendering services to the Company or any of its Portfolios or acting in any
business of the Company or any of its Portfolios, to be rendering such services
to, or acting solely for, the Company or any of its Portfolios and not as an
officer, partner, employee, or agent or one under the control or direction of
the Manager even though paid by the Manager.
12. Duration and Termination. This Contract shall become effective upon
the date first above written and, unless sooner terminated as provided herein,
shall continue automatically with respect to such Portfolio(s) for successive
periods of twelve months each, so long as such continuance is specifically
approved with respect to such Portfolio(s) at least annually by (a) the vote of
a majority of those members of the Board who are not parties to this Contract or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval, and (b) all of the members of the Board or
by vote of the holders of a majority of the outstanding voting securities of
such Portfolio(s).
Notwithstanding the foregoing, this Contract may be terminated with respect
to any Portfolio or the Company at any time, without the payment of any penalty
by the Company, upon the vote of the Board or the vote of a majority of the
outstanding voting securities of such Portfolio or the Company and on 60 days'
written notice to the Manager or by the Manager at any time, without the payment
of any penalty, on 60 days' written notice to the Company. As used in this
Contract, the terms "majority of the outstanding voting securities," "interested
persons" and "assignment" shall have the
<PAGE>
Exhibit 24(b)5a
same meaning as such terms have in the Investment Company Act.
In the event that this Contract shall not be approved in the manner
provided herein or shall have been terminated with respect to any Portfolio, the
Manager and the Company shall continue to be bound by the terms of this Contract
with respect to any other Portfolio provided that this Contract shall have been
approved in the manner contemplated herein with respect to such Portfolio.
This contract shall terminate automatically upon its assignment.
13. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated except by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, and no amendment of this Contract shall be effective
until approved by vote of the holders of a majority of the outstanding voting
securities of the Portfolio(s) affected by such amendment.
14. Name of the Company. The Company may use the "The Govett Funds, Inc."
or any name derived from or using the words "Govett," "AIB Govett" or "John
Govett" only for so long as this Contract or any extension, renewal or amendment
hereof remains in effect. At such time as such an agreement shall no longer be
in effect, the Company will (to the extent that it lawfully can) cease to use
such a name or any other name connected with The Govett Funds, Inc.
15. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by the
law of the State of California. Any notice required or permitted to be given
under this Contract shall be in writing and delivered either personally, by
facsimile (confirming receipt by telephone), or by international air courier to
the parties as follows:
If to the Company:
- ------------------
The Govett Funds, Inc.
250 Montgomery Street, 12th Floor
San Francisco, CA 94104
Attn: President
Tel: (415) 263-1865
Fax: (415) 263-1880
If to the Manager:
- -----------------
<PAGE>
Exhibit 24(b)5a
AIB Govett, Inc.
250 Montgomery Street, 12th Floor
San Francisco, CA 94104
Attn: President
Tel: (415) 263-1865
Fax: (415) 263-1880
[Rest of page intentionally left blank]
<PAGE>
Exhibit 24(b)5a
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
THE GOVETT FUNDS, INC.
By:
___________________________________
Title:
AIB GOVETT, INC.
By:
__________________________________
Title:
Acknowledged and Agreed:
AIB GOVETT ASSET
MANAGEMENT LIMITED
(formerly, John Govett & Co. Limited)
By:______________________________
Title:
<PAGE>
Exhibit 24(b)5a
SCHEDULE A
Rate
Fund Name (of average daily net assets)
- --------- -----------------------------
Govett International Equity Fund 1.00%
Govett Emerging Markets Fund 1.00%
Govett Smaller Companies Fund 1.00%
Govett Pacific Strategy Fund 1.00%
Govett Latin America Fund 1.00%
Govett Global Income Fund 0.75%
Govett China Fund 1.00%
Govett Asian Smaller Companies Fund 1.00%
Govett Europe Fund 1.00%
<PAGE>
Exhibit 24(b)5b
INVESTMENT SUBADVISORY CONTRACT
CONTRACT made this ____ day of ____________ 1997, by and between AIB Govett
Inc. (the "Manager"), a Maryland corporation, and AIB Govett Asset Management
Limited (former, John Govett & Co. Limited) (the "Subadviser"), a U.K. company.
WHEREAS, each of the Manager and the Subadviser is a registered investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act");
WHEREAS, The Govett Funds, Inc., a Maryland corporation (the "Company"), is
registered as an open-end, management investment company under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and, pursuant to
the Investment Management Contract dated of even date herewith (the "Investment
Management Contract") between the Company and the Manager, the Manager provides
investment advisory and administrative services to the Company for each of the
separate series of the Company's Common Stock;
WHEREAS, the Company offers separate series of Common Stock, each series
representing interests in a separate investment portfolio (such series referred
to individually as a "Portfolio" and collectively as "Portfolios"), the names of
which are identified on Schedule A hereto;
----------
WHEREAS, AIB Asset Management Holdings Limited, the parent company of John
Govett & Co. Limited and AIB Govett, Inc., has decided to reorganize its
investment management operations by (i) consolidating all of John Govett & Co.
Limited's U.S. operations into AIB Govett, Inc., an entity organized under the
laws of the United States for the purpose of facilitating the reorganization and
managed by substantially the same officers and directors as John Govett & Co.
Limited, and (ii) changing the name of John Govett & Co. Limited to AIB Govett
Asset Management Limited;
WHEREAS, as part of the reorganization, and subject to the approval of the
Board of Directors of the Company, (i) AIB Govett, Inc. desires to assume the
responsibilities of John Govett & Co. Limited under the Investment Management
Contract as Manager to the Portfolios of the Company immediately prior to the
amendment and restatement of that Contract, and (ii) John Govett & Co. Limited,
now AIB Govett Asset Management Limited, desires to become a Subadviser to those
Portfolios pursuant to this Investment Subadvisory Contract;
WHEREAS, the Board of Directors of the Company, upon a finding that the
reorganization will not result in any change of actual control or management of
the manager to the Portfolios, has consented to AIB Govett, Inc. assuming the
responsibilities of John Govett & Co. Limited as Manager under the terms of the
<PAGE>
Exhibit 24(b)5b
Investment Management Contract and to John Govett & Co. Limited assuming the
responsibilities as Subadviser under the terms of this Investment Subadvisory
Contract; and
WHEREAS, the Manager desires to retain the Subadviser under the terms of
this Contract to render investment advisory services to the Company and to each
of the Portfolios listed on Schedule A hereto, and the Manager may retain the
----------
Subadviser to render such services to additional series from time to time by
notifying the Subadviser, and if the Subadviser is willing to render such
services on the terms provided herein, such series of shares shall become a
Portfolio hereunder, in each case subject to all approvals required pursuant to
the requirements of the Investment Company Act;
and
WHEREAS, the Subadviser is willing to render such services under the terms
of this Contract;
NOW THEREFORE, it is hereby agreed:
1. Appointment of Subadviser. The Manager hereby appoints the Subadviser
to act as investment subadviser adviser to the Company and the Portfolios for
the period and on such terms as are set forth in this Contract. The
Subadviser hereby accepts such appointment and agrees to render the services
herein set forth for the compensation herein provided.
2. Duties as Investment Subadviser. Subject to the supervision of the
Company's Board of Directors ("Board") and the Manager, the Subadviser will be
responsible for providing a continuous investment program for each of the
Company's Portfolios, including the provision of investment research and
management with respect to all securities and investments and cash equivalents
purchased, sold or held in the Portfolios and the selection of brokers and
dealers through which securities transactions for the respective Portfolios will
be executed. In carrying out its responsibilities under this Contract, the
Subadviser will at all times act in accordance with the investment objectives,
policies and restrictions of each Portfolio as stated in the current
Registration Statement as it may be amended from time to time ("Registration
Statement") as well as all applicable rules and regulations of the Securities
and Exchange Commission.
The Subadviser further agrees that it will:
(a) report regularly to the Manager and to the Company's Board of
Directors and make available appropriate persons for the purposes of
reviewing with representatives of the Manager and the Company on a regular
basis at reasonable times the management of the Portfolios, including,
without limitation, review of the general investment strategy of the
Portfolios, the
<PAGE>
Exhibit 24(b)5b
performance of the Portfolios in relation to standard industry indices,
interest rate considerations and general conditions affecting the
marketplace;
(b) conform with all applicable regulations of the Securities and
Exchange Commission and conduct its activities under this Contract in
accordance with all applicable regulations of any governmental authority
with jurisdiction over the Subadviser's investment advisory activities
hereunder;
(c) maintain all books and records with respect to the securities
transactions of each Portfolio and furnish to the Board such special
reports as the Board may request from time to time; and
(d) will receive the research and recommendations of the Manager
with respect to the investment and reinvestment of the management of the
Portfolios.
3. Orders and Commissions. In placing orders with brokers and dealers,
the Subadviser shall obtain the most favorable execution of such orders.
However, the Subadviser may, in its discretion, purchase and sell portfolio
securities to and from brokers and dealers who provide the Manager or Subadviser
with research, analysis, advice and similar services, and the Subadviser may
cause the Manager to pay to those brokers or dealers on behalf of the Company,
in return for research and analysis, a higher commission or spread than may be
charged by other brokers or dealers, provided that the Subadviser determines in
good faith that such commission or spread is reasonable in terms either of the
particular transaction or of the overall responsibility of the Subadviser to the
Manager, the Company or both, and any other accounts with respect to which the
Subadviser exercises investment discretion. In no instance will securities be
purchased from or sold to the Subadviser or any affiliated person of the
Subadviser except in accordance with the rules and regulations promulgated by
the Securities and Exchange Commission pursuant to the Investment Company Act.
4. Services Not Exclusive. The services furnished by the Subadviser
hereunder are not to be deemed exclusive, and the Subadviser shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the Investment Company Act, all records that the Subadviser maintains for
any of the Company, the Manager and the Portfolios are the property of the
Company or the Manager, as the case may be, and the Subadviser will surrender
promptly to the Company or the Manager any of such records upon request by the
Company or the Manager, respectively. The Subadviser will preserve for the
periods prescribed by Rule 31a-2 under the Investment Company Act the records
required to be maintained by it pursuant to Rule 31a-1 under the Investment
Company Act.
<PAGE>
Exhibit 24(b)5b
6. Expenses of the Manager. During the term of this Contract, the
Subadviser will bear all expenses incurred in the conduct of its operations,
except:
(a) the cost (including brokerage commissions) of securities
purchased or sold by the Portfolios and any losses incurred in connection
therewith; and
(b) those expenses not specifically assumed by the Manager or
another person.
7. Compensation. For the services provided and the expenses assumed
pursuant to this Contract, the Manager will pay to the Subadviser a monthly fee
calculated at the per annum rate reflected on Schedule A to this Contract.
----------
8. Limitation of Liability of the Subadviser. The Subadviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Manager, the Company or any of its Portfolios in connection with the
matters to which this Contract relates including, without limitation, losses
that may be sustained in connection with the purchase, holding, redemption, or
sale of any security on behalf of any Portfolio of the Company, except a loss
resulting from the willful misfeasance, bad faith or gross negligence of the
Subadviser in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Contract. Any person, even though also an
officer, director, partner, employee, or agent of the Subadviser, who may be or
become an officer, director, employee or agent of the Company or the Manager
shall be deemed, when rendering services to the Manager, Company or any of its
Portfolios or acting in any business of the Manager, Company or any of its
Portfolios, to be rendering such services to, or acting solely for, the Manager,
the Company or any of its Portfolios and not as an officer, partner, employee,
or agent or one under the control or direction of the Subadviser even though
paid by the Subadviser.
9. Duration and Termination. This Contract shall become effective upon
the date first above written and, unless sooner terminated as provided herein,
shall continue automatically with respect to such Portfolio(s) for successive
periods of twelve months each, so long as such continuance is specifically
approved with respect to such Portfolio(s) at least annually by (a) the vote of
a majority of those members of the Board who are not parties to this Contract or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval; and (b) all of the members of the Board or
by vote of the holders of a majority of the outstanding voting securities of
such Portfolio(s).
Notwithstanding the foregoing, this Contract may be terminated with respect
to any Portfolio or the Company at any time, without the payment of any penalty
by the Company, upon the vote of the Board or the vote of a majority of the
outstanding
<PAGE>
Exhibit 24(b)5b
voting securities of such Portfolio or the Company and on 60 days' written
notice to the Subadviser or by the Subadviser at any time, without the payment
of any penalty, on 60 days' written notice to the Manager and the Company. As
used in this Contract, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" shall have the same meaning
as such terms have in the Investment Company Act.
In the event that this Contract shall not be approved in the manner
provided herein or shall have been terminated with respect to any Portfolio, the
Subadviser and the Manager shall continue to be bound by the terms of this
Contract with respect to any other Portfolio provided that this Contract shall
have been approved in the manner contemplated herein with respect to such
Portfolio.
This contract shall terminate automatically upon its assignment or upon the
assignment of the Investment Management Contract.
10. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated except by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, and no amendment of this Contract shall be effective
until approved by vote of the holders of a majority of the outstanding voting
securities of the Portfolio(s) affected by such amendment.
11. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by the
law of the State of California. Any notice required or permitted to be given
under this Contract shall be in writing and delivered either personally, by
facsimile (confirming receipt by telephone), or by international air courier to
the parties as follows:
If to the Manager:
- -----------------
AIB Govett, Inc.
250 Montgomery Street, 12th Floor
San Francisco, CA 94104
Attn.: President
Tel: (415) 263-1880
Fax: (415) 263-1865
If to the Subadviser:
- ---------------------
AIB Govett Asset Management Limited
<PAGE>
Exhibit 24(b)5b
Shackleton House
4 Battle Bridge Lane
London SE1 2HR England
Attn.: Managing Director
Tel: (44 171) 378-7979
Fax: (44 171) 638-3468
[Rest of page intentionally left blank]
<PAGE>
Exhibit 24(b)5b
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
AIB GOVETT ASSET MANAGEMENT LIMITED
By:
______________________________________
Attest: Title:
__________________
AIB GOVETT, INC.
By:
_______________________________________
Attest: Title:
__________________
<PAGE>
Exhibit 24(b)5b
SCHEDULE A
<TABLE>
<CAPTION>
Rate
Fund Name (of average daily net assets)
- --------- -----------------------------
<S> <C>
Govett International Equity Fund 1.00%
Govett Emerging Markets Fund 1.00%
Govett Smaller Companies Fund 1.00%
Govett Pacific Strategy Fund 1.00%
Govett Latin America Fund 1.00%
Govett Global Income Fund 0.75%
Govett China Fund 1.00%
Govett Europe Fund 1.00%
</TABLE>
<PAGE>
Exhibit 24(b)5c
INVESTMENT SUBADVISORY CONTRACT
CONTRACT made this ___ day of ______________ 1997 by and between AIB
Govett, Inc. (the "Manager"), a Maryland corporation, and AIB Asset Management
(Dublin) Limited (the "Subadviser"), an Irish company.
WHEREAS, each of the Manager and the Subadviser is a registered investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act");
WHEREAS, The Govett Funds, Inc., a Maryland corporation (the "Company"), is
registered as an open-end, management investment company under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and, pursuant to
the Investment Management Contract dated of even date herewith (the "Investment
Management Contract") between the Company and the Manager, the Manager provides
investment advisory and administrative services to the Company for each of the
separate series of the Company's Common Stock;
WHEREAS, the Manager desires to retain the Subadviser to render investment
advisory to the Company and to each of the series listed on Schedule A hereto
----------
(all such series of stock hereinafter collectively referred to as the
"Portfolios"), subject to all approvals required pursuant to the requirements of
the Investment Company Act; and
WHEREAS, the Subadviser is willing to render such services under the terms
of this Contract:
1. Appointment of Subadviser. The Manager hereby appoints the Subadviser
to act as investment subadviser adviser to the Company and the Portfolios for
the period and on such terms as are set forth in this Contract. The Subadviser
hereby accepts such appointment and agrees to render the services herein set
forth for the compensation herein provided.
2. Duties as Investment Subadviser. Subject to the supervision of the
Company's Board of Directors ("Board") and the Manager, the Subadviser will be
responsible for providing a continuous investment program for each of the
Company's Portfolios, including the provision of investment research and
management with respect to all securities and investments and cash equivalents
purchased, sold or held in the Portfolios and the selection of brokers and
dealers through which securities transactions for the respective Portfolios will
be executed. In carrying out its responsibilities under this Contract, the
Subadviser will at all times act in accordance with the investment objectives,
policies and restrictions of each Portfolio as stated in the current
Registration Statement as it may be amended from time to time ("Registration
Statement") as well as all applicable rules and regulations of the Securities
and Exchange Commission.
<PAGE>
Exhibit 24(b)5c
The Subadviser further agrees that it will:
(a) report regularly to the Manager and to the Company's Board of
Directors and make available appropriate persons for the purposes of
reviewing with representatives of the Manager and the Company on a regular
basis at reasonable times the management of the Portfolios, including,
without limitation, review of the general investment strategy of the
Portfolios, the performance of the Portfolios in relation to standard
industry indices, interest rate considerations and general conditions
affecting the marketplace;
(b) conform with all applicable regulations of the Securities and
Exchange Commission and conduct its activities under this Contract in
accordance with all applicable regulations of any governmental authority
with jurisdiction over the Subadviser's investment advisory activities
hereunder;
(c) maintain all books and records with respect to the securities
transactions of each Portfolio and furnish to the Board such special
reports as the Board may request from time to time; and
(d) will receive the research and recommendations of the Manager with
respect to the investment and reinvestment of the management of the
Portfolios.
3. Orders and Commissions. In placing orders with brokers and dealers,
the Subadviser shall obtain the most favorable execution of such orders.
However, the Subadviser may, in its discretion, purchase and sell portfolio
securities to and from brokers and dealers who provide the Manager or Subadviser
with research, analysis, advice and similar services, and the Subadviser may
cause the Manager to pay to those brokers or dealers on behalf of the Company,
in return for research and analysis, a higher commission or spread than may be
charged by other brokers or dealers, provided that the Subadviser determines in
good faith that such commission or spread is reasonable in terms either of the
particular transaction or of the overall responsibility of the Subadviser to the
Manager, the Company or both, and any other accounts with respect to which the
Subadviser exercises investment discretion. In no instance will securities be
purchased from or sold to the Subadviser or any affiliated person of the
Subadviser except in accordance with the rules and regulations promulgated by
the Securities and Exchange Commission pursuant to the Investment Company Act.
4. Services Not Exclusive. The services furnished by the Subadviser
hereunder are not to be deemed exclusive, and the Subadviser shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby.
<PAGE>
Exhibit 24(b)5c
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the Investment Company Act, all records that the Subadviser maintains for
any of the Company, the Manager and the Portfolios are the property of the
Company or the Manager, as the case may be, and the Subadviser will surrender
promptly to the Company or the Manager any of such records upon request by the
Company or the Manager, respectively. The Subadviser will preserve for the
periods prescribed by Rule 31a-2 under the Investment Company Act the records
required to be maintained by it pursuant to Rule 31a-1 under the Investment
Company Act.
6. Expenses of the Manager. During the term of this Contract, the
Subadviser will bear all expenses incurred in the conduct of its operations,
except:
(a) the cost (including brokerage commissions) of securities purchased
or sold by the Portfolios and any losses incurred in connection therewith;
and
(b) those expenses not specifically assumed by the Manager or another
person.
7. Compensation. For the services provided and the expenses assumed
pursuant to this Contract, the Manager will pay to the Subadviser a monthly fee
calculated at the per annum rate reflected on Schedule A to this Contract.
----------
8. Limitation of Liability of the Subadviser. The Subadviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Manager, the Company or any of its Portfolios in connection with the matters
to which this Contract relates including, without limitation, losses that may be
sustained in connection with the purchase, holding, redemption, or sale of any
security on behalf of any Portfolio of the Company, except a loss resulting from
the willful misfeasance, bad faith or gross negligence of the Subadviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Contract. Any person, even though also an officer,
director, partner, employee, or agent of the Subadviser, who may be or become an
officer, director, employee or agent of the Company or the Manager shall be
deemed, when rendering services to the Manager, Company or any of its Portfolios
or acting in any business of the Manager, Company or any of its Portfolios, to
be rendering such services to, or acting solely for, the Manager, the Company or
any of its Portfolios and not as an officer, partner, employee, or agent or one
under the control or direction of the Subadviser even though paid by the
Subadviser.
9. Duration and Termination. This Contract shall become effective upon
the date first above written and shall continue automatically with respect to
such Portfolio(s) for successive periods of twelve months each, so long as such
continuance is specifically approved with respect to such Portfolio(s) at least
annually by (a) the
<PAGE>
Exhibit 24(b)5c
vote of a majority of those members of the Board who are not parties to this
Contract or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (b) all of the members of
the Board or by vote of the holders of a majority of the outstanding voting
securities of such Portfolio(s).
Notwithstanding the foregoing, this Contract may be terminated with respect
to any Portfolio or the Company at any time, without the payment of any penalty
by the Company, upon the vote of the Board or the vote of a majority of the
outstanding voting securities of such Portfolio or the Company and on 60 days'
written notice to the Subadviser or by the Subadviser at any time, without the
payment of any penalty, on 60 days' written notice to the Manager and the
Company. As used in this Contract, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" shall have the same meaning
as such terms have in the Investment Company Act.
In the event that this Contract shall not be approved in the manner
provided herein or shall have been terminated with respect to any Portfolio, the
Subadviser and the Manager shall continue to be bound by the terms of this
Contract with respect to any other Portfolio provided that this Contract shall
have been approved in the manner contemplated herein with respect to such
Portfolio.
This contract shall terminate automatically upon its assignment or upon the
assignment of the Investment Management Contract.
10. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated except by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, and no amendment of this Contract shall be effective
until approved by vote of the holders of a majority of the outstanding voting
securities of the Portfolio(s) affected by such amendment.
11. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by the
law of the State of California. Any notice required or permitted to be given
under this Contract shall be in writing and delivered either personally, by
facsimile (confirming receipt by telephone), or by international air courier to
the parties as follows:
If to the Manager:
- -----------------
AIB Govett, Inc.
<PAGE>
Exhibit 24(b)5c
250 Montgomery Street, 12th Floor
San Francisco, CA 94104
Attn.: President
Tel: (415) 263-1880
Fax: (415) 263-1865
If to the Subadviser:
- ---------------------
AIB Asset Management (Dublin) Limited
c/o AIB Govett Asset Management Limited
Shackleton House
4 Battle Bridge Lane
London SE1 2HR England
Attn.: Managing Director
Tel: (44 171) 378-7979
Fax: (44 171) 638-3468
[Rest of page intentionally left blank]
<PAGE>
Exhibit 24(b)5c
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
AIB ASSET MANAGEMENT (DUBLIN) LIMITED
By:
Attest: Title:
AIB GOVETT, INC.
By:
Attest: Title:
<PAGE>
Exhibit 24(b)5c
SCHEDULE A
Rate
Fund Name (of the average daily net assets)
- --------- ---------------------------------
Govett Europe Fund [1.00%]
<PAGE>
Exhibit 24(b)10b
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
October 3, 1997
The Govett Funds, Inc.
250 Montgomery Street
San Francisco, California 94104
Ladies and Gentlemen:
As counsel to The Govett Funds, Inc., a corporation organized under the
laws of the State of Maryland (the "Company"), we have been asked to render our
opinion in connection with the proposed issuance by the Company of shares of the
Class A, Class B and Institutional Class of Common Stock, $0.00001 par value per
share (the "Shares"), of Govett China Fund, Govett Asian Smaller Companies Fund
and Govett Europe Fund, each of which is a series of the Company which has been
established and designated pursuant to Article IV of the Company's Articles of
Amendment and Restatement, as amended, all as more fully described in the
Prospectus and Statement of Additional Information contained in Post-Effective
Amendment No. 19 under the Securities Act of 1933 to the Registration Statement
on Form N-1A (Securities Act File No. 33-37783), to be filed by the Company with
the Securities and Exchange Commission (as amended, the "Registration
Statement").
We wish to advise you that we have examined such documents and questions of
law as we have deemed necessary for purposes of this opinion.
We do not hold ourselves out as being experts in, and do not express any
opinion herein under or with regard to, the laws of any other jurisdiction other
than the laws of The Commonwealth of Massachusetts and the Federal laws of the
United States of America, subject to the following sentence. In rendering the
opinions below with respect to matters of Maryland law, we have relied, with
your permission and without independent investigation or review, on the opinion
of Piper & Marbury L.L.P. of even date. A copy of such opinion is attached
hereto.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated and is validly existing
in good standing under the laws of the State of Maryland; and
2. The Shares have been duly authorized for issuance and, when issued and
paid for as described in the Registration Statement, will be validly issued,
fully paid and non-assessable.
<PAGE>
The Govett Funds, Inc.
October 3, 1997
Page 2
We consent to a copy of this opinion being filed as an exhibit to the
foregoing Registration Statement.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
GOODWIN, PROCTER & HOAR LLP
/hex
Attachment
<PAGE>
PIPER & MARBURY
L.L.P.
CHARLES CENTER SOUTH
36 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201-3018
410-539-2530 WASHINGTON
FAX: 410-539-0489 NEW YORK
PHILADELPHIA
EASTON
October 3, 1997
The Govett Funds, Inc.
250 Montgomery Street
Suite 1200
San Francisco, CA 94104
Re: Registration Statement on Form N-1A
-----------------------------------
Ladies and Gentlemen:
We have acted as Maryland counsel to The Govett Funds, Inc., a Maryland
corporation (the "Fund"), in connection with the filing with the Securities and
Exchange Commission of Post-Effective Amendment No. 19 to the Fund's
Registration Statement on Form N-1A (File No. 33-37783), as amended (the
"Registration Statement"), registering an indefinite number of shares of Class
A, Class B and Institutional Class Common Stock, par value $.00001 per share, of
the Govett Asian Smaller Companies Fund, the Govett China Fund and the Govett
Europe Fund (the "Shares") under the Securities Act of 1933, as amended. In
this capacity, we have examined the charter and bylaws of the Fund, the
Registration Statement, the corporation action taken by the Fund that provides
for the authorization and issuance of the Shares, and such other documents and
matters as we have deemed necessary and appropriate to render the opinions set
forth in this letter. In reaching the opinions set forth below, we have assumed
all documents submitted to us as originals are authentic, all documents
submitted to us as certified or photostatic copies conform to the original
documents, all signatures on all documents submitted to us for examination are
genuine, and all public records reviewed are accurate and complete.
Based upon and subject to the foregoing, and limited in all respects to
applicable Maryland law, we are of the opinion and advise you as follows:
1. The Fund is a corporation duly incorporated and validly existing in
good standing under the laws of the State of Maryland.
2. The Shares have been duly authorized for issuance and, when issued and
paid for as described in the Registration Statement, will be validly issued,
fully paid and non-assessable.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Goodwin, Procter & Hoar LLP are authorized to rely upon the opinions stated
herein in rendering their opinions to you in connection with the Registration
Statement.
Very truly yours,
/s/ PIPER & MARBURY LLP
<PAGE>
Exhibit 24(b)11
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 19 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 21, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 Annual
Report to Shareholders of The Govett Funds, Inc., which are also incorporated by
reference into the Registration Statement. We also consent to the reference to
us under the heading "Financial Highlights" in the Prospectuses.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 6, 1997
<PAGE>
Exhibit 24(b)15a
AMENDED AND RESTATED CLASS A DISTRIBUTION
AND SERVICE PLAN PURSUANT TO RULE 12B-1
WHEREAS, The Govett Funds, Inc., a Maryland corporation (the "Company"), is
engaged in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"Act"); and
WHEREAS, the Company desires to adopt a written Plan of Distribution (the
"Plan") pursuant to Rule 12b-1 under the Act for the purpose of financing the
sale and distribution of the Class A Shares (the "Shares") of Govett
International Equity Fund, Govett Emerging Markets Funds, Govett Smaller
Companies Fund, Govett Latin America Fund, Govett Pacific Strategy Fund, Govett
Global Income Fund, Govett Greater China Fund, Govett Asian Smaller Companies
Fund and Govett Greater Europe Fund (the "Funds"), each of which is a series of
the Company; and
WHEREAS, the Directors of the Company have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Funds and their
shareholders;
WHEREAS, the Company intends to employ a distributor of the Shares of the
Funds (the "Distributor") to distribute the Shares in accordance with the Plan;
NOW THEREFORE, the Company adopts this Plan for the Funds as follows:
1. The Distributor shall engage in the following and shall provide the
following services primarily intended to result in the sale of, and to limit the
redemptions of, the Shares: (i) payment of compensation (including incentive
compensation) to other broker-dealers which render distribution, shareholder
support and administrative services in connection with distribution of the
Shares; (ii) payment of fees to securities dealers, banks, savings and loan
associations and other organizations ("Service Organizations") for rendering
shareholder support and administrative services to accounts serviced by Service
Organizations including, to the extent permitted by Rule 12b-1, for services
designed to dissuade shareholder redemptions of Shares; (iii) printing and
distribution of prospectuses and statements of additional information, as
supplemented from time to time, and periodic reports used in connection with the
Company's public offering of Shares to prospective investors in the Funds; (iv)
preparation, printing and distribution of sales literature and advertising and
the sponsoring of other promotional activities; (v) travel, telephone and
overhead expenses directly related to providing such services; (vi) services and
activities specified in any written distribution agreement between the Company
and the Distributor (the "Underwriting Agreement"); and (vii) such other
services and activities as may from time to time be agreed upon by the Company
and the Distributor.
2. All payments made pursuant to the Plan shall be made in accordance
with such properly executed, written Underwriting Agreement. For its services in
distributing the Shares, the Funds shall pay the Distributor a quarterly fee
equal to 0.35% per annum of each
<PAGE>
Exhibit 24(b)15a
Fund's average daily net asset value calculated on the last business day of each
calendar quarter, of which the Distributor may reallow all or part to Service
Organizations. Such fee shall be paid by the Company to the Distributor within
30 days after the end of each calendar quarter. The Distributor may from time to
time set a minimum asset requirement for account services before payments are
made to any Service Organization.
3. The Distributor shall provide, and the Board of Directors of the
Company shall review, quarterly or as otherwise may be required under the Act,
(i) a written report of all amounts expended by the Distributor pursuant to the
Plan and the purposes for which such expenditures were made, and (ii) such other
information requested by the Board of Directors as may reasonably be required
for it to review the continuing appropriateness of the Underwriting Agreement
and the Plan.
4. The Plan shall not become effective for a Fund prior to its approval
by a vote of a majority of (i) the Board of Director of the Company, including a
majority of the Directors who are not "interested persons" (as defined in the
Act) of the Company and have no direct or indirect financial interest in the
operation of the Plan or any agreement related to the Plan, cast in person at a
meeting called for that purpose, and (ii) the outstanding Shares of that Fund.
5. The Plan shall continue in effect for a period of one (1) year from
the date of its approval, and from year to year thereafter provided such
continuance is specifically approved at least annually by a vote of a majority
of the Board of Directors of the Company, including a majority of the Directors
who are not "interested persons" (as defined in the Act) of the Company and have
no direct or indirect financial interest in the operation of the Plan or any
agreement related to the Plan.
6. The Plan may be terminated for a Fund at any time by a vote of a
majority of the Directors who are not "interested persons" (as defined in the
Act) of the Company and have no direct or indirect financial interest in the
operation of the Plan or in any agreement related to the Plan, or by a vote of a
majority of the outstanding Shares of that Fund.
7. So long as the Plan remains in effect, all final decisions concerning
the selection and nomination of persons to serve as Directors of the Company who
are not "interested persons" (as defined in the Act) of the Company shall be
committed to the discretion of the Directors then in office who are not
"interested persons" of the Company.
8. All material amendments to the Plan for a Fund must be approved by a
vote of a majority (i) of the Board of Directors of the Company, including a
majority of the Directors who are not "interested persons" (as defined in the
Act) of the Company and have no direct or indirect financial interest in the
operation of the Plan or any agreement related to this Plan, cast in person at a
meeting called for that purpose and (ii) the outstanding Shares of the Fund.
9. The Plan may not be amended to increase materially the amount to be
spent by the Funds hereunder for distribution of their Shares without approval
of such amendment in the
2
<PAGE>
Exhibit 24(b)15a
manner provided in Paragraph 4 for the initial approval of the Plan.
10. The Company shall preserve copies of the Plan, any agreement under the
Plan and all reports made pursuant to Paragraph 3 hereof, together with minutes
of all meetings of the Board of Directors at which the adoption, amendment or
continuance of the Plan and/or any agreement under the Plan is considered
(describing the factors considered and the basis for any decision) for a period
of not less than six (6) years (the first two (2) years in an easily accessible
place) from the effective date of the Plan or the Agreement or report,
respectively.
3
<PAGE>
Exhibit 24(b)16
Schedule or Computation of Performance Quotations
Govett International Equity Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1997)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
<TABLE>
<CAPTION>
Since Inception
One Year Five Years 01/07/92
-------- ---------- --------
<S> <C> <C>
P = $1,000 P = $1,000 P = $1,000
T = 5.62% T = 11.42% T = 10.54%
N = 1 years N = 5 years N = 5.48 years
ERV = $1,056 ERV = $1,717 ERV = $1,732
</TABLE>
<PAGE>
Schedule or Computation of Performance Quotations
Govett Emerging Markets Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1997)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
<TABLE>
<CAPTION>
Since Inception
One Year Five Years 01/07/92
-------- ---------- --------
<S> <C> <C>
P = $1,000 P = $1,000 P = $1,000
T = 10.37% T = $11.67% T = 12.59%
N = 1 years N = 5 years N = 5.48 years
ERV = $1,104 ERV = $1,737 ERV = $1,916
</TABLE>
<PAGE>
Schedule or Computation of Performance Quotations
Govett Smaller Companies Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1997)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
<TABLE>
<CAPTION>
Since Inception
One Year 01/01/93
-------- --------
<S> <C>
P = $1,000 P = $1,000
T = -30.03% T = 23.40%
N = 1 years N = 4.5 years
ERV = $700 ERV = $2,576
</TABLE>
<PAGE>
Schedule or Computation of Performance Quotations
Govett Pacific Strategy Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1997)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
<TABLE>
<CAPTION>
Since Inception
One Year 01/01/94
-------- --------
<S> <C>
P = $1,000 P = $1,000
T = 2.64% T = -0.99%
N = 1 years N = 3.5 years
ERV = $1,026 ERV = $966
</TABLE>
<PAGE>
Schedule or Computation of Performance Quotations
Govett Latin America Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1997)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initi al payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
<TABLE>
<CAPTION>
Since Inception
One Year 03/07/94
-------- --------
<S> <C>
P = $1,000 P = $1,000
T = 29.71% T = 2.35%
N = 1 years N = 3.32 years
ERV = $1,297 ERV = $1,080
</TABLE>
<PAGE>
Schedule or Computation of Performance Quotations
Govett Global Income Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1997)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
<TABLE>
<CAPTION>
Since Inception
One Year Five Years 01/07/92
-------- ---------- --------
<S> <C> <C>
P = $1,000 P = $1,000 P = $1,000
T = -6.98% T = 3.34% T = 3.63%
N = 1 years N = 5 years N = 5.48 years
ERV = $930.2 ERV = $1,179 ERV = $1,216
</TABLE>
2. Yield (30 days ending June 30, 1997)
6
Yield = 2[((a - b)/(c*d) + 1) - 1]
Where: a = dividends and interest paid during the period
b = expenses accrued during the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period
d = the maximum offering price per share on the last day of the
period
a = $61,050.35
b = $17,004.47
c = 1,731,396
d = 8.14
Yield = 3.78%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000869698
<NAME> THE GOVETT FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> GOVETT INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 18,758
<INVESTMENTS-AT-VALUE> 22,953
<RECEIVABLES> 699
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 458
<TOTAL-ASSETS> 24,121
<PAYABLE-FOR-SECURITIES> 557
<SENIOR-LONG-TERM-DEBT> 750
<OTHER-ITEMS-LIABILITIES> 329
<TOTAL-LIABILITIES> 1,636
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,433
<SHARES-COMMON-STOCK> 1,837
<SHARES-COMMON-PRIOR> 2,308
<ACCUMULATED-NII-CURRENT> (308)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,265
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,095
<NET-ASSETS> 22,485
<DIVIDEND-INCOME> 209
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (314)
<NET-INVESTMENT-INCOME> (105)
<REALIZED-GAINS-CURRENT> 842
<APPREC-INCREASE-CURRENT> 1,376
<NET-CHANGE-FROM-OPS> 2,113
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 312
<NUMBER-OF-SHARES-REDEEMED> (783)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,337)
<ACCUMULATED-NII-PRIOR> (203)
<ACCUMULATED-GAINS-PRIOR> 423
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 118
<INTEREST-EXPENSE> 17
<GROSS-EXPENSE> 372
<AVERAGE-NET-ASSETS> 23,882
<PER-SHARE-NAV-BEGIN> 11.19
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 1.13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.24
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000869698
<NAME> THE GOVETT FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> GOVETT EMERGING MARKETS FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 51,527
<INVESTMENTS-AT-VALUE> 57,199
<RECEIVABLES> 1,495
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 1,876
<TOTAL-ASSETS> 60,573
<PAYABLE-FOR-SECURITIES> 309
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 509
<TOTAL-LIABILITIES> 818
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,168
<SHARES-COMMON-STOCK> 3,772
<SHARES-COMMON-PRIOR> 4,159
<ACCUMULATED-NII-CURRENT> (130)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 36
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,681
<NET-ASSETS> 59,755
<DIVIDEND-INCOME> 620
<INTEREST-INCOME> 10
<OTHER-INCOME> 0
<EXPENSES-NET> (760)
<NET-INVESTMENT-INCOME> (130)
<REALIZED-GAINS-CURRENT> 5,904
<APPREC-INCREASE-CURRENT> 3,123
<NET-CHANGE-FROM-OPS> 8,897
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,462
<NUMBER-OF-SHARES-REDEEMED> 1,849
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,941
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5,868)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 295
<INTEREST-EXPENSE> 20
<GROSS-EXPENSE> 841
<AVERAGE-NET-ASSETS> 59,699
<PER-SHARE-NAV-BEGIN> 13.66
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 2.21
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.84
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000869698
<NAME> THE GOVETT FUNDS, INC.
<SERIES>
<NUMBER> 5
<NAME> GOVETT SMALLER COMPANIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 171,644
<INVESTMENTS-AT-VALUE> 150,426
<RECEIVABLES> 4,432
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 57
<TOTAL-ASSETS> 154,918
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 1,000
<OTHER-ITEMS-LIABILITIES> 1,416
<TOTAL-LIABILITIES> 2,416
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 187,217
<SHARES-COMMON-STOCK> 7,952
<SHARES-COMMON-PRIOR> 11,899
<ACCUMULATED-NII-CURRENT> (1,481)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,015)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (21,219)
<NET-ASSETS> 152,502
<DIVIDEND-INCOME> 58
<INTEREST-INCOME> 332
<OTHER-INCOME> 0
<EXPENSES-NET> (1,871)
<NET-INVESTMENT-INCOME> (1,481)
<REALIZED-GAINS-CURRENT> 831
<APPREC-INCREASE-CURRENT> (24,810)
<NET-CHANGE-FROM-OPS> (25,460)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,929
<NUMBER-OF-SHARES-REDEEMED> (27,877)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (107,232)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (12,846)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 933
<INTEREST-EXPENSE> 32
<GROSS-EXPENSE> 2,442
<AVERAGE-NET-ASSETS> 190,194
<PER-SHARE-NAV-BEGIN> 21.83
<PER-SHARE-NII> (0.19)
<PER-SHARE-GAIN-APPREC> (2.46)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.18
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000869698
<NAME> THE GOVETT FUNDS, INC.
<SERIES>
<NUMBER> 7
<NAME> GOVETT PACIFIC STRATEGY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 2,580
<INVESTMENTS-AT-VALUE> 2,686
<RECEIVABLES> 253
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 142
<TOTAL-ASSETS> 3,084
<PAYABLE-FOR-SECURITIES> 80
<SENIOR-LONG-TERM-DEBT> 200
<OTHER-ITEMS-LIABILITIES> 87
<TOTAL-LIABILITIES> 367
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,439
<SHARES-COMMON-STOCK> 273
<SHARES-COMMON-PRIOR> 461
<ACCUMULATED-NII-CURRENT> (49)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,780)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 107
<NET-ASSETS> 2,717
<DIVIDEND-INCOME> 23
<INTEREST-INCOME> 2
<OTHER-INCOME> 0
<EXPENSES-NET> (48)
<NET-INVESTMENT-INCOME> (23)
<REALIZED-GAINS-CURRENT> 301
<APPREC-INCREASE-CURRENT> (7)
<NET-CHANGE-FROM-OPS> 271
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 94
<NUMBER-OF-SHARES-REDEEMED> (282)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,501)
<ACCUMULATED-NII-PRIOR> (26)
<ACCUMULATED-GAINS-PRIOR> (2,081)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16
<INTEREST-EXPENSE> 8
<GROSS-EXPENSE> 176
<AVERAGE-NET-ASSETS> 3,194
<PER-SHARE-NAV-BEGIN> 9.15
<PER-SHARE-NII> (0.12)
<PER-SHARE-GAIN-APPREC> 0.94
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000869698
<NAME> THE GOVETT FUNDS, INC.
<SERIES>
<NUMBER> 8
<NAME> GOVETT LATIN AMERICA FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 4,555
<INVESTMENTS-AT-VALUE> 5,826
<RECEIVABLES> 125
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 137
<TOTAL-ASSETS> 6,091
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 100
<OTHER-ITEMS-LIABILITIES> 76
<TOTAL-LIABILITIES> 176
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,948
<SHARES-COMMON-STOCK> 552
<SHARES-COMMON-PRIOR> 535
<ACCUMULATED-NII-CURRENT> 8
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,314)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,273
<NET-ASSETS> 5,915
<DIVIDEND-INCOME> 66
<INTEREST-INCOME> 4
<OTHER-INCOME> 0
<EXPENSES-NET> (62)
<NET-INVESTMENT-INCOME> 8
<REALIZED-GAINS-CURRENT> 536
<APPREC-INCREASE-CURRENT> 904
<NET-CHANGE-FROM-OPS> 1,448
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 222
<NUMBER-OF-SHARES-REDEEMED> (204)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,654
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,850)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 158
<AVERAGE-NET-ASSETS> 5,040
<PER-SHARE-NAV-BEGIN> 7.97
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 2.73
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.71
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000869698
<NAME> THE GOVETT FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> GOVETT GLOBAL INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 13,482
<INVESTMENTS-AT-VALUE> 12,344
<RECEIVABLES> 223
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 588
<TOTAL-ASSETS> 13,160
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 163
<TOTAL-LIABILITIES> 163
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,564
<SHARES-COMMON-STOCK> 1,680
<SHARES-COMMON-PRIOR> 2,447
<ACCUMULATED-NII-CURRENT> (245)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,181)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,141)
<NET-ASSETS> 12,997
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 480
<OTHER-INCOME> 0
<EXPENSES-NET> (150)
<NET-INVESTMENT-INCOME> 330
<REALIZED-GAINS-CURRENT> (300)
<APPREC-INCREASE-CURRENT> (808)
<NET-CHANGE-FROM-OPS> (778)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (494)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22
<NUMBER-OF-SHARES-REDEEMED> (822)
<SHARES-REINVESTED> 33
<NET-CHANGE-IN-ASSETS> (7,357)
<ACCUMULATED-NII-PRIOR> (80)
<ACCUMULATED-GAINS-PRIOR> (3,881)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59
<INTEREST-EXPENSE> 3
<GROSS-EXPENSE> 228
<AVERAGE-NET-ASSETS> 15,834
<PER-SHARE-NAV-BEGIN> 8.32
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> (0.46)
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.74
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
