<PAGE>
File Nos: 33-37783
811-6229
As filed with the Securities and Exchange Commission on October 6, 1998
================================================================================
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. 23
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 26
THE GOVETT FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
(Address of Principal Executive Offices)
800-731-1755
(Registrant's Telephone Number)
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)
[X] on December 7, 1998 pursuant to paragraph (a)(1)
[ ] 75 days after filig pursuant to paragraph (a)
[ ] on _________________ pursuant to paragraph (a)(2) of rule 485
---------------
This Registration Statement shall hereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933.
================================================================================
<PAGE>
THE GOVETT FUNDS, INC.
Cross Reference Sheet
Form N-1A
<TABLE>
<CAPTION>
N-1A ITEM NO. Prospectus Section
- -----------------------------------------------------------------------------------------------------------
PART A
<S> <C> <C>
1. Cover Page.................................. Cover Page
2. Synopsis.................................... Summary of Investor Costs
3. Condensed Financial Information ............ Financial Highlights
4. General Description of Registrant .......... An Overview of the Funds; Investment
Techniques and Policies; Investment Risks;
Multiple Classes of Shares; Other
Information
5. Management of the Fund ..................... Management of the Funds
6. Capital Stock and Other Securities ......... How the Funds Value Their Shares; Multiple
Classes of Shares; Dividends, Capital Gains
and Taxes; Other Information
7. Purchase of Securities Being Offered ....... Distribution Arrangements; Distribution
Plans; Multiple Classes of Shares; How to
Buy Shares; How to Make Exchanges; Other
Information; Appendix A
8. Redemption or Repurchase ................... Multiple Classes of Shares; How to Redeem
Shares
9. Pending Legal Proceedings .................. Not Applicable
PART B
10. Cover Page ................................. Cover Page
11. Table of Contents .......................... Contents
12. General Information and History ............ About the Funds
13. Investment Objectives and Policies ......... Investment Objectives and Policies; Other
Policies; Description of Securities,
Investment Policies and Risk Factors
14. Management of the Funds .................... Directors and Officers; Management of the
Funds
15. Control Persons and Principal Holders of Directors and Officers; Management of the
Securities ................................. Funds
16. Investment Advisory and Other Services...... Management of the Funds; Brokerage
Allocation
17. Brokerage Allocation ....................... Brokerage Allocation; Arrangements with
Brokers
18. Capital Stock and Other Securities ......... The Company and The Shares; Additional
Purchase, Exchange and Redemption
Information
19. Purchase, Redemption and Pricing of Additional Purchase, Exchange and
Securities Being Offered ................... Redemption Information
20. Tax Status ................................. Additional Distribution and Taxation
Information
21. Underwriters ............................... Distribution Arrangements
22. Calculation of Performance Data ............ Performance
23. Financial Statements ....................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE>
Subject to Completion, dated October 6, 1998
The following refers to the Govett International Smaller Companies Fund.
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 laws of any such
state.
GOVETT FUNDS
Class A Retail Shares
Prospectus dated ______, 1998
This Prospectus describes five funds (the "Funds") offered to investors by The
Govett Funds, Inc. (the "Govett Funds" or the "Company"). Each of the Funds is
managed by AIB Govett, Inc. ("AIB Govett" or the "Investment Manager"). AIB
Govett Asset Management Limited ( "AIB Govett London" or the "Subadviser")
serves as subadviser to each Fund.
. GOVETT INTERNATIONAL EQUITY FUND seeks long-term capital appreciation by
investing primarily in equity securities of issuers 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 INTERNATIONAL SMALLER COMPANIES FUND seeks long-term capital
appreciation by investing primarily in equity securities of smaller
companies located outside the U.S.
. GOVETT SMALLER COMPANIES FUND seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies.
. GOVETT GLOBAL INCOME FUND seeks primarily a high level of current income,
consistent with preservation of capital, by investing primarily in debt
securities. Its secondary objective is capital appreciation.
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 multiple classes of shares. This Prospectus relates only to
the Class A 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 an investor decide if a Fund's goal matches
his or her own. A Statement of Additional Information about the Funds,
dated_______, 1998, 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
<TABLE>
<S> <C>
ABOUT THE FUNDS
SUMMARY OF INVESTOR COSTS................................................. 3
FINANCIAL HIGHLIGHTS...................................................... 4
AN OVERVIEW OF THE FUNDS.................................................. 9
INVESTMENT TECHNIQUES AND POLICIES........................................ 10
INVESTMENT RISKS.......................................................... 12
MANAGEMENT OF THE FUNDS................................................... 14
ABOUT YOUR ACCOUNT
MULTIPLE CLASSES OF SHARES................................................ 18
HOW TO BUY SHARES......................................................... 19
HOW TO MAKE EXCHANGES..................................................... 21
HOW TO REDEEM SHARES...................................................... 22
TELEPHONE TRANSACTIONS.................................................... 24
DIVIDENDS, CAPITAL GAINS AND TAXES........................................ 25
OTHER INFORMATION......................................................... 26
APPENDIX A: QUICK REFERENCE GUIDE......................................... 30
APPLICATION FORM
</TABLE>
Each Fund also offers Institutional Class shares, which is available for
purchase only by certain investors. A prospectus for the Funds' Institutional
Class shares may be obtained by writing to the Distributor at the address shown
on the back cover, or by calling 800-634-6838. In addition, each Fund has a
second retail class of shares, Class B Retail shares, described in a separate
prospectus. AS OF THE DATE OF THIS PROSPECTUS, CLASS B RETAIL SHARES ARE NOT
BEING OFFERED TO THE PUBLIC.
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:
A. SHAREHOLDER TRANSACTION EXPENSES FOR CLASS A OF EACH FUND
<TABLE>
<CAPTION>
- -------------------- ------------------- ---------------------- -------------------- -----------------
MAXIMUM SALES MAXIMUM MAXIMUM SALES LOAD
LOAD IMPOSED ON DEFERRED SALES IMPOSED ON DIVIDEND
PURCHASES LOAD REINVESTMENTS REDEMPTION FEES EXCHANGE FEES
- -------------------- ------------------- ---------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
NONE NONE NONE 1.00%/1/ 1.00%/1/
</TABLE>
B. ANNUAL OPERATING EXPENSES FOR CLASS A OF EACH FUND
<TABLE>
<CAPTION>
TOTAL OPERATING
OTHER EXPENSES EXPENSES
(AFTER (AFTER
FUND MANAGEMENT FEE 12B-1 FEES REIMBURSEMENT)/2/ REIMBURSEMENT)/2/
- ------------------------------------- ----------------- ------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
International Equity 1.00% 0.35% 1.15% 2.50%
Emerging Markets Equity 1.00% 0.35% 1.15% 2.50%
International Smaller Companies
1.00% 0.35% 1.15% 2.50%
Smaller Companies 1.00% 0.35% 0.60% 1.95%
Global Income 0.75% 0.35% 0.65% 1.75%
</TABLE>
The Investment Manager has agreed to reduce its management fees and 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 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").
C. EXAMPLES OF EXPENSES
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
return3 and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
International Equity $25 $78 $133 $284
Emerging Markets Equity 25 78 133 284
International Smaller Companies
25 78 -- --
Smaller Companies 20 61 105 227
Global Income 18 55 95 206
</TABLE>
The above tables are not intended to reflect precisely the fees and expenses
associated with a particular person's investment in Class A Retail 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.
3
<PAGE>
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.
____
1 AS OF SEPTEMBER 1, 1998, CLASS A RETAIL SHARES ARE SUBJECT TO A SHORT-TERM
REDEMPTION FEE OF 1% ON SHARES REDEEMED WITHIN SIX MONTHS OF ACQUISITION. AS OF
DECEMBER __, 1998, EXCHANGES ARE ALSO SUBJECT TO A 1% FEE ON SHARES EXCHANGED
WITHIN SIX MONTHS OF ACQUISITION. THE FEE IS PAID TO THE FUND AND ITS PURPOSE IS
TO DISCOURAGE SHORT-TERM TRADING.
2 The percentages shown in "Other Expenses" and "Total Operating Expenses" are
net of reimbursement by the Investment Manager. The percentages in "Other
Expenses" for the Class A Retail shares of the International Equity Fund,
Emerging Markets Equity Fund, Smaller Companies Fund, and Global Income Fund are
based on expenses incurred by those Funds during the year ended December 31,
1997 after expense reimbursements. Absent reimbursements, "Other Expenses" as a
percentage of net assets for the Class A Retail shares of the International
Equity Fund, Emerging Markets Equity Fund, Smaller Companies Fund, and Global
Income Fund would have been 1.62%, 1.41%, 1.09%, and 1.72%, respectively, for
the year ended December 31, 1997. The "Other Expenses" for the year ended
December 31, 1997 have been calculated using the 12b-1 fee then in effect of
0.50% (except Global Income which was 0.35%). Absent such reimbursements, "Total
Operating Expenses" as a percentage of net assets for the Class A Retail shares
of the International Equity Fund, Emerging Markets Equity Fund, Smaller
Companies Fund, and Global Income Fund would have been 3.12%, 2.91%, 2.59%, and
2.82%, respectively, for the year ended December 31, 1997. The percentages
shown for the shares of the International Smaller Companies Fund are estimated
and based on the operating expense information for the International Equity
Fund, one of the series of the Company currently offered to the public.
3 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.
FINANCIAL HIGHLIGHTS
The following tables provide condensed information concerning income and capital
changes for one Class A share of International Equity Fund, Emerging Markets
Equity Fund, Smaller Companies Fund, and Global Income Fund for the periods
shown. This information, other than for the six months ended June 30, 1998, has
been audited by PricewaterhouseCoopers LLP, the Funds' independent accountant,
whose unqualified reports thereon appear in the Annual Report to Shareholders of
such Funds for the periods shown below. The financial statements and related
notes contained in such Reports (and no other portion of such Reports) are
incorporated by reference into the Statement of Additional Information. This
information should be read in conjunction with such statements and notes.
4
<PAGE>
INTERNATIONAL EQUITY FUND
- -------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
SIX MONTHS YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED JUNE ENDED ENDED ENDED ENDED ENDED ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994 1993 1992 (A)
------------ ----------- --------- ------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.90 $ 11.19 $ 11.27 $ 10.16 $ 13.23 $ 9.31 $10.00
--------- --------- --------- -------- -------- -------- -------
Income from investment operations:
Net investment income (loss) (0.03) (0.24)+ (0.11)+ (0.08)+ (0.12)+ (0.03) (0.01)
Net realized and unrealized gain (loss) on
investments 1.83 0.18 1.45 1.20 (0.94) 5.01 (0.52)
--------- --------- --------- -------- -------- -------- -------
Total from investment operations 1.80 (0.06) 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 (0.30) (0.23) (1.22) (0.01) (2.01) (1.06) (0.12)
In excess of net realized capital gain --- --- --- --- --- --- ---
--------- --------- --------- -------- -------- -------- -------
Total distributions (0.30) (0.23) (1.42) (0.01) (2.01) (1.06) (0.16)
--------- --------- --------- -------- -------- -------- -------
Net asset value, end of period $ 12.40 $ 10.90 $ 11.19 $ 11.27 $ 10.16 $ 13.23 $ 9.31
========= ========= ========= ======== ======== ======== =======
Total Return** 16.47 % (0.71)% 12.13 % 11.01 % (8.44)% 54.50 % (5.32)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $13,375 $13,952 $25,822 $28,546 $32,296 $44,610 $1,328
Net expenses to average daily net assets
(Note A) 2.50 %* 2.50 % 2.39 % 2.50 % 2.50 % 2.50 % 2.50 %*
Net investment income(loss) to average daily
net assets (0.38)%* (1.01)% (1.06)% (0.64)% (0.98)% (0.79)% (0.10)%*
Portfolio turnover rate 36 % 51 % 84 % 101 % 155 % 151 % 140 %
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the 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> <C>
Expenses 3.18 %* 3.12 % 3.09 % 2.75 % 2.74 % 2.65 % 13.85 %*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
* Annualized
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's expenses.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial Statements.
6
<PAGE>
EMERGING MARKETS EQUITY FUND
- -----------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.24 $ 13.66 $ 12.24 $ 13.29 $ 17.70
----------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.03 (0.11)+ (0.13)+ (0.06)+ (0.11)+
Net realized and unrealized gain (loss) on
Investments (2.36) (1.31) 1.61 (0.98) (1.93)
----------- ---------- ---------- ---------- ----------
Total from investment operations (2.33) (1.42) 1.48 (1.04) (2.04)
----------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.15) --- --- --- ---
In excess of net investment income --- --- (0.06) --- ---
From net realized gain --- --- --- (0.01) (2.33)
In excess of net realized capital gain --- --- --- --- (0.04)
----------- ---------- ---------- ---------- ----------
Total distributions (0.15) --- (0.06) (0.01) (2.37)
----------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 9.76 $ 12.24 $ 13.66 $ 12.24 $ 13.29
=========== ========== ========== ========== ==========
TOTAL RETURN** (19.30)% (10.40)% 12.08% (7.84)% (12.65)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $19,414 $32,899 $56,814 $75,887 $76,812
Net expenses to average daily net assets
(Note A) 2.50%* 2.50% 2.38% 2.50% 2.50%
Net investment income(loss) to average daily
net assets 0.20%* (0.54)% (0.62)% (0.49)% (0.77)%
Portfolio turnover rate 58% 120% 122% 115% 140%
<CAPTION>
-----------------------------
PERIOD
YEAR ENDED 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%
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the 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> <C>
Expenses 3.73%* 2.91% 2.62 % 2.78% 2.65% 2.52% 7.52%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
* Annualized
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's
expenses.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
7
<PAGE>
SMALLER COMPANIES FUND
- ----------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31
(UNAUDITED) 1997 1996 1995 1994
------------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.09 $ 21.83 $ 29.96 $ 19.06 $ 15.85
------------- ------------ ------------- ------------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.21) (0.43)+ (0.44)+ (0.30)+ (0.10)+
Net realized and unrealized gain (loss) on
investments 0.60 (2.31) (2.84) 13.32 4.47
------------- ------------ ------------- ------------- -----------
Total from investment operations 0.39 (2.74) (3.28) 13.02 4.37
------------- ------------ ------------- ------------- -----------
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 $ 19.48 $ 19.09 $ 21.83 $ 29.96 $ 19.06
============= ============ ============= ============= ===========
TOTAL RETURN** 2.04% (12.55)% (10.62)% 69.13% 28.68%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $87,676 $127,925 $259,735 $517,990 $76,873
Net expenses to average daily net assets (Note A) 1.95%* 1.95% 1.81% 1.95% 1.95%
Net investment income(loss) to average daily net
assets (1.77)%* (1.64)% (1.40)% (1.64)% (1.13)%
Portfolio turnover rate 30% 77% 406% 280% 519%
<CAPTION>
------------
YEAR ENDED
DEC. 31,
1993 (C)
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.06)
Net realized and unrealized gain (loss) on
investments 5.91
-----------
Total from investment operations 5.85
-----------
Less distributions to shareholders:
From net investment income ---
In excess of net investment income ---
From net realized gain ---
In excess of net realized capital gain ---
-----------
Total distributions ---
-----------
Net asset value, end of period $ 15.85
===========
TOTAL RETURN** 58.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $39,681
Net expenses to average daily net assets (Note A) 1.95%
Net investment income(loss) to average daily net
assets (0.93)%
Portfolio turnover rate 483%
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the 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 2.80%* 2.59% 2.08% 2.12% 2.40% 2.44%
</TABLE>
(c) Commencement of Operations was January 1, 1993.
(d) Prior to January 9, 1997, Berkeley Capital Management acted as investment
subadviser to this Fund.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's
expenses.
+ Per share net investment income (loss) doe 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.
8
<PAGE>
GLOBAL INCOME FUND
- ------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994
------------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.82 $ 8.32 $ 8.97 $ 8.48 $ 10.16
------------- ----------- ----------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.15 0.26+ 0.57+ 0.63+ 0.76+
Net realized and unrealized gain (loss) on
investments 0.07 (0.30) (0.54) 0.53 (1.67)
Total from investment operations 0.22 (0.04) 0.03 1.16 (0.91)
------------- ----------- ----------- ---------- ---------
Less distributions to shareholders:
From net investment income (0.18) (0.12) (0.66) (0.63) (0.24)
In excess of net investment income --- --- (0.02) (0.04) ---
From net realized gain --- --- --- --- ---
In excess of net realized capital gain --- --- --- --- ---
Tax return of capital --- (0.34) --- --- (0.53)
Total distributions (0.18) (0.46) (0.68) (0.67) (0.77)
Net asset value, end of period $ 7.86 $ 7.82 $ 8.32 $ 8.97 $ 8.48
============= =========== =========== ========== =========
TOTAL RETURN** 2.96% (0.35)% 0.34% 14.11% (9.16)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $7,871 $10,277 $20,354 $41,181 $51,691
Net expenses to average daily net assets
(Note A) 1.75%* 1.75% 1.64% 1.75% 1.75%
Net investment income(loss) to average daily
net assets 4.46%* 4.23% 7.17% 7.45% 8.30%
Portfolio turnover rate 6% 76% 236% 249% 701%
<CAPTION>
----------------------------
PERIOD
YEAR ENDED ENDED
DEC. 31, DEC. 31,
1993 1992 (A)
----------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.77 $10.00
----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.99 0.80
Net realized and unrealized gain (loss) on
investments 0.66 0.66
----------- -----------
Total from investment operations 1.65 0.86
----------- -----------
Less distributions to shareholders:
From net investment income (0.95) (0.78)
In excess of net investment income --- ---
From net realized gain (0.31) (0.31)
In excess of net realized capital gain --- ---
Tax return of capital --- ---
----------- -----------
Total distributions (1.26) (1.09)
----------- -----------
Net asset value, end of period $10.16 $9.77
=========== ===========
TOTAL RETURN** 17.67% 8.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $82,000 $34,084
Net expenses to average daily net assets
(Note A) 1.72% 1.75%*
Net investment income(loss) to average daily
net assets 9.66% 9.75%*
Portfolio turnover rate 328% 378%
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the 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> <C>
Expenses 3.19%* 2.82% 2.38% 1.93% 1.95% 1.72% 3.17%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
* Annualized
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's
expenses.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
9
<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 longterm
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 the Funds'
investment restrictions and other investment policies. Except for each Funds'
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 longterm capital appreciation by investing
primarily in equity securities of issuers located throughout the world.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities -- that is, common stocks, preferred stocks, and
warrants to acquire such stocks -- of issuers located in any country other than
the U.S.; provided that the Fund invests in at least three issuers located in
different countries. The Fund typically invests in securities listed on
recognized securities exchanges, but it may hold securities which are listed on
other exchanges or that are not listed.
The Fund may invest up to 35% of its total assets in other equity securities, in
debt obligations convertible into equity securities, and in nonconvertible debt
securities.
EMERGING MARKETS EQUITY FUND seeks longterm capital appreciation by investing
primarily in equity securities of issuers located in emerging markets.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities -- that is, common stocks, preferred stocks, and
warrants to acquire such stocks -- of issuers located in emerging or developing
markets; provided that the Fund invests in at least three issuers located in
different countries. 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 limits Fund investments to those countries
it believes have potential for significant growth and development. The Fund
typically invests in securities listed on recognized securities exchanges, but
it may hold securities that are listed on other exchanges or that are not
listed.
The Fund may invest up to 35% of its total assets in other equity securities, in
debt obligations convertible into equity securities, and in nonconvertible debt
securities.
9
<PAGE>
INTERNATIONAL SMALLER COMPANIES FUND seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies located outside
the U.S.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities that is, common stocks, preferred stocks, and
warrants to acquire such stocks of smaller companies located outside the U.S.,
provided that the Fund invests in at least three issuers located in different
countries. For this Fund, a smaller company is defined as a company, which at
the time of purchase, has a market capitalization no greater than $3 billion.
The Fund typically invests in securities listed on recognized securities
exchanges, but it may hold securities that are listed on other exchanges or that
are not listed.
The Fund may invest up to 35% of its total assets in other equity securities.
The Fund may also invest in debt obligations convertible into equity securities
and in non-convertible debt securities.
SMALLER COMPANIES FUND seeks longterm capital appreciation by investing
primarily in equity securities of smaller companies. This Fund may invest in
U.S. companies.
Under normal market conditions, the Fund invests at least 65% of its total
assets in securities of smaller companies located anywhere in the world,
including the U.S. For this Fund, a smaller company is defined as a company,
which at the time of purchase, has a market capitalization no greater than $3
billion. This policy puts the typical smaller company in the same size range as
companies included in the Russell 2000 Index.
The Fund may invest up to 35% of its total assets in other equity securities.
The Fund may also invest in debt obligations convertible into equity securities
and in non-convertible debt securities.
Under normal market conditions, the Fund will invest at least 80% of the Fund's
total assets in common stocks. In addition, the Fund may invest up to 20% of
its total assets in other types of securities with equity characteristics,
including preferred stocks, convertible securities, warrants, units, and rights.
The Fund typically invests in securities listed on recognized securities
exchanges, but it may hold securities that are listed on other exchanges or that
are not listed.
GLOBAL INCOME FUND seeks primarily a high current income, consistent with
preservation of capital, by investing primarily in debt securities. Its
secondary objective is capital appreciation.
This Fund is designed to provide the potential for higher yields and greater
capital gains than a U.S.only bond fund, although an investment in the Fund has
special risks. Under normal market conditions, the Fund invests at least 65% of
its total assets in debt securities -- such as, supranational, government or
sovereign, or non-convertible corporate bonds, notes, debentures, certificates
of deposit, commercial paper, bankers' acceptances, and fixed-time deposits --
of issuers located in any country anywhere in the world, including the U.S. The
Fund must invest (a) in at least three issuers located in different countries
and (b) no more than 40% of its total assets in issuers located in any one
country.
The Fund may invest up to 35% of its total assets in debt obligations
convertible into equity securities, such as common and preferred stocks and
warrants to acquire such stocks, and in equity securities; provided that the
Fund may not invest more that 20% of its total assets in equity securities.
It is the Fund's policy that 75% of its total assets invested in debt securities
and commercial paper, at the time of purchase, will be rated by Moody's at least
in the Baa category or by Standard & Poor's at least in the BBB category or, if
unrated, determined to be of comparable quality by the Investment Manager, with
respect to debt
10
<PAGE>
securities, and rated by Moody's at least in the Prime-2 category or by Standard
& Poor's in the A-2 category, or, if unrated, determined to be of comparable
quality by the Investment Manager, with respect to commercial paper.
It also is the Fund's current policy to maintain the average dollar-weighted
maturity of the Fund's portfolio between five to ten years, that is, the
maturity of an intermediate-term debt instrument, although the Fund may adjust
its average dollar-weighted maturity from time to time
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 longterm 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 ("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 (but any increase or decrease will be considered when
determining whether the asset complies with the regulatory limitations that
apply to borrowings and illiquid securities).
. The term "issuers located in" a particular country or region includes
issuers (i) which are organized under the laws of that country or a country
in that region and which have their principal office in that country or a
country in that region; or (ii) which derive 50% or more of their total
revenues from business in that country or a country in that region; or
(iii) the equity securities of which are principally traded on a stock
exchange of that country or a country in that region.
GENERAL LIMITATIONS
International Equity Fund, Emerging Markets Equity Fund, International Smaller
Companies Fund, and Smaller Companies 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. Global Income Fund is not a "diversified
company".
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.
11
<PAGE>
INVESTMENT TECHNIQUES
DEPOSITORY RECEIPTS. The Funds may invest in sponsored and unsponsored American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs"), and similar global instruments to the extent that
they may invest in the underlying securities. A U.S. or foreign bank or trust
company typically "sponsors" these depository 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 depository
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. With respect to
International Equity, Emerging Markets Equity, International Smaller Companies,
and Smaller Companies Funds only, at least 75% of Fund's total assets invested
in nonconvertible debt securities other than commercial paper must be rated, at
the time of purchase, at least in the A category by Standard & Poor's or
Moody's, or if unrated, determined to be of comparable quality by AIB Govett.
These four Funds' commercial paper investments must, at the time of purchase, be
rated at least Prime2 by Moody's or A2 by Standard & Poor's, or if unrated,
determined to be of comparable quality by AIB Govett.
With respect to all Funds, the subsequent downgrade of a debt security to a
level below the investment grade required for the Fund will not require an
immediate sale of the security. However, AIB Govett will consider the
circumstances of the downgrade in determining whether to hold that security,
including causes of the downgrade, local market conditions, and general economic
trends.
TEMPORARY STRATEGIES. To retain flexibility to respond promptly to adverse
changes in market and economic conditions, AIB Govett, in its discretion, may
use temporary defensive strategies. Under such strategies, a Fund may hold up
to 100% of its total assets as cash (either U.S. dollars, foreign currencies or
multinational currency units), and/or invest in shortterm, high-quality debt
securities. For debt obligations other than commercial paper, such instruments
must be rated, at the time of purchase, at least in the AAA category by Standard
& Poor's or at least in the Aaa category by Moody's, or if unrated, determined
to be of comparable quality by AIB Govett. For commercial paper, such
investments must be rated, at the time of purchase, at least A2 by Standard &
Poor's or Prime2 by Moody's, or if unrated, determined to be of comparable
quality by AIB Govett.
HEDGING STRATEGIES. Each Fund may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with its investments, although there can be no assurance that such efforts will
succeed. Among the types of transactions which may be used are: forward
currency contracts, writing of covered put and call options, purchase of put and
call options on currencies and equity and debt securities, stock index futures
and options thereon, interest rate or currency futures and options thereon, and
securities futures and options thereon. It is currently intended that no Fund
will place more than 5% of its net assets at risk in any one of these
transactions or securities, except Global Income Fund may invest significantly
more than 5% of its net assets in forward currency contracts, provided that no
more than 5% of its net assets are at risk in any one of the other types of
transactions or securities. However, although there is no limit on the number
of forward currency contracts Global Income Fund may enter into, this Fund may
not position hedge with respect to a particular currency for an amount greater
than the aggregate market value (determined at the time the sale of any foreign
currency is made) of the securities held in its portfolio denominated or quoted
in, or currently convertible into, such currency.
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.
12
<PAGE>
INVESTMENT IN OTHER INVESTMENT COMPANIES. Emerging and developing markets
countries often limit foreign investments in equity securities of issuers
located in such countries. As a result, the Funds may be able to invest in such
countries solely or primarily through open- or closed-end investment companies.
Each Fund may invest in such companies to the extent permitted under the 1940
Act. The Funds may not invest in any investment companies managed by AIB Govett
or any of its affiliates. Investments in investment companies may involve a
duplication of certain expenses, such as management and administrative expenses.
RESTRICTED SECURITIES. The Funds may invest in foreign securities that are
restricted against transfer within the U.S. or to U.S. persons. Although
securities subject to such U.S. transfer restrictions may be marketable abroad,
they may be less liquid than foreign securities of the same class that are not
subject to such restrictions. Unless these securities are limited as to resale
within their principal market, the Funds treat such foreign securities whose
principal market is abroad as not being subject to investment limitation on
restricted securities.
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 longterm 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 to which non-U.S. companies may be subject. 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. Such taxes may adversely affect a
Fund's net asset value.
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
13
<PAGE>
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 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.
INVESTING IN SMALLER COMPANIES. The smaller companies in which the Funds
invest, and in which International Smaller Companies and Smaller Companies Funds
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
may 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 normally invests in a number of issuers; however, the Fund is a
"nondiversified" series and may invest more than 5% of its assets in the
securities of one issuer. Consequently, the Fund may experience greater
interest rate and credit risk with respect to its portfolio than funds with
similar objectives which are more broadly diversified.
Securities in the BBB and Baa (Standard & Poor's/Moody's) major rating
categories have speculative characteristics and changes in economic conditions
and other circumstances are more likely to lead to a weakened capacity to make
principal or interest payments than in the case of higher rated bonds.
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 on 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 adequate legal recourse can therefore be
significantly diminished.
SOVEREIGN DEBT OBLIGATIONS. 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 sovereign debt obligations 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 "How Funds Value Their Shares" in
this Prospectus and "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 (the "Investment Management Agreement"), effective on January 1, 1998,
between the Company 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 the
Company's behalf in accordance with each Fund's investment policies.
ADVISER AND SUBADVISER
14
<PAGE>
AIB Govett, 250 Montgomery Street, Suite 1200, San Francisco, CA 94104, is 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 $62 billion as of December 31, 1997.
AIBAMH has approximately $14 billion of assets under management as of December
31, 1997.
AIB GOVETT LONDON 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 December 31, 1997,
approximately $5.6 billion under management, primarily in non-U.S. funds. AIB
Govett London serves as investment subadviser to two U.S. mutual fund portfolios
in addition to the Funds.
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, AIB Govett London, which had served as
investment manager for the Funds, changed its name from John Govett & Co.
Limited. AIB Govett London serves as subadviser to all Funds. AIB Govett and
AIB Govett London 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.
John Murray and Eileen Fitzpatrick, Joint Chief Investment Officers and
Directors of AIB Govett, are, respectively, Managing Director of Investments of
AIB Govett London and Chief Investment Officer of AIB Investment Managers
Limited ("AIBIM"), a wholly-owned subsidiary of AIBAMH based in Dublin. Mr.
Murray graduated with a BA in finance and business studies from the University
of the South Bank. Prior to joining AIB Govett London as a Director in 1994, he
was a Director at Henderson Administration from 1990, most recently responsible
for managing pension funds in excess of (Pounds)400m. He also served as a fund
manager at Crown Financial Management and as Head of Research at Provident Life.
Ms. Fitzpatrick holds a Ph.D. in Science from University College, Dublin. After
two years with a Dublin-based fund management organization, she joined AIBIM 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 as Deputy Investment Director and was appointed
Investment Director in January 1997.
PORTFOLIO MANAGEMENT
AIB Govett and the Subadviser are part of a broad network of offices worldwide,
with principal offices located in London, Dublin, San Francisco, and Singapore,
which are supported in turn by a global network of investment/research offices
in Baltimore, Budapest, Mexico City, Rio de Janeiro, Poznan (Poland), Bangalore,
Kuala Lumpur, Seoul, and Taipei. Each Fund is managed by a portfolio management
team under the supervision of the Managing Director of Investments of AIB Govett
London. Each team's investment process is based on interaction among regional
specialist desks. The Global Investment Policy Committee, consisting of the
Chief Investment Officers of the principal offices, sets overall investment
policies and strategy for the AIB Govett group and
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coordinates implementation in accordance with each Fund's investment objectives,
policies, and regulatory requirements. With this structure, the firm seeks
consistent implementation of process and continuity of investment management
staff for each Fund.
AIB Govett and the Subadviser permit their investment and other personnel to
purchase and sell securities for their own accounts, subject to a compliance
policy governing personal investment. This policy requires investment and other
personnel to conduct their personal investment activities in a manner that is
not detrimental to the Funds or to any of the group's other advisory clients.
Mr. Patrick Cunneen, a Director of the Company, is a director 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 Funds are not
affected by the change 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 London, AIB Govett pays
AIB Govett London a fee of 0.45% of average annual net assets for each Fund
except Global Income, for which the Subadviser receives 0.3375% of average
annual net assets, as compensation for serving as investment subadviser to the
Funds. The Funds are not responsible for payment of the subadvisory fee to AIB
Govett London.
AIB Govett 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 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. Please see the Financial Highlights
section of this Prospectus and the Statement of Additional Information for more
information about fees and expenses.
ALLOCATION OF PORTFOLIO TRANSACTIONS
In placing orders for the Funds' portfolio transactions, each of AIB Govett and
the Subadviser 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.
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Consistent with the obligation to obtain best execution, AIB Govett or the
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 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
Subadviser to the Funds and to any accounts over which AIB Govett or the
Subadviser exercises investment discretion.
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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 Subadviser
carefully weighs anticipated benefits of a trade against expected transaction
costs and tax consequences. Neither AIB Govett nor the Subadviser engages in
shortterm trading except when necessary to prudently manage the Funds'
portfolios. The portfolio turnover rates for the Funds for the period from
January 1, 1997 through December 31, 1997 were: International Equity Fund--51%;
Emerging Markets Equity Fund--120%; Smaller Companies Fund--77%; and Global
Income Fund--76%. The portfolio turnover rates for the Funds for the period from
January 1, 1998 through June 30, 1998 were: International Equity Fund--36%;
Emerging Markets Equity Fund--58%; Smaller Companies Fund--30%; and Global
Income Fund--6%. Each Fund's portfolio turnover rate reflects market conditions
affecting the economies that Fund invests in.
DISTRIBUTION ARRANGEMENTS
FPS Broker Services, Inc. (the "Distributor") is the Funds' distributor and
principal underwriter. First Data Investor Services Group, Inc. (formerly FPS
Services, Inc.), a former affiliate of the Distributor, serves the Funds as
transfer and shareholder services agent (the "Transfer Agent"). Effective
January 1, 1999, First Data Distributors, Inc. will acquire FPS Broker Services,
Inc.
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 sales of 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
by the Distributor 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 Class A Retail shares of each Fund have adopted a Distribution
Plan referred to in this Prospectus as the "Class A Plan". This distribution
plan is intended to comply 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.
Under the Class A Plan, each Fund pays an ongoing distribution fee to the
Distributor at an annual rate of 0.35% of each Fund's aggregate average daily
net assets attributable to its Class A Retail shares. There is no service fee
paid under the Class A Plan.
The 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 acting as a Service Organization
under the Plan.
If the Class A Plan is terminated, the Distributor would not be compensated for
costs incurred but not yet recovered. Payments under the Class A Plan of a Fund
may not be increased to more than 0.35% of the Fund's average daily net assets
attributable to Class A Retail shares without prior approval of the
shareholders. At present, the Board of
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Directors has approved payments under the Class A Plan 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 Class (including payments for travel,
telephone, and overhead expenses related to distribution), subject to the
overall percentage limitations described above.
Payments made to the Distributor under the 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 share in such class.
The Directors determined that there was a reasonable likelihood that the
Distribution Plan 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 Plan. 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.
CUSTODIAN
The Chase Manhattan Bank (the "Custodian") serves as the Funds' global
custodian.
TRANSFER AGENT
First Data Investor Services Group, Inc. (formerly FPS Services, Inc.) (the
"Transfer Agent") provides transfer agent, shareholder services agent, and
dividend disbursement services to the Funds. The Transfer Agent is a subsidiary
of First Data Corporation.
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 61/st/ 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
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1:00p.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
NAV 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 close of
regular trading on a foreign exchange and the close of regular trading on the
New York Stock Exchange may not be reflected in that day's computation of a
Fund's NAV. If an event materially affecting the value of a portfolio holding
occurs during such period and the Investment Manager becomes aware of it or if a
holding becomes illiquid pursuant to procedures adopted by the Board of
Directors, then the holding will be valued at fair value as determined in good
faith, according to procedures adopted by the Board.
ABOUT YOUR ACCOUNT
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 the Institutional Class Shares is available upon request. This Prospectus
relates only to Class A Retail shares. As of the date of this Prospectus, Class
B shares, which are described in a separate prospectus, are not available to the
public. Each class of shares of a Fund represents an interest in the same
portfolio of investments, and each class has its own sales charge structure.
Each class has distinct advantages and disadvantages for investors in different
financial circumstances and with different investment goals.
The following table summarizes certain terms of Class A Retail shares:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges None
- -----------------------------------------------------------------------------------------------------------------------------
12b1 Distribution Fee 0.35% for all Funds
- -----------------------------------------------------------------------------------------------------------------------------
Redemption/Exchange Fee 1% on redemptions or exchanges made within 6 months of share purchase
- -----------------------------------------------------------------------------------------------------------------------------
Service Fee None
- -----------------------------------------------------------------------------------------------------------------------------
Minimum Investment $5,000 initially; $1,000 any subsequent purchases*
- -----------------------------------------------------------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of the same class of the other Funds
- -----------------------------------------------------------------------------------------------------------------------------
Convertibility Class A Retail shares do not convert to any other Class of shares of the Funds
- -----------------------------------------------------------------------------------------------------------------------------
Dividends Calculated in the same manner and at the same time of day for each class
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For existing shareholders of record as of December 31, 1997, the applicable
minimums are $500 and $25, respectively, for identically registered
accounts.
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.
HOW TO BUY SHARES
Shares of each of the Funds are offered continuously at the NAV per share
determined for each Fund as of the close of the regular trading session of the
New York Stock Exchange (currently 4:00 p.m. Eastern Time), following receipt by
the Transfer Agent of a purchase order in proper form plus, in the case of the
Class A Retail shares of each Fund purchased prior to September 1, 1998, an
initial sales charge imposed at the time of purchase or subject
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to a short-term redemption fee upon certain redemptions. AN UNSPECIFIED PURCHASE
ORDER WILL BE CONSIDERED AN ORDER FOR CLASS A RETAIL SHARES.
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 January 1, 1998, the minimum initial investment
for new investors ("Second Stage Shareholders") in any series of the Company is
$5,000 and any subsequent investments are to be $1,000 or more. Different
minimums apply to investments made according to an Automatic Investment Plan
(see below for details). For existing shareholders of record as of the close of
business December 31, 1997 ("First Stage Shareholders"), the investment minimums
for identically registered accounts remain those in effect when they initially
invested in any Fund; specifically, $500 minimum initial investment into another
Fund of the Company and subsequent investments of $25 or more.
For an Individual Retirement Account ("IRA"), the minimum initial investment for
Second Stage Shareholders in any Fund of the Company will $2,000 and any
subsequent investments are to be $1,000 or more. For First Stage Shareholders,
the investment minimums for identically registered IRAs remain those in effect
when they initially invested in any Fund; specifically, $500 minimum initial
investment into another Fund of the Company and subsequent investment of $25 or
more. For an IRA application or with any questions about your IRA, please call
(800) 821-0803.
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.
PURCHASES THROUGH AUTHORIZED DEALERS
Generally, 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. From time to time, on a case-by-case basis, the Transfer
Agent may make arrangements for later processing times with authorized dealers,
so long as such arrangements comply with applicable law and Fund operating
requirements. For wiring instructions, please see "Appendix A".
INITIAL PURCHASES THROUGH 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 "Govett Funds", to the address shown in Appendix A. Minimum initial
investment is $5,000 or more ($500 or more for First Stage Shareholders). 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 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
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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
In the interest of economy and convenience, the Funds do not issue certificates
for Class A Retail shares unless a shareholder or his or her authorized dealer
submits a written request to the Transfer Agent. Shareholders of Class A Retail
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 Retail 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
Second Stage Shareholders may buy shares of a Fund through the Automatic
Investment Plan ("AIP") with an initial amount of at least $5,000 and $100
thereafter, per Fund, to be invested on a regular basis. For First Stage
Shareholders, the initial amount for an AIP remains at least $100 and $25
thereafter, per Fund, to be invested on a regular basis. The specified amount
will be transferred directly from the investor's bank for investment into the
designated Fund(s) on the designated investment day. These transfers are
processed on the 10/th/, 15/th/, and 20/th/ 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
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23
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Effective September 1, 1998, the sales charge on Class A Retail shares was
eliminated.
Letter of Intent ("LOI") and Right of Accumulation. Prior to September 1, 1998,
investors who agreed to purchase a certain dollar amount of Class A Retail
shares or who already had purchased a certain dollar amount of Class A Retail
shares, may have qualified for reduced sales charge rates. Purchases of Class A
Retail shares made after September 1, 1998 are not subject to a sales
charge.
24
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25
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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, provided
that the account holder remains the same, subject to any applicable exchange
fee. 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.
EXCHANGE FEE. As of December __, 1998, exchanges made within six months of
purchase are subject to a 1% fee on the amount exchanged out of a Fund. All
shares purchased prior to the date of this Prospectus are not subject to the 1%
Exchange Fee. The shares held the longest would be considered to exchanged
first. This fee may not be applied to omnibus accounts.
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<PAGE>
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
subject to any applicable exchange fee. Prior to September 1, 1998, the sales
charge was imposed if the shareholder's initial investment in the Govett Funds,
Inc. was a purchase of Money Market Fund shares. The Money Market Fund is not a
series of the Company, 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, Class A Retail
shares of a Govett Fund exchanged into the Money Market Fund will be exchanged
for Class A Retail 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 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. For Second Stage Shareholders, there is a $5,000 minimum for
establishing a new account and $100 minimum for an existing account. For First
Stage Shareholders, the minimum remains $100 for a new Fund in an identically
registered account and the minimum for an existing Fund remains $25. These
transactions are effected on the 25/th/ of each month. If the 25th falls on a
weekend or holiday, the transaction will be effected on the next business day.
The exchange fee is waived for participants in the Automatic Exchange Plan.
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.
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<PAGE>
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 per share next computed after the Transfer Agent
receives your redemption request which has been completed in accordance with the
account, less any applicable sales charges or redemption fees (Purchases of $1
million or more made prior to September 1, 1998 are subject to a CDSC if
redeemed within one year of purchase, and after September 1, 1998, redemptions
made within six months of purchase are subject to a 1% redemption fee).
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.
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, although typically the wire will be
completed within one (1) business day. A $9.00 processing fee will be deducted
from the proceeds of redemptions wired from the Funds.
The Funds may withhold redeeming a shareholder's account until they are
reasonably satisfied that checks used to pay for investments in one or more
Funds 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.
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 per share (less any applicable redemption fee or CDSC)
calculated on the next business day (i.e., the next day the New York Stock
Exchange is open for regular trading).
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 by written request.
. 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.
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. 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 17Ad15 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 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. Generally, the Transfer Agent accepts
redemption requests by telephone on any business day from 9:00 a.m. to 5:00 p.m.
Eastern Time, from dealers which have a dealer agreement with the Distributor or
from other qualified brokers, provided that the dealer has received the request
prior to 4:00 p.m. Eastern Time. From time to time, on a case-by-case basis, the
Transfer Agent may make arrangements for later processing times with authorized
dealers, so long as such arrangements comply with applicable law and Fund
operational requirements. This is known as a repurchase. However, EVEN AFTER
RECEIPT OF A REPURCHASE ORDER FROM A DEALER, THE FUNDS STILL REQUIRE A SIGNED
LETTER FROM THE SHAREHOLDER CONTAINING REDEMPTION INSTRUCTIONS AND ALL OTHER
DOCUMENTS REQUIRED FOR DIRECT REDEMPTION REQUESTS, AS STATED ABOVE. The
shareholder's letter should refer to the Fund involved, the account from which
the redemption is to be made, the fact that the repurchase was ordered through a
dealer, and the dealer's name. Details of the dealer-ordered trade, such as the
trade date, confirmation number, and the amount of shares or dollars, will speed
processing. The seven-day period within which the proceeds of the shareholder's
redemption will be sent will begin when the Transfer Agent receives all
documents required to complete (or "settle") the repurchase in proper form. The
redemption proceeds will not earn dividends or interest during the time between
receipt of by the Transfer Agent of the dealer's repurchase order and the date
the redemption is processed after all necessary documents have been received. It
is therefore in the shareholder's best interest to have all required
documentation completed and forwarded to the Transfer Agent as soon as possible.
The shareholder's dealer may charge a fee for handling the order. From time to
time, on a case-by-case basis, the Transfer Agent may make arrangements for
later processing times with authorized dealers, so long as such arrangements
comply with applicable law and Fund operating requirements.
SYSTEMATIC WITHDRAWAL PLAN
For Second Stage Shareholders, a Systematic Withdrawal Plan is available to
shareholders whose accounts total $50,000 or more. Under the Systematic
Withdrawal Plan, the Transfer Agent will make specified monthly, quarterly,
semiannual or annual payments to a designated party of any amount selected with
a minimum of $100. For First Stage Shareholders, a Systematic Withdrawal Plan
continues to be available to shareholders whose accounts total $5,000 or more
with specific monthly, quarterly, semi-annual or annual payments to a designated
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party of any amount selected with a 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 day the New York Stock Exchange is open for regular trading.
Changes concerning the Systematic Withdrawal Plan must be received by the
Transfer Agent at least two weeks prior to the next scheduled withdrawal. The
Funds reserve the right to change the terms and conditions of the Systematic
Withdrawal Plan and the ability to offer it. For further information about the
Systematic Withdrawal Plan, its requirements and its tax consequences, call the
Transfer Agent at 800-821-0803.
SHORT-TERM REDEMPTION FEE
To discourage short-term trading, effective September 1, 1998, purchases of
Class A Retail shares are subject to a 1% redemption fee on shares redeemed
within six months of the purchase of the shares. The fee is paid to the
Fund.
All shares purchased prior to September 1, 1998 are not subject to the six-month
redemption fee and would be considered to be redeemed first for a shareholder.
The fee is not imposed on shares acquired through the reinvestment of dividends
or capital gains distributions. The fee may not apply to omnibus accounts.
Whether a redemption fee is imposed will depend on the number of months since
the investor purchased the shares from which an amount is being redeemed. The
oldest shares (from which a redemption or exchange has not already been
effected) will be assumed to be redeemed first for purposes of calculating the
fee. For example, if a shareholder purchased 500 shares for $10/share 12 months
ago and then purchased 600 shares for $12/share 4 months ago, today when he
sells 400 shares for $15/share he would pay no fee as those 400 shares would be
the from the first purchase and would have been held for more than 6 months.
However, if he sold 600 shares at $15/share, a redemption fee of $15 would be
owed on the 100 shares that had not been held for 6 months.
WAIVER OF SHORT-TERM REDEMPTION FEE
The redemption fee is waived under the following circumstances:
. Death or disability of the shareholder (as defined in Section 72(m)(7) of
the Internal Revenue Code, as amended (the "Code")).
. Minimum required distributions from certain IRA or retirement plan
distributions.
. Redemptions made pursuant to the Funds' systematic withdrawal plan, but
limited to 10% of the initial value of the account annually for Class
A.
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.
The Telephone Privilege permits shareholders to redeem so long as the proceeds
are payable to the shareholder(s) of record and sent to the address of record
for the account or wired directly to 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
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at any time without prior notice. Shareholders who have retirement accounts with
the Funds or hold certificated shares may not redeem by telephone.
In an effort to confirm that telephone requests are genuine, reasonable
procedures are employed, which currently include recording all telephone
instructions and mailing a confirming account statement to the record address.
If reasonable procedures are followed, neither the Funds, the Distributor, nor
the Transfer Agent will be liable for following telephone instructions it
reasonably believes to be genuine. Any of the Funds, the Distributor, and the
Transfer Agent may be liable for losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges and
redemptions will be accepted from authorized dealers on behalf of a shareholder
by telephone, provided that the exchange or redemption involves only
uncertificated shares on deposit in the shareholder's account or shares for
which certificates have previously been deposited.
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 shortterm gains. At least annually,
distributions of any net realized or remaining 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
date the dividend is declared 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 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.
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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 shortterm capital gains over net 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 capital gains
over net shortterm capital losses are treated as 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.
In addition, 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 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 for 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 nonexempt 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 underreporting 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.
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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 semiannual 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.
YEAR 2000
AIB Govett and its affiliates and the Funds' service providers have assembled
teams of information technology professionals to address Year 2000 issues. The
key phases of their preparation plans include: an inventory of all internal
systems, vendor products and services, and data providers; an assessment of all
systems for date reliance and the impact of the century rollover on each; and
the renovation and testing of affected systems. The Funds will not bear the cost
of these efforts. In addition, the portfolio management teams inquire about the
Year 2000 preparations of current and prospective Fund investments, but there is
no certainty that the information provided in response is complete or accurate
or that a company's Year 2000 problems will not affect a Fund's
performance.
Inadequate preparation for Year 2000 by the Funds' service providers and others
with whom they interact could adversely affect the Funds' operations, including
pricing, securities trading and settlement, and the provision of shareholder
services. However, as a result of the service providers' efforts, the Funds do
not anticipate a material adverse impact on their business, operations or
financial condition relating to Year 2000 issues. Nevertheless, there can be no
assurance that the steps being taken will be sufficient and timely or that
interaction with other computer systems which are not prepared will not have a
material adverse effect on the Funds' business, operations or financial
condition.
THE EURO
On January 1, 1999, the European Monetary Union ("EMU") plans to introduce a new
single currency, the euro, which will replace the national currencies of the
participating member nations. Until 2002, the national currencies will continue
to exist, but exchange rates will be pegged to the euro. As of the date of this
Prospectus, the eleven member nations are Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain.
Therefore, the Funds most likely to be affected by this change are International
Equity Fund, International Smaller Companies Fund, Smaller Companies Fund, and
Global Income Fund.
The introduction of the euro is likely to affect all stages of the investment
process, including trading, foreign exchange, custody, and accounting. Because
this change to a single currency is new, the introduction of the euro may result
in market volatility and may affect the business or financial condition of
European issuers or of a Fund. In addition, while the conversion will eliminate
currency risk among the participating nations, currency risk between the euro
and the U.S. dollar remains a factor.
While there can be no assurances that the conversion will not adversely affect
the Funds, the Investment Adviser, Subadviser, and the Funds' service providers
are taking steps which they believe appropriately and reasonably address the
issues involved in the introduction of the euro.
ORGANIZATION
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The Govett Funds, Inc. is a Maryland corporation formed in 1990. It is
registered with the SEC as an openend management company. Each Fund corresponds
to a distinct investment portfolio and a distinct series of shares. Each Fund,
other than Global Income Fund, is a diversified series of the Company. Global
Income Fund is not diversified. 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 currently offers Class A Retail Shares and Institutional Class shares.
This prospectus relates to the Class A shares. The Institutional Class shares
are available for purchase only by certain investors and are described in a
separate prospectus. Class B Retail Shares are not currently available. 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 Funds 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 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. 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.
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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 share 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. 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 most recent Annual Report and SemiAnnual Report contain additional
performance information on the International Equity Fund, Emerging Markets
Equity Fund, Smaller Companies 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
nonbank affiliates (the "Member Banks") from sponsoring, organizing, controlling
or distributing shares of registered openend 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 openend
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 Subadviser 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 Subadviser 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
Subadviser 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 was to occur, the Board of Directors would seek to take
action so that no shareholder of any Fund would suffer any adverse consequences.
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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 Adviser
Service Desk.
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 GOVETT FUNDS
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 GOVETT FUNDS
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 First Data Investor Services Group
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:
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via U.S. Postal Service via overnight delivery service
GOVETT FUNDS GOVETT FUNDS
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
Govett International Equity Fund
GOVETT EMERGING MARKETS EQUITY FUND
GOVETT INTERNATIONAL SMALLER COMPANIES FUND
GOVETT SMALLER COMPANIES FUND
GOVETT GLOBAL INCOME FUND
TRANSFER AGENT custodian
First Data Investor Services Group, Inc. The Chase Manhattan Bank
3200 Horizon Drive 4 MetroTech Center
P.O. Box 61503 Brooklyn, NY 11245
King of Prussia, PA 19406-0903
800-821-0803
DISTRIBUTOR ACCOUNTING AND ADMINISTRATION SERVICES
FPS Broker Services, Inc. Chase Global Funds Services Company
3200 Horizon Drive 73 Tremont Street,
P.O. Box 61503 11th Floor
King of Prussia, PA 19406-0903 Boston, MA 02108
800-634-6838
GOVETT FUNDS DIRECTORS
250 Montgomery Street, Suite 1200 Patrick K. Cunneen, Chairman
San Francisco, CA 94104 Elliot L. Atamian
800-731-1755 Sir Victor Garland
415-263-1865 James M. Oates
Frank R. Terzolo
INVESTMENT MANAGER
AIB Govett, Inc.
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-731-1755
415-263-1865
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<PAGE>
Subject to Completion, dated October 6, 1998
The following refers to the Govett International Smaller Companies Fund.
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 laws of any such
state.
GOVETT FUNDS
Institutional Class Shares
Prospectus dated _________, 1998
This Prospectus describes five funds (the "Funds") offered to investors by The
Govett Funds, Inc. (the "Govett Funds" or the "Company"). Each of the Funds is
managed by AIB Govett, Inc. ("AIB Govett" or the "Investment Manager"). AIB
Govett Asset Management Limited ("AIB Govett London" or the "Subadviser") serves
as subadviser to each Fund.
. GOVETT INTERNATIONAL EQUITY FUND seeks long-term capital appreciation by
investing primarily in equity securities of issuers 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 INTERNATIONAL SMALLER COMPANIES FUND seeks long-term capital
appreciation by investing primarily in equity securities of smaller
companies located outside the U.S.
. GOVETT SMALLER COMPANIES FUND seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies.
. 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.
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 multiple classes of shares. 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) Plan 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_______, 1998, 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.............................3
FINANCIAL HIGHLIGHTS..................................4
AN OVERVIEW OF THE FUNDS..............................9
INVESTMENT TECHNIQUES AND POLICIES...................10
INVESTMENT RISKS.....................................12
MANAGEMENT OF THE FUNDS..............................14
ABOUT YOUR ACCOUNT
WHO CAN BUY INSTITUTIONAL SHARES.....................17
HOW TO BUY SHARES....................................18
HOW TO MAKE EXCHANGES................................19
HOW TO REDEEM SHARES.................................20
TELEPHONE TRANSACTIONS...............................22
DIVIDENDS, CAPITAL GAINS AND TAXES...................22
OTHER INFORMATION....................................24
APPENDIX A: QUICK REFERENCE GUIDE....................28
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 Class A
shares. Shares of these classes are subject to sales charges and other
expenses, which may affect their performance. A prospectus for Class A shares
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:
A. SHAREHOLDER TRANSACTION EXPENSES FOR INSTITUTIONAL CLASS OF EACH FUND
<TABLE>
<CAPTION>
MAXIMUM SALES LOAD MAXIMUM DEFERRED MAXIMUM SALES LOAD IMPOSED
IMPOSED ON PURCHASES SALES LOAD ON DIVIDEND REINVESTMENTS REDEMPTION FEES EXCHANGE FEES
- ---------------------- ---------------- ------------------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
NONE NONE NONE 1.00%/1/ 1.00%/1/
</TABLE>
B. ANNUAL OPERATING EXPENSES FOR INSTITUTIONAL CLASS OF EACH FUND
<TABLE>
<CAPTION>
TOTAL OPERATING
OTHER EXPENSES EXPENSES
(AFTER (AFTER
FUND MANAGEMENT FEE 12B-1 FEES REIMBURSEMENT)/2/ REIMBURSEMENT)/2/
- ------------------------------- -------------------- ----------------- --------------------- -------------------
<S> <C> <C> <C> <C>
International Equity 1.00% NONE 0.75% 1.75%
Emerging Markets Equity 1.00% NONE 0.75% 1.75%
International Smaller
Companies 1.00% NONE 0.75% 1.75%
Smaller Companies 1.00% NONE 0.20% 1.20%
Global Income 0.75% NONE 0.40% 1.15%
</TABLE>
The Investment Manager has agreed to reduce its management fees and 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, the amount of that limitation is the percentage listed above under "Total
Operating Expenses" for such Fund.
C. EXAMPLES OF EXPENSES
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
return3 and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
International Equity $18 $55 $95 $206
Emerging Markets Equity 18 55 95 206
International Smaller
Companies 18 55 -- --
Smaller Companies 12 38 66 145
Global Income 12 37 63 140
</TABLE>
- ------
1 AS OF SEPTEMBER 1, 1998, INSTITUTIONAL CLASS SHARES ARE SUBJECT TO A SHORT-
TERM REDEMPTION FEE OF 1% ON SHARES REDEEMED WITHIN SIX MONTHS OF ACQUISITION.
AS OF DECEMBER __, 1998, EXCHANGES ARE ALSO SUBJECT TO A 1% FEE ON SHARES
EXCHANGED WITHIN SIX MONTHS OF ACQUISITION. THE FEE IS PAID TO THE FUND AND ITS
PURPOSE IS TO DISCOURAGE SHORT-TERM TRADING.
3
<PAGE>
2 The percentages shown in "Other Expenses" and "Total Operating Expenses" are
net of reimbursement by the Investment Manager. The percentages in "Other
Expenses" for the Institutional Class shares of the International Equity Fund,
Emerging Markets Equity Fund, Smaller Companies Fund, and Global Income Fund are
based on the operating expense information for each Fund's Class A shares for
the fiscal year ended December 31, 1997, adjusted for estimated class specific
expenses, and after including estimated expense reimbursements by the Investment
Manager. Absent such reimbursements, estimated "Other Expenses" as a percentage
of net assets for the Institutional Class shares of International Equity Fund,
Emerging Markets Equity Fund, Smaller Companies Fund, and Global Income Fund are
anticipated to be 1.17%, 0.97%, 0.44%, and 1.34%, respectively. Absent such
reimbursements, estimated "Total Operating Expenses" as a percentage of net
assets for the Institutional Class of shares of International Equity Fund,
Emerging Markets Equity Fund, Smaller Companies Fund, and Global Income Fund are
anticipated to be 2.17%, 1.97%, 1.44%, and 2.09%, respectively. The percentages
shown for the shares of the International Smaller Companies Fund are estimated
and based on the operating expense information for the International Equity
Fund, one of the series of the Company currently offered to the public.
3 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.
4
<PAGE>
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
5
<PAGE>
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.
FINANCIAL HIGHLIGHTS
The following tables provide condensed information concerning income and capital
changes for one Class A share of International Equity Fund, Emerging Markets
Equity Fund, Smaller Companies Fund, and Global Income Fund for the periods
shown. This information, other than for the six months ended June 30, 1998, has
been audited by PricewaterhouseCoopers LLP, the Funds' independent accountant,
whose unqualified reports thereon appear in the Annual Report to Shareholders of
such Funds for the periods shown below. The financial statements and related
notes contained in such Reports (and no other portion of such Reports) are
incorporated by reference into the Statement of Additional Information. This
information should be read in conjunction with such statements and notes.
Prior to June 27, 1997, Institutional Class shares had been designated as Class
C Shares. As of June 30, 1998, neither Institutional Class nor Class C shares
of any Fund had been 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 represent historical information for
Class A shares of the Funds. As of December 31, 1997, Class A shares were
subject to Distribution (12b-1) Plan fees of 0.50% of average net assets (for
Global Income Fund, the fee was 0.35% of average net assets). As of February 1,
1998, the Class A Distribution (12b-1) Plan fees were reduced to 0.35% of
average net assets for all Funds. Institutional Class shares, however, were not
subject to any Distribution (12b-1) Plan fee.
6
<PAGE>
INTERNATIONAL EQUITY FUND
- -------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR YEAR YEAR
ENDED JUNE ENDED ENDED ENDED ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.90 $ 11.19 $ 11.27 $ 10.16 $ 13.23
------------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.03) (0.24)+ (0.11)+ (0.08)+ (0.12)+
Net realized and unrealized gain (loss) on
investments 1.83 0.18 1.45 1.20 (0.94)
------------ ---------- ------------ ----------- -----------
Total from investment operations 1.80 (0.06) 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 (0.30) (0.23) (1.22) (0.01) (2.01)
In excess of net realized capital gain --- --- --- --- ---
-------------- ------------ ----------- ----------- -----------
Total distributions (0.30) (0.23) (1.42) (0.01) (2.01)
-------------- ------------ ----------- ------------ -----------
Net asset value, end of period $ 12.40 $ 10.90 $ 11.19 $ 11.27 $ 10.16
============= =========== =========== =========== ===========
TOTAL RETURN** 16.47% (0.71)% 12.13% 11.01% (8.44)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $13,375 $13,952 $25,822 $28,546 $32,296
Net expenses to average daily net assets
(Note A) 2.50%* 2.50% 2.39% 2.50% 2.50%
Net investment income(loss) to average daily
net assets (0.38)%* (1.01)% (1.06)% (0.64)% (0.98)%*
Portfolio turnover rate 36% 51% 84% 101% 155%
</TABLE>
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED
ENDED DEC. 31,
DEC. 31, 1992 (A)
1993
-------- -----------
<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%
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the reimbursement of expenses, the expense ratios as a percentage of average net
assets for the periods indicated would have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses 3.18%* 3.12% 3.09% 2.75% 2.74% 2.65% 13.85%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
* Annualized
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's expenses.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial Statements.
6
<PAGE>
EMERGING MARKETS EQUITY FUND
- -----------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR YEAR YEAR
ENDED JUNE ENDED ENDED ENDED ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.24 $ 13.66 $ 12.24 $ 13.29 $ 17.70
------------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.03 (0.11)+ (0.13)+ (0.06)+ (0.11)+
Net realized and unrealized gain (loss) on
investments (2.36) (1.31) 1.61 (0.98) (1.93)
-------------- ----------- ----------- ----------- -----------
Total from investment operations (2.33) (1.42) 1.48 (1.04) (2.04)
------------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.15) --- --- --- ---
In excess of net investment income --- --- (0.06) --- ---
From net realized gain --- --- --- (0.01) (2.33)
In excess of net realized capital gain --- --- --- --- (0.04)
-------------- ----------- ----------- ----------- -----------
Total distributions (0.15) --- (0.06) (0.01) (2.37)
------------- ----------- ----------- ---------- -----------
Net asset value, end of period $ 9.76 $ 12.24 $ 13.66 $ 12.24 $ 13.29
============= =========== =========== =========== ===========
TOTAL RETURN** (19.30)% (10.40)% 12.08% (7.84)% (12.65)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $19,414 $32,899 $56,814 $75,887 $76,812
Net expenses to average daily net assets
(Note A) 2.50%* 2.50% 2.38% 2.50% 2.50%
Net investment income(loss) to average daily
net assets 0.20%* (0.54)% (0.62)% (0.49)% (0.77)%
Portfolio turnover rate 58% 120% 122% 115% 140%
</TABLE>
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
EC. 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%
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the reimbursement of expenses, the expense ratios as a percentage of average net
assets for the periods indicated would have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses 3.73%* 2.91% 2.62% 2.78% 2.65% 2.52% 7.52%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
* Annualized
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's
expenses.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
7
<PAGE>
SMALLER COMPANIES FUND
- ----------------------
<TABLE>
<CAPTION>
________________________________________________________________________________
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994 1993 (C)
------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.09 $ 21.83 $ 29.96 $ 19.06 $ 15.85 $ 10.00
-------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.21) (0.43)+ (0.44)+ (0.30)+ (0.10)+ (0.06)
Net realized and unrealized gain (loss) on
investments 0.60 (2.31) (2.84) 13.32 4.47 5.91
-------- -------- -------- -------- ------- -------
Total from investment operations 0.39 (2.74) (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 $ 19.48 $ 19.09 $ 21.83 $ 29.96 $ 19.06 $ 15.85
======== ======== ======== ======== ======= =======
TOTAL RETURN** 2.04 % (12.55)% (10.62)% 69.13 % 28.68 % 58.50 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (100's) $ 87,676 $127,925 $259,735 $517,990 $76,873 $39,681
Net expenses to average daily net assets (Note A) 1.95 %* 1.95 % 1.81 % 1.95 % 1.95 % 1.95 %
Net investment income(loss) to average daily net
assets (1.77)%* (1.64)% (1.40)% (1.64)% (1.13)% (0.93)%
Portfolio turnover rate 30 % 77 % 406 % 280 % 519 % 483 %
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the reimbursement of expenses, the expense ratios as a percentage of average net
assets for the periods indicated would have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Expenses 2.80%* 2.59% 2.08% 2.12% 2.40% 2.44%
</TABLE>
(c) Commencement of Operations was January 1, 1993.
(d) Prior to January 9, 1997, Berkeley Capital Management acted as investment
subadviser to this Fund.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's
expenses.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
8
<PAGE>
GLOBAL INCOME FUND
- ------------------
<TABLE>
<CAPTION>
___________________________________________________________________________________________
SIX MONTHS PERIOD
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994 1993 1992 (A)
----------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.82 $ 8.32 $ 8.97 $ 8.48 $ 10.16 $ 9.77 $ 10.00
------- ------- ------- ------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.15 0.26+ 0.57+ 0.63+ 0.76+ 0.99 0.80
Net realized and unrealized gain (loss)
on investments 0.07 (0.30) (0.54) 0.53 (1.67) 0.66 0.06
------- ------- ------- ------- -------- ------- -------
Total from investment operations 0.22 (0.04) 0.03 1.16 (0.91) 1.65 0.86
------- ------- ------- ------- -------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.18) (0.12) (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 --- (0.34) --- --- (0.53) --- ---
------- ------- ------- ------- -------- ------- -------
Total distributions (0.18) (0.46) (0.68) (0.67) (0.77) (1.26) (1.09)
------- ------- ------- ------- -------- ------- -------
Net asset value, end of period $ 7.86 $ 7.82 $ 8.32 $ 8.97 $ 8.48 $ 10.16 $ 9.77
======= ======= ======= ======= ======== ======= =======
TOTAL RETURN** 2.96 % (0.35)% 0.34 % 14.11 % (9.16)% 17.67 % 8.95 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (100's) $ 7,871 $10,277 $20,354 $41,181 $51,691 $82,000 $34,084
Net expenses to average daily net assets
(Note A) 1.75 %* 1.75 % 1.64 % 1.75 % 1.75 % 1.72 % 1.75 %*
Net investment income(loss) to average
daily net assets 4.46 %* 4.23 % 7.17 % 7.45 % 8.30 % 9.66 % 9.75 %*
Portfolio turnover rate 6 % 76 % 236 % 249 % 701 % 328 % 378 %
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the reimbursement of expenses, the expense ratios as a percentage of average net
assets for the periods indicated would have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses 3.19%* 2.82% 2.38% 1.93% 1.95% 1.72% 3.17%*
</TABLE>
(a) Commencement of Operations was January 7, 1992.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
* Annualized
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's
expenses.
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1 of the relevant Financial
Statements.
9
<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 longterm
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 the Funds'
investment restrictions and other investment policies. Except for each Funds'
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 longterm capital appreciation by investing
primarily in equity securities of issuers located throughout the world.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities -- that is, common stocks, preferred stocks, and
warrants to acquire such stocks -- of issuers located in any country other than
the U.S.; provided that the Fund invests in at least three issuers located in
different countries. The Fund typically invests in securities listed on
recognized securities exchanges, but it may hold securities which are listed on
other exchanges or that are not listed.
The Fund may invest up to 35% of its total assets in other equity securities, in
debt obligations convertible into equity securities, and in nonconvertible debt
securities.
EMERGING MARKETS EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers located in emerging markets.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities -- that is, common stocks, preferred stocks, and
warrants to acquire such stocks -- of issuers located in emerging or developing
markets; provided that the Fund invests in at least three issuers located in
different countries. 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 limits Fund investments to those countries
it believes have potential for significant growth and development. The Fund
typically invests in securities listed on recognized securities exchanges, but
it may hold securities that are listed on other exchanges or that are not
listed.
The Fund may invest up to 35% of its total assets in other equity securities, in
debt obligations convertible into equity securities, and in non-convertible debt
securities.
11
<PAGE>
INTERNATIONAL SMALLER COMPANIES FUND seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies located outside
the U.S.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities that is, common stocks, preferred stocks, and
warrants to acquire such stocks - of smaller companies located outside the U.S.,
provided that the Fund invests in at least three issuers located in different
countries. For this Fund, a smaller company is defined as a company, which at
the time of purchase, has a market capitalization no greater than $3 billion.
The Fund typically invests in securities listed on recognized securities
exchanges, but it may hold securities that are listed on other exchanges or that
are not listed.
The Fund may invest up to 35% of its total assets in other equity securities.
The Fund may also invest in debt obligations convertible into equity securities
and in non-convertible debt securities.
SMALLER COMPANIES FUND seeks longterm capital appreciation by investing
primarily in equity securities of smaller companies. This Fund may invest in
U.S. companies.
Under normal market conditions, the Fund invests at least 65% of its total
assets in securities of smaller companies located anywhere in the world,
including the U.S. A smaller company is defined as a company, which at the time
of purchase, has a market capitalization no greater than $3 billion. This policy
puts the typical smaller company in the same size range as companies included in
the Russell 2000 Index.
The Fund may invest up to 35% of its total assets in other equity securities.
The Fund may also invest in debt obligations convertible into equity securities
and in non-convertible debt securities.
Under normal market conditions, the Fund will invest at least 80% of the Fund's
total assets in common stocks. In addition, the Fund may invest up to 20% of its
total assets in other types of securities with equity characteristics, including
preferred stocks, convertible securities, warrants, units, and rights. The Fund
typically invests in securities listed on recognized securities exchanges, but
it may hold securities that are listed on other exchanges or that are not
listed.
GLOBAL INCOME FUND seeks primarily a high current income, consistent with
preservation of capital, by investing primarily in debt securities. Its
secondary objective is capital appreciation.
This Fund is designed to provide the potential for higher yields and greater
capital gains than a U.S.only bond fund, although an investment in the Fund has
special risks. Under normal market conditions, the Fund invests at least 65% of
its total assets in debt securities -- such as, supranational, government or
sovereign, or non-convertible corporate bonds, notes, debentures, certificates
of deposit, commercial paper, bankers' acceptances, and fixed-time deposits --of
issuers located in any country anywhere in the world, including the U.S. The
Fund must invest (a) in at least three issuers located in different countries
and (b) no more than 40% of its total assets in issuers located in any one
country.
The Fund may invest up to 35% of its total assets in debt obligations
convertible into equity securities, such as common and preferred stocks and
warrants to acquire such stocks, and in equity securities; provided that the
Fund may not invest more that 20% of its total assets in equity securities.
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It is the Fund's policy that 75% of its total assets invested in debt securities
and commercial paper, at the time of purchase, will be rated by Moody's at least
in the Baa category or by Standard & Poor's at least in the BBB category or, if
unrated, determined to be of comparable quality by the Investment Manager, with
respect to debt securities, and rated by Moody's at least in the Prime-2
category or by Standard & Poor's in the A-2 category, or, if unrated, determined
to be of comparable quality by the Investment Manager, with respect to
commercial paper.
It also is the Fund's current policy to maintain the average dollar-weighted
maturity of the Fund's portfolio between five to ten years, that is, the
maturity of an intermediate-term debt instrument, although the Fund may adjust
its average dollar-weighted maturity from time to time
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 longterm 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 ("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 (but any increase or decrease will be considered when
determining whether the asset complies with regulatory limitations that
apply to borrowings and illiquid securities).
. The term "issuers located in" a particular country or region includes
issuers (i) which are organized under the laws of that country or a country
in that region and which have their principal office in that country or a
country in that region; or (ii) which derive 50% or more of their total
revenues from business in that country or a country in that region; or
(iii) the equity securities of which are principally traded on a stock
exchange of that country or a country in that region.
GENERAL LIMITATIONS
International Equity Fund, Emerging Markets Equity Fund, International Smaller
Companies Fund, and Smaller Companies 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. Global Income Fund is not a "diversified
company".
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 331/3 % of its total assets and pledge up to 331/3 % of its
total assets in connection with such borrowing. Any borrowings that come to
exceed the 331/3 % 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 331/3 % 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.
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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
DEPOSITORY RECEIPTS. The Funds may invest in sponsored and unsponsored American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs"), and similar global instruments to the extent that
they may invest in the underlying securities. A U.S. or foreign bank or trust
company typically "sponsors" these depository 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 depository
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. With respect to
International Equity, Emerging Markets Equity, International Smaller Companies,
and Smaller Companies Funds only, at least 75% of Fund's total assets invested
in nonconvertible debt securities other than commercial paper must be rated, at
the time of purchase, at least in the A category by Standard & Poor's or
Moody's, or if unrated, determined to be of comparable quality by AIB Govett.
These four Funds' commercial paper investments must, at the time of purchase, be
rated at least Prime-2 by Moody's or A-2 by Standard & Poor's, or if unrated,
determined to be of comparable quality by AIB Govett.
With respect to all Funds, the subsequent downgrade of a debt security to a
level below the investment grade required for the Fund will not require an
immediate sale of the security. However, AIB Govett will consider the
circumstances of the downgrade in determining whether to hold that security,
including causes of the downgrade, local market conditions, and general economic
trends.
TEMPORARY STRATEGIES. To retain flexibility to respond promptly to adverse
changes in market and economic conditions, AIB Govett, in its discretion, may
use temporary defensive strategies. Under such strategies, a Fund may hold up to
100% of its total assets as cash (either U.S. dollars, foreign currencies or
multinational currency units), and/or invest in short-term, high-quality debt
securities. For debt obligations other than commercial paper, such instruments
must be rated, at the time of purchase, at least in the AAA category by Standard
& Poor's or at least in the Aaa category by Moody's, or if unrated, determined
to be of comparable quality by AIB Govett. For commercial paper, such
investments must be rated, at the time of purchase, at least A-2 by Standard &
Poor's or Prime-2 by Moody's, or if unrated, determined to be of comparable
quality by AIB Govett.
HEDGING STRATEGIES. Each Fund may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with its investments, although there can be no assurance that such efforts will
succeed. Among the types of transactions which may be used are: forward currency
contracts, writing of covered put and call options, purchase of put and call
options on currencies and equity and debt securities, stock index futures and
options thereon, interest rate or currency futures and options thereon, and
securities futures and options thereon. It is currently intended that no Fund
will place more than 5% of its net assets at risk in any one of these
transactions or securities, except Global Income Fund may invest significantly
more than 5% of its net assets in forward currency contracts, provided that no
more than 5% of its net assets are at risk in any one of the other types of
transactions or securities. However, although there is no limit on the number of
forward currency contracts Global Income Fund may enter into, this Fund may not
position hedge with respect to a particular currency for an amount greater than
the aggregate market value (determined at the time the sale of any foreign
currency is made) of the securities held in its portfolio denominated or quoted
in, or currently convertible into, such currency.
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,
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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.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Emerging and developing markets
countries often limit foreign investments in equity securities of issuers
located in such countries. As a result, the Funds may be able to invest in such
countries solely or primarily through open- or closed-end investment companies.
Each Fund may invest in such companies to the extent permitted under the 1940
Act. The Funds may not invest in any investment companies managed by AIB Govett
or any of its affiliates. Investments in investment companies may involve a
duplication of certain expenses, such as management and administrative expenses.
RESTRICTED SECURITIES. The Funds may invest in foreign securities that are
restricted against transfer within the U.S. or to U.S. persons. Although
securities subject to such U.S. transfer restrictions may be marketable abroad,
they may be less liquid than foreign securities of the same class that are not
subject to such restrictions. Unless these securities are limited as to resale
within their principal market, the Funds treat such foreign securities whose
principal market is abroad as not being subject to investment limitation on
restricted securities.
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 to which non-U.S. securities may be subject. 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. Such taxes may adversely affect a
Fund's net asset value.
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
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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 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.
INVESTING IN SMALLER COMPANIES. The smaller companies in which the Funds
invest, and in which International Smaller Companies and Smaller Companies Funds
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
may 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 normally invests in a number of issuers; however, the Fund is a
"non-diversified" series and may invest more than 5% of its assets in the
securities of one issuer. Consequently, the Fund may experience greater interest
rate and credit risk with respect to its portfolio than funds with similar
objectives which are more broadly diversified.
Securities in the BBB and Baa (Standard & Poor's/Moody's) major rating
categories have speculative characteristics and changes in economic conditions
and other circumstances are more likely to lead to a weakened capacity to make
principal or interest payments than in the case of higher rated bonds.
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 on 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 adequate legal recourse can therefore be
significantly diminished.
SOVEREIGN DEBT OBLIGATIONS. 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 sovereign debt obligations 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 "How Funds Value Their Shares" in this
Prospectus and "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 (the "Investment Management Agreement"), effective on January 1, 1998,
between the
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Company 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 the Company's
behalf in accordance with each Fund's investment policies.
ADVISER AND SUBADVISER
AIB Govett, 250 Montgomery Street, Suite 1200, San Francisco, CA 94104, is 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 $62 billion as of December 31, 1997.
AIBAMH had approximately $14 billion of assets under management as of December
31, 1997.
AIB GOVETT LONDON 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 December 31, 1997, approximately $5.6
billion under management, primarily in non-U.S. funds. AIB Govett London serves
as investment subadviser to two U.S. mutual fund portfolios in addition to the
Funds.
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, AIB Govett London, which had served as
investment manager for the Funds, changed its name from John Govett & Co.
Limited. AIB Govett London serves as subadviser to all Funds. AIB Govett and AIB
Govett London 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.
John Murray and Eileen Fitzpatrick, Joint Chief Investment Officers and
Directors of AIB Govett, are, respectively, Managing Director of Investments of
AIB Govett London and Chief Investment Officer of AIB Investment Managers
Limited ("AIBIM"), a wholly-owned subsidiary of AIBAMH based in Dublin. Mr.
Murray graduated with a BA in finance and business studies from the University
of the South Bank. Prior to joining AIB Govett London as a Director in 1994, he
was a Director at Henderson Administration from 1990, most recently responsible
for managing pension funds in excess of (Pounds)400m. He also served as a fund
manager at Crown Financial Management and as Head of Research at Provident Life.
Ms. Fitzpatrick holds a Ph.D. in Science from University College, Dublin. After
two years with a Dublinbased fund management organization, she joined AIBIM 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 as Deputy Investment Director and was appointed
Investment Director in January, 1997.
PORTFOLIO MANAGEMENT
AIB Govett and the Subadviser are part of a broad network of offices worldwide,
with principal offices located in London, Dublin, San Francisco, and Singapore,
which are supported in turn by a global network of investment/research offices
in Baltimore, Budapest, Mexico City, Rio de Janeiro, Poznan (Poland), Bangalore,
Kuala Lumpur, Seoul, and Taipei. Each Fund is managed by a portfolio management
team under the supervision of the Managing Director of Investments of AIB Govett
London. Each team's investment process is based on interaction among regional
specialist desks. The Global Investment Policy Committee, consisting of the
Chief Investment Officers of the principal offices, sets overall investment
policies and strategy for AIB Govett group and COORDINATED IMPLEMENTATION IN
ACCORDANCE WITH EACH FUND'S INVESTMENT OBJECTIVES, POLICIES, AND REGULATORY
REQUIREMENTS. WITH THIS STRUCTURE, THE FIRM SEEKS CONSISTENT IMPLEMENTATION OF
PROCESS AND CONTINUITY OF INVESTMENT MANAGEMENT STAFF FOR EACH FUND.
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AIB Govett and the Subadviser permit their investment and other personnel to
purchase and sell securities for their own accounts, subject to a compliance
policy governing personal investment. This policy requires investment and other
personnel to conduct their personal investment activities in a manner that is
not detrimental to the Funds or to any of the group's other advisory clients.
Mr. Patrick Cunneen, a Director of the Company, is a director 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 Funds are not
affected by the change 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 London, AIB Govett pays
AIB Govett London a fee of 0.45% of average annual net assets for each Fund
except Global Income, for which the Subadviser receives 0.3375% of average
annual net assets, as compensation for serving as investment subadviser to the
Funds. The Funds are not responsible for payment of the subadvisory fee to AIB
Govett London.
AIB Govett 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 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. Please see the Financial Highlights
section of this Prospectus and the Statement of Additional Information for more
information about fees and expenses.
ALLOCATION OF PORTFOLIO TRANSACTIONS
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In placing orders for the Funds' portfolio transactions, each of AIB Govett and
the Subadviser 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
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 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
Subadviser to the Funds and to any accounts over which AIB Govett or the
Subadviser exercises investment discretion.
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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 Subadviser carefully weighs
anticipated benefits of a trade against expected transaction costs and tax
consequences. Neither AIB Govett nor the Subadviser engages in shortterm trading
except when necessary to prudently manage the Funds' portfolios. The portfolio
turnover rates for the Funds for the period from January 1, 1997 through
December 31, 1997 were: International Equity Fund--51%; Emerging Markets Equity
Fund--120%; Smaller Companies Fund--77%; and Global Income Fund--76%. The
portfolio turnover rates for the Funds for the period from January 1, 1998
through June 30, 1998 were: International Equity Fund--35%; Emerging Markets
Equity Fund--58%; Smaller Companies Fund--30%; and Global Income Fund--6%. Each
Fund's portfolio turnover rate reflects market conditions affecting the
economies that Fund invests in.
DISTRIBUTION ARRANGEMENTS
FPS Broker Services, Inc. (the "Distributor") is the Funds' distributor and
principal underwriter. First Data Investor Services Group, Inc. (formerly FPS
Services, Inc.), a former affiliate of the Distributor, serves the Funds as
transfer and shareholder services agent (the "Transfer Agent"). Effective
January 1, 1999, First Data Distributors, Inc. will acquire FPS Broker Services,
Inc.
CUSTODIAN
The Chase Manhattan Bank (the "Custodian") serves as the Funds' global
custodian.
TRANSFER AGENT
First Data Investor Services Group, Inc. (formerly FPS Services, Inc.) (the
"Transfer Agent") provides transfer agent, shareholder services agent, and
dividend disbursement services to the Funds. The Transfer Agent is a subsidiary
of First Data Corporation
ACCOUNTING AND ADMINISTRATION SERVICES
Chase Global Funds Services Company, an affiliate of the Funds' global
custodian, provides the Funds with administration and accounting services.
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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 NAV per share 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. Shortterm
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 61/st/ 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 1:00p.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 NAV 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 close of regular trading on
a foreign exchange and the close of regular trading on the New York Stock
Exchange may not be reflected in that day's computation of a Fund's NAV. If an
event materially affecting the value of a portfolio holding occurs during such
period and the Investment Manager becomes aware of it or if a holding becomes
illiquid pursuant to procedures adopted by the Board of Directors, then the
holding will be valued at fair value as determined in good faith, according to
procedures adopted by the Board.
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 profit-sharing, 401(k) and other tax-exempt employee benefit
plans, including rollover individual retirement plans from such plans;
(b) institutional advisory accounts of AIB Govett or its affiliates, as well as
subsidiaries and related employee benefit plans and certain rollover
individual retirement accounts from institutional advisory accounts;
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(c) registered investment advisers and financial institutions, including banks
and trust companies (each an "Adviser") investing on behalf of clients that
are institutions or high net-worth individuals having at least $250,000
under management by the Adviser; and
(d) the Board of Directors may also authorize purchases of Institutional Class
shares of any series of the Funds, with or without minimum investment
waived, by shareholders of a mutual fund which was advised by AIB Govett or
an affiliate and subsequently merged into a series of the Funds.
The following table summarizes certain terms of Institutional Class shares.
<TABLE>
<CAPTION>
Institutional Class
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges None
- ----------------------------------------------------------------------------------------------------------------------------------
12b1 Distribution Fee None
- ----------------------------------------------------------------------------------------------------------------------------------
Redemption/Exchange Fee 1% on redemptions and exchanges made within 6 months of share purchase.
- ----------------------------------------------------------------------------------------------------------------------------------
Service Fee None
- ----------------------------------------------------------------------------------------------------------------------------------
Minimum Investment $25,000 initially; any amount for subsequent purchases.
- ----------------------------------------------------------------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of the same class of the other Funds.
- ----------------------------------------------------------------------------------------------------------------------------------
Convertibility Institutional Class shares do not convert to any other Class of shares of the Funds
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends Calculated in the same manner and at the same time of day for each class, except that Institutional
Class shares will not incur distribution fees under Rule 12b-1 Plans that apply to the Class A and
Class B shares.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
HOW TO BUY SHARES
Institutional Class shares of each of the Funds are offered continuously at the
NAV per share determined for each Fund as of the close of the regular trading
session of the New York Stock Exchange (currently 4:00 p.m. Eastern Time),
following receipt by the Transfer Agent of a purchase order in proper form,
subject to the short-term redemption fee.
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 $25,000. 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.
PURCHASES THROUGH AUTHORIZED DEALERS
Generally, 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. From time to time, on a case-by-case basis, the Transfer
Agent may make arrangements for later processing
22
<PAGE>
times with authorized dealers, so long as such arrangements comply with
applicable law and Fund operating requirements. For wiring instructions, please
see Appendix A.
INITIAL PURCHASES THROUGH 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 "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 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. 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.
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.
23
<PAGE>
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, subject to any applicable exchange fee.
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.
EXCHANGE FEE. As of December __, 1998, exchanges made within six months of
purchase are subject to a 1% fee on the amount exchanged out of a Fund. All
shares purchased prior to the date of this Prospectus are not subject to the 1%
Exchange Fee. The shares held the longest would be considered to exchanged
first. This fee may not be applied to omnibus accounts.
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
subject to any applicable exchange fee. The Money Market Fund is not a series of
the Company, 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 be
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 30day 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 per share next computed after the Transfer Agent receives a
redemption request which has been completed in accordance with account, less any
applicable redemption fees. 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.
24
<PAGE>
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 checks used to pay for investments in one or more
Funds 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 per share calculated on the next business day (i.e., the next
day the New York Stock Exchange is open for regular trading).
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 by written request.
. 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 17Ad15 under the Securities Act of 1934. The Fund reserves the
right to waive signature guarantees and to request additional information under
certain circumstances.
REDEMPTIONS THROUGH AUTHORIZED DEALERS
25
<PAGE>
Shareholders with accounts at authorized dealers may submit redemption requests
to the dealers. Generally, the Transfer Agent accepts redemption requests by
telephone on any business day from 9:00 a.m. to 5:00 p.m. Eastern Time, provided
that the dealer has received the request prior to 4:00 p.m. Eastern Time. From
time to time, on a case-by-case basis, the Transfer Agent may make arrangements
for later processing times with authorized dealers, so long as such arrangements
comply with applicable law and Fund operation requirements. This is known as a
repurchase. However, EVEN AFTER RECEIPT OF A REPURCHASE ORDER FROM A DEALER,
THE FUNDS STILL REQUIRE A SIGNED LETTER FROM THE SHAREHOLDER CONTAINING
REDEMPTION INSTRUCTIONS AND ALL OTHER DOCUMENTS REQUIRED FOR DIRECT REDEMPTION
REQUESTS, AS STATED ABOVE. The shareholder's letter should refer to the Fund
involved, the account from which the redemption is to be made, the fact that the
repurchase was ordered through a dealer, and the dealer's name. Details of the
dealer-ordered trade, such as the trade date, confirmation number, and the
amount of shares or dollars, will speed processing. The seven-day period within
which the proceeds of the shareholder's redemption will be sent will begin when
the Transfer Agent receives all documents required to complete (or "settle") the
repurchase in proper form. The redemption proceeds will not earn dividends or
interest during the time between receipt of by the Transfer Agent of the
dealer's repurchase order and the date the redemption is processed after all
necessary documents have been received. It is therefore in the shareholder's
best interest to have all required documentation completed and forwarded to the
Transfer Agent as soon as possible. The shareholder's dealer may charge a fee
for handling the order. From time to time, on a case-by-case basis, the Transfer
Agent may make arrangements for later processing times with authorized dealers,
so long as such arrangements comply with applicable law and Fund operating
requirements.
SHORT-TERM REDEMPTION FEE
To discourage short-term trading, effective September 1, 1998, purchases of
Institutional Class shares are subject to a 1% redemption fee on shares redeemed
within six months of the purchase of the shares. The fee is paid to the
Fund.
All shares purchased prior to September 1, 1998 are not subject to the six-month
redemption fee and would be considered to be redeemed first for a shareholder.
The fee is not imposed on shares acquired through the reinvestment of dividends
or capital gains distributions. The fee may not apply to omnibus accounts.
Whether a redemption fee is imposed will depend on the number of months since
the investor purchased the shares from which an amount is being redeemed. The
oldest shares (from which a redemption or exchange has not already been
effected) will be assumed to be redeemed first for purposes of calculating the
fee. For example, if a shareholder purchased 500 shares for $10/share 12 months
ago and then purchased 600 shares for $12/share 4 months ago, today when he
sells 400 shares for $15/share he would pay no fee as those 400 shares would be
the from the first purchase and would have been held for more than 6 months.
However, if he sold 600 shares at $15/share, a redemption fee of $15 would be
owed on the 100 shares that had not been held for 6 months.
WAIVER OF SHORT-TERM REDEMPTION FEE
The redemption fee is waived under the following circumstances:
. Death or disability of the shareholder (as defined in Section 72(m)(7) of
the Internal Revenue Code, as amended (the "Code")).
. Minimum required distributions from certain IRA or retirement plan
distributions.
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.
The Telephone Privilege permits shareholders to redeem so long as the proceeds
are payable to the shareholder(s) of record and sent to the address of record
for the account or wired directly to their predesignated bank account. This
26
<PAGE>
privilege is not available if the address of record has been changed within the
thirty days prior to a telephone redemption request. Proceeds from redemptions
are expected to be wired on the next business day following the date of the
redemption. The Funds reserve the right to terminate, limit or otherwise modify
the Telephone Privilege at any time without prior notice. Shareholders who have
accounts with the Funds through employer-sponsored retirement plans may not
redeem by telephone.
In an effort to confirm that telephone requests are genuine, reasonable
procedures are employed, which currently include recording all telephone
instructions and mailing a confirming account statement to the record address.
If reasonable procedures are followed, neither the Funds, the Distributor, nor
the Transfer Agent will be liable for following telephone instructions it
reasonably believes to be genuine. Any of the Funds, the Distributor, and the
Transfer Agent may be liable for losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges and
redemptions will be accepted from authorized dealers on behalf of a shareholder
by telephone.
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 shortterm gains. At least annually,
distributions of any net realized or remaining capital 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 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
date the dividend is declared 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
27
<PAGE>
exempt from federal taxes on income and gains paid to shareholders. 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 shortterm capital gains over net 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 capital gains
over net shortterm capital losses are treated as 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.
In addition, 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 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 for 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 nonexempt 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 underreporting 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.
28
<PAGE>
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 semiannual 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.
29
<PAGE>
YEAR 2000
AIB Govett and its affiliates and the Funds' service providers have assembled
teams of information technology professionals to address Year 2000 issues. The
key phases of their preparation plans include: an inventory of all internal
systems, vendor products and services, and data providers; an assessment of all
systems for date reliance and the impact of the century rollover on each; and
the renovation and testing of affected systems. The Funds will not bear the
cost of these efforts. In addition, the portfolio management teams inquire about
the Year 2000 preparations of current and prospective Fund investments, but
there is no certainty that the information provided in response is complete or
accurate or that a company's Year 2000 problems will not affect a Fund's
performance.
Inadequate preparation for Year 2000 by the Funds' service providers and others
with whom they interact could adversely affect the Funds' operations, including
pricing, securities trading and settlement, and the provision of shareholder
services. However, as a result of the service providers' efforts, the Funds do
not anticipate a material adverse impact on their business, operations or
financial condition relating to Year 2000 issues. Nevertheless, there can be no
assurance that the steps being taken will be sufficient and timely or that
interaction with other computer systems which are not prepared will not have a
material adverse effect on the Funds' business, operations or financial
condition.
THE EURO
On January 1, 1999, the European Monetary Union ("EMU") plans to introduce a new
single currency, the euro, which will replace the national currencies of the
participating member nations. Until 2002, the national currencies will continue
to exist, but exchange rates will be pegged to the euro. As of the date of this
Prospectus, the eleven member nations are Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain.
Therefore, the Funds most likely to be affected by this change are International
Equity Fund, International Smaller Companies Fund, Smaller Companies Fund, and
Global Income Fund.
The introduction of the euro is likely to affect all stages of the investment
process, including trading, foreign exchange, custody, and accounting. Because
this change to a single currency is new, the introduction of the euro may result
in market volatility and may affect the business or financial condition of
European issuers or of a Fund. In addition, while the conversion will eliminate
currency risk among the participating nations, currency risk between the euro
and the U.S. dollar remains a factor.
While there can be no assurances that the conversion will not adversely affect
the Funds, the Investment Adviser, Subadviser, and the Funds' service providers
are taking steps which they believe appropriately and reasonably address the
issues involved in the introduction of the euro.
ORGANIZATION
The Govett Funds, Inc. is a Maryland corporation formed in 1990. It is
registered with the SEC as an openend 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. Each Fund, other than Global Income
Fund, is a diversified series of the Company. Global Income Fund is not
diversified. Shares of the Funds are entitled to one vote per share (with
proportional voting for fractional shares) and are freely transferable subject
to applicable federal and state securities laws. Shareholders have no preemptive
or conversion rights.
Each Fund has designated three classes of shares: Class A, Class B and
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.
30
<PAGE>
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 onethousandth of one cent per share, represents an equal
proportionate interest in the Funds 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 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 share 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. 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.
31
<PAGE>
The Company's most recent Annual Report and SemiAnnual Report contain additional
performance information on the International Equity Fund, Emerging Markets
Equity Fund, Smaller Companies 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
nonbank affiliates (the "Member Banks") from sponsoring, organizing, controlling
or distributing shares of registered openend 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 openend
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 Subadviser 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 Subadviser 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 Subadviser 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 was to occur, the Board of Directors would seek to take
action so that no shareholder of any Fund would suffer any adverse consequences.
32
<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 Adviser
Service Desk.
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 GOVETT FUNDS
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 GOVETT FUNDS
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 First Data Investor Services Group
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:
33
<PAGE>
via U.S. Postal Service via overnight delivery service
GOVETT FUNDS GOVETT FUNDS
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.
34
<PAGE>
GOVETT FUNDS
Govett International Equity Fund
GOVETT EMERGING MARKETS EQUITY FUND
Govett INTERNATIONAL SMALLER COMPANIES FUND
GOVETT SMALLER COMPANIES FUND
GOVETT GLOBAL INCOME FUND
Transfer Agent Custodian
First Data Investor Services Group, Inc. The Chase Manhattan Bank
3200 Horizon Drive 4 MetroTech Center
P.O. Box 61503 Brooklyn, NY 11245
King of Prussia, PA 19406-0903
800-821-0803
Distributor Accounting and Administration Services
FPS Broker Services, Inc. Chase Global Funds Services Company
3200 Horizon Drive 73 Tremont Street,
P.O. Box 61503 11th Floor
King of Prussia, PA 19406-0903 Boston, MA 02108
800-634-6838
Govett Funds Directors
250 Montgomery Street, Suite 1200 Patrick K. Cunneen, Chairman
San Francisco, CA 94104 Elliot L. Atamian
800-731-1755 Sir Victor Garland
415-263-1865 James M. Oates
Frank R. Terzolo
Investment Manager
AIB Govett, Inc.
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-731-1755
415-263-1865
35
<PAGE>
GOVETT FUNDS
Class A, B and Institutional Shares
Prospectus dated _____, 1998
This Prospectus describes two funds (the "Funds") offered to investors by The
Govett Funds, Inc. (the "Govett Funds" or the "Company"). Each of the Funds is
managed by AIB Govett, Inc. ("AIB Govett" or the "Investment Manager"). AIB
Govett Asset Management Limited ( "AIB Govett London" or the "Subadviser")
serves as subadviser to each Fund.
. GOVETT LATIN AMERICA FUND seeks long-term capital appreciation by
investing primarily in equity and debt securities of issuers located in
Latin America.
. GOVETT ASIA FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers located in Asia.
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.
EFFECTIVE SEPTEMBER 1, 1998, THE FUNDS ARE CLOSED TO NEW INVESTMENT, INCLUDING
EXCHANGES.
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 an investor decide if a Fund's goal matches
his or her own. A Statement of Additional Information about the Funds, dated
_________, 1998, 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
<TABLE>
<CAPTION>
<S> <C>
ABOUT THE FUNDS
SUMMARY OF INVESTOR COSTS..................................................... 3
FINANCIAL HIGHLIGHTS.......................................................... 5
AN OVERVIEW OF THE FUNDS...................................................... 8
INVESTMENT TECHNIQUES AND POLICIES............................................ 8
INVESTMENT RISKS............................................................. 10
MANAGEMENT OF THE FUNDS...................................................... 12
ABOUT YOUR ACCOUNT
MULTIPLE CLASSES OF SHARES................................................... 17
HOW TO BUY SHARES............................................................ 18
HOW TO MAKE EXCHANGES........................................................ 22
HOW TO REDEEM SHARES......................................................... 23
TELEPHONE TRANSACTIONS....................................................... 25
DIVIDENDS, CAPITAL GAINS AND TAXES........................................... 26
OTHER INFORMATION............................................................ 28
APPENDIX A: QUICK REFERENCE GUIDE............................................ 31
</TABLE>
APPLICATION FORM
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:
A. SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES MAXIMUM LOAD IMPOSED ON
LOAD IMPOSED ON DEFERRED DIVIDEND EXCHANGE
CLASS PURCHASES SALES LOAD REINVESTMENTS REDEMPTION FEES FEES
----- --------- ---------- ------------- --------------- ----
<S> <C> <C> <C> <C> <C>
A NONE NONE NONE 1.00%/1/ 1.00%/1/
B NONE 4.00% NONE NONE NONE
Institutional NONE NONE NONE 1.00%/1/ 1.00%/1/
</TABLE>
B. ANNUAL OPERATING EXPENSES FOR EACH CLASS OF EACH FUND
<TABLE>
<CAPTION>
TOTAL OPERATING
OTHER EXPENSES EXPENSES
(AFTER (AFTER
FUND MANAGEMENT FEE 12B-1 FEES REIMBURSEMENT)/2/ REIMBURSEMENT)/2/
---- -------------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
CLASS A
Latin America 1.00% 0.35% 1.15% 2.50%
Asia 1.00% 0.35% 1.15% 2.50%
CLASS B
Latin America 1.00% 1.00% 1.15% 3.15%
Asia 1.00% 1.00% 1.15% 3.15%
INSTITUTIONAL CLASS
Latin America 1.00% NONE 0.75% 1.75%
Asia 1.00% NONE 0.75% 1.75%
</TABLE>
The Investment Manager has agreed to reduce its management fees and 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 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").
C. EXAMPLES OF EXPENSES
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/3/ and (2) redemption at the end of each time period:
3
<PAGE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS/4/
---- ------ ------- ------- -----------
<S> <C> <C> <C> <C>
CLASS A
Latin America $25 $ 78 $133 $284
Asia 25 78 133 284
CLASS B
Latin America 72 127 185 324
Asia 72 127 185 324
INSTITUTIONAL CLASS
Latin America 18 55 95 206
Asia 18 55 95 206
</TABLE>
4
<PAGE>
You would pay the following expenses on the same investment assuming no
redemption:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS/4/
---- ------ ------- ------- -----------
<S> <C> <C> <C> <C>
CLASS A
Latin America $25 $78 $133 $284
Asia 25 78 133 284
CLASS B
Latin America 32 97 165 324
Asia 32 97 165 324
INSTITUTIONAL CLASS
Latin America 18 55 95 206
Asia 18 55 95 206
</TABLE>
The above tables are not intended to reflect precisely the fees and expenses
associated with a particular person's investment in the 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.
____
1 AS OF SEPTEMBER 1, 1998, CLASS A SHARES AND INSTITUTIONAL CLASS SHARES ARE
SUBJECT TO A SHORT-TERM REDEMPTION FEE OF 1% ON SHARES REDEEMED WITHIN SIX
MONTHS OF ACQUISITION. AS OF DECEMBER __, 1998, EXCHANGES OF CLASS A SHARES AND
INSTITUTIONAL CLASS SHARES ARE ALSO SUBJECT TO A 1% FEE ON SHARES EXCHANGED
WITHIN SIX MONTHS OF ACQUISITION. THE FEE IS PAID TO THE FUND AND ITS PURPOSE IS
TO DISCOURAGE SHORT-TERM TRADING.
2 AT PRESENT THESE FUNDS ARE CLOSED TO NEW INVESTMENT, INCLUDING EXCHANGES.
The percentages shown in "Other Expenses" and "Total Operating Expenses" are net
of reimbursement by the Investment Manager. The percentages in "Other Expenses"
for the Class A shares of Asia Fund and Latin America Fund are based on expenses
incurred by those Funds during the year ended December 31, 1997 after expense
reimbursements. Absent reimbursements, "Other Expenses" as a percentage of net
assets for the Class A shares of the Asia Fund and Latin America Fund would have
been 9.59% and 3.97%, respectively, for the year ended December 31, 1997. The
"Other Expenses" for the year ended December 31, 1997 have been calculated using
the 12b-1 fee then in effect of 0.50%. Absent such reimbursements, "Total
Operating Expenses" as a percentage of net assets for the Class A shares of the
Asia Fund and Latin America Fund would have been 11.09% and 5.47%, respectively,
for the year ended December 31, 1997. AT PRESENT, CLASS B SHARES ARE NOT
AVAILABLE FOR PURCHASE BY THE GENERAL PUBLIC. The operating expense information
for the Class B shares and the Institutional Class shares of each Fund has been
estimated based on the operating expense information for that Fund's Class A
shares for the year ended December 31, 1997, after estimated expense
reimbursements by the Manager and Distributor. Absent such reimbursements,
estimated "Other Expenses" as a percentage of net assets for the Class B shares
of the Asia Fund and Latin America Fund would have been 9.59% and 3.97%,
respectively, and estimated "Total Operating Expenses" as a percentage of net
assets for the Class B shares of the Asia and Latin America Funds would have
been 11.59% and 5.97%, respectively. Absent such reimbursements, estimated
"Other Expenses" as a percentage of net assets for the Institutional Class
shares of the Asia Fund and Latin America Fund would have been 9.04% and 3.91% ,
respectively, and estimated "Total Operating Expenses" as a percentage of net
assets for the Institutional shares of the Asia and Latin America Funds would
have been 10.04% and 4.91%, respectively.
3 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.
4 Ten-year figures assume conversion of Class B shares to Class A shares at
the beginning of the eighth year following date of purchase.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide condensed information concerning income and capital
changes for one Class A share of Latin America Fund and Asia Fund for the
periods shown. This information, other than for the period ended June 30, 1998,
has been audited by PricewaterhouseCoopers LLP, the Funds' independent
accountant, whose unqualified reports thereon appear in the Annual Reports to
Shareholders of such Funds for the periods shown below. The financial
statements and related notes contained in such Reports (and no other portion of
such Reports) are incorporated by reference into the Statement of Additional
Information. This information should be read in conjunction with such
statements and notes.
Prior to June 27, 1997, Institutional Class shares had been designated as Class
C Shares. As of June 30, 1998, neither Institutional Class nor Class C shares
of any Fund had been 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 represent historical information for
Class A shares of the Funds. As of December 31, 1997, Class A shares were
subject to Distribution (12b-1) Plan fees of 0.50% of average net assets (for
Global Income Fund, the fee was 0.35% of average net assets). As of February 1,
1998, the Class A Distribution (12b-1) Plan fees were reduced to 0.35% of
average net assets for all Funds. Institutional Class shares, however, were not
subject to any Distribution (12b-1) Plan fee.
6
<PAGE>
LATIN AMERICA FUND
- ------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
SIX MONTHS YEAR YEAR YEAR PERIOD
ENDED JUNE ENDED ENDED ENDED ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994 (A)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.57 $ 7.97 $ 6.44 $ 7.89 $ 10.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income (loss) 0.08 (0.02)+ 0.07+ (0.01)+ (0.09)+
Net realized and unrealized gain (loss) on
investments (2.30) 1.62 1.52 (1.44) (1.53)
--------- --------- --------- --------- ---------
Total from investment operations (2.22) 1.60 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 $ 7.35 $ 9.57 $ 7.97 $ 6.44 $ 7.89
========= ========= ========= ========= =========
Total Return** (23.20)% 20.08 % 24.74 % (18.38)% (16.94)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,980 $ 5,138 $ 4,261 $ 4,817 $ 7,096
Net expenses to average daily net assets (Note A) 2.50 %* 2.50 % 2.50 % 2.50 % 2.50 %*
Net investment income(loss) to average daily net
assets 1.50 %* (0.25)% 0.54 % 0.00 % (1.06)%*
Portfolio turnover rate 44 % 123 % 150 % 127 % 185 %
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the 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 5.71 %* 5.47 % 6.49 % 5.66 % 3.35 %*
</TABLE>
(a) Commencement of Operations was March 7, 1994.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
* Annualized
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's expenses.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial Statements.
6
<PAGE>
ASIA FUND
- ---------
<TABLE>
--------------------------------------------------------------------------
SIX MONTHS YEAR YEAR YEAR PERIOD
ENDED JUNE ENDED ENDED ENDED ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994 (C)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 5.94 $ 9.15 $ 8.53 $ 8.79 $ 10.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income (loss) (0.03) (0.20)+ (0.26)+ (0.05)+ (0.18)+
Net realized and unrealized gain (loss) on
investments (1.50) (3.01) 1.05 (0.21) (1.03)
--------- --------- --------- --------- ---------
Total from investment operations (1.53) (3.21) 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 $ 4.41 $ 5.94 $ 9.15 $ 8.53 $ 8.79
========= ========= ========= ========= =========
Total Return** (25.76)% (35.08)% 9.33 % (2.96)% (12.10)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 949 $ 1,472 $ 4,218 $12,491 $13,849
Net expenses to average daily net assets (Note A) 2.50 %* 2.50 % 2.50 % 2.50 % 2.50 %
Net investment income(loss) to average daily net
assets (0.76)%* (1.39)% (1.51)% (0.67)% (1.33)%
Portfolio turnover rate 132 % 172 % 170 % 163 % 213 %
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the 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 16.40 % 11.09 % 6.66 % 3.62 % 2.66 %
</TABLE>
(c) Commencement of Operations was January 1, 1994.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's expenses.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial Statements.
7
<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 longterm
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 the Funds'
investment restrictions and other investment policies. Except for each Funds'
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.
LATIN AMERICA FUND seeks longterm capital appreciation by investing primarily in
equity and debt securities of issuers located in Latin America.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities (such as, common stocks, preferred stocks, and
warrants to acquire such stocks) and debt securities (such as, government or
sovereign or corporate bonds, notes, and debentures) of issuers located in any
country in Latin America. The Fund must invest (a) in at least three issuers
located in different Latin American countries and (b) no more than 40% of its
total assets in issuers located in any one country (except Brazil and Mexico, in
which the Fund may invest up to 60% of its total assets in either country). 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. The Fund typically invests in
equity securities listed on recognized securities exchanges, but it may hold
securities that are listed on other exchanges or that are not listed. Debt
securities, at time of purchase, will be rated by Moody's Investors Services,
Inc. ("Moody's") at least in the Baa category or by Standard and Poor's
Corporation ("Standard & Poor's") at least in the BBB category, or, if unrated,
determined to be of comparable quality by the Investment Manager.
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The Fund may invest up to 35% of its total assets in other equity securities, in
other debt obligations, and in debt securities which are below investment grade
at the time of purchase, that is, rated by Moody's in the Ba category or lower,
by Standard & Poor's in the BB category or lower, or, if unrated, determined to
be of comparable quality by the Investment Manager. Bonds in those categories,
commonly are referred to as junk bonds, involve a high degree of risk and are
predominantly speculative (see "Principal Risk Factors").
ASIA FUND seeks longterm capital appreciation by investing primarily in equity
securities of issuers located in Asia.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities -- that is, common stocks, preferred stocks, and
warrants to acquire such stocks -- of issuers located in any country in Asia,
including Australia, New Zealand, India, and Pakistan; provided that the Fund
invests in at least three issuers located in different countries. The Fund
typically invests in securities listed on recognized securities exchanges, but
it may also hold securities that are listed on other exchanges or that are not
listed.
The Fund may invest up to 35% of its total assets in other equity securities, in
debt obligations convertible into equity securities, and in nonconvertible debt
securities.
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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 longterm objectives.
Although each Fund may receive current income from dividends, interest and other
sources, 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 ("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 (but any increase or decrease will be considered when
determining whether the asset complies with regulatory limitations that
apply to borrowings and illiquid securities).
. The term "issuers located in" a particular country or region includes
issuers (i) which are organized under the laws of that country or a country
in that region and which have their principal office in that country or a
country in that region; or (ii) which derive 50% or more of their total
revenues from business in that country or a country in that region; or
(iii) the equity securities of which are principally traded on a stock
exchange of that country or a country in that region.
GENERAL LIMITATIONS
Asia Fund is a "diversified company," as that term is defined in the 1940 Act.
As a diversified company, this Fund, with respect to 75% of its total assets,
may not invest more than 5% of its 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 is not a
"diversified company".
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 331/3 % of its total assets and pledge up to 331/3 % of its
total assets in connection with such borrowing. Any borrowings that come to
exceed the 331/3 % 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 331/3 % 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
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DEPOSITORY RECEIPTS. The Funds may invest in sponsored and unsponsored American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs"), and similar global instruments to the extent that
they may invest in the underlying securities. A U.S. or foreign bank or trust
company typically "sponsors" these depository 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 depository
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. With respect to Asia Fund,
at least 75% of the Fund's total assets invested in nonconvertible debt
securities other than commercial paper must be rated, at the time of purchase,
at least in the A category by Standard & Poor's or Moody's, or if unrated,
determined to be of comparable quality by AIB Govett. The Fund's commercial
paper investments must, at the time of purchase, be rated at least Prime2 by
Moody's or A2 by Standard & Poor's, or if unrated, determined to be of
comparable quality by AIB Govett.
With respect to both Funds, the subsequent downgrade of a debt security to a
level below the investment grade required for the Fund will not require an
immediate sale of the security. However, AIB Govett will consider the
circumstances of the downgrade in determining whether to hold that security,
including causes of the downgrade, local market conditions, and general economic
trends.
TEMPORARY STRATEGIES. To retain flexibility to respond promptly to changes in
market and economic conditions, AIB Govett, in its discretion, may use temporary
defensive strategies. Under such strategies, a Fund may hold up to 100% of its
total assets as cash (either U.S. dollars, foreign currencies or multinational
currency units), and/or invest in shortterm, high quality debt securities. For
debt obligations other than commercial paper, such instruments must be rated, at
the time of purchase, at least in the AAA category by Standard & Poor's or at
least in the Aaa category by Moody's, or if unrated, determined to be of
comparable quality by AIB Govett. For commercial paper, such investments must be
rated, at the time of purchase, at least A2 by Standard & Poor's or Prime2 by
Moody's, or if unrated, determined to be of comparable quality by AIB
Govett.
HEDGING STRATEGIES. Each Fund may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with its investments, although there can be no assurance that such efforts will
succeed. Among the types of transactions which may be used are: forward currency
contracts, writing of covered put and call options, purchase of put and call
options on currencies and equity and debt securities, stock index futures and
options thereon, interest rate or currency futures and options thereon, and
securities futures and options thereon. It is currently intended that no Fund
will place more than 5% of its net assets at risk in any one of these
transactions or securities.
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.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Emerging and developing markets
countries often limit foreign investments in equity securities of issuers
located in such countries. As a result, the Funds may be able to invest in such
countries solely or primarily through open- or closed-end investment companies.
Each Fund may invest in
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such companies to the extent permitted under the 1940 Act. The Funds may not
invest in any investment companies managed by AIB Govett or any of its
affiliates. Investments in investment companies may involve a duplication of
certain expenses, such as management and administrative expenses.
RESTRICTED SECURITIES. The Funds may invest in foreign securities that are
restricted against transfer within the U.S. or to U.S. persons. Although
securities subject to such U.S. transfer restrictions may be marketable abroad,
they may be less liquid than foreign securities of the same class that are not
subject to such restrictions. Unless these securities are limited as to resale
within their principal market, the Funds treat such foreign securities whose
principal market is abroad as not being subject to investment limitation on
restricted securities.
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 longterm 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 to which non-U.S. securities may be subject. 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. Such taxes may adversely affect a
Fund's net asset value.
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
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prohibitions on repatriation of assets is greater than in more stable, developed
political and economic circumstances. The economy of a developing market country
may be predominantly based on only a few industries, and it may be highly
vulnerable to changes in local or global trade conditions. The legal and
accounting systems, and mechanisms for protecting property rights, may not be as
well developed as those in more mature economies. In addition, some emerging
markets countries have general or industry-specific restrictions on foreign
ownership that may limit or eliminate the Fund's opportunities to acquire
desirable securities.
INVESTING IN SMALLER COMPANIES. The smaller companies in which the Funds 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 may reflect this
volatility.
INTEREST RATES AND CREDIT. The value of fixed income-securities held by the
Funds generally fluctuates inversely with interest rate movements. Latin
America Fund normally invests in a number of issuers; however, the Fund is a
"nondiversified" series and may invest more than 5% of its assets in the
securities of one issuer. Consequently, the Fund may experience greater
interest rate and credit risk with respect to its portfolio than funds with
similar objectives which are more broadly diversified.
Securities in the BBB and Baa (Standard & Poor's/Moody's) major rating
categories have speculative characteristics and changes in economic conditions
and other circumstances are more likely to lead to a weakened capacity to make
principal or interest payments than in the case of higher rated bonds.
The Funds 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 on 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.
Latin America 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 on 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 adequate legal recourse can therefore be
significantly diminished.
SOVEREIGN DEBT OBLIGATIONS. 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 sovereign debt obligations 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 "How Funds Value Their Shares" in
this Prospectus and "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
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Management Agreement (the "Investment Management Agreement"), effective on
January 1, 1998, between the Company 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 the Company's behalf in accordance with each Fund's
investment policies.
ADVISER AND SUBADVISER
AIB Govett, 250 Montgomery Street, Suite 1200, San Francisco, CA 94104, is 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 $62 billion as of December 31, 1997.
AIBAMH has approximately $14 billion of assets under management as of December
31, 1997.
AIB GOVETT LONDON 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 December 31, 1997,
approximately $5.6 billion under management, primarily in non-U.S. funds. AIB
Govett London serves as investment subadviser to two U.S. mutual fund portfolios
in addition to the Funds.
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, AIB Govett London, which had served as
investment manager for the Funds, changed its name from John Govett & Co.
Limited. AIB Govett London serves as subadviser to all Funds. AIB Govett and
AIB Govett London 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.
John Murray and Eileen Fitzpatrick, Joint Chief Investment Officers and
Directors of AIB Govett, are, respectively, Managing Director of Investments of
AIB Govett London and Chief Investment Officer of AIB Investment Managers
Limited ("AIBIM"), a wholly-owned subsidiary of AIBAMH based in Dublin. Mr.
Murray graduated with a BA in finance and business studies from the University
of the South Bank. Prior to joining AIB Govett London as a Director in 1994, he
was a Director at Henderson Administration from 1990, most recently responsible
for managing pension funds in excess of (Pounds)400m. He also served as a fund
manager at Crown Financial Management and as Head of Research at Provident Life.
Ms. Fitzpatrick holds a Ph.D. in Science from University College, Dublin. After
two years with a Dublin-based fund management organization, she joined AIBIM 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 as Deputy Investment Director and was appointed
Investment Director in January, 1997.
PORTFOLIO MANAGEMENT
AIB Govett and the Subadviser are part of a broad network of offices worldwide,
with principal offices located in London, Dublin, San Francisco, and Singapore,
which are supported in turn by a global network of investment/research offices
in Baltimore, Budapest, Mexico City, Rio de Janeiro, Poznan (Poland), Bangalore,
Kuala Lumpur, Seoul, and Taipei. Each Fund is managed by a portfolio management
team under the supervision of the Managing Director of Investments of AIB Govett
London. Each team's investment process is based on interaction among regional
specialist desks. The Global Investment Policy Committee, consisting of the
Chief Investment Officers of the principal offices, sets overall investment
policies and strategy for the AIB Govett group and
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coordinates implementation in accordance with each Fund's investment objectives,
policies, and regulatory requirements. With this structure, the firm seeks
consistent implementation of process and continuity of investment management
staff for each Fund.
AIB Govett and the Subadviser permit their investment and other personnel to
purchase and sell securities for their own accounts, subject to a compliance
policy governing personal investment. This policy requires investment and other
personnel to conduct their personal investment activities in a manner that is
not detrimental to the Funds or to any of the group's other advisory clients.
Mr. Patrick Cunneen, a Director of the Company, is a director 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
are not affected by the change 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 for providing
investment management and administrative services to the Funds.
Pursuant to its Subadvisory Agreement with AIB Govett London, AIB Govett pays
AIB Govett London a fee of 0.45% of average annual net assets for each Fund as
compensation for serving as investment subadviser to the Funds. The Funds are
not responsible for payment of the subadvisory fee to AIB Govett London.
AIB Govett 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 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. Please see the Financial Highlights
section of this Prospectus and the Statement of Additional Information for more
information about fees and expenses.
ALLOCATION OF PORTFOLIO TRANSACTIONS
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In placing orders for the Funds' portfolio transactions, each of AIB Govett and
the Subadviser 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
overthecounter markets typically are fixed and higher than those made through
U.S. securities exchanges or overthecounter markets.
Consistent with the obligation to obtain best execution, AIB Govett or the
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 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
Subadviser to the Funds and to any accounts over which AIB Govett or the
Subadviser exercises investment discretion.
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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 Subadviser carefully weighs
anticipated benefits of a trade against expected transaction costs and tax
consequences. Neither AIB Govett nor the Subadviser engages in shortterm trading
except when necessary to prudently manage the Funds' portfolios. The portfolio
turnover rates for the Funds for the period from January 1, 1997 through
December 31, 1997 were: Latin America Fund--123% and Asia Fund--172%. The
portfolio turnover rates for the Funds for the period from January 1, 1998
through June 30, 1998 were: Latin America Fund--44% and Asia Fund--132%. Each
Fund's portfolio turnover rate reflects market conditions affecting the
economies that Fund invests in.
DISTRIBUTION ARRANGEMENTS
FPS Broker Services, Inc. (the "Distributor") is the Funds' distributor and
principal underwriter. First Data Investor Services Group, Inc. (formerly FPS
Services, Inc.), a former affiliate of the Distributor, serves the Funds as
transfer and shareholder services agent (the "Transfer Agent"). Effective
January 1, 1998, First Data Distributors, Inc. will acquire FPS Broker Services,
Inc.
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 sales of 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
by the Distributor 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 12b1 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 12b1, the Board of Directors and the
shareholders of Class A shares of each Fund have adopted a Distribution Plan
referred to in this Prospectus as the "Class A Plan". Pursuant to Rule 12b1, the
Board of Directors and the shareholders of Class B shares of each Fund have
adopted a Distribution Plan referred to in this Prospectus as the "Class B
Plan". This distribution plan is intended to comply 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.
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. There is no service fee paid
under the Class A Plan.
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.
The 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
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administrative services. AIB Govett, pursuant to a Sub-Administration Agreement,
provides certain services to the Distributor, including acting as a Service
Organization under the Plan.
If the Class A Plan is terminated, the Distributor would not be compensated for
costs incurred but not yet recovered. Payments under the Class A Plan of 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 shareholders. If
the Class B Plan is terminated, the Distributor would not be compensated for
costs incurred but not yet recovered. Payments under the Class B Plan of a Fund
may not be increased to more than 1.00% of the Fund's average daily net assets
attributable to Class B shares without prior approval of the shareholders. At
present, the Board of Directors has approved payments under the Class A Plan and
the Class B Plan 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 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 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 the 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 share in such class.
The Directors determined that there was a reasonable likelihood that the
Distribution Plan 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 Plan. 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.
CUSTODIAN
The Chase Manhattan Bank (the "Custodian") serves as the Funds' global
custodian.
TRANSFER AGENT
First Data Investor Services Group, Inc. (formerly FPS Services, Inc.) (the
"Transfer Agent") provides transfer agent, shareholder services agent, and
dividend disbursement services to the Funds. The Transfer Agent is a subsidiary
of First Data Corporation.
ACCOUNTING AND ADMINISTRATION SERVICES
Chase Global Funds Services Company, an affiliate of the Funds' global
custodian, provides the Funds with administration and accounting services.
19
<PAGE>
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. Shortterm
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 1:00p.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 NAV 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 close of regular trading on
a foreign exchange and the close of regular trading on the New York Stock
Exchange may not be reflected in that day's computation of a Fund's NAV. If an
event materially affecting the value of a portfolio holding occurs during such
period and the Investment Manager becomes aware of it or if a holding becomes
illiquid pursuant to procedures adopted by the Board of Directors, then the
holding will be valued at fair value as determined in good faith, according to
procedures adopted by the Board.
20
<PAGE>
ABOUT YOUR ACCOUNT
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. 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 tables compares some important
differences. Each class has distinct advantages and disadvantages for investors
in different financial circumstances and with different investment goals.
The following table summarizes certain terms of Class A shares:
<TABLE>
<CAPTION>
Class A
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges None
- -------------------------------------------------------------------------------------------------------------------
12b1 Distribution Fee 0.35% for all Funds
- -------------------------------------------------------------------------------------------------------------------
Redemption/Exchange Fee 1% on redemptions and exchanges made within 6 months of share
- -------------------------------------------------------------------------------------------------------------------
Service Fee None
- -------------------------------------------------------------------------------------------------------------------
Minimum Investment $5,000 initially; $1,000 any subsequent purchases*
- -------------------------------------------------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of the same class of the other Funds
- -------------------------------------------------------------------------------------------------------------------
Convertibility Class A shares do not convert to any other Class of shares of the Funds
- -------------------------------------------------------------------------------------------------------------------
Dividends Calculated in the same manner and at the same time of day for each class
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* For existing shareholders of record as of December 31, 1997, the applicable
minimums are $500 and $25, respectively, for identically registered accounts.
The following table summarizes certain terms of Class B shares:
<TABLE>
<CAPTION>
Class B 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges No initial sales charge. Contingent deferred sales load ("CDSC") of 4% decreasing to 1% applies to
shares redeemed within the first 6 years following purchase. Convert to A shares at the beginning of
the eighth year after purchase.
- ------------------------------------------------------------------------------------------------------------------------------------
12b1 Distribution Fee 0.75% for first 7 years for all Funds
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee None
- ------------------------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% for first 7 years for all Funds
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum Investment $5,000 initially; $1,000 any subsequent purchases*
- ------------------------------------------------------------------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of the same class of the other Funds
- ------------------------------------------------------------------------------------------------------------------------------------
Convertibility Class B shares convert to Class A shares at the beginning of the eighth calendar year
- ------------------------------------------------------------------------------------------------------------------------------------
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>
* For existing shareholders of record as of December 31, 1997, the applicable
minimums are $500 and $25, respectively, for identically registered
accounts.
/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
21
<PAGE>
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 and 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.
Shares of the Institutional Class are available for purchase only by:
(a) retirement profit-sharing, 401(k) and other tax-exempt employee benefit
plans, including rollover individual retirement plans from such plans;
(b) institutional advisory accounts of AIB Govett or its affiliates, as well as
subsidiaries and related employee benefit plans and certain rollover
individual retirement accounts from institutional advisory accounts;
(c) registered investment advisers and financial institutions, including banks
and trust companies (each an "Adviser") investing on behalf of clients that
are institutions or high net-worth individuals having at least $250,000
under management by the Adviser; and
(d) the Board of Directors may also authorize purchases of Institutional Class
shares of any series of the Funds, with or without minimum investment
waived, by shareholders of a mutual fund which was advised by AIB Govett or
an affiliate and subsequently merged into a series of the Funds.
The following table summarizes certain terms of Institutional Class shares.
<TABLE>
<CAPTION>
Institutional Class
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges None
- ------------------------------------------------------------------------------------------------------------------------------------
12b1 Distribution Fee None
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption/Exchange Fee 1% on redemptions and exchanges made within 6 months of share purchase
- ------------------------------------------------------------------------------------------------------------------------------------
Service Fee None
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum Investment $25,000 initially; any amount for subsequent purchases
- ------------------------------------------------------------------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of the same class of the other Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Convertibility Institutional Class shares do not convert to any other Class of shares of the Funds
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Calculated in the same manner and at the same time of day for each class, except that Institutional
Class shares will not incur distribution fees under Rule 12b-1 Plans that apply to the Class A and
Class B shares.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
HOW TO BUY SHARES
Shares of each of the Funds are offered continuously at the NAV per share
determined for each Fund as of the close of the regular trading session of the
New York Stock Exchange (currently 4:00 p.m. Eastern 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 purchased prior to September 1, 1998, 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, or fees on certain
redemptions in the case of Class A and Institutional shares. AN UNSPECIFIED
PURCHASE ORDER WILL BE CONSIDERED AN ORDER FOR CLASS A SHARES. AT PRESENT,
CLASS B SHARES ARE NOT AVAILABLE TO THE GENERAL PUBLIC.
The Latin America Fund and Asia Fund are closed to new investments until further
notice. Shareholders who own shares of the Funds may continue to have any
dividends paid by the Funds reinvested into the Funds.
22
<PAGE>
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.
CLASS A AND CLASS B
Effective January 1, 1998, the minimum initial investment for new investors
("Second Stage Shareholders") in any series of the Company is $5,000 and any
subsequent investments are to be $1,000 or more. Different minimums apply to
investments made according to an Automatic Investment Plan (see below for
details). For existing shareholders of record as of the close of business
December 31, 1997 ("First Stage Shareholders"), the investment minimums for
identically registered accounts remain those in effect when they initially
invested in any Fund; specifically, $500 minimum initial investment into another
Fund of the Company and subsequent investments of $25 or more.
For an Individual Retirement Account ("IRA"), the minimum initial investment for
Second Stage Shareholders in any Fund of the Company will $2,000 and any
subsequent investments are to be $1,000 or more. For First Stage Shareholders,
the investment minimums for identically registered IRAs remain those in effect
when they initially invested in any Fund; specifically, $500 minimum initial
investment into another Fund of the Company and subsequent investment of $25 or
more. For an IRA application or with any questions about your IRA, please call
(800) 821-0803.
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.
INSTITUTIONAL CLASS
The minimum initial investment is $25,000. 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.
PURCHASES THROUGH AUTHORIZED DEALERS
Generally, 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. From time to time, on a case-by-case basis, the Transfer
Agent may make arrangements for later processing times with authorized dealers,
so long as such arrangements comply with applicable law and Fund operating
requirements. For wiring instructions, please see "Appendix A".
INITIAL PURCHASES THROUGH 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 "Govett Funds", to the address shown in Appendix A. Minimum initial
investment is $5,000 or more for Retail shareholders ($500 for First Stage
Shareholder) and is $25,000 or more for Institutional shareholders. 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 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
23
<PAGE>
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, (For Second Stage Shareholders subsequent
purchases of the Retail classes 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. Investments may also be sent via bank wire. Please see Appendix A for
wiring instructions.
CERTIFICATES
In the interest of economy and convenience, the Funds do not issue certificates
for Class A shares 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 noncertificated 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.
Certificates are not issued for Class B or 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.
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-RETAIL SHARES ONLY
Second Stage Shareholders may buy shares of a Fund through the Automatic
Investment Plan ("AIP") with an initial amount of at least $5,000 and $100
thereafter, per Fund, to be invested on a regular basis. For First Stage
Shareholders, the initial amount for an AIP remains at least $100 and $25
thereafter, per Fund, to be invested on a regular basis. The specified amount
will be transferred directly from the investor's bank for investment into the
designated Fund(s) on the designated investment day. These transfers are
processed on the 10th, 15th, and 20th of each month (or on the next business day
if the designated day falls on a holiday 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-RETAIL SHARES ONLY
See "How to Redeem Shares," below.
SALES CHARGES-RETAIL SHARES ONLY
CLASS A
24
<PAGE>
Effective September 1, 1998, the sales charge on Class A shares was
eliminated.
LETTER OF INTENT ("LOI") AND RIGHT OF ACCUMULATION. Prior to September 1, 1998,
investors who agreed to purchase a certain dollar amount of Class A shares or
who already had purchased a certain dollar amount of Class A shares, may have
qualified for reduced sales charge rates. Purchases of Class A shares made
after September 1, 1998 are not subject to a sales charge.
CLASS B
Investments in each Fund are subject to a contingent deferred sales charges
("CDSCs").
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>
CDSC AS A PERCENTAGE OF
-----------------------
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------- -------------------------------
<S> <C>
First......................... 4%
Second........................ 4%
Third......................... 3%
Fourth........................ 3%
Fifth......................... 2%
Sixth......................... 1%
Seventh and Eighth............ 0%
</TABLE>
25
<PAGE>
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.
26
<PAGE>
Service Organizations
selling Class B shares
27
<PAGE>
Waiver of CDSCs
CDSCs are waived under the following circumstances. See also the section on
"Reinstatement Privilege", below.
CONDITION FOR WAIVER
. Death or disability of the shareholder (as defined in Section 72(m)(7)
of the Code).
. Minimum required distribution from certain IRA or retirement plan
distributions.
. Pursuant to Reinstatement Privilege, which may be EXERCISED ONLY ONCE for
each Fund investment. Class B reinstatement proceeds can only be reinvested
in Class A shares.
. Redemptions made pursuant to the Funds' systematic withdrawal plan, but
limited to 12% of the initial value of the account (annually) for Class
B.
REINSTATEMENT PRIVILEGE. A Class B shareholder who redeemed 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 per share (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. The Funds may
modify or terminate the reinstatement privilege at any time upon notice to
shareholders.
28
<PAGE>
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, subject to any applicable exchange fee. 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. 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.
EXCHANGE FEE. As of December __, 1998, exchanges made within six months of
purchase are subject to a 1% fee on the amount exchanged out of a Fund. All
shares purchased prior to the date of this Prospectus are not subject to the 1%
Exchange Fee. The shares held the longest would be considered to exchanged
first. This fee may not be applied to omnibus accounts.
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
subject to any applicable exchange fee. Prior to September 1, 1998, the sales
charge was imposed if the shareholder's initial investment in the Govett Funds,
Inc. was a purchase of Money Market Fund shares. The Money Market Fund is not a
series of the Company, 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, Class A shares
of a Govett Fund exchanged into the Money Market Fund will be exchanged for
Class A 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 B SHARES MAY BE EXCHANGED INTO THE MONEY MARKET FUND. HOWEVER, THESE
SHARES DO NOT "AGE" WHILE INVESTED IN THE MONEY MARKET FUND. Investors
interested in making an exchange for shares of the Money Market Fund should
write or call their authorized dealer or the 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. For Second Stage Shareholders, there is a $5,000 minimum for
establishing a new account and $100 minimum for an existing account. For First
Stage Shareholders, the minimum remains $100 for a new Fund in an identically
registered account and the minimum for an existing Fund remains $25. These
transactions are effected on the 25th of each month. If the 25th falls on a
weekend or holiday, the transaction will be effected on the next business day.
The exchange fee is waived for participants in the Automatic Exchange Plan.
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
29
<PAGE>
of a Fund or its shareholders, as a general policy, a pattern of more than one
purchase-sale transaction during any 30day period with respect to any particular
Fund may be deemed abusive.
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 per share next computed after the Transfer Agent
receives your redemption request which has been completed in accordance with the
account, less any applicable sales charges or redemption fees (after September
1, 1998, redemptions of Class A or Institutional Class shares made within six
months of purchase are subject to a 1% redemption fee). 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, although typically the wire will be
completed with one (1) business day. A $9.00 processing fee will be deducted
from the proceeds of redemptions from Class A and B wired from the Funds.
The Funds may withhold redeeming a shareholder's account until they are
reasonably satisfied that checks used to pay for investments in one or more
Funds 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, but no redemption
fees will be deducted.
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 per share (less any applicable CDSC) calculated on the next
business day (i.e., the next day the New York Stock Exchange is open for regular
trading).
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 by written request.
. 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.
30
<PAGE>
. 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 17Ad15 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 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. Generally, the Transfer Agent accepts
redemption requests by telephone on any business day from 9:00 a.m. to 5:00 p.m.
Eastern Time, from dealers which have a dealer agreement with the Distributor or
from other qualified brokers, provided that the dealer has received the request
prior to 4:00 p.m. Eastern Time. From time to time, on a case-by-case basis,
the Transfer Agent may make arrangements for later processing times with
authorized dealers, so long as such arrangements comply with applicable law and
Fund operational requirements. This is known as a repurchase. However, EVEN
AFTER RECEIPT OF A REPURCHASE ORDER FROM A DEALER, THE FUNDS STILL REQUIRE A
SIGNED LETTER FROM THE SHAREHOLDER CONTAINING REDEMPTION INSTRUCTIONS AND ALL
OTHER DOCUMENTS REQUIRED FOR DIRECT REDEMPTION REQUESTS, AS STATED ABOVE. The
shareholder's letter should refer to the Fund involved, the account from which
the redemption is to be made, the fact that the repurchase was ordered through a
dealer, and the dealer's name. Details of the dealer-ordered trade, such as the
trade date, confirmation number, and the amount of shares or dollars, will speed
processing. The seven-day period within which the proceeds of the shareholder's
redemption will be sent will begin when the Transfer Agent receives all
documents required to complete (or "settle") the repurchase in proper form. The
redemption proceeds will not earn dividends or interest during the time between
receipt of by the Transfer Agent of the dealer's repurchase order and the date
the redemption is processed after all necessary documents have been received.
It is therefore in the shareholder's best interest to have all required
documentation completed and forwarded to the Transfer Agent as soon as possible.
The shareholder's dealer may charge a fee for handling the order. From time to
time, on a case-by-case basis, the Transfer Agent may make arrangements for
later processing times with authorized dealers, so long as such arrangements
comply with applicable law and Fund operating requirements.
SYSTEMATIC WITHDRAWAL PLAN-RETAIL SHARES ONLY
For Second Stage Shareholders, a Systematic Withdrawal Plan is available to
shareholders whose accounts total $50,000 or more. Under the Systematic
Withdrawal Plan, the Transfer Agent will make specified monthly, quarterly,
semiannual or annual payments to a designated party of any amount selected with
a minimum of $100. For First Stage Shareholders, a Systematic Withdrawal Plan
continues to be available to shareholders whose accounts total $5,000 or more
with specific monthly, quarterly, semi-annual-annual or annual payments to a
designated
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party of any amount selected with a 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 day the New York Stock Exchange is open for regular trading.
Changes concerning the Systematic Withdrawal Plan must be received by the
Transfer Agent at least two weeks prior to the next scheduled withdrawal. 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.
SHORT-TERM REDEMPTION FEE
To discourage short-term trading, effective September 1, 1998, purchases of
Class A and Institutional Class shares are be subject to a 1% redemption fee on
shares redeemed within six months of the purchase of the shares. The fee is
paid to the Fund.
All shares purchased prior to September 1, 1998 are not subject to the six-month
redemption fee and would be considered to be redeemed first for a shareholder.
The fee is not imposed on shares acquired through the reinvestment of dividends
or capital gains distributions. The fee may not be applied to omnibus accounts.
Whether a redemption fee is imposed will depend on the number of months since
the investor purchased the shares from which an amount is being redeemed. The
oldest shares (from which a redemption or exchange has not already been
effected) will be assumed to be redeemed first for purposes of calculating the
fee. For example, if a shareholder purchased 500 shares for $10/share 12 months
ago and then purchased 600 shares for $12/share 4 months ago, today when he
sells 400 shares for $15/share he would pay no fee as those 400 shares would be
the from the first purchase and would have been held for more than 6 months.
However, if he sold 600 shares at $15/share, a redemption fee of $15 would be
owed on the 100 shares that had not been held for 6 months.
WAIVER OF SHORT-TERM REDEMPTION FEE
The redemption fee is waived under the following circumstances:
. Death or disability of the shareholder (as defined in Section 72(m)(7) of the
Internal Revenue Code, as amended (the "Code")).
. Minimum required distributions from certain IRA or retirement plan
distributions.
. Redemptions made pursuant to the Funds' systematic withdrawal plan for Class A
shares, but limited to 10% of the initial value of the account annually for
Class A.
CDSCS - RETAIL SHARES ONLY
On purchases of $1 million or more of Class A shares made prior to September 1,
1998 no sales charge was imposed. However, a CDSC of 1% will be imposed on
certain redemptions of these Class A shares made within the first 12 months
following the investment. Class B shares are subject to the decreasing CDSC
described previously. All CDSCs incurred upon redemption of a Fund's shares are
paid to the Distributor in reimbursements 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.
The Telephone Privilege shareholders to redeem so long as the proceeds are
payable to the shareholder(s) of record and sent to the address of record for
the account or wired directly to their predesignated bank account. This
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privilege is not available if the address of record has been changed within
the thirty days prior to a telephone redemption request. Proceeds from
redemptions are expected to be wired on the next business day following the date
of the redemption. The Funds reserve the right to terminate, limit or otherwise
modify the Telephone Privilege at any time without prior notice. Shareholders
who have retirement accounts with the Funds or hold certificated shares may not
redeem by telephone.
In an effort to confirm that telephone requests are genuine, reasonable
procedures are employed, which currently include recording all telephone
instructions and mailing a confirming account statement to the record address.
If reasonable procedures are followed, neither the Funds, the Distributor, nor
the Transfer Agent will be liable for following telephone instructions it
reasonably believes to be genuine. Any of the Funds, the Distributor, and the
Transfer Agent may be liable for losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges and
redemptions will be accepted from authorized dealers on behalf of a shareholder
by telephone, provided that the exchange or redemption involves only
uncertificated shares on deposit in the shareholder's account or shares for
which certificates have previously been deposited.
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 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.
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
date the dividend is declared using the net asset value determined on the
payment date.
UNITED STATES FEDERAL TAXATION OF THE FUNDS
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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 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.
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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 shortterm capital gains over net 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 capital gains
over net shortterm capital losses are treated as 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.
In addition, 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 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 for 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 nonexempt 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 underreporting 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.
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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.
YEAR 2000
AIB Govett and its affiliates and the Funds' service providers have assembled
teams of information technology professionals to address Year 2000 issues. The
key phases of their preparation plans include: an inventory of all internal
systems, vendor products and services, and data providers; an assessment of all
systems for date reliance and the impact of the century rollover on each; and
the renovation and testing of affected systems. The Funds will not bear the
cost of these efforts. In addition, the portfolio management teams inquire about
the Year 2000 preparations of current and prospective Fund investments, but
there is no certainty that the information provided in response is complete or
accurate or that a company's Year 2000 problems will affect hurt a Fund's
performance.
Inadequate preparation for Year 2000 by the Funds' service providers and others
with whom they interact could adversely affect the Funds' operations, including
pricing, securities trading and settlement, and the provision of shareholder
services. However, as a result of the service providers' efforts, the Funds do
not anticipate a material adverse impact on their business, operations or
financial condition relating to Year 2000 issues. Nevertheless, there can be no
assurance that the steps being taken will be sufficient and timely or that
interaction with other computer systems which are not prepared will not have a
material adverse effect on the Funds' business, operations or financial
condition.
THE EURO
On January 1, 1999, the European Monetary Union ("EMU") plans to introduce a new
single currency, the euro, which will replace the national currencies of the
participating member nations. Until 2002, the national currencies will continue
to exist, but exchange rates will be pegged to the euro. As of the date of this
Prospectus, the eleven member nations are Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain.
Therefore, the Funds most likely to be affected by this change are International
Equity Fund, International Smaller Companies Fund, Smaller Companies Fund, and
Global Income Fund.
The introduction of the euro is likely to affect all stages of the investment
process, including trading, foreign exchange, custody, and accounting. Because
this change to a single currency is new, the introduction of the euro may result
in market volatility and may affect the business or financial condition of
European issuers or of a Fund. In addition, while the conversion will eliminate
currency risk among the participating nations, currency risk between the euro
and the U.S. dollar remains a factor.
While there can be no assurances that the conversion will not adversely affect
the Funds, the Investment Adviser, Subadviser, and the Funds' service providers
are taking steps which they believe appropriately and reasonably address the
issues involved in the introduction of the euro.
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ORGANIZATION
The Govett Funds, Inc. is a Maryland corporation formed in 1990. It is
registered with the SEC as an openend 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. Asia Fund is a diversified series of the
Company. Latin America Fund is not diversified. 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, AND AN INSTITUTIONAL CLASS. AS OF THE DATE OF THIS PROSPECTUS, ASIA AND
LATIN AMERICA FUNDS ARE CLOSED TO NEW INVESTMENT. 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 Funds 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 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. 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
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<PAGE>
charges into account. A Fund's performance calculated without taking the effect
of sales charges into account will be better than such performance including the
effect of such charges.
Yield and total return are calculated separately for Class A, Class B, and
Institutional Class shares of each Fund. 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 most recent Annual Report and SemiAnnual Report contain additional
performance information on the Asia Fund and Latin America 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 openend 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
openend 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 Subadviser 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 Subadviser 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 Subadviser 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 was to occur, the Board of Directors would seek to take
action so that no shareholder of any Fund would suffer any adverse consequences.
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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 Adviser
Service Desk.
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 GOVETT FUNDS
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 GOVETT FUNDS
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 First Data Investor Services Group
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 GOVETT FUNDS
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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
Govett Latin America Fund
GOVETT ASIA FUND
TRANSFER AGENT CUSTODIAN
First Data Investor Services Group, Inc. The Chase Manhattan Bank
3200 Horizon Drive 4 MetroTech Center
P.O. Box 61503 Brooklyn, NY 11245
King of Prussia, PA 19406-0903
800-821-0803
DISTRIBUTOR ACCOUNTING AND ADMINISTRATION SERVICES
FPS Broker Services, Inc. Chase Global Funds Services Company
3200 Horizon Drive 73 Tremont Street,
P.O. Box 61503 11th Floor
King of Prussia, PA 19406-0903 Boston, MA 02108
800-634-6838
GOVETT FUNDS DIRECTORS
250 Montgomery Street, Suite 1200 Patrick K. Cunneen, Chairman
San Francisco, CA 94104 Elliot L. Atamian
800-731-1755 Sir Victor Garland
415-263-1865 James M. Oates
Frank R. Terzolo
INVESTMENT MANAGER
AIB Govett, Inc.
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-731-1755
415-263-1865
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GOVETT FUNDS
Class B Retail Shares
Prospectus dated ________, 1998
This Prospectus describes five funds (the "Funds") offered to investors by The
Govett Funds, Inc. (the "Govett Funds" or the "Company"). Each of the Funds is
managed by AIB Govett, Inc. ("AIB Govett" or the "Investment Manager"). AIB
Govett Asset Management Limited ("AIB Govett London" or the "Subadviser") serves
as subadviser to each Fund.
. GOVETT INTERNATIONAL EQUITY FUND seeks long-term capital appreciation by
investing primarily in equity securities of issuers 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 INTERNATIONAL SMALLER COMPANIES FUND seeks long-term capital
appreciation by investing primarily in equity SECURITIES OF SMALLER
COMPANIES LOCATED OUTSIDE THE U.S.
. GOVETT SMALLER COMPANIES FUND seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies.
. 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.
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 multiple classes of shares. This Prospectus relates only to
Class B 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 an investor decide if a Fund's goal matches
his or her own. A Statement of Additional Information about the Funds, dated
_________, 1998, 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
MULTIPLE CLASSES OF 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
Each Fund also offers an Institutional Class, which is available for purchase
only by certain investors, and a second retail class, Class A. A prospectus for
either of these classes may be obtained by writing to the Distributor at the
address shown on the back cover, or by calling 800-634-6838. CLASS B SHARES ARE
NOT AVAILABLE FOR PURCHASE BY THE GENERAL PUBLIC AT PRESENT.
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:
A. SHAREHOLDER TRANSACTION EXPENSES FOR CLASS B OF EACH FUND
<TABLE>
<CAPTION>
MAXIMUM SALES MAXIMUM MAXIMUM SALES LOAD
LOAD IMPOSED ON DEFERRED SALES IMPOSED ON DIVIDEND
PURCHASES LOAD REINVESTMENTS REDEMPTION FEES EXCHANGE FEES
- ----------------- -------------- ------------------- --------------- -------------
<S> <C> <C> <C> <C>
NONE 4.00% NONE NONE NONE
</TABLE>
B. ANNUAL OPERATING EXPENSES FOR CLASS B OF EACH FUND
<TABLE>
<CAPTION>
TOTAL OPERATING
12B-1 AND Other Expenses EXPENSES
FUND MANAGEMENT FEE SERVICE FEES (AFTER REIMBURSEMENT)/1/ (AFTER REIMBURSEMENT)/1/
- ---- -------------- ------------ ---------------------- -----------------------
<S> <C> <C> <C> <C>
International Equity 1.00% 1.00% 1.15% 3.15%
Emerging Markets Equity 1.00% 1.00% 1.15% 3.15%
International Smaller Companies 1.00% 1.00% 1.15% 3.15%
Smaller Companies 1.00% 1.00% 0.60% 2.60%
Global Income 0.75% 1.00% 0.65% 2.40%
</TABLE>
The Investment Manager has agreed to reduce its management fees and 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 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").
C. EXAMPLES OF EXPENSES
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/2/ and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS/3/
- ------------------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
International Equity $72 $127 $185 $324
Emerging Markets Equity 72 127 185 324
International Smaller
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Companies 72 127 -- --
Smaller Companies 66 111 158 270
Global Income 64 105 148 250
</TABLE>
You would pay the following expenses on the same investment assuming no
redemption:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS/3/
- ------------------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
International Equity $32 $97 $165 $324
Emerging Markets Equity 32 97 165 324
International Smaller Companies 32 97 -- --
Smaller Companies 26 81 138 270
Global Income 24 75 128 250
</TABLE>
The above tables are not intended to reflect precisely the fees and expenses
associated with a particular person's investment in Class B Retail 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.
____
1 AT PRESENT, CLASS B RETAIL SHARES ARE NOT AVAILABLE FOR PURCHASE BY THE
GENERAL PUBLIC. The percentages shown in "Other Expenses" and "Total Operating
Expenses" are net of reimbursement by the Investment Manager. The operating
expense information for the Class B Retail shares of each Fund has been
estimated based on the operating expense information for that Fund's Class A
Retail shares for the year ended December 31, 1997, after estimated expense
reimbursements by the Manager and Distributor. Absent such reimbursements,
estimated "Other Expenses" as a percentage of net assets for the Class B Retail
shares of the International Equity Fund, Emerging Markets Equity Fund, Smaller
Companies Fund, and Global Income Fund would have been 1.62%, 1.41%, 1.09%, and
1.72%, respectively, and estimated "Total Operating Expenses" as a percentage of
net assets for the Class B Retail shares of the International Equity, Emerging
Markets Equity, Smaller Companies, and Global Income Funds would have been
3.62%, 3.41%, 3.09%, and 3.47% , respectively. The percentages shown for the
shares of the International Smaller Companies Fund are estimated and based on
the operating expense information for the International Equity Fund, one of the
series of the Company currently offered to the public.
2 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.
3 Ten-year figures assume conversion of Class B Retail shares to Class A
Retail shares at the beginning of the eighth year following date of
purchase.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide condensed information concerning income and capital
changes for one Class A share of International Equity Fund, Emerging Markets
Equity Fund, Smaller Companies Fund, and Global Income Fund for the periods
shown. This information, other than for the six months ended June 30, 1998, has
been audited by PricewaterhouseCoopers LLP, the Funds' independent accountant,
whose unqualified reports thereon appear in the Annual Reports to Shareholders
of such Funds for the periods shown below. The financial statements and related
notes contained in such Reports (and no other portion of such Reports) are
incorporated by reference into the Statement of Additional Information. This
information should be read in conjunction with such statements and notes. CLASS
B RETAIL SHARES OF THE FUNDS HAD NOT BEEN OFFERED AS OF JUNE 30, 1998, AND,
ACCORDINGLY, NO FINANCIAL DATA IS PRESENTED FOR THE CLASS B RETAIL SHARES AT
THIS TIME.
The financial highlights presented below represent historical information for
Class A Retail shares of the Funds. As of December 31, 1997, Class A Retail
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). As of
February 1, 1998, the Class A Distribution (12b-1) Plan fees were reduced to
0.35% of average net assets for all Funds. Class B Retail shares, however, are
subject to a Distribution (12b-1) plan fee of 1.00%.
5
<PAGE>
INTERNATIONAL EQUITY FUND
- -------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.90 $ 11.19 $ 11.27 $ 10.16 $ 13.23
------------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss) (0.03) (0.24)+ (0.11)+ (0.08)+ (0.12)+
Net realized and unrealized gain (loss) on
investments 1.83 0.18 1.45 1.20 (0.94)
Total from investment operations 1.80 (0.06) 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 (0.30) (0.23) (1.22) (0.01) (2.01)
In excess of net realized capital gain --- --- --- --- ---
Total distributions (0.30) (0.23) (1.42) (0.01) (2.01)
Net asset value, end of period $ 12.40 $ 10.90 $ 11.19 $ 11.27 $ 10.16
============= =========== =========== =========== ===========
Total Return** 16.47 % (0.71)% 12.13 % 11.01 % (8.44)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $13,375 $13,952 $25,822 $28,546 $32,296
Net expenses to average daily net assets
(Note A) 2.50 %* 2.50 % 2.39 % 2.50 % 2.50 %
Net investment income(loss) to average daily
net assets (0.38)%* (1.01)% (1.06)% (0.64)% (0.98)%
Portfolio turnover rate 36 % 51 % 84 % 101 % 155 %
<CAPTION>
------------------------
PERIOD
YEAR ENDED 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 %
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the reimbursement of expenses, the expense ratios as a percentage of average net
assets for the periods indicated would have been:
Expenses 3.18%* 3.12% 3.09% 2.75% 2.74% 2.65% 13.85%*
(a) Commencement of Operations was January 7, 1992.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
* Annualized
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's expenses.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial Statements.
6
<PAGE>
EMERGING MARKETS EQUITY FUND
- -----------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
SIX MONTHS PERIOD
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED
30, 1998 DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
(UNAUDITED) 1997 1996 1995 1994 1993 1992 (A)
------------ ----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.24 $ 13.66 $ 12.24 $ 13.29 $ 17.70 $ 10.72 $10.00
-------- ------- -------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) 0.03 (0.11)+ (0.13)+ (0.06)+ (0.11)+ (0.05) (0.03)
Net realized and unrealized gain (loss) on
investments (2.36) (1.31) 1.61 (0.98) (1.93) 8.36 0.75
-------- ------- -------- ------- ------- ------- -------
Total from investment operations (2.33) (1.42) 1.48 (1.04) (2.04) 8.31 0.72
-------- ------- -------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.15) --- --- --- --- --- ---
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 (0.15) --- (0.06) (0.01) (2.37) (1.33) ---
--------- ------- --------- ------- ------- ------- -------
Net asset value, end of period $ 9.76 $ 12.24 $ 13.66 $ 12.24 $ 13.29 $ 17.70 $10.72
========= ======= ========= ======= ======= ======= =======
Total Return** (19.30)% (10.40)% 12.08 % (7.84)% (12.65)% 79.73% 7.20 %
Ratios/Supplemental Data:
Net assets, end of period (000's) $19,414 $32,899 $56,814 $75,887 $76,812 $71,422 $5,625
Net expenses to average daily net assets
(Note A) 2.50%* 2.50 % 2.38 % 2.50 % 2.50 % 2.50 % 2.50 %*
Net investment income(loss) to average daily
net assets 0.20%* (0.54)% (0.62)% (0.49)% (0.77)% (0.88)% (0.49)%*
Portfolio turnover rate 58% 120 % 122 % 115 % 140 % 143 % 182 %
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the reimbursement of expenses, the expense ratios as a percentage of average net
assets for the periods indicated would have been:
Expenses 3.73%* 2.91% 2.62% 2.78% 2.65% 2.52% 7.52%*
(a) Commencement of Operations was January 7, 1992.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
* Annualized
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's expenses.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial Statements.
7
<PAGE>
SMALLER COMPANIES FUND
- ----------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
30,1998 DEC 31, DEC 31, DEC 31, DEC 31, DEC 31,
(UNAUDUTED) 1997 1996 1995 1994 1993 (C)
------------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.09 $ 21.83 $ 29.96 $ 19.06 $ 15.85 $ 10.00
----------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income (loss) (0.21) (0.43)+ (0.44)+ (0.30)+ (0.10)+ (0.06)
Net realized and unrealized gain (loss) on
investments 0.60 (2.31) (2.84) 13.32 4.47 5.91
----------- -------- -------- -------- ------- -------
Total from investment operations 0.39 (2.74) (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 $ 19.48 $ 19.09 $ 21.83 $ 29.96 $ 19.06 $ 15.85
========== ======== ======== ======== ======= =======
Total Return** 2.04 % (12.55)% (10.62)% 69.13 % 28.68 % 58.50 %
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 87,676 $127,925 $259,735 $517,990 $76,873 $39,681
Net expenses to average daily net assets (Note A) 1.95 %* 1.95 % 1.81 % 1.95 % 1.95 % 1.95 %
Net investment income(loss) to average daily net
assets (1.77)%* (1.64)% (1.40)% (1.64)% (1.13)% (0.93)%
Portfolio turnover rate 30 % 77 % 406 % 280 % 519 % 483
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the reimbursement of expenses, the expense ratios as a percentage of average net
assets for the periods indicated would have been:
Expenses 2.80%* 2.59% 2.08% 2.12% 2.40% 2.44%
(c) Commencement of Operations was January 1, 1993.
(d) Prior to January 9, 1997, Berkeley Capital Management acted as investment
subadviser to this Fund.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's expenses.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial Statements.
8
<PAGE>
GLOBAL INCOME FUND
- ------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
SIX MONTHS PERIOD
ENDED JUNE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED
30,1998 DEC 31, DEC 31, DEC 31, DEC 31, DEC 31, DEC 31
(UNAUDUTED) 1997 1996 1995 1994 1993 1992 (A)
----------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.82 $ 8.32 $ 8.97 $ 8.48 $ 10.16 $ 9.77 $ 10.00
------- -------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) 0.15 0.26+ 0.57+ 0.63+ 0.76+ 0.99 0.80
Net realized and unrealized gain (loss) on
investments 0.07 (0.30) (0.54) 0.53 (1.67) 0.66 0.06
------- -------- ------- ------- ------- ------- -------
Total from investment operations 0.22 (0.04) 0.03 1.16 (0.91) 1.65 0.86
------- -------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.18) (0.12) (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 --- (0.34) --- --- (0.53) --- ---
------- -------- ------- ------- ------- ------- -------
Total distributions (0.18) (0.46) (0.68) (0.67) (0.77) (1.26) (1.09)
------- -------- ------- ------- ------- ------- -------
Net asset value, end of period $ 7.86 $ 7.82 $ 8.32 $ 8.97 $ 8.48 $ 10.16 $ 9.77
======= ======= ======= ======= ======= ======= =======
Total Return** 2.96 % (0.35)% 0.34 % 14.11 % (9.16)% 17.67 % 8.95 %
Ratios/Supplemental Data:
Net assets, end of period (000's) $7,871 $10,277 $20,354 $41,181 $51,691 $82,000 $34,084
Net expenses to average daily net assets
(Note A) 1.75 %* 1.75 % 1.64 % 1.75 % 1.75 % 1.72 % 1.75 %*
Net investment income(loss) to average daily
net assets 4.46 %* 4.23 % 7.17 % 7.45 % 8.30 % 9.66 % 9.75 %*
Portfolio turnover rate 6 % 76 % 236 % 249 % 701 % 328 % 378 %
</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 1997, AIB Govett London (former investment manager, currently Subadviser to
all Funds) reimbursed a portion of the operating expenses of the Funds. For the
six months ended June 30, 1998, AIB Govett waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds. Without
the reimbursement of expenses, the expense ratios as a percentage of average net
assets for the periods indicated would have been:
Expenses 3.19%* 2.82% 2.38% 1.93% 1.95% 1.72% 3.17%*
(a) Commencement of Operations was January 7, 1992.
(b) As of January 1, 1998, AIB Govett became investment manager to all Funds,
and AIB Govett London (former investment manager) became Subadviser to all
Funds.
* Annualized
** Total return calculations exclude front end sales load. Total return would
have been lower if the Investment Manager had not voluntarily waived a
portion of its management fees and assumed a portion of the Fund's expenses.
+ Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1 of the relevant Financial Statements.
9
<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 longterm
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 the Funds'
investment restrictions and other investment policies. Except for each Funds'
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 longterm capital appreciation by investing
primarily in equity securities of issuers located throughout the world.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities -- that is, common stocks, preferred stocks, and
warrants to acquire such stocks -- of issuers located in any country other than
the U.S.; provided that the Fund invests in at least three issuers located in
different countries. The Fund typically invests in securities listed on
recognized securities exchanges, but it may hold securities which are listed on
other exchanges or that are not listed.
The Fund may invest up to 35% of its total assets in other equity securities, in
debt obligations convertible into equity securities, and in non-convertible debt
securities.
EMERGING MARKETS EQUITY FUND (formerly Emerging Markets Fund) seeks long-term
capital appreciation by investing primarily in equity securities of issuers
located in emerging markets.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities -- that is, common stocks, preferred stocks, and
warrants to acquire such stocks -- of issuers located in emerging or developing
markets; provided that the Fund invests in at least three issuers located in
different countries. An emerging or developing market is broadly defined as one
with low to middlerange 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 limits Fund investments to those countries
it believes have potential for significant growth and development. The Fund
typically invests in securities listed on recognized securities exchanges, but
it may hold securities that are listed on other exchanges or that are not
listed.
The Fund may invest up to 35% of its total assets in other equity securities, in
debt obligations convertible into equity securities, and in non-convertible debt
securities.
10
<PAGE>
INTERNATIONAL SMALLER COMPANIES FUND seeks long-term capital appreciation by
investing primarily in equity securities of smaller companies located outside
the U.S.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities that is, common stocks, preferred stocks, and
warrants to acquire such stocks of smaller companies located outside the U.S.,
provided that the Fund invests in at least three issuers located in different
countries. For this Fund, a smaller company is defined as a company, which at
the time of purchase, has a market capitalization no greater than $3 billion.
The Fund typically invests in securities listed on recognized securities
exchanges, but it may hold securities that are listed on other exchanges or that
are not listed.
The Fund may invest up to 35% of its total assets in other equity securities.
The Fund may also invest in debt obligations convertible into equity securities
and in non-convertible debt securities.
SMALLER COMPANIES FUND seeks longterm capital appreciation by investing
primarily in equity securities of smaller companies. The Fund may invest in
U.S. companies.
Under normal market conditions, the Fund invests at least 65% of its total
assets in securities of smaller companies located anywhere in the world,
including the U.S. A smaller company is defined as a company, which at the time
of purchase, has a market capitalization no greater than $3 billion. This
policy puts the typical smaller company in the same size range as companies
included in the Russell 2000 Index.
The Fund may invest up to 35% of its total assets in other equity securities.
The Fund may also invest in debt obligations convertible into equity securities
and in non-convertible debt securities.
Under normal market conditions, the Fund will invest at least 80% of the Fund's
total assets in common stocks. In addition, the Fund may invest up to 20% of
its total assets in other types of securities with equity characteristics,
including preferred stocks, convertible securities, warrants, units, and rights.
The Fund typically invests in securities listed on recognized securities
exchanges, but it may hold securities that are listed on other exchanges or that
are not listed.
GLOBAL INCOME FUND seeks primarily a high current income, consistent with
preservation of capital, by investing primarily in debt securities. Its
secondary objective is capital appreciation.
This Fund is designed to provide the potential for higher yields and greater
capital gains than a U.S.only bond fund, although an investment in the Fund has
special risks. Under normal market conditions, the Fund invests at least 65% of
its total assets in debt securities -- such as, supranational, government or
sovereign, or non-convertible corporate bonds, notes, debentures, certificates
of deposit, commercial paper, bankers' acceptances, and fixed-time deposits --
of issuers located in any country anywhere in the world, including the U.S. The
Fund must invest (a) in at least three issuers located in different countries
and (b) no more than 40% of its total assets in issuers located in any one
country.
The Fund may invest up to 35% of its total assets in debt obligations
convertible into equity securities, such as common and preferred stocks and
warrants to acquire such stocks, and in equity securities; provided that the
Fund may not invest more that 20% of its total assets in equity securities.
It is the Fund's policy that 75% of its total assets invested in debt securities
and commercial paper, at the time of purchase, will be rated by Moody's at least
in the Baa category or by Standard & Poor's at least in the BBB category or, if
unrated, determined to be of comparable quality by the Investment Manager, with
respect to debt
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securities, and rated by Moody's at least in the Prime-2 category or by Standard
& Poor's in the A-2 category, or, if unrated, determined to be of comparable
quality by the Investment Manager, with respect to commercial paper.
It also is the Fund's current policy to maintain the average dollarweighted
maturity of the Fund's portfolio between five to ten years, that is, the
maturity of an intermediate-term debt instrument, although the Fund may adjust
its average dollar-weighted maturity from time to time
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 longterm 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 ("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 (but any
increase or decrease will be considered when determining whether the asset
complies with regulatory limitations that apply to borrowings and illiquid
securities).
. The term "issuers located in" a particular country or region includes issuers
(i) which are organized under the laws of that country or a country in that
region and which have their principal office in that country or a country in
that region; or (ii) which derive 50% or more of their total revenues from
business in that country or a country in that region; or (iii) the equity
securities of which are principally traded on a stock exchange of that country
or a country in that region.
GENERAL LIMITATIONS
International Equity Fund, Emerging Markets Equity Fund, International Smaller
Companies Fund, and Smaller Companies 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. Global Income Fund is 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 331/3 % of its total assets and pledge up to 331/3 % of its
total assets in connection with such borrowing. Any borrowings that come to
exceed the 331/3 % 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 331/3 % 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 nonfundamental 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.
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INVESTMENT TECHNIQUES
DEPOSITORY RECEIPTS. The Funds may invest in sponsored and unsponsored American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs"), and similar global instruments to the extent that
they may invest in the underlying securities. A U.S. or foreign bank or trust
company typically "sponsors" these depository 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 depository
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. With respect to
International Equity, Emerging Markets Equity, International Smaller Companies,
and Smaller Companies Funds only, at least 75% of Fund's total assets invested
in non-convertible debt securities other than commercial paper must be rated, at
the time of purchase, at least in the A category by Standard & Poor's or
Moody's, or if unrated, determined to be of comparable quality by AIB Govett.
These four Funds' commercial paper investments must, at the time of purchase, be
rated at least Prime-2 by Moody's or A-2 by Standard & Poor's, or if unrated,
determined to be of comparable quality by AIB Govett.
With respect to all Funds, the subsequent downgrade of a debt security to a
level below the investment grade required for the Fund will not require an
immediate sale of the security. However, AIB Govett will consider the
circumstances of the downgrade in determining whether to hold that security,
including causes of the downgrade, local market conditions, and general economic
trends.
TEMPORARY STRATEGIES. To retain flexibility to respond promptly to adverse
changes in market and economic conditions, AIB Govett, in its discretion, may
use temporary defensive strategies. Under such strategies, a Fund may hold up
to 100% of its total assets as cash (either U.S. dollars, foreign currencies or
multinational currency units), and/or invest in short-term, high-quality debt
securities. For debt obligations other than commercial paper, such instruments
must be rated, at the time of purchase, at least in the AAA category by Standard
& Poor's or at least in the Aaa category by Moody's, or if unrated, determined
to be of comparable quality by AIB Govett. For commercial paper, such
investments must be rated, at the time of purchase, at least A-2 by Standard &
Poor's or Prime-2 by Moody's, or if unrated, determined to be of comparable
quality by AIB Govett.
HEDGING STRATEGIES. Each Fund may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with its investments, although there can be no assurance that such efforts will
succeed. Among the types of transactions which may be used are: forward
currency contracts, writing of covered put and call options, purchase of put and
call options on currencies and equity and debt securities, stock index futures
and options thereon, interest rate or currency futures and options thereon, and
securities futures and options thereon. It is currently intended that no Fund
will place more than 5% of its net assets at risk in any one of these
transactions or securities, except Global Income Fund may invest significantly
more than 5% of its net assets in forward currency contracts, provided that no
more than 5% of its net assets are at risk in any one of the other types of
transactions or securities. However, although there is no limit on the number
of forward currency contracts Global Income Fund may enter into, this Fund may
not position hedge with respect to a particular currency for an amount greater
than the aggregate market value (determined at the time the sale of any foreign
currency is made) of the securities held in its portfolio denominated or quoted
in, or currently convertible into, such currency.
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.
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INVESTMENT IN OTHER INVESTMENT COMPANIES. Emerging and developing markets
countries often limit foreign investments in equity securities of issuers
located in such countries. As a result, the Funds may be able to invest in such
countries solely or primarily through open- or closed-end investment companies.
Each Fund may invest in such companies to the extent permitted under the 1940
Act. The Funds may not invest in any investment companies managed by AIB Govett
or any of its affiliates. Investments in investment companies may involve a
duplication of certain expenses, such as management and administrative expenses.
RESTRICTED SECURITIES. The Funds may invest in foreign securities that are
restricted against transfer within the U.S. or to U.S. persons. Although
securities subject to such U.S. transfer restrictions may be marketable abroad,
they may be less liquid than foreign securities of the same class that are not
subject to such restrictions. Unless these securities are limited as to resale
within their principal market, the Funds treat such foreign securities whose
principal market is abroad as not being subject to investment limitation on
restricted securities.
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 to which non-U.S. securities may be subject. 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. Such taxes may adversely affect a
Fund's net asset value.
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
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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
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
INVESTING IN SMALLER COMPANIES. The smaller companies in which the Funds
invest, and in which International Smaller Companies and Smaller Companies Funds
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
may 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 normally invests in a number of issuers; however, the Fund is a
"non-diversified" series and may invest more than 5% of its assets in the
securities of one issuer. Consequently, the Fund may experience greater
interest rate and credit risk with respect to its portfolio than funds with
similar objectives which are more broadly diversified.
Securities in the BBB and Baa (Standard & Poor's/Moody's) major rating
categories have speculative characteristics and changes in economic conditions
and other circumstances are more likely to lead to a weakened capacity to make
principal or interest payments than in the case of higher rated bonds.
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 on 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 adequate legal recourse can therefore be
significantly diminished.
SOVEREIGN DEBT OBLIGATIONS. 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 sovereign debt obligations 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 "How Funds Value Their Shares" in
this Prospectus and "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 (the "Investment Management Agreement"), effective on January 1, 1998,
between the Company 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 the
Company's behalf in accordance with each Fund's investment policies.
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ADVISER AND SUBADVISER
AIB Govett, 250 Montgomery Street, Suite 1200, San Francisco, CA 94104, is 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 $62 billion as of December, 1997. AIBAMH
has approximately $14 billion of assets under management as of December 31,
1997.
AIB GOVETT LONDON 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 December 31, 1997,
approximately $5.6 billion under management, primarily in non-U.S. funds. AIB
Govett London serves as investment subadviser to two U.S. mutual fund portfolios
in addition to the Funds.
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, AIB Govett London, which had served as
investment manager for the Funds, changed its name from John Govett & Co.
Limited. AIB Govett London serves as subadviser to all Funds. AIB Govett and
AIB Govett London are whollyowned 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.
John Murray and Eileen Fitzpatrick, Joint Chief Investment Officers and
Directors of AIB Govett, are, respectively, Managing Director of Investments of
AIB Govett London and Chief Investment Officer of AIB Investment Managers
Limited ("AIBIM"), a wholly-owned subsidiary of AIBAMH based in Dublin. Mr.
Murray graduated with a BA in finance and business studies from the University
of the South Bank. Prior to joining AIB Govett London as a Director in 1994, he
was a Director at Henderson Administration from 1990, most recently responsible
for managing pension funds in excess of (Pounds)400m. He also served as a fund
manager at Crown Financial Management and as Head of Research at Provident Life.
Ms. Fitzpatrick holds a Ph.D. in Science from University College, Dublin. After
two years with a Dublin-based fund management organization, she joined AIBIM 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 as Deputy Investment Director and was appointed
Investment Director in January, 1997.
PORTFOLIO MANAGEMENT
AIB Govett and the Subadviser are part of a broad network of offices worldwide,
with principal offices located in London, Dublin, San Francisco, and Singapore,
which are supported in turn by a global network of investment/research offices
in Baltimore, Budapest, Mexico City, Rio de Janeiro, Poznan (Poland), Bangalore,
Kuala Lumpur, Seoul, and Taipei. Each Fund is managed by a portfolio management
team under the supervision of the Managing Director of Investments of AIB Govett
London. Each team's investment process is based on interaction among regional
specialist desks. The Global Investment Policy Committee, consisting of the
Chief Investment Officers of the principal offices, sets overall investment
policies and strategy for the AIB Govett group and
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coordinates implementation in accordance with each Fund's investment objectives,
policies, and regulatory requirements. With this structure, the firm seeks
consistent implementation of process and continuity of investment management
staff for each Fund.
AIB Govett and the Subadviser permit their investment and other personnel to
purchase and sell securities for their own accounts, subject to a compliance
policy governing personal investment. This policy requires investment and other
personnel to conduct their personal investment activities in a manner that is
not detrimental to the Funds or to any of the group's other advisory clients.
Mr. Patrick Cunneen, a Director of the Company, is a director 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 Funds are not
affected by the change 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 London, AIB Govett pays
AIB Govett London a fee of 0.45% of average annual net assets for each Fund
except Global Income, for which the Subadviser receives 0.3375% of average
annual net assets, as compensation for serving as investment subadviser to the
Funds. The Funds are not responsible for payment of the subadvisory fee to AIB
Govett London.
AIB Govett 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 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. Please see the Financial Highlights
section of this Prospectus and the Statement of Additional Information for more
information about of fees and expenses.
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ALLOCATION OF PORTFOLIO TRANSACTIONS
In placing orders for the Funds' portfolio transactions, each of AIB Govett and
the Subadviser 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
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 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
Subadviser to the Funds and to any accounts over which AIB Govett or the
Subadviser exercises investment discretion.
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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 Subadviser
carefully weighs anticipated benefits of a trade against expected transaction
costs and tax consequences. Neither AIB Govett nor the Subadviser engages in
short-term trading except when necessary to prudently manage the Funds'
portfolios. The portfolio turnover rates for the Funds for the period from
January 1, 1997 through December 31, 1997 were: International Equity Fund--51%;
Emerging Markets Equity Fund--120%; Smaller Companies Fund--77%; and Global
Income Fund--76%. The portfolio turnover rates for the Funds for the period from
January 1, 1998 through June 30, 1998 were: International Equity Fund--36%;
Emerging Markets Equity Fund--58%; Smaller Companies Fund--30%; and Global
Income Fund--6%. Each Fund's portfolio turnover rate reflects market conditions
affecting the economies that Fund invests in.
DISTRIBUTION ARRANGEMENTS
FPS Broker Services, Inc. (the "Distributor") is the Funds' distributor and
principal underwriter. First Data Investor Services Group, Inc. (formerly FPS
Services, Inc.), a former affiliate of the Distributor, serves the Funds as
transfer and shareholder services agent (the "Transfer Agent"). Effective
January 1, 1999, First Data Distributors, inc. will acquire FPS Broker Services,
Inc.
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 sales of 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
by the Distributor 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 Class B Retail shares of each Fund have adopted a Distribution
Plan referred to in this Prospectus as the "Class B Plan". ONLY CLASS A RETAIL
SHARES ARE CURRENTLY OFFERED TO THE GENERAL PUBLIC. Each distribution plan is
intended to comply 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.
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 Retail shares to reimburse
the Distributor for service fees it pays to authorized dealers, and for its
distribution costs.
The 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"), fore rendering shareholder support and administrative
services. AIB Govett, pursuant to a Sub-Administration Agreement, provides
certain services to the Distributor, including acting as a Service Organization
under the Plan.
If the Class B Plan is terminated, the Distributor would not be compensated for
costs incurred but not yet recovered. Payments under the Class B Plan of a Fund
may not be increased to more than 1.00% of the Fund's average daily
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net assets attributable to Class B Retail shares without prior approval of the
shareholders. At present, the Board of Directors has approved payments under the
Class B Plan 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 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 Organizations for providing distribution
assistance or services with respect to the Class B Retail 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 Retail shares as compensation for providing distribution services.
Expenditures for such services may include payment of (i) frontend commissions
of up to 4% of the purchase price of Class B Retail shares; and (ii) other
distribution expenses as described in the Statement of Additional Information.
Payments made to the Distributor under the 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 share in such class.
The Directors determined that there was a reasonable likelihood that the
Distribution Plan 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 Plan. 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 frontend 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 Retail shares, that is
provide for financing distribution of fund shares.
CUSTODIAN
The Chase Manhattan Bank (the "Custodian") serves as the Funds' global
custodian.
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<PAGE>
Transfer Agent
First Data Investor Services Group, Inc. (formerly FPS Services, Inc.) (the
"Transfer Agent") provides transfer agent, shareholder services agent, and
dividend disbursement services to the Funds. The Transfer Agent is a subsidiary
of First Data Corporation.
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.
21
<PAGE>
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. Shortterm
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 1:00p.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 NAV 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 close of regular trading on
a foreign exchange and the close of regular trading on the New York Stock
Exchange may not be reflected in that day's computation of a Fund's NAV. If an
event materially affecting the value of a portfolio holding occurs during such
period and the Investment Manager becomes aware of it or if a holding becomes
illiquid pursuant to procedures adopted by the Board of Directors, then the
holding will be valued at fair value as determined in good faith, according to
procedures adopted by the Board.
ABOUT YOUR ACCOUNT
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 for each of
Class A and the Institutional Class shares is available upon request. This
Prospectus relates only to Class B Retail shares. AS OF THE DATE OF THIS
PROSPECTUS, CLASS B RETAIL SHARES ARE NOT AVAILABLE FOR PURCHASE BY 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 summarizes certain terms of Class B Retail shares:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges No initial sales charge. Contingent deferred sales load ("CDSC") of 4% decreasing to 1% applies to shares
redeemed within the first 6 years following purchase. Convert to A shares at the beginning of the eighth
year after purchase.
- ------------------------------------------------------------------------------------------------------------------------------------
12b1 Distribution Fee 0.75% for first 7 years for all Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% for first 7 years for all Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Suitability Investors should consider whether, during the anticipated life of their investment, accumulated
distribution and 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 Retail shares might
offset this difference. Orders of $500,000 or more not accepted for Class B Retail shares.
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum Investment $5,000 initially; $1,000 any subsequent purchases*
- ------------------------------------------------------------------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of the same class of the other Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Convertibility Class B Retail shares convert to Class A Retail shares at the beginning of the eighth calendar year.
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Calculated in the same manner and at the same time of day for each class. Due to higher distribution
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
- ------------------ 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>
* For existing shareholders of record as of December 31, 1997, the applicable
minimums are $500 and $25, respectively, for identically registered accounts.
/1/ CLASS B RETAIL SHARES CONVERT TO CLASS A RETAIL 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 subaccount. Each time
any Class B Retail shares in the shareholder's account (other than those in the
subaccount) convert to Class A Retail shares, an equal pro rata portion of the
Class B Retail shares in the subaccount will also convert to Class A Retail
shares.
The Class B conversion feature is subject to the continuing availability of an
opinion of counsel and 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.
HOW TO BUY SHARES
Shares of each of the Funds are offered continuously at the NAV per share
determined for each Fund as of the close of the regular trading session of the
New York Stock Exchange (currently 4:00 p.m. Eastern Time), following receipt by
the Transfer Agent of a purchase order in proper form subject to contingent
deferred sales charge upon redemption for Class B Retail shares. AN UNSPECIFIED
PURCHASE ORDER WILL BE CONSIDERED AN ORDER FOR CLASS A RETAIL SHARES. AT
PRESENT, CLASS B RETAIL SHARES ARE NOT 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 January 1, 1998, the minimum initial investment
for new investors ("Second Stage Shareholders") in any series of the Company is
$5,000 and any subsequent investments are to be $1,000 or more. Different
minimums apply to investments made according to an Automatic Investment Plan
(see below for details). For existing shareholders of record as of the close of
business December 31, 1997 ("First Stage Shareholders"), the investment minimums
for identically registered accounts remain those in effect when they initially
invested in any Fund; specifically, $500 minimum initial investment into another
Fund of the Company and subsequent investments of $25 or more.
For an Individual Retirement Account ("IRA"), the minimum initial investment for
Second Stage Shareholders in any Fund of the Company will $2,000 and any
subsequent investments are to be $1,000 or more. For First Stage Shareholders,
the investment minimums for identically registered IRAs remain those in effect
when they initially invested in any Fund; specifically, $500 minimum initial
investment into another Fund of the Company and subsequent investment of $25 or
more. For an IRA application or with any questions about your IRA, please call
(800) 821-0803.
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.
PURCHASES THROUGH AUTHORIZED DEALERS
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<PAGE>
Generally, 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. From time to time, on a case-by-case basis, the Transfer
Agent may make arrangements for later processing times with authorized dealers,
so long as such arrangements comply with applicable law and Fund operating
requirements. For wiring instructions, please see "Appendix A".
INITIAL PURCHASES THROUGH 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 "Govett Funds", to the address shown in Appendix A. Minimum initial
investment is $5,000 or more ($500 or more for First Stage Shareholders). 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 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
Certificates are not issued for Class B Retail 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.
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 nonretirement or retirement. If the accounts are retirement
accounts, they must both be for the same type of retirement plan and for the
benefit of the same individual. Distributions are invested into the selected
Fund at its NAV as of the payable date of the distribution.
AUTOMATIC INVESTMENT PLAN
Second Stage Shareholders may buy shares of a Fund through the Automatic
Investment Plan ("AIP") with an initial amount of at least $5,000 and $100
thereafter, per Fund, to be invested on a regular basis. For First Stage
Shareholders, the initial amount for an AIP remains at least $100 and $25
thereafter, per Fund, to be invested on a regular basis. The specified amount
will be transferred directly from the investor's bank for investment into the
designated Fund(s) on the designated investment day. These transfers are
processed on the 10th, 15th, and 20th of each month (or on the next business day
if the designated day falls on a holiday or a weekend). To participate in the
24
<PAGE>
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 a contingent deferred sales charges
("CDSCs").
25
<PAGE>
Class B RETAIL SHARES (CURRENTLY, CLASS B SHARE ARE NOT AVAILABLE TO THE
GENERAL PUBLIC)
CDSCs
Investors may pay a CDSC on redemptions of Class B Retail 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 Retail 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 Retail 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 Retail shares is:
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF
-----------------------------------
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE -----------------------------------
- -------------------
<S> <C>
First......................... 4%
Second........................ 4%
Third......................... 3%
Fourth........................ 3%
Fifth......................... 2%
Sixth......................... 1%
Seventh and Eighth............ 0%
</TABLE>
Additionally, promotional incentives may be offered, in the form of cash or
other compensation, to Service Organizations selling Class B Retail shares.
26
<PAGE>
Waiver of CDSCs
CDSCs are waived under the following circumstances. See also the section on
"Reinstatement Privilege", below.
CONDITION FOR WAIVER
--------------------
. Death or disability of the shareholder (as defined in Section 72(m)(7) of
the Internal Revenue Code of 1986, as amended (the "Code")).
. Minimum required distribution from certain IRA or retirement plan
distributions.
. Pursuant to Reinstatement Privilege, which may be EXERCISED ONLY ONCE for
each Fund investment. Class B reinstatement proceeds can only be reinvested
in Class A Retail shares.
. Redemptions made pursuant to the Funds' systematic withdrawal plan, but
limited to 12% of the initial value of the account (annually) for Class B.
REINSTATEMENT PRIVILEGE. A Class B shareholder who redeemed Class B Retail
shares of a Fund may reinstate any portion or all of the net proceeds of such
redemption in CLASS A RETAIL SHARES of any other Fund. CLASS B REDEMPTION
PROCEEDS CANNOT BE REINSTATED IN CLASS B RETAIL SHARES.
Any such reinstatements will be made at the NAV per share (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. 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 Company, 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 nonretirement account). Thus, Class B
Retail shares of a Govett Fund exchanged into the Money Market Fund will be
exchanged for Class B Retail 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.
27
<PAGE>
CLASS B MAY BE EXCHANGED INTO THE MONEY MARKET FUND. HOWEVER, THESE SHARES DO
NOT "AGE" WITH RESPECT TO THE CDSC 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. For Second Stage Shareholders, there is a $5,000 minimum for
establishing a new account and $100 minimum for an existing account. For First
Stage Shareholders, the minimum remains $100 for a new Fund in an identically
registered account and the minimum for an existing Fund remains $25. These
transactions are effected on the 25th of each month. If the 25th falls on a
weekend or holiday, the transaction will be effected on the next business day.
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 purchasesale transaction during any 30day period with
respect to any particular Fund may be deemed abusive.
EXCHANGES OF CLASS B RETAIL 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 of the
original shares is added to the holding period of the new shares.
28
<PAGE>
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 per share next computed after the Transfer Agent
receives your redemption request which has been completed in accordance with the
account, 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, although typically the wire will be
completed within one (1) business day. A $9.00 processing fee will be deducted
from the proceeds of redemptions wired from the Funds.
The Funds may withhold redeeming a shareholder's account until they are
reasonably satisfied that checks used to pay for investments in one or more
Funds 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 per share (less any applicable CDSC) calculated on the next
business day (i.e., the next day the New York Stock Exchange is open for regular
trading).
An original SIGNATURE GUARANTEE by a bank or trust company, brokerdealer, 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 by written request.
. 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
29
<PAGE>
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 17Ad15 under the Securities Act of 1934. The Fund reserves the
right to waive signature guarantees and to request additional information under
certain circumstances.
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. Generally, the Transfer Agent accepts
redemption requests by telephone on any business day from 9:00 a.m. to 5:00 p.m.
Eastern Time, from dealers which have a dealer agreement with the Distributor or
from other qualified brokers, provided that the dealer has received the request
prior to 4:00 p.m. Eastern Time. From time to time, on a case-by-case basis, the
Transfer Agent may make arrangements for later processing times with authorized
dealers, so long as such arrangements comply with applicable law and Fund
operation requirements. This is known as a repurchase. However, EVEN AFTER
RECEIPT OF A REPURCHASE ORDER FROM A DEALER, THE FUNDS STILL REQUIRE A SIGNED
LETTER FROM THE SHAREHOLDER CONTAINING REDEMPTION INSTRUCTIONS AND ALL OTHER
DOCUMENTS REQUIRED FOR DIRECT REDEMPTION REQUESTS, AS STATED ABOVE. The
shareholder's letter should refer to the Fund involved, the account from which
the redemption is to be made, the fact that the repurchase was ordered through a
dealer, and the dealer's name. Details of the dealerordered trade, such as the
trade date, confirmation number, and the amount of shares or dollars, will speed
processing. The sevenday 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. From time to
time, on a case-by-case basis, the Transfer Agent may make arrangements for
later processing times with authorized dealers, so long as such arrangements
comply with applicable law and Fund operating requirements.
SYSTEMATIC WITHDRAWAL PLAN
For Second Stage Shareholders, a Systematic Withdrawal Plan is available to
shareholders whose accounts total $50,000 or more. Under the Systematic
Withdrawal Plan, the Transfer Agent will make specified monthly, quarterly,
semiannual or annual payments to a designated party of any amount selected with
a minimum of $100. For First Stage Shareholders, a Systematic Withdrawal Plan
continues to be available to shareholders whose accounts total $5,000 or more
with specific monthly, quarterly, semi-annual or annual payments to a designated
party of any amount selected with a 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 day the New York Stock Exchange is open for regular trading.
Changes concerning the Systematic Withdrawal Plan must be received by the
Transfer Agent at least two weeks prior to the next scheduled withdrawal. No
CDSC is assessed on withdrawals under this Plan up to an annual total of 12% of
the value of the shareholder's account. "Amount invested" for these purposes
means the amount of the shareholder's investment in the Class B Retail shares on
the date the plan for that class is established. 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.
30
<PAGE>
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.
The Telephone Privilege permits shareholders to redeem so long as the proceeds
are payable to the shareholder(s) of record and sent to the address of record
for the account or wired directly to 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 without prior notice. Shareholders who have
retirement accounts with the Funds may not redeem by telephone.
In an effort to confirm that telephone requests are genuine, reasonable
procedures are employed, which currently include recording all telephone
instructions and mailing a confirming account statement to the record address.
If reasonable procedures are followed, neither the Funds, the Distributor, nor
the Transfer Agent will be liable for following telephone instructions it
reasonably believes to be genuine. Any of the Funds, the Distributor, and the
Transfer Agent may be liable for losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges and
redemptions will be accepted from authorized dealers on behalf of a shareholder
by telephone, provided that the exchange or redemption involves only
uncertificated shares on deposit in the shareholder's account or shares for
which certificates have previously been deposited.
Investors should be aware that they may have difficulties effecting telephone
transactions during unusual market conditions.
31
<PAGE>
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 shortterm gains. At least annually,
distributions of any net realized or remaining 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
date the dividend is declared 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 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 shortterm capital gains over net 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 capital gains
over net shortterm capital losses are treated as 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.
32
<PAGE>
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.
In addition, 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 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 for 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 nonexempt 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 underreporting 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.
33
<PAGE>
After the end of the Funds' fiscal year on December 31 and halfyear on June 30,
shareholders will receive an annual and semiannual 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.
YEAR 2000
AIB Govett and its affiliates and the Funds' service providers have assembled
teams of information technology professionals to address Year 2000 issues. The
key phases of their preparation plans include: an inventory of all internal
systems, vendor products and services, and data providers; an assessment of all
systems for date reliance and the impact of the century rollover on each; and
the renovation and testing of affected systems. The Funds will not bear the
cost of these efforts. In addition, the portfolio management teams inquire about
the Year 2000 preparations of current and prospective Fund investments, but
there is no certainty that the information provided in response is complete or
accurate or that a company's Year 2000 problems will not affect a Fund's
performance.
Inadequate preparation for Year 2000 by the Funds' service providers and others
with whom they interact could adversely affect the Funds' operations, including
pricing, securities trading and settlement, and the provision of shareholder
services. However, as a result of the service providers' efforts, the Funds do
not anticipate a material adverse impact on their business, operations or
financial condition relating to Year 2000 issues. Nevertheless, there can be no
assurance that the steps being taken will be sufficient and timely or that
interaction with other computer systems which are not prepared will not have a
material adverse effect on the Funds' business, operations or financial
condition.
THE EURO
On January 1, 1999, the European Monetary Union ("EMU") plans to introduce a new
single currency, the euro, which will replace the national currencies of the
participating member nations. Until 2002, the national currencies will continue
to exist, but exchange rates will be pegged to the euro. As of the date of this
Prospectus, the eleven member nations are Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain.
Therefore, the Funds most likely to be affected by this change are International
Equity Fund, International Smaller Companies Fund, Smaller Companies Fund, and
Global Income Fund.
The introduction of the euro is likely to affect all stages of the investment
process, including trading, foreign exchange, custody, and accounting. Because
this change to a single currency is new and untested, the introduction of the
euro may result in market volatility and may affect the business or financial
condition of European issuers or of a Fund. In addition, while the conversion
will eliminate currency risk among the participating nations, currency risk
between the euro and the U.S. dollar remains a factor.
While there can be no assurances that the conversion will not adversely affect
the Funds, the Investment Adviser, Subadviser, and the Funds' service providers
are taking steps which they believe appropriately and reasonably address the
issues involved in the introduction of the euro.
ORGANIZATION
The Govett Funds, Inc. is a Maryland corporation formed in 1990. It is
registered with the SEC as an openend management company. Each Fund corresponds
to a distinct investment portfolio and a distinct series of shares. Each Fund,
other than Latin America Fund (currently closed to new investment and described
in a separate prospectus) and Global Income Fund, is a diversified series of the
Company. Latin America Fund and Global Income Fund are not diversified. 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
Retail shares, each described in a separated prospectus. AS OF THE DATE OF THIS
PROSPECTUS, ONLY CLASS A RETAIL SHARES ARE AVAILABLE TO THE GENERAL
34
<PAGE>
PUBLIC. Each Fund has also designated an Institutional Class, which is also
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 onethousandth of one cent per share, represents an equal
proportionate interest in the Funds 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 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 oneyear period and at the end of five and tenyear
periods, reduced by the maximum applicable frontend sales charge imposed on
sales of Fund shares. Performance information with respect to a Fund will also
reflect that any applicable CDSC has been paid. If a one, five, and/or tenyear
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 ("NonStandardized
Return"). NonStandardized 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. NonStandardized 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 yearbyyear 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 thirtyday period (net of
expenses), dividing such income by the average number of share outstanding, and
expressing the result as an annualized percentage based on the public offering
price of its shares at the end of that thirtyday 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.
35
<PAGE>
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 most recent Annual Report and SemiAnnual Report contain additional
performance information on the International Equity Fund, Emerging Markets
Equity Fund, Smaller Companies 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 GlassSteagall Act and other banking laws and regulations (the "Banking
Laws") presently prohibit member banks of the Federal Reserve System or their
nonbank affiliates (the "Member Banks") from sponsoring, organizing, controlling
or distributing shares of registered openend 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 openend
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 Subadviser is an affiliate of First National Bank of
Maryland, whose parent company, First Maryland Bancorp, is a whollyowned
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 Subadviser being prevented from continuing
to perform services required under its investment advisory agreement with the
Company, subadvisory agreement with AIB Govett, or the SubAdministration
Agreement with the Distributor, as the case may be. If any of AIB Govett and
the Subadviser 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 was to occur, the Board of Directors would seek to take
action so that no shareholder of any Fund would suffer any adverse consequences.
36
<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 Adviser
Service Desk.
TRANSACTIONS BY MAIL. For NEW ACCOUNTS, send the completed Account Application
with a check to:
<TABLE>
<CAPTION>
<S> <C>
via U.S. Postal Service via overnight delivery service
GOVETT FUNDS GOVETT FUNDS
P.O. BOX 61503 3200 HORIZON DRIVE
KING OF PRUSSIA, PA 19406-0903 KING OF PRUSSIA, PA 19406-0903
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
via U.S. Postal Service via overnight delivery service
GOVETT FUNDS GOVETT FUNDS
P.O. BOX 412797 3200 HORIZON DRIVE
KANSAS CITY, MO 64141-2797 KING OF PRUSSIA, PA 19406-0903
</TABLE>
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 First Data Investor Services Group
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:
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
via U.S. Postal Service via overnight delivery service
GOVETT FUNDS GOVETT FUNDS
P.O. BOX 61503 3200 HORIZON DRIVE
KING OF PRUSSIA, PA 19406-0903 KING OF PRUSSIA, PA 19406-0903
</TABLE>
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.
38
<PAGE>
GOVETT FUNDS
GOVETT INTERNATIONAL EQUITY FUND
GOVETT EMERGING MARKETS EQUITY FUND
GOVETT INTERNATIONAL SMALLER COMPANIES FUND
GOVETT SMALLER COMPANIES FUND
GOVETT GLOBAL INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
TRANSFER AGENT CUSTODIAN
First Data Investor Services Group, Inc. The Chase Manhattan Bank
3200 Horizon Drive 4 MetroTech Center
P.O. Box 61503 Brooklyn, NY 11245
King of Prussia, PA 19406-0903
800-821-0803
DISTRIBUTOR ACCOUNTING AND ADMINISTRATION SERVICES
FPS Broker Services, Inc. Chase Global Funds Services Company
3200 Horizon Drive 73 Tremont Street,
P.O. Box 61503 11th Floor
King of Prussia, PA 19406-0903 Boston, MA 02108
800-634-6838
GOVETT FUNDS DIRECTORS
250 Montgomery Street, Suite 1200 Patrick K. Cunneen, Chairman
San Francisco, CA 94104 Elliot L. Atamian
800-731-1755 Sir Victor Garland
415-263-1865 James M. Oates
Frank R. Terzolo
INVESTMENT MANAGER
AIB Govett, Inc.
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-731-1755
415-263-1865
</TABLE>
<PAGE>
GOVETT FUNDS
Class A, B and Institutional Shares
Prospectus dated _____, 1998
This Prospectus describes two funds (the "Funds") offered to investors by The
Govett Funds, Inc. (the "Govett Funds" or the "Company"). Each of the Funds is
managed by AIB Govett, Inc. ("AIB Govett" or the "Investment Manager"). AIB
Govett Asset Management Limited ( "AIB Govett London" or the "Subadviser,"
formerly John Govett & Co. Limited) serves as subadviser to each Fund.
. GOVETT EUROPE FUND seeks long-term capital appreciation by investing
primarily in equity securities of growth oriented companies located in
Europe
. GOVETT CHINA FUND seeks long-term capital appreciation by investing
primarily in equity securities of companies which have considerable
exposure to the Chinese economy.
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.
THESE TWO FUNDS ARE CURRENTLY NOT AVAILABLE TO THE GENERAL PUBLIC.
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 an investor decide if a Fund's goal matches
his or her own. A Statement of Additional Information about the Funds, dated
_________, 1998, 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
MULTIPLE CLASSES OF 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
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:
A. SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM MAXIMUM SALES LOAD IMPOSED ON
DEFERRED LOAD IMPOSED ON DIVIDEND EXCHANGE
CLASS SALES LOAD PURCHASES REINVESTMENTS REDEMPTION FEES FEES
- ------------ ---------------- -------------------- --------------------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
A NONE NONE NONE 1.00%/1/ 1.00%/1/
B 4.00% NONE NONE NONE NONE
Institutional NONE NONE NONE 1.00%/1/ 1.00%/1/
</TABLE>
B. ANNUAL OPERATING EXPENSES FOR EACH CLASS OF EACH FUND
<TABLE>
<CAPTION>
TOTAL OPERATING
OTHER EXPENSES EXPENSES
(AFTER (AFTER
FUND MANAGEMENT FEE 12B-1 FEES REIMBURSEMENT)/2/ REIMBURSEMENT)/2/
- ------------------------------- --------------------- ------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C>
CLASS A
Europe 1.00% 0.35% 1.15% 2.50%
China 1.00% 0.35% 1.15% 2.50%
CLASS B
Europe 1.00% 1.00% 1.15% 3.15%
China 1.00% 1.00% 1.15% 3.15%
INSTITUTIONAL CLASS
Europe 1.00% NONE 0.75% 1.75%
China 1.00% NONE 0.75% 1.75%
</TABLE>
The Investment Manager has agreed to reduce its management fees and 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 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").
C. EXAMPLES OF EXPENSES
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
return3 and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS
- --------------------------- ------------------- -------------------
<S> <C> <C>
CLASS A
Europe $25 78
China 25 78
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
CLASS B
Europe 72 127
China 72 127
INSTITUTIONAL CLASS
Europe 18 55
China 18 55
</TABLE>
4
<PAGE>
You would pay the following expenses on the same investment assuming no
redemption:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS
- ------------------------------- ------------------- ------------------
<S> <C> <C>
CLASS A
Europe $25 78
China 25 78
CLASS B
Europe 32 97
China 32 97
INSTITUTIONAL CLASS
Europe 18 55
China 18 55
</TABLE>
The above tables are not intended to reflect precisely the fees and expenses
associated with a particular person's investment in the 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.
_____
1 AS OF SEPTEMBER 1, 1998, CLASS A AND INSTITUTIONAL CLASS SHARES ARE SUBJECT
TO A SHORT-TERM REDEMPTION FEE OF 1% ON SHARES REDEEMED WITHIN 6 MONTHS OF
ACQUISITION. AS OF DECEMBER __, 1998, EXCHANGES OF CLASS A AND INSTITUTIONAL
CLASS SHARES ARE ALSO SUBJECT TO A 1% FEE ON SHARES EXCHANGED WITHIN SIX MONTHS
OF ACQUISITION. THE FEE IS PAID TO THE FUND AND ITS PURPOSE IS TO DISCOURAGE
SHORT-TERM TRADING
2 AT PRESENT, THESE TWO FUNDS ARE NOT AVAILABLE FOR PURCHASE BY THE GENERAL
PUBLIC. The percentages shown in "Other Expenses" and "Total Operating Expenses"
are net of reimbursement by the Investment Manager. The percentage in "Other
Expenses" for the shares of the Europe Fund and China Fund are estimated and
based on the operating expense information for the Emerging Markets Equity Fund,
one of the series of the Company currently offered to the public. The
percentages for "Other Expenses" for the Class A shares, Class B shares, and
Institutional Class shares of the Emerging Markets Equity Fund are based on
expenses incurred by the Fund on Class A during the year ended December 31, 1997
after expense reimbursements. The estimates for Class B and Institutional Class
shares are adjusted from the Class A expense information by estimated class
specific expenses. Absent reimbursements, "Other Expenses" as a percentage of
net assets for the Class A shares, Class B shares, and Institutional shares of
the Emerging Markets Equity Fund would have been 1.41%, 1.41%, and 0.97%,
respectively, for the year ended December 31, 1997. The "Other Expenses" for the
year ended December 31, 1997 have been calculated using the 12b-1 fee then in
effect for Class A of 0.50% (except Global Income which was 0.35%). Absent such
reimbursements, "Total Operating Expenses" as a percentage of net assets for the
Class A shares, Class B shares, and Institutional shares of the Emerging Markets
Equity Fund, would have been 2.91%, 3.41%, and 1.97%, respectively, for the year
ended December 31, 1997.
3 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
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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 the Funds'
investment restrictions and other investment policies. Except for each Funds'
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.
EUROPE FUND seeks long-term capital appreciation by investing primarily in
equity securities of growth-oriented issuers located in Europe.
Under normal market conditions, the Fund invests at least 65% of the total
assets in equity securities -- that is, common stocks, preferred stocks, and
warrants to acquire such stocks -- of issuers located in Europe; provided that
the Fund invests in at least three issuers located in different countries. The
Fund defines Europe to include (a) Western Europe, that is, those countries in
the European Community and certain countries that are not members of the
European Community but otherwise are commonly accepted as in Western Europe,
such as Switzerland and Norway, (b) Central and Eastern Europe, such as
Bulgaria, Estonia, Latvia, Lithuania, Czech Republic, Slovakia, Hungary, Poland,
Romania, Russia, and Slovenia, and (c) certain other countries that are
contiguous to one or more countries in Western, Central, or Eastern Europe that
the Investment Manager considers as a part of Europe, such as Turkey. The Fund
typically invests in securities listed on recognized securities exchanges, but
it may hold securities that are listed on other exchanges or that are not
listed.
The Fund may invest up to 35% of its total assets in other equity securities, in
debt obligations convertible into equity securities, and in non-convertible debt
securities.
CHINA FUND seeks longterm capital appreciation by investing primarily in equity
securities of companies which have considerable exposure to the Chinese economy.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities -- that is, common stocks, preferred stocks, and
warrants to acquire such stocks -- of issuers (a) organized under the laws of
China, including 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
securities listed on recognized securities exchanges, including the Hong Kong,
Shanghai, and Shenzhen stock exchanges, but it may hold securities that are
listed on other exchanges or that are not listed.
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The Fund may invest up to 35% of its total assets in other equity securities, in
debt obligations convertible into equity securities, and in non-convertible debt
securities.
INVESTMENT TECHNIQUES AND POLICIES
Although no Fund provides a complete or balanced investment program, investors
can use each as part of an overall program to meet long-term objectives.
Although each Fund may receive current income from dividends, interest and other
sources, income is only an incidental consideration in 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 ("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 (but any increase or decrease will be considered when
determining whether the asset complies with regulatory limitations that
apply to borrowings and illiquid securities).
. The term "issuers located in" a particular country or region includes
issuers (i) which are organized under the laws of that country or a country
in that region and which have their principal office in that country or a
country in that region; or (ii) which derive 50% or more of their total
revenues from business in that country or a country in that region; or
(iii) the equity securities of which are principally traded on a stock
exchange of that country or a country in that region.
GENERAL LIMITATIONS
Europe Fund and China 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
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 331/3 % of its total assets and pledge up to 331/3 % of its
total assets in connection with such borrowing. Any borrowings that come to
exceed the 331/3 % 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 331/3 % 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
DEPOSITORY RECEIPTS. The Funds may invest in sponsored and unsponsored American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs"), and similar global instruments to the extent that
they may invest in the underlying securities. A U.S. or foreign bank or trust
company
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typically "sponsors" these depository 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 depository 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. At least 75% of each Fund's
total assets invested in non-convertible debt securities other than commercial
paper must be rated, at the time of purchase, at least in the A category by
Standard & Poor's or Moody's, or if unrated, determined to be of comparable
quality by AIB Govett. These three 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 an immediate sale of the security.
However, AIB Govett will consider the circumstances of the downgrade in
determining whether to hold that security, including causes of the downgrade,
local market conditions, and general economic trends.
TEMPORARY STRATEGIES. To retain flexibility to respond promptly to changes in
market and economic conditions, AIB Govett, in its discretion, may use temporary
defensive strategies. Under such strategies, a Fund may hold up to 100% of its
total assets as cash (either U.S. dollars, foreign currencies or multinational
currency units), and/or invest in shortterm, high quality debt securities. For
debt obligations other than commercial paper, such instruments must be rated, at
the time of purchase, at least in the AAA category by Standard & Poor's or at
least in the Aaa category by Moody's, or if unrated, determined to be of
comparable quality by AIB Govett. For commercial paper, such investments must be
rated, at the time of purchase, at least A-2 by Standard & Poor's or Prime-2 by
Moody's, or if unrated, determined to be of comparable quality by AIB Govett
HEDGING STRATEGIES. Each Fund may use certain hedging strategies to attempt to
reduce the overall level of investment and currency risk normally associated
with its investments, although there can be no assurance that such efforts will
succeed. Among the types of transactions which may be used are: forward
currency contracts, writing of covered put and call options, purchase of put and
call options on currencies and equity and debt securities, stock index futures
and options thereon, interest rate or currency futures and options thereon, and
securities futures and options thereon. It is currently intended that no Fund
will place more than 5% of its net assets at risk in any one of these
transactions or securities
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.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Emerging and developing markets
countries often limit foreign investments in equity securities of issuers
located in such countries. As a result, the Funds may be able to invest in such
countries solely or primarily through open- or closed-end investment companies.
Each Fund may invest in such companies to the extent permitted under the 1940
Act. The Funds may not invest in any investment companies managed by AIB Govett
or any of its affiliates. Investments in investment companies may involve a
duplication of certain expenses, such as management and administrative expenses.
RESTRICTED SECURITIES. The Funds may invest in foreign securities that are
restricted against transfer within the U.S. or to U.S. persons. Although
securities subject to such U.S. transfer restrictions may be marketable abroad,
they may be less liquid than foreign securities of the same class that are not
subject to such restrictions. Unless these securities are limited as to resale
within their principal market, the Funds treat such foreign securities whose
principal market is abroad as not being subject to investment limitation on
restricted securities.
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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 to which non-U.S. securities may be subject. 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. Such taxes may adversely affect a
Fund's net asset value.
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 respects 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
INVESTING IN CHINA. Investing in China, Hong Kong, Taiwan, or other countries
in and around China (the "China Region") involves certain risks and special
considerations not typically associated with investing in other emerging
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markets or more established economies or 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
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 may reflect this
volatility.
INTEREST RATES AND CREDIT. The value of fixed income-securities held by the
Funds generally fluctuates inversely with interest rate movements. Securities
in the BBB and Baa (Standard & Poor's/Moody's) major rating categories have
speculative characteristics and changes in economic conditions and other
circumstances are more likely to lead to a weakened capacity to make principal
or interest payments than in the case of higher rated bonds.
The Funds 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 on 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.
SOVEREIGN DEBT OBLIGATIONS. 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 sovereign debt obligations 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 "How Funds Value Their Shares" in
this Prospectus and "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 (the "Investment Management Agreement"), effective on January 1, 1998,
between the Company 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 the
Company's behalf in accordance with each Fund's investment policies.
ADVISER AND SUBADVISER
AIB Govett, 250 Montgomery Street, Suite 1200, San Francisco, CA 94104, is 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 $62 billion as of December 31, 1997.
AIBAMH has approximately $14 billion of assets under management as of December
31, 1997.
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AIB GOVETT LONDON 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 December 31, 1997,
approximately $5.6 billion under management, primarily in non-U.S. funds. AIB
Govett London serves as investment subadviser to two U.S. mutual fund portfolios
in addition to the Funds.
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, AIB Govett London, which had served as
investment manager for the Funds, changed its name from John Govett & Co.
Limited. AIB Govett London serves as subadviser to all Funds. AIB Govett and
AIB Govett London 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.
John Murray and Eileen Fitzpatrick, Joint Chief Investment Officers and
Directors of AIB Govett, are, respectively, Managing Director of Investments of
AIB Govett London and Chief Investment Officer of AIB Investment Managers
Limited ("AIBIM"), a wholly-owned subsidiary of AIBAMH based in Dublin. Mr.
Murray graduated with a BA in finance and business studies from the University
of the South Bank. Prior to joining AIB Govett London as a Director in 1994, he
was a Director at Henderson Administration from 1990, most recently responsible
for managing pension funds in excess of (Pounds)400m. He also served as a fund
manager at Crown Financial Management and as Head of Research at Provident Life.
Ms. Fitzpatrick holds a Ph.D. in Science from University College, Dublin. After
two years with a Dublinbased fund management organization, she joined AIBIM 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 as Deputy Investment Director and was appointed
Investment Director in January, 1997.
PORTFOLIO MANAGEMENT
AIB Govett and the Subadviser are part of a broad network of offices worldwide,
with principal offices located in London, Dublin, San Francisco, and Singapore,
which are supported in turn by a global network of investment/research offices
in Baltimore, Budapest, Mexico City, Rio de Janeiro, Poznan (Poland), Bangalore,
Kuala Lumpur, Seoul, and Taipei. Each Fund is managed by a portfolio management
team under the supervision of the Managing Director of Investments of AIB Govett
London. Each team's investment process is based on interaction among regional
specialist desks. The Global Investment Policy Committee, consisting of the
Chief Investment Officers of the principal offices, sets overall investment
policies and strategy for the AIB Govett group and
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coordinates implementation in accordance with each Fund's investment objectives,
policies, and regulatory requirements. With this structure, the firm seeks
consistent implementation of process and continuity of investment management
staff for each fund.
AIB Govett and the Subadviser permit their investment and other personnel to
purchase and sell securities for their own accounts, subject to a compliance
policy governing personal investment. This policy requires investment and other
personnel to conduct their personal investment activities in a manner that is
not detrimental to the Funds or to any of the group's other advisory clients.
Mr. Patrick Cunneen, a Director of the Company, is a director 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
are not affected by the change 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 for providing
investment management and administrative services to the Funds.
Pursuant to its Subadvisory Agreement with AIB Govett London, AIB Govett pays
AIB Govett London a fee of 0.45% of average annual net assets for each Fund as
compensation for serving as investment subadviser to the Funds. The Funds are
not responsible for payment of the subadvisory fee to AIB Govett London.
AIB Govett 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 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. Please see the Financial Highlights
section of this Prospectus and the Statement of Additional Information for more
information about fees and expenses.
ALLOCATION OF PORTFOLIO TRANSACTIONS
In placing orders for the Funds' portfolio transactions, each of AIB Govett and
the Subadviser 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
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 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
Subadviser to the Funds and to any accounts over which AIB Govett or the
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 Subadviser
carefully weighs anticipated benefits of a trade against expected transaction
costs and tax consequences. Neither AIB Govett nor the Subadviser
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engages in short-term trading except when necessary to prudently manage the
Funds' portfolios. Each Fund's portfolio turnover rate reflects market
conditions affecting the economies that Fund invests in.
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DISTRIBUTION ARRANGEMENTS
FPS Broker Services, Inc. (the "Distributor") is the Funds' distributor and
principal underwriter. First Data Investor Services Group, Inc. (formerly FPS
Services, Inc.), a former affiliate of the Distributor, serves the Funds as
transfer and shareholder services agent (the "Transfer Agent"). Effective
January 1, 1999, First Data Distributors, Inc. will acquire FPS Broker Services,
Inc.
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 sales of 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
by the Distributor 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 Class A shares of each Fund have adopted a Distribution Plan
referred to in this Prospectus as the "Class A Plan". Pursuant to Rule 12b-1,
the Board of Directors and the shareholders of Class B shares of each Fund have
adopted a Distribution Plan referred to in this Prospectus as the "Class B
Plan". This distribution plan is intended to comply 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.
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. There is no service fee paid
under the Class A Plan.
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.
The 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 acting as a Service Organization
under the Plan.
If the Class A Plan is terminated, the Distributor would not be compensated for
costs incurred but not yet recovered. Payments under the Class A Plan of 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 shareholders. If
the Class B Plan is terminated, the Distributor would not be compensated for
costs incurred but not yet recovered. Payments under the Class B Plan of a Fund
may not be increased to more than 1.00% of the Fund's average daily net assets
attributable to Class B shares without prior approval of the shareholders. At
present, the Board of Directors has approved payments under the Class A Plan and
the Class B Plan 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 Class
(including payments for travel, telephone, and overhead expenses related to
distribution), subject to the overall percentage limitations described above.
14
<PAGE>
The Class B Plan provides that the Distributor may use 0.25% of the net assets
of Class B (i) to compensate Service 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 the 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 share in such class.
The Directors determined that there was a reasonable likelihood that the
Distribution Plan 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 Plan. 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.
CUSTODIAN
The Chase Manhattan Bank (the "Custodian") serves as the Funds' global
custodian.
15
<PAGE>
Transfer Agent
First Data Investor Services Group, Inc. (formerly FPS Services, Inc.) (the
"Transfer Agent") provides transfer agent, shareholder services agent, and
dividend disbursement services to the Funds. The Transfer Agent is a subsidiary
of First Data Corporation.
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 61/st/ 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 1:00p.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 NAV 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 close of regular trading on
a foreign exchange and the close of regular trading on the New York Stock
Exchange may not be reflected in that day's computation of a Fund's NAV. If an
event materially affecting the value of a portfolio holding occurs during such
period and the Investment Manager becomes aware of it or if a holding becomes
illiquid pursuant to procedures adopted by the Board of Directors, then the
holding will be valued at fair value as determined in good faith, according to
procedures adopted by the Board.
16
<PAGE>
ABOUT YOUR ACCOUNT
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. 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 tables compares some important
differences. Each class has distinct advantages and disadvantages for investors
in different financial circumstances and with different investment goals.
The following table summarizes certain terms of Class A shares:
<TABLE>
<CAPTION>
Class A
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges None
- -------------------------------------------------------------------------------------------------------------------
12b-1 Distribution Fee 0.35% for all Funds
- -------------------------------------------------------------------------------------------------------------------
Redemption/Exchange Fee 1% redemptions and exchanges made within 6 months of share purchase
- -------------------------------------------------------------------------------------------------------------------
Service Fee None
- -------------------------------------------------------------------------------------------------------------------
Minimum Investment $5,000 initially; $1,000 any subsequent purchases*
- -------------------------------------------------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of the same class of the other Funds
- -------------------------------------------------------------------------------------------------------------------
Convertibility Class A shares do not convert to any other Class of shares of the Funds
- -------------------------------------------------------------------------------------------------------------------
Dividends Calculated in the same manner and at the same time of day for each class
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* For existing shareholders of record as of December 31, 1997, the applicable
minimums are $500 and $25, respectively, for identically registered
accounts.
The following table summarizes certain terms of Class B shares:
<TABLE>
<CAPTION>
Class B/1/
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges No initial sales charge. Contingent deferred sales load ("CDSC") of 4% decreasing to
1% applies to shares redeemed within the first 6 years following purchase. Convert to
A shares at the beginning of the eighth year after purchase.
- --------------------------------------------------------------------------------------------------------------------
12b-1 Distribution Fee 0.75% for first 7 years for all Funds
- --------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% for first 7 years for all Funds
- --------------------------------------------------------------------------------------------------------------------
Suitability Investors should consider whether, during the anticipated life of their investment,
accumulated distribution and 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.
- --------------------------------------------------------------------------------------------------------------------
Minimum Investment $5,000 initially' $1,000 any subsequent purchases*
- --------------------------------------------------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of the same class of the other Funds
- --------------------------------------------------------------------------------------------------------------------
Convertibility Class B shares convert to Class A shares at the beginning of the eighth calendar year
- --------------------------------------------------------------------------------------------------------------------
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>
* For existing shareholders of record as of December 31, 1997, the applicable
minimums are $500 and $25, respectively, for identically registered
accounts.
17
<PAGE>
/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 and 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.
Shares of the Institutional Class are available for purchase only by:
(a) retirement profit-sharing, 401(k) and other tax-exempt employee benefit
plans, including rollover individual retirement plans from such plans;
(b) institutional advisory accounts of AIB Govett or its affiliates, as well as
subsidiaries and related employee benefit plans and certain rollover
individual retirement accounts from institutional advisory accounts;
(c) registered investment advisers and financial institutions, including banks
and trust companies (each an "Adviser") investing on behalf of clients that
are institutions or high net-worth individuals having at least $250,000
under management by the Adviser; and
(d) the Board of Directors may also authorize purchases of Institutional Class
shares of any series of the Funds, with or without minimum investment
waived, by shareholders of a mutual fund which was advised by AIB Govett or
an affiliate and subsequently merged into a series of the Funds.
The following table summarizes certain terms of Institutional Class shares.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges None
- ---------------------------------------------------------------------------------------------------------------------
12b1 Distribution Fee None
- ---------------------------------------------------------------------------------------------------------------------
Redemption/Exchange Fee 1% redemptions and exchanges made within 6 months of share purchase
- ---------------------------------------------------------------------------------------------------------------------
Service Fee None
- ---------------------------------------------------------------------------------------------------------------------
Minimum Investment $25,000 initially; any amount for subsequent purchases
- ---------------------------------------------------------------------------------------------------------------------
Exchangeability Shares of each Fund may be exchanged for shares of the same class of the other Funds
- ---------------------------------------------------------------------------------------------------------------------
Convertibility Institutional Class shares do not convert to any other Class of shares of the Funds
- ---------------------------------------------------------------------------------------------------------------------
Dividends Calculated in the same manner and at the same time of day for each class, except that
Institutional Class shares will not incur distribution fees under Rule 12b-1 Plans
that apply to the Class A and Class B shares.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
HOW TO BUY SHARES
18
<PAGE>
Shares of each of the Funds are offered continuously at the NAV per share
determined for each Fund as of the close of the regular trading session of the
New York Stock Exchange (currently 4:00 p.m. Eastern 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 purchased prior to September 1, 1998, 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, or subject to a
short-term redemption fees on Class A and Institutional Class shares purchased
after September 1, 1998. AN UNSPECIFIED PURCHASE ORDER WILL BE CONSIDERED AN
ORDER FOR CLASS A SHARES. AT PRESENT, CLASS B SHARES ARE NOT 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.
CLASS A AND CLASS B
Effective January 1, 1998, the minimum initial investment for new investors
("Second Stage Shareholders") in any series of the Company is $5,000 and any
subsequent investments are to be $1,000 or more. Different minimums apply to
investments made according to an Automatic Investment Plan (see below for
details). For existing shareholders of record as of the close of business
December 31, 1997 ("First Stage Shareholders"), the investment minimums for
identically registered accounts remain those in effect when they initially
invested in any Fund; specifically, $500 minimum initial investment into another
Fund of the Company and subsequent investments of $25 or more.
For an Individual Retirement Account ("IRA"), the minimum initial investment for
Second Stage Shareholders in any Fund of the Company will $2,000 and any
subsequent investments are to be $1,000 or more. For First Stage Shareholders,
the investment minimums for identically registered IRAs remain those in effect
when they initially invested in any Fund; specifically, $500 minimum initial
investment into another Fund of the Company and subsequent investment of $25 or
more. For an IRA application or with any questions about your IRA, please call
(800)-821-0803.
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.
INSTITUTIONAL CLASS
The minimum initial investment is $25,000. 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.
PURCHASES THROUGH AUTHORIZED DEALERS
Generally, 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. From time to time, on a case-by-case basis, the Transfer
Agent may make arrangements for later processing times with authorized dealers,
so long as such arrangements comply with applicable law and Fund operating
requirements. For wiring instructions, please see "Appendix A".
INITIAL PURCHASES THROUGH TRANSFER AGENT
19
<PAGE>
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 "Govett Funds", to the address shown in Appendix A. Minimum initial
investment is $5,000 or more for Retail shareholders ($500 for First Stage
Shareholder) and is $25,000 or more for Institutional shareholders. 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 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.
20
<PAGE>
SUBSEQUENT INVESTMENTS THROUGH THE TRANSFER AGENT
After an initial investment is made and a shareholder account is established
through an authorized dealer, (For Second Stage Shareholders subsequent
purchases of the Retail classes 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. Investments may also be sent via bank wire. Please see Appendix A for
wiring instructions.
CERTIFICATES
In the interest of economy and convenience, the Funds do not issue certificates
for Class A shares 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.
Certificates are not issued for Class B or 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.
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 - RETAIL SHARES ONLY
Second Stage Shareholders may buy shares of a Fund through the Automatic
Investment Plan ("AIP") with an initial amount of at least $5,000 and $100
thereafter, per Fund, to be invested on a regular basis. For First Stage
Shareholders, the initial amount for an AIP remains at least $100 and $25
thereafter, per Fund, to be invested on a regular basis. The specified amount
will be transferred directly from the investor's bank for investment into the
designated Fund(s) on the designated investment day. These transfers are
processed on the 10th, 15th, and 20th of each month (or on the next business day
if the designated day falls on a holiday 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 - RETAIL SHARES ONLY
See "How to Redeem Shares," below.
SALES CHARGES - RETAIL SHARES ONLY
CLASS A
Effective September 1, 1998, the sales charge on Class A shares was
eliminated.
Letter of Intent ("LOI") and RIGHT OF ACCUMULATION.
21
<PAGE>
Prior to September 1, 1998, investors who agreed to purchase a certain dollar
amount of Class A shares or who already had purchased a certain dollar amount of
Class A shares, may have qualified for reduced sales charge rates. Purchases of
Class A shares made after September 1, 1998 are not subject to a sales
charge.
22
<PAGE>
CLASS B
Investments in each Fund are subject to a contingent deferred sales charges
("CDSCs").
23
<PAGE>
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:
CDSC AS A PERCENTAGE OF
----------------------------------
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------- ---------------------------------
First......................... 4%
Second........................ 4%
Third......................... 3%
Fourth........................ 3%
Fifth......................... 2%
Sixth......................... 1%
Seventh and Eighth............ 0%
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.
CONDITION FOR WAIVER
--------------------
. Death or disability of the shareholder (as defined in Section 72(m)(7) of
the Code). Minimum required distribution from certain IRA or retirement
plan distributions.
. Pursuant to Reinstatement Privilege, which may be EXERCISED ONLY ONCE for
each Fund investment. Class B reinstatement proceeds can only be reinvested
in Class A shares.
. Redemptions made pursuant to the Funds' systematic withdrawal plan, but
limited to 12% of the initial value of the account (annually) for Class B.
REINSTATEMENT PRIVILEGE. A Class B shareholder who redeemed 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 per share (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 per share 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.
24
<PAGE>
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, subject to any applicable exchange fee. 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. 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.
EXCHANGE FEE. As of December __, 1998, exchanges made within six months of
purchase are subject to a 1% fee on the amount exchanged out of a Fund. All
shares purchased prior to the date of this Prospectus are not subject to the 1%
Exchange Fee. The shares held the longest would be considered to exchanged
first. This fee may not be applied to omnibus accounts.
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,
subject to any applicable exchange fee. 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 Company,
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, Class A shares of a Govett Fund
exchanged into the Money Market Fund will be exchanged for Class A 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 B SHARES MAY BE EXCHANGED INTO THE MONEY MARKET FUND. HOWEVER, THESE
SHARES DO NOT "AGE" WHILE INVESTED IN THE MONEY MARKET FUND. Investors
interested in making an exchange for shares of the Money Market Fund should
write or call their authorized dealer or the 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. For Second Stage Shareholders, there is a $5,000 minimum for
establishing a new account and $100 minimum for an existing account. For First
Stage Shareholders, the minimum remains $100 for a new Fund in an identically
registered account and the minimum for an existing Fund remains $25. These
transactions are effected on the 25th of each month. If the 25th falls on a
weekend or holiday, the transaction will be effected on the next business day.
The exchange fee is waived for participants in the Automatic Exchange Plan.
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
25
<PAGE>
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.
26
<PAGE>
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 per share next computed after the Transfer Agent
receives your redemption request which has been completed in accordance with the
account, 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, although typically the wire will be
completed with one (1) business day. A $9.00 processing fee will be deducted
from the proceeds of redemptions from Class A and B wired from the Funds.
The Funds may withhold redeeming a shareholder's account until they are
reasonably satisfied that checks used to pay for investments in one or more
Funds 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 per share (less any applicable CDSC) calculated on the next
business day (i.e., the next day the New York Stock Exchange is open for regular
trading).
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 by written request.
. 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
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<PAGE>
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 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. Generally, the Transfer Agent accepts
redemption requests by telephone on any business day from 9:00 a.m. to 5:00 p.m.
Eastern Time, from dealers which have a dealer agreement with the Distributor or
from other qualified brokers, provided that the dealer has received the request
prior to 4:00 p.m. Eastern Time. From time to time, on a case-by-case basis,
the Transfer Agent may make arrangements for later processing times with
authorized dealers, so long as such arrangements comply with applicable law and
Fund operational requirements. This is known as a repurchase. However, EVEN
AFTER RECEIPT OF A REPURCHASE ORDER FROM A DEALER, THE FUNDS STILL REQUIRE A
SIGNED LETTER FROM THE SHAREHOLDER CONTAINING REDEMPTION INSTRUCTIONS AND ALL
OTHER DOCUMENTS REQUIRED FOR DIRECT REDEMPTION REQUESTS, AS STATED ABOVE. The
shareholder's letter should refer to the Fund involved, the account from which
the redemption is to be made, the fact that the repurchase was ordered through a
dealer, and the dealer's name. Details of the dealer-ordered trade, such as the
trade date, confirmation number, and the amount of shares or dollars, will speed
processing. The seven-day period within which the proceeds of the shareholder's
redemption will be sent will begin when the Transfer Agent receives all
documents required to complete (or "settle") the repurchase in proper form. The
redemption proceeds will not earn dividends or interest during the time between
receipt of by the Transfer Agent of the dealer's repurchase order and the date
the redemption is processed after all necessary documents have been received.
It is therefore in the shareholder's best interest to have all required
documentation completed and forwarded to the Transfer Agent as soon as possible.
The shareholder's dealer may charge a fee for handling the order. From time to
time, on a case-by-case basis, the Transfer Agent may make arrangements for
later processing times with authorized dealers, so long as such arrangements
comply with applicable law and Fund operating requirements.
SYSTEMATIC WITHDRAWAL PLAN RETAIL SHARES ONLY
For Second Stage Shareholders, a Systematic Withdrawal Plan is available to
shareholders whose accounts total $50,000 or more. Under the Systematic
Withdrawal Plan, the Transfer Agent will make specified monthly, quarterly,
semi-annual or annual payments to a designated party of any amount selected with
a minimum of $100. For First Stage Shareholders, a Systematic Withdrawal Plan
continues to be available to shareholders whose accounts total $5,000 or more
with specific monthly, quarterly, semi-annual or annual payments to a designated
party of any amount selected with a 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 day the New York Stock Exchange is open for regular trading.
Changes concerning the Systematic Withdrawal Plan must be received by the
Transfer Agent at least two weeks prior to the next scheduled withdrawal. No
CDSC is assessed on withdrawals under this Plan up to an annual
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<PAGE>
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.
SHORT-TERM REDEMPTION FEE
To discourage short-term trading, effective September 1, 1998, purchases of
Class A and Institutional Class shares are subject to a 1% redemption fee on
shares redeemed within six months of the purchase of the shares. The fee is paid
to the Fund.
All shares purchased prior to September 1, 1998 are not subject to the six-month
redemption fee and would be considered to be redeemed first for a shareholder.
The fee is not imposed on shares acquired through the reinvestment of dividends
or capital gains distributions. The fee may not apply to omnibus accounts.
Whether a redemption fee is imposed will depend on the number of months since
the investor purchased the shares from which an amount is being redeemed. The
oldest shares (from which a redemption or exchange has not already been
effected) will be assumed to be redeemed first for purposes of calculating the
fee. For example, if a shareholder purchased 500 shares for $10/share 12 months
ago and then purchased 600 shares for $12/share 4 months ago, today when he
sells 400 shares for $15/share he would pay no fee as those 400 shares would be
the from the first purchase and would have been held for more than 6 months.
However, if he sold 600 shares at $15/share, a redemption fee of $15 would be
owed on the 100 shares that had not been held for 6 months.
WAIVER OF SHORT-TERM REDEMPTION FEE
The redemption fee is waived under the following circumstances:
. Death or disability of the shareholder (as defined in Section 72(m)(7) of
the Internal Revenue Code, as amended (the "Code")).
. Minimum required distributions from certain IRA or retirement plan
distributions.
. Redemptions made pursuant to the Funds' systematic withdrawal plan for
Class A shares, but limited to 10% of the initial value of the account
annually for Class A.
CDSCS - RETAIL SHARES ONLY
On purchases of $1 million or more of Class A shares made prior to September 1,
1998 no sales charge was imposed. However, a CDSC of 1% will be imposed on
certain redemptions of these Class A shares made within the first 12 months
following the investment. Class B shares are subject to the decreasing CDSC
described previously. All CDSCs incurred upon redemption of a Fund's shares are
paid to the Distributor in reimbursements 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.
The Telephone Privilege shareholders to redeem so long as the proceeds are
payable to the shareholder(s) of record and sent to the address of record for
the account or wired directly to 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
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<PAGE>
at any time without prior notice. Shareholders who have retirement accounts with
the Funds or hold certificated shares may not redeem by telephone.
In an effort to confirm that telephone requests are genuine, reasonable
procedures are employed, which currently include recording all telephone
instructions and mailing a confirming account statement to the record address.
If reasonable procedures are followed, neither the Funds, the Distributor, nor
the Transfer Agent will be liable for following telephone instructions it
reasonably believes to be genuine. Any of the Funds, the Distributor, and the
Transfer Agent may be liable for losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Exchanges and
redemptions will be accepted from authorized dealers on behalf of a shareholder
by telephone, provided that the exchange or redemption involves only
uncertificated shares on deposit in the shareholder's account or shares for
which certificates have previously been deposited.
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 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.
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
date the dividend is declared 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 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
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<PAGE>
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 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 capital gains
over net short-term capital losses are treated as 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.
In addition, 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 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 for 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.
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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.
YEAR 2000
AIB Govett and its affiliates and the Funds' service providers have assembled
teams of information technology professionals to address Year 2000 issues. The
key phases of their preparation plans include: an inventory of all internal
systems, vendor products and services, and data providers; an assessment of all
systems for date reliance and the impact of the century rollover on each; and
the renovation and testing of affected systems. The Funds will not bear the cost
of these efforts. In addition, the portfolio management teams inquire about the
Year 2000 preparations of current and prospective Fund investments, but there is
no certainty that the information provided in response is complete or accurate
and that a company's Year 2000 problems will not hurt a Fund's performance.
Inadequate preparation for Year 2000 by the Funds' service providers and others
with whom they interact could adversely affect the Funds' operations, including
pricing, securities trading and settlement, and the provision of shareholder
services. However, as a result of the service providers' efforts, the Funds do
not anticipate a material adverse impact on their business, operations or
financial condition relating to Year 2000 issues. Nevertheless, there can be no
assurance that the steps being taken will be sufficient and timely or that
interaction with other computer systems which are not prepared will not have a
material adverse effect on the Funds' business, operations or financial
condition.
THE EURO
On January 1, 1999, the European Monetary Union ("EMU") plans to introduce a new
single currency, the euro, which will replace the national currencies of the
participating member nations. Until 2002, the national currencies will continue
to exists, but exchange rates will be pegged to the euro. As of the date of this
Prospectus, the eleven member nations are Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain.
Therefore, the Funds most likely to be affected by this change are International
Equity Fund, International Smaller Companies Fund, Smaller Companies Fund, and
Global Income Fund.
The introduction of the euro is likely to affect all stages of the investment
process, including trading, foreign exchange, custody, and accounting. Because
this change to a single currency is new, the introduction of the euro may result
in market volatility and may affect the business or financial condition of
European issuers or of a Fund. In addition, while the conversion will eliminate
currency risk among the participating nations, currency risk between the euro
and the U.S. dollar remains a factor.
While there can be no assurances that the conversion will not adversely affect
the Funds, the Investment Adviser, Subadviser, and the Funds' service providers
are taking steps which they believe appropriately and reasonably address the
issues involved in the introduction of the euro.
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ORGANIZATION
The Govett Funds, Inc. is a Maryland corporation formed in 1990. It 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. Each Fund is a diversified series of the
Company. 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, and an Institutional Class. AS OF THE DATE OF THIS PROSPECTUS, ONLY
CLASS A SHARES OF THE ORIGINAL FUNDS ARE AVAILABLE TO THE GENERAL PUBLIC. THE
INSTITUTIONAL CLASS SHARES OF THE ORIGINAL FUNDS ARE AVAILABLE TO 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 Funds 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 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. 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.
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Yield and total return are calculated separately for Class A, Class B, and
Institutional Class shares of each Fund. 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 most recent Annual Report and Semi-Annual Report 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 Subadviser 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 Subadviser 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 Subadviser 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 was to occur, the Board of Directors would seek to take
action so that no shareholder of any Fund would suffer any adverse consequences.
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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 Adviser
Service Desk.
TRANSACTIONS BY MAIL. For NEW ACCOUNTS, send the completed Account Application
with a check to:
via U.S. Postal Service ia overnight delivery service
GOVETT FUNDS GOVETT FUNDS
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 GOVETT FUNDS
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 First Data Investor Services Group
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:
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via U.S. Postal Service via overnight delivery service
GOVETT FUNDS GOVETT FUNDS
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
Govett Europe Fund
Govett China Fund
<TABLE>
<S> <C>
TRANSFER AGENT CUSTODIAN
First Data Investor Services Group, Inc. The Chase Manhattan Bank
3200 Horizon Drive 4 MetroTech Center
P.O. Box 61503 Brooklyn, NY 11245
King of Prussia, PA 19406-0903
800-821-0803
DISTRIBUTOR Accounting and Administration Services
FPS Broker Services, Inc. Chase Global Funds Services Company
3200 Horizon Drive 73 Tremont Street,
P.O. Box 61503 11th Floor
King of Prussia, PA 19406-0903 Boston, MA 02108
800-634-6838
GOVETT FUNDS DIRECTORS
250 Montgomery Street, Suite 1200 Patrick K. Cunneen, Chairman
San Francisco, CA 94104 Elliot L. Atamian
800-731-1755 Sir Victor Garland
415-263-1865 James M. Oates
Frank R. Terzolo
INVESTMENT MANAGER
AIB Govett, Inc.
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
800-731-1755
415-263-1865
</TABLE>
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GOVETT FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DATED ________, 1998
RELATING TO THE PROSPECTUS OF GOVETT FUNDS (CLASS A RETAIL SHARES),
THE PROSPECTUS OF GOVETT FUNDS (CLASS B RETAIL SHARES),
THE PROSPECTUS OF GOVETT FUNDS (INSTITUTIONAL CLASS),
THE PROSPECTUS OF GOVETT FUNDS (LATIN AMERICA AND ASIA FUNDS),
AND THE
PROSPECTUS OF GOVETT FUNDS (EUROPE AND CHINA FUNDS)
EACH DATED ________, 1998
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 EUROPE FUND, GOVETT LATIN AMERICA FUND,
GOVETT ASIA FUND, GOVETT INTERNATIONAL SMALLER COMPANIES FUND, GOVETT CHINA
FUND, GOVETT SMALLER COMPANIES FUND, each of which seeks long-term capital
appreciation, and GOVETT GLOBAL INCOME FUND, which seeks primarily a high level
of current income, consistent with preservation of capital, and has a secondary
objective of capital appreciation (individually a "Fund", and together the
"Funds"). There can, of course, be no assurance that a Fund's investment
objective will be achieved.
CURRENTLY INTERNATIONAL EQUITY FUND, EMERGING MARKETS EQUITY FUND, INTERNATIONAL
SMALLER COMPANIES FUND, SMALLER COMPANIES FUND, AND GLOBAL INCOME FUND (THE
"OPEN FUNDS") ARE AVAILABLE TO THE GENERAL PUBLIC. LATIN AMERICA FUND AND ASIA
FUND ARE CLOSED TO NEW INVESTMENT (THE "CLOSED FUNDS"), AND THE EUROPE FUND AND
CHINA FUND (THE "NEW FUNDS") ARE CURRENTLY NOT AVAILABLE TO THE GENERAL
PUBLIC.
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 each of the Class A Retail Shares, Class B Retail Shares, and
Institutional Class shares of the Open Funds and a prospectus for the Closed
Funds and one for the New 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:
Govett Funds
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
This Statement of Additional Information is not a prospectus. It contains
information in addition to and in more detail than is set forth in the
prospectuses. It should be read in conjunction with the prospectuses.
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CONTENTS
<TABLE>
<S> <C>
ABOUT THE FUNDS.................................................. 3
INVESTMENT OBJECTIVES AND POLICIES............................... 3
OTHER POLICIES................................................... 6
DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS.. 7
DIRECTORS AND OFFICERS........................................... 17
MANAGEMENT OF THE FUNDS.......................................... 19
BROKERAGE ALLOCATION............................................. 22
THE COMPANY AND ITS SHARES....................................... 24
ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION........ 25
ADDITIONAL DISTRIBUTION AND TAXATION INFORMATION................. 29
DISTRIBUTION ARRANGEMENTS........................................ 30
PERFORMANCE...................................................... 34
FINANCIAL STATEMENTS............................................. 37
APPENDIX A: DESCRIPTION OF DEBT RATINGS.......................... 38
</TABLE>
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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 Europe Fund, Govett Latin America Fund, Govett Asia Fund,
Govett International Smaller Companies Fund (formerly Govett Asian
Smaller Companies Fund), Govett China Fund, Govett Smaller Companies
Fund, and Govett Global Income Fund
The "Original Funds"
Govett International Equity Fund, Govett Emerging Markets Equity
Fund, Govett Latin America Fund, Govett Asia Fund, Govett Smaller
Companies Fund, and Govett Global Income Fund
The "Closed Funds"
Govett Latin America Fund and Govett Asia Fund
The "New Funds"
Govett Europe Fund and Govett China Fund
"AIB Govett" or the "Investment Manager"
AIB Govett, Inc. (formerly the U.S. offices of John Govett & Co.
Limited)
"AIB Govett London" or the "Subadviser"
AIB Govett Asset Management Limited (formerly John Govett & Co.
Limited)
"FPS" or the "Distributor"
FPS Broker Services, Inc.
"AIB Group"
Allied Irish Banks plc and its subsidiaries
"Custodian"
The Chase Manhattan Bank
"Transfer Agent"
First Data Investor Services Group, 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
EUROPE FUND, GOVETT LATIN AMERICA FUND, GOVETT ASIA FUND, GOVETT INTERNATIONAL
SMALLER COMPANIES, GOVETT CHINA FUND, GOVETT SMALLER COMPANIES FUND, and GOVETT
GLOBAL INCOME FUND. Each Fund is a separate and distinct investment portfolio,
with its own separate investment objective and policies.
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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 this Statement of Additional Information are not
fundamental policies, and may be changed without approval of shareholders. These
limitations, except as otherwise indicated, apply separately to each Fund.
The following are the Funds' fundamental investment limitations. No Fund may:
1. Borrow money or mortgage or pledge any of its assets, except that a Fund
may borrow from banks, for temporary or emergency purposes, up to 33-1/3% of its
total assets and pledge up to 33-1/3% of its total assets in connection
therewith. Any borrowings that come to exceed 33-1/3% of the value of the Fund's
total assets at any time will be reduced within three days (exclusive of Sundays
and legal holidays) to the extent necessary to comply with the 33-1/3%
limitation. No Fund may purchase securities when borrowings exceed 5% of its
assets. Borrowings for purposes of this restriction include reverse repurchase
agreements.
2. Purchase any securities on "margin," or underwrite securities, except that
a Fund may obtain such short-term credit as may be necessary for the clearance
of purchases and sales of securities and except that the Funds may make margin
deposits in connection with futures contracts and options.
3. Make loans if, as a result, more than 33-1/3% of a Fund's total assets
would be lent to other parties except (i) through the purchase of a portion of
an issue of debt securities in accordance with its investment objectives,
policies, and limitations, or (ii) by engaging in repurchase agreements with
respect to portfolio securities. Portfolio securities may be loaned only if
continuously collateralized at least 100% by "marking-to-market" daily.
4. Invest 25% or more of its total assets in the securities of issuers in a
single industry (excluding securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities).
5. Purchase from, or sell any portfolio securities to, a Fund's officers or
Directors, or any firm of which any such officer or Director is a member, as
principal, except that a Fund may deal with such persons or firms as securities
dealers and pay a customary brokerage commission; or retain securities of any
issuer, if to the knowledge of a Fund, one or more of its officers, Directors or
investment managers own beneficially more than one-half of 1% of the securities
of such issuer and all such persons together own beneficially more than 5% of
such securities.
6. Purchase the securities of any issuer if, as a result thereof, more than 5%
of the value of total assets of any Fund (other than the Smaller Companies Fund
and the International Smaller Companies Fund) would be invested in the
securities of companies which, including predecessors, have a record of less
than three years' continuous operations.
7. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result thereof, any such Fund, or the Company as a whole, would own
more than 10% of the outstanding voting securities of such issuer.
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8. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit a Fund from (a) making any otherwise
permitted borrowings, mortgages or pledges, or (b) entering into option
contracts, futures contracts, forward contracts or repurchase transactions.
9. With respect to 75% of its total assets, invest in securities of any one
issuer if immediately after, and as a result of such investment, more than 5% of
the total assets of the Fund, taken at market value, would be invested in the
securities of such issuer, provided that the Latin America and Global Income
Funds are not restricted in this regard. This restriction does not apply to
investments in U.S. government or agency securities.
10. Make investments for the purpose of exercising control, or underwrite the
securities of other issuers, except insofar as a Fund may be technically deemed
an underwriter in connection with the disposition of its portfolio securities.
11. Purchase interests in oil, gas or other mineral exploration or development
programs, including mineral leases, although the Funds may invest in common
stocks of companies which invest in or sponsor such programs.
12. Purchase or sell real estate or real estate limited partnerships or
securities issued by companies that invest in real estate or interests therein.
13. Purchase commodities or commodity contracts (including futures contracts),
except that the Funds may purchase securities of issuers which invest or deal in
commodities or commodity contracts, and except that the Funds may enter into
futures and options contracts only for hedging purposes.
In order to change any restriction which is a fundamental policy, approval must
be obtained from the respective Fund's shareholders; this would require the
affirmative vote of the lesser of (i) 67% or more of the respective Fund's
outstanding voting securities that are represented at the meeting if more than
50% of the outstanding voting securities of the respective Fund are represented,
or (ii) more than 50% of the respective Fund's outstanding voting securities.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITH THE APPROVAL OF THE BOARD OF DIRECTORS AND WITHOUT SHAREHOLDER APPROVAL
(THEY TOO APPLY TO EACH FUND).
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.
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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
International Smaller Companies Fund would be invested in the securities of
companies which, including predecessors, have a record of less than three years'
continuous operations.
8. Invest 25% or more of the Global Income Fund's total assets in asset-backed
securities.
Various U.S. laws and regulations have 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 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 gain earned from amounts
borrowed which is in excess of the interest due on and other costs of such
borrowings may cause the Funds' investment income to be greater than would
otherwise be the case. Conversely, if the investment performance of any amount
borrowed fails to cover the interest due on and other costs of such borrowings,
the Funds' investment income will be less than would otherwise be the case.
OTHER POLICIES
AIB Govett and the Subadviser generally evaluate foreign currencies on the basis
of fundamental economic criteria (e.g., relative inflation and interest rate
levels and trends, growth rate forecasts, balance of payments status and
economic policies) as well as technical and political data. If the currency in
which a security is denominated or quoted in appreciates against the U.S.
dollar, or (in the case of debt securities) if interest rates decline, the U.S.
dollar value of the security will generally increase. Conversely, if other
factors remain constant, a rise in interest rates or a decline in the exchange
rate of the currency will adversely affect the value of the security expressed
in dollars.
The Funds will 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
Subadviser to be fully exchangeable into U.S. dollars without significant legal
restriction. The Funds may purchase securities issued by the government of, or
a corporation or financial institution located in, one nation but denominated in
the currency of another nation (or in a multinational currency unit).
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 or downloaded for
free from the SEC's website (www.sec.gov).
DESCRIPTION OF SECURITIES, INVESTMENT POLICIES AND RISK FACTORS
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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.
SPECIAL EMERGING MARKETS 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. In
addition to considerations outlined in the Prospectus, this section briefly
outlines some of the risk factors that pertain particularly to some of the major
emerging and developing market regions.
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.
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LOWER QUALITY DEBT SECURITIES. The market values of lower quality debt
securities tend to reflect individual developments of the issuer to a greater
extent than do higher quality debt securities, which react primarily to
fluctuations in the general level of interest rates. In addition, lower quality
debt securities tend to be more sensitive to economic conditions and generally
have more volatile prices than higher quality debt securities. Issuers of lower
quality debt securities are often highly leveraged, and issuers of such
securities may not have available to them more traditional methods of financing.
Please see Appendix A.
The market for lower rated debt securities may be thinner and less active than
that for higher rated securities, which can adversely affect the prices at which
these securities can be sold. If market quotations are not available, these
securities are valued in accordance with procedures established by the Board of
Directors, including the use of outside pricing services. Judgment plays a
greater role in valuing high yield debt securities than is the case for
securities for which more external sources for quotations and last sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services to value securities, and the
Funds' ability to dispose of these lower rated debt securities.
Factors having an adverse effect on the market value of lower rated debt
securities of their equivalents purchased by a Fund will adversely affect the
net asset value of those Funds. In addition to the foregoing, such factors may
include: (i) potential adverse publicity; (ii) heightened sensitivity to general
economic or political conditions; and (iii) the likely adverse impact of a major
economic recession. A Fund may incur additional expenses to the extent they are
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings, and the Funds may have limited legal recourse in the
event of a default. Debt securities issued by an emerging market government can
differ from debt obligations issued by private entities in that remedies from
defaults generally must be pursued in the courts of the defaulting government,
and legal recourse can therefore be significantly diminished. Political
conditions, in terms of a government's willingness to meet the terms of its debt
obligations, also are of considerable significance. There can be no assurance
that the holders of commercial bank debt may not contest payments to the holders
of debt securities issued by governments in emerging or developing markets in
the event of default by the governments under commercial bank loan agreements.
No Fund is permitted to invest more than 35% of its net assets in lower quality
debt securities.
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
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is "covered" if the Funds own or have an absolute right (such as by conversion)
to the underlying currency or security covered by the call. A call option is
also covered if the Funds hold a call on the same currency or security and in
the same principal amount as the call written and the exercise price of the call
held is (a) equal to or less than the exercise price of the call written, or (b)
greater than the exercise price of the call written if the difference is
maintained by the Funds in cash, U.S. government securities or other liquid high
grade debt obligations in a segregated account with its Custodian. Put options
written by the Funds give the holder the right to sell the underlying currency
or security to the Funds at a stated exercise price. A put option written by the
Funds is "covered" if the Fund maintains cash or liquid high grade debt
obligations with a value equal to the exercise price in a segregated account
with its Custodian, or else holds a put on the same currency or security and in
the same principal amount as the put written, and the exercise price of the put
held is equal to or greater than the exercise price of the put written. Premiums
for currency options held by any Fund may not exceed 5% of its total assets.
The writer of an option who wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing authority or otherwise
economically nullified. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option. Likewise, a
holder of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. The Funds may enter into closing transactions
to terminate an options position. The Funds will realize a profit from a closing
transaction if the price of the transaction is less than the premium received
from writing the option or is more than the premium paid to purchase the option;
the Funds will realize a loss from closing a transaction if the price of the
transaction is more than the premium received from writing the option or is less
than the premium paid to purchase the option.
The Funds may write options in connection with buy-and-write transactions, that
is, the Funds may purchase a currency or security and then write a call option
against that currency or security. The exercise price of the call will depend
upon the expected price movement of the underlying currency or security. The
exercise price of a call option may be below ("in-the-money") or equal to ("at-
the-money") or above ("out-of-the-money") the current price of the underlying
currency or security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected by
AIB Govett that the price of the underlying currency or security will remain
flat or decline moderately during the option period. Buy-and-write transactions
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.
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Although the purchaser of option cannot lose more than the amount of the premium
plus related transaction costs, this entire amount could be lost. Moreover, the
Fund as an option writer could lose amounts substantially in excess of its
initial investment, due to the margin and collateral requirements typically
associated with such option writing. The ability of any Fund to engage in
options transactions is subject to the following limitations: (a) not more than
5% of the net assets of the Fund may be invested in options purchased by the
Fund; (b) the obligations of the Fund under put options written by the Fund may
not exceed 5% of the net assets of the Fund; and (c) the obligations of the Fund
under call options written by the Fund may not exceed 5% of the net assets of
the Fund.
The staff of the SEC has taken the position that purchased over-the-counter
("OTC") options and the assets used as "cover" for written OTC options are
illiquid securities. However, the Funds may treat the securities they use as
cover for written OTC options as liquid provided the Funds follow a specified
procedure. The Funds may sell OTC options only to qualified dealers who agree
that the Funds may repurchase any OTC options written for a maximum price to be
calculated by a predetermined formula. In such cases, the OTC option would be
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Since investments in companies whose
principal business activities are located outside of the U.S. will frequently
involve currencies of foreign countries, and since assets of a Fund may
temporarily be held in bank deposits in foreign currencies during the completion
of investment programs, the value of the Funds' assets as measured in U.S.
dollars generally will be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Although the
Funds value their assets daily in terms of U.S. dollars, they do not intend to
convert their holdings of foreign currencies into U.S. dollars on a daily basis.
The Funds may conduct their foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into contracts to purchase or sell foreign currencies
at a future date (i.e., a forward foreign currency contract or forward
contract). Foreign currency futures contracts and options on foreign currencies
may also be used. The Funds will convert currency on a spot basis from time to
time, and shareholders should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the spread) between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Funds at one rate, while offering a lesser
rate of exchange should the Funds desire to resell that currency to the dealer.
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
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protect against price changes caused by other factors such as a change in an
issuer's prospects--it only hedges against losses caused by currency movements
relative to the U.S. dollar.
At the maturity of a Forward Contract, the Funds may either sell the portfolio
security and make delivery of the foreign currency, or they may retain the
security and terminate their contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obliging it to purchase, on the same maturity date, the same amount of the
foreign currency.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of the Forward Contract. Accordingly, it may be
necessary for the Funds to purchase additional foreign currency on the spot
market (and bear the expense of such purchases) if the market value of the
security is less than the amount of foreign currency the Funds are obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Funds are obliged to
deliver.
If the Funds retain the portfolio security and engage in an offsetting
transaction, they will incur a gain or a loss to the extent that there has been
a movement in Forward Contract prices. If the Funds engage in an offsetting
transaction, they may subsequently enter into a new Forward Contract to sell the
foreign currency. Should forward prices decline during the period between the
date the Funds enter into a Forward Contract for the sale of the foreign
currency and the date they enter into an offsetting contract for the purchase of
the foreign currency, the Funds will realize a gain to the extent the price of
the currency they have agreed to sell exceeds the price of the currency they
have agreed to purchase. Such gain may be offset by a corresponding change in
the value of the underlying securities if they are retained by the Funds and if
an offset is effected. Should forward prices increase, the Funds will suffer a
loss to the extent that the price of the currency they have agreed to purchase
exceeds the price of the currency they have agreed to sell. Although there are
no limits on the number of Forward Contracts which a Fund may enter into, no
Fund may position hedge with respect to a particular currency for an amount
greater than the aggregate market value (determined at the time of making any
sale of foreign currency) of the securities held in its portfolio, denominated
or quoted in, or currently convertible into, such currency.
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.
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An interest rate Futures Contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (debt security or currency) for a specified price at a designated
date, time and place. A stock index Futures Contract provides for the delivery,
at a designated date, time and place, of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck; no physical delivery of the stocks comprising the index is
made. Most stock index futures and options are based on broad-based stock
indexes reflecting the prices of a broad variety of common stocks, such as the
Nikkei Keizai Shimbun (the Nikkei Dow). Some index options are based on narrow
industry averages or market segments. A foreign currency Futures Contract
provides for the purchase or sale for future delivery of a currency. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment for
financial instruments and currencies, or the delivery of cash, they are usually
closed out before the delivery date. Closing out an open Futures Contract sale
or purchase is effected by entering into an offsetting Futures Contract purchase
or sale, respectively, for the same aggregate amount of the identical financial
instrument, currency or stock index and the same delivery date. If the
offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance, however,
that a Fund will be able to enter into an offsetting transaction with respect to
a particular Futures Contract at a particular time. If a Fund is not able to
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations arising
from the sale of one Futures Contract of September Treasury Bills on an exchange
may be fulfilled at any time before delivery under the Futures Contract is
required (i.e., on a specified date in September, the "delivery month") by the
purchase of another Futures Contract of September Treasury Bills on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Fund.
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
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margin deposit exceeds the required margin, the securities dealer will pay the
excess to the Fund. In computing daily net asset values, a Fund will mark-to-
market the current value of its open Futures Contracts. The Funds expect to earn
interest income on their margin deposits.
The prices of Futures Contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates, which in turn are
affected by fiscal and monetary policies and national and international
political and economic events. At best, the correlation between changes in
prices of Futures Contracts and of the securities or currencies being hedged can
be only approximate. The degree of imperfection of correlation depends upon
circumstances such as: variations in speculative market demand for Futures and
for debt securities or currencies, including technical influences in Futures
trading; and differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading. A
decision of whether, when, and how to hedge involves skill and judgment and even
a well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, or
gain, to the investor. For example, if at the time of purchase, 10% of the value
of the Futures Contract is deposited as margin, a subsequent 10% decrease in the
value of the Futures Contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the contract were closed out. Thus, a purchase or
sale of a Futures Contract may result in losses in excess of the amount invested
in the Futures Contract. However, the Fund would presumably have sustained
comparable losses if, instead of the Futures Contract, it had invested in the
underlying financial instrument and sold it after the decline.
Furthermore, in the case of a Futures Contract purchase, in order to be certain
that the Fund has sufficient assets to satisfy its obligations under a Futures
Contract, the Fund segregates and commits to back the Futures Contract with an
amount of cash, U.S. government securities or other liquid, high-grade debt
securities equal in value to the current value of the underlying instrument less
the margin deposit.
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
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options thereon and movements in the prices of the securities or currencies
being hedged; (3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences.
WARRANTS OR RIGHTS. Warrants or rights may be acquired by a Fund in connection
with other securities or separately, and provide the Fund with the right to
purchase at a later date other securities of the issuer. As a condition of its
continuing registration in a state, each Fund has undertaken that its
investments in warrants or rights, valued at the lower of cost or market, will
not exceed 5% of the value of its net assets and not more than 2% of such assets
will be invested in warrants and rights which are not listed on the American or
New York Stock Exchange. Warrants or rights acquired by a Fund in units or
attached to securities will be deemed to be without value for purpose of this
restriction. These limits are not fundamental policies of the Funds and may be
changed by the Company's Board of Directors without shareholder approval.
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
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the event of the seller's default, the Funds could suffer a loss if the fair
market value of the security "purchased" is less than the amount paid for the
security. The Investment Manager will consider the creditworthiness of sellers
before causing a Fund to enter into repurchase agreements with them, and will
review such creditworthiness periodically. In the event of the bankruptcy of the
other party to a repurchase agreement, a Fund could experience delays in
recovering either the securities or the cash lent. To the extent that, in the
meantime, the value of the securities purchased had decreased, the Fund could
experience a loss. In all cases, the Investment Manager must find the
creditworthiness of the other party to the transaction satisfactory.
The purpose of engaging in repurchase agreements is to earn a return on
uninvested cash. The Funds may engage in a repurchase agreement with respect to
any security in which they are authorized to invest. Whether a repurchase
agreement is the purchase and sale of a security or a collateralized loan has
not been definitively established. This might become an issue in the event of
the bankruptcy of the other party to the transaction. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the underlying
securities, as well as delays and costs to the Funds in connection with
bankruptcy proceedings), it is currently the policy of the Funds to enter into
repurchase agreements only with those member banks of the Federal Reserve System
and primary dealers in U.S. government securities whose creditworthiness has
been reviewed and found satisfactory by the Investment Manager, pursuant to
policies established by the Company's Board of Directors.
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.
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The Funds may invest in all types of U.S. government agency securities currently
outstanding or to be issued in the future.
Bank Obligations. These obligations include, but are not limited to, negotiable
- ----------------
certificates of deposit, bankers' acceptances and fixed time deposits. The Funds
will limit their investment in U.S. bank obligations to obligations of U.S.
banks (including foreign branches) which have more than $1 billion in total
assets at the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits are insured
by the Federal Deposit Insurance Corporation. The Funds will limit their
investments in foreign bank obligations to U.S. dollar denominated obligations
of foreign banks which at the time of investment (i) have more than $10 billion,
or the equivalent in other currencies, in total assets; (ii) in terms of assets
are among the 75 largest foreign banks in the world; (iii) have branches or
agencies in the U.S.; and (iv) in the opinion of the Investment Manager are of
an investment quality comparable with obligations of U.S. banks which may be
purchased by the Funds.
Fixed time deposits are obligations of U.S. banks, of foreign branches of U.S.
banks, or of foreign banks which are payable at a stated maturity date and bear
a fixed rate of interest. Generally, fixed time deposits may be withdrawn on
demand by the investor, but they may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have a market, there are no
contractual restrictions on the Funds' right to transfer a beneficial interest
in the deposit to a third party. It is the policy of each Fund not to invest in
(i) fixed time deposits subject to withdrawal penalties, other than overnight
deposits; (ii) repurchase agreements with more than seven days to maturity; or
(iii) other illiquid securities, if in the aggregate more than 5% of the value
of its net assets would be so invested.
Obligations of foreign banks and foreign branches of U.S. banks involve somewhat
different investment risks from those affecting obligations of U.S. banks,
including the possibilities that liquidity could be impaired because of future
political and economic developments, that the obligations may be less marketable
than comparable obligations of U.S. banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions (such as foreign exchange controls) may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks, or the
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.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent interests in
pools of mortgage loans and provide the purchasers of such securities a flow-
through of interest and principal payments as such payments are received with
respect to mortgages in the pool. An issuer may offer senior or subordinated
securities backed by the same pool of mortgages. Mortgage-related securities
may be issued by private entities, agencies of the U.S. government or by
corporations established under the authority of legislation.
16
<PAGE>
Mortgage-backed securities have the same risks of most debt securities,
including the risk of default as to some or all of the principal and interest.
In addition, mortgage-backed securities also have the risks of prepayment or
delay, that is, if some or all of the underlying mortgages are paid before or
after the anticipated date of payment (which may be before or after the stated
maturity date), the holder of the mortgage-backed securities may have to invest
the paid principal at times when interest rates are not favorable.
DIRECTORS AND OFFICERS
The Company's Board of Directors has the responsibility for the overall
management of the Funds, including general supervision and review of their
investment activities. The Board of Directors, in turn, appoints the officers
who are responsible for administering the day-to-day operations of the Funds.
Listed below are the directors and officers of the Funds, and their affiliations
and principal occupations for the past five years. Directors who may be
"interested persons" of the Funds, as defined in the 1940 Act, are designated by
an asterisk(*).
DIRECTORS
- ---------
ELLIOTT L. ATAMIAN (24 Country Drive, Weston, MA 02193) is a private investor,
and has served on the Board of Directors of Rogers Foam Corp. since 1989 and
Brookline Savings Bank since 1978. He was a Professor of Finance at
Northeastern University from 1977 to 1991 and served on the Board of Directors
of certain mutual funds managed by John Hancock Advisors, Inc. from 1972 to
1991. He is 79.
PATRICK CUNNEEN * (c/o AIB Asset Management Holdings Limited, AIB International
Center, Dublin, Ireland 1) graduated from University College, Dublin with a
Bachelor of Commerce degree in 1967. He joined AIB Investment Managers Limited
("AIBIM") as Managing Director in 1991 and currently holds the office of Vice
Chairman of AIB Asset Management Holdings Limited. AIBIM is a subsidiary of
Allied Irish Banks plc, the majority owner of AIB Govett. Prior to joining
AIBIM, Mr. Cunneen was Investment Director of New Ireland Assurance Company
Limited, where he had been since 1972. He has been a member of the Society of
Investment Analyst since 1974, and is a former Chairman of the Irish Association
of Investment Managers. He is 52.
SIR VICTOR GARLAND * (15 Wilton Place, Knightsbridge, London, SW1X 8RL) is
President of the Company. He has been a private investor since 1984 and
currently serves as a director of a number of U.K. public companies. He is the
former Australian Ambassador to the U.K. and a former director of Prudential
Assurance Corporation in the U.K. He is 63.
JAMES M. OATES (c/o The Wydown Group, 60 State Street, Suite 950, Boston, MA
02109) is currently Managing Director of The Wydown Group and Chairman of IBEX
Capital Markets, LLC. His present Board affiliations include: Blue Cross and
Blue Shield of New Hampshire, Director; Phoenix Mutual Funds, Director; Phoenix
Duff & Phelps, Director, Chairman of the Compensation Committee; The Govett
Funds, Director, Member of the Audit Committee; Investors Bank & Trust,
Director, Member of Executive Committee, Chairman of the Compensation Committee;
Investor Financial Services Corp., Director; Member of the Executive Committee,
Chairman of the Compensation Committee, and Member of the Nominating Committee;
Plymouth Rubber Company, Director; Stifel Financial, Director, Member of the
Executive Committee and Member of Compensation, Audit and Finance Committees;
Emerson Investment Management, Inc., Director and Member of the Executive
Committee; Massachusetts Housing Partnership, Vice Chairman and Director;
Massachusetts General Hospital, Member of the Corporation; Middlesex School
(Concord, MA), President of the Board of Trustees; Chief Executive Organization,
Member. He is 51.
FRANK R. TERZOLO (c/o C.R.T. Strategies, 65337 East Brassie Drive, Tucson, AZ,
85739) is presently President and Chief Executive Office of C.R.T. Strategies, a
company that designs and implements charitable remainder trusts. From 1989 to
1996 he was President and Chief Executive Officer of Ameritrust Network, Inc.,
which also designed and implemented charitable remainder trusts. From 1988 to
1989, he was President and Chief Executive Officer of American Equities, and
from 1984 to 1988 he was President and Chief Operating Officer for Equitec
Securities Company, a financial services company. He is 64.
17
<PAGE>
OFFICERS
- --------
SIR VICTOR GARLAND (15 Wilton Place, Knightsbridge, London, SW1X 8RL) is
President of the Company. He has been a private investor since 1984 and
currently serves as a director of a number of U.K. public companies. He is the
former Australian Ambassador to the U.K. and a former director of Prudential
Assurance Corporation in the U.K. He is 63.
COLIN KREIDEWOLF, (c/o AIB Govett, Inc., 250 Montgomery Street, Suite 1200, San
Francisco, CA 94104) Treasurer of the Company, joined AIB Govett London in 1981.
He became a member of The Institute of Chartered Secretaries and Administrators
in England and Wales in 1986. He is Senior Vice President of AIB Govett
responsible for financial and operational activities of the Company. He is 38.
ALICE L. SCHULMAN, (c/o AIB Govett, Inc., 250 Montgomery Street, Suite 1200, San
Francisco, CA 94104) is Secretary of the Company, and she is Senior Vice
President and Corporate Secretary of AIB Govett. From 1993 until she joined
Berkeley Capital Management in 1995, 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 (now part of American Century
Investments). Prior to 1989, she served in various compliance management and
administration functions at McKesson Corporation and Kaiser Aluminum
Corporation. She is 48.
ANDREW BARNETT, (c/o AIB Govett Asset Management Limited, Shackleton House, 4
Battle Bridge Lane, London, England SE1 2HR) Assistant Treasurer of the
Company, joined AIB Govett London in 1987. He graduated from Manchester
University in 1970 with a BA (Hons) in History, Economics, and Politics and
become a member of the Institute of Chartered Accountants in England and Wales
in 1974. He was appointed Operations Director in 1991. He is 50.
JOHN WADE, (c/o AIB Govett Asset Management Limited, Shackleton House, 4 Battle
Bridge Lane, London, England SE1 2HR) Assistant Treasurer of the Company,
joined AIB Govett London in 1989. In 1998, he was appointed Manager of US
Administration. Prior to 1989, he was a fund accountant with Aitken Hume Bank in
their unit trust operations for ten years. He is 45.
As indicated above, a director and officer may hold other positions with the
Investment Manager and its affiliates. The President of the Company is a
resident of the United Kingdom and has appointed the Company, located at 250
Montgomery Street, Suite 1200, San Francisco, CA, 94104, as his agent for
notice.
Directors not affiliated with the Investment Manager are paid director fees of
$20,000 per year, plus a fee of $1,000 per Board meeting, with Mr. Atamian the
independent Board member who serves on the Pricing Committee to receive a
retainer of $1,000. Each member of the Committee on Administration and the Audit
Committee, which are comprised of all directors who are not employees of the
Investment Manager or its affiliates, is compensated in the amount of $1,000 for
each meeting, except when its meetings are held in conjunction with regular or
special Board meetings or for short telephonic meetings. Directors not
affiliated with the Investment Manager are reimbursed for expenses incurred in
connection with attending Board of directors meetings.
These fees are paid equally by all Fund. No officer or director receives any
other compensation directly from the Funds. As of September 30, 1998, 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.
18
<PAGE>
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 1997. 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 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Aggregate Compensation By Fund:
---------------------------------------------------------------------------------------------
Govett Govett Govett Govett Govett
International Emerging Smaller Govett Latin Global Total
Name, Age, Position Equity Markets Equity Companies Asia America Income Compensation
Fund Fund Fund Fund Fund Fund From Funds*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Elliott L. Atamian, $4,666.66 $4,666.68 $4,666.66 $4,666.68 $4,666.66 $4,666.66 $28,000.00
79, Director
- -----------------------------------------------------------------------------------------------------------------------
Patrick K. Cunneen N/A N/A N/A N/A N/A N/A N/A
52, Chairman and Director
- -----------------------------------------------------------------------------------------------------------------------
Sir Victor Garland $4,500.00 $4,500.00 $4,500.00 $4,500.00 $4,500.00 $4,500.00 $27,000.00
63, President & Director
- -----------------------------------------------------------------------------------------------------------------------
James M. Oates $4,500.00 $4,500.00 $4,500.00 $4,500.00 $4,500.00 $4,500.00 $27,000.00
51, Director
- -----------------------------------------------------------------------------------------------------------------------
Frank R. Terzolo $4,500.00 $4,500.00 $4,500.00 $4,500.00 $4,500.00 $4,500.00 $27,000.00
64, Director
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* based on fiscal year ending December 31, 1997
MANAGEMENT OF THE FUNDS
Investment Manager
------------------
AIB Govett is the investment manager of the Funds. On November 14, 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,
effective January 1, 1998, to Original Funds and the three new Funds: China
Fund, International 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, International 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
19
<PAGE>
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, International 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 November 14, 1997.
Subadviser
----------
On November 14, 1997, the Board of Directors also approved an investment
subadvisory agreement between AIB Govett and AIB Govett London pursuant to
which AIB Govett London was appointed to serve as an investment subadviser
with respect to the Original Funds and China Fund, International Smaller
Companies Fund, and 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. The Subadviser and the Investment
Manager are affiliates of each other and members of the AIB Group.
Transfer Agent
--------------
First Data Investor Services Group, Inc. (formerly FPS Services, Inc., 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 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 a subsidiary of First
Data Corporation.
Fund Administrator and Accountant
---------------------------------
Chase Global Funds Services Company, Inc., 73 Tremont Street, Boston, MA
02108 (the "Fund Administrator and Accountant") provides the Company with
certain administration and accounting services.
Custodian
---------
The Chase Manhattan Bank, 4 MetroTech Center, Brooklyn, NY 11245 (the
"Custodian") is the Funds' global custodian.
The Custodian and the Fund Administrator and Accountant do not participate
in decisions relating to the purchase and sale of portfolio securities.
These entities provide services in connection with the sale, exchange,
substitution, transfer and other dealings with the Funds' investments,
receive and disburse all funds and perform various other duties upon
receipt of proper instructions from the Funds. The Custodian also acts as
Custodian for certain cash and securities of the Funds maintained outside
of the U.S. in certain countries through certain foreign subcustodians
pursuant to the requirements of a Securities and Exchange Commission rule.
The Custodian charges custody fees which are believed to be competitive
within the industry.
Independent Accountant
----------------------
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA, 94105,
acts as the Funds' independent accountants.
20
<PAGE>
Fund Counsel
- ------------
Goodwin, Procter & Hoar LLP, One Exchange Place, Boston, MA 02109-2881, serves
as Fund counsel.
Principal Shareholders and Control Persons
- ------------------------------------------
The following persons are known by the Company to own of record or beneficially
5% or more of the Class A securities of the indicated Funds as of September 30,
1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Name and Address Fund/Class Percentage of Outstanding Shares
of Shareholder as of September 30, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. Latin America Fund/A 21.67%
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 6.65%
9257 Wedgewood Drive
Woodbury, MN 55125-9373
Charles Schwab & Co., Inc. Asia Fund/A 5.73%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Michael E. Pichichero International Equity/A 6.60%
332 Landing Road South
Rochester, NY 14610-3535
Light & Co International Equity/I 87.72%
c/o First National Bank of Maryland
Security Processing 109-911
P.O. Box 1596
Baltimore, MD 21203-1596
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
St. Elizabeth Hospital Global Income Fund/A 15.66%
1501 Hartford
P. O. Box 7501
Lafayette, IN 47904-2126
Subramonian Shankar Global Income Fund/A 5.46%
5990 Neely Ct
Norcross, GA 30092-1418
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
Expenses: Investment Management and Subadvisory Arrangements
- ------------------------------------------------------------
In addition to the investment management fee payable to the Investment Manager
(described below) and the compensation payable to the Transfer Agent, the Funds
pay all of their own expenses, including, without limitation, the costs and
expenses attributable to the preparation, typesetting, printing and mailing of
their proxy materials to existing shareholders, their legal expenses, and the
fees of their custodians, auditor and non-interested directors. The Funds'
Investment Management Contract with the Investment Manager also provides that
the Funds will pay for the typesetting, printing and mailing of prospectuses,
Statements of Additional Information and reports to existing shareholders. Other
expenses paid by the Funds include interest, taxes, brokerage commissions, and
other portfolio transactions fees and charges, the Funds' proportionate share of
insurance premiums and dues, and the costs of registering shares under federal
and state securities laws. The Funds are also responsible for such nonrecurring
expenses as may arise, including costs of litigation to which the Funds are
party and any obligations they may have to indemnify their officers and
directors with respect to such litigation.
Pursuant to the Investment Management Contract, each Fund is obligated to pay
the Investment Manager a monthly fee computed at the close of business on the
last business day of each month equal to a monthly rate of approximately .08%,
or 1% per year (.06% monthly or .75% per year for the Global Income Fund), of
the average daily net assets of the Fund.
During the fiscal years ending December 31, 1995, 1996, and 1997 the Investment
Manager was entitled to receive management fees as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
FUND 1995 1996 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
International Equity $ 302,657 $ 238,566 $ 216,129
- ----------------------------------------------------------------------------------
Emerging Markets Equity 745,285 652,671 532,713
- ----------------------------------------------------------------------------------
Smaller Companies 3,173,782 3,144,746 1,730,046
- ----------------------------------------------------------------------------------
Asia 118,565 62,037 26,499
- ----------------------------------------------------------------------------------
Latin America 47,489 56,499 53,584
- ----------------------------------------------------------------------------------
Global Income 338,596 180,905 101,316
- ----------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Of these fees, the Investment Manager waived the following amounts:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
FUND 1995 1996 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
International Equity $ 76,145 $ 174,141 $ 110,750
- ---------------------------------------------------------------------------------
Emerging Markets Equity 207,496 137,788 188,156
- ---------------------------------------------------------------------------------
Smaller Companies 559,632 1,022,796 1,050,572
- ---------------------------------------------------------------------------------
Asia 133,040 316,924 218,074
- ---------------------------------------------------------------------------------
Latin America 150,934 262,753 159,809
- ---------------------------------------------------------------------------------
Global Income 80,573 218,527 129,931
- ---------------------------------------------------------------------------------
</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 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
Subadviser provides day-to-day investment advisory services to the Funds. The
Subadviser furnishes an investment program and make investment decisions for the
Funds, subject to the supervision of the Investment Manager and the Company's
Board of Directors. Under the 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 .45% of average
daily net assets for the International Equity Fund, Emerging Markets Equity
Fund, Europe Fund, Latin America Fund, Asia Fund, International Smaller
Companies Fund, China Fund, and Smaller Companies Fund and equal to .3375% of
average daily net assets for the Global Income 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 Subadviser for the International Equity Fund, Emerging Markets Equity Fund,
Europe Fund, Latin America Fund, Asia Fund, International Smaller Companies
Fund, China Fund, Smaller Companies Fund, and Global Income Fund.
The Investment Manager and the Subadviser 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 Subadviser 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.
24
<PAGE>
In valuing research services, the Investment Manager and the Subadviser make a
judgment as to the usefulness of research and other information provided by a
securities broker-dealer to the Investment Manager and the Subadviser 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 Subadviser 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
Subadviser a higher commission than that charged by other securities broker-
dealers if the Investment Manager and the Subadviser 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 Subadviser to the Funds
and to any other accounts over which the Investment Manager and the Subadviser
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 Subadviser on an ongoing basis. The general level of
brokerage charges and other aspects of the Funds' portfolio transactions are
reviewed periodically by the Company's Board of Directors.
The Investment Manager and the Subadviser are the principal source of
information and advice to the Funds, and are responsible for making and
initiating the execution of investment decisions for the Funds. However, the
Investment Manager and the Subadviser believe that it is important for the
Investment Manager and the Subadviser, 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 Subadviser in providing
management services to a Fund is not readily determinable. In addition, other
clients of the Investment Manager and the Subadviser, 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 Subadviser in performing services to others,
including one or more of the other Funds.
The Investment Manager and the Subadviser 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 Subadviser, 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 Subadviser's client accounts or other funds
managed or advised by the Investment Manager or the Subadviser, 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 Subadviser 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
Subadviser's other investment management clients, including the other Funds.
25
<PAGE>
Total brokerage commissions paid by the Funds during 1995, 1996, and 1997 were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
FUND 1995 1996 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
International Equity $ 203,906 $ 161,651 $113,012
- ------------------------------------------------------------------------------
Emerging Markets Equity 763,407 939,277 593,575
- ------------------------------------------------------------------------------
Smaller Companies 1,098,810 1,166,106 218,450
- ------------------------------------------------------------------------------
Asia 202,580 214,836 63,025
- ------------------------------------------------------------------------------
Latin America 53,126 77,244 37,991
- ------------------------------------------------------------------------------
Global Income n/a n/a 5,853
- ------------------------------------------------------------------------------
</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 Europe Fund, Govett Latin America Fund,
Govett Asia Fund, Govett International Smaller Companies Fund, Govett China
Fund, Govett Smaller Companies Fund, and Govett Global Income Fund.
Each Fund has designated three classes of shares. Class A Retail Shares are
sold without any sales charge. Prior to September 1, 1998, Class A Retail Shares
were sold with an initial sales charge. Class B Retail Shares are sold without
an initial sales charge but are subject to a contingent deferred sales charge
("CDSC") upon certain redemptions. Institutional Class Shares are sold without
any sales charge. Class A and Institutional Class shares are subject to a
short-term redemption and exchange fee. 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 non-assessable. Shareholders holding 10% or more of the
outstanding shares of the Funds may, as set forth in the Articles of
Incorporation, call meetings for any purpose, including the purpose of voting on
removal of one or more of the Company's Directors. Separate votes are taken by a
Fund when a matter affects only that Fund. The Funds normally will not hold
meetings of shareholders except as required under the 1940 Act and Maryland law.
The Funds would be required to hold a shareholders' meeting in the event that,
at any time, less than a majority of the directors holding office have been
elected by shareholders. Directors will continue to hold office until their
successors are elected and have qualified. Shares of the Funds do not have
cumulative voting rights, which means that the holders of a majority of the
shares voting for the election of Directors can elect all of the Directors. A
Fund may be terminated upon the sale of its assets to another diversified, open-
end management investment company, or upon liquidation and distribution of its
assets, if approved by the requisite vote of the holders of the outstanding
shares of that Fund. If not so terminated, the portfolios are expected to
continue indefinitely.
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.
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MULTIPLE CLASSES OF SHARES
Each Fund has designated three classes of shares. Class A Retail Shares are sold
without any sales charge. Prior to September 1, 1998, Class A Retail Shares were
sold with an initial sales charge. Institutional Class shares are sold without
any sales charge but are subject to certain eligibility requirements. Class B
Retail Shares have not been offered to the public. Each class 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. In addition,
Institutional Class has no voting rights with respect to the Rule 12b-1
distribution plan pursuant to which the distribution fee for Class A Retail
Shares is paid. When purchasing shares of a Fund, investors must specify whether
the purchase is for Class A or Institutional Class shares. AN UNSPECIFIED
PURCHASE ORDER WILL BE CONSIDERED AN ORDER FOR CLASS A RETAIL SHARES.
SHORT-TERM REDEMPTION AND EXCHANGE FEE. To discourage short-term trading,
effective September 1, 1998, purchases of Class A and Institutional Class shares
are subject to a 1% redemption fee on shares redeemed within six months of
acquisition of the shares. As of December __, 1998, exchanges of Class A and
Institutional Class shares are subject to a 1% fee on shares exchanged within
six months of acquisition. For more details about the redemption and exchange
fee, see the Prospectus
WAIVER OF CDSCS AND SHORT-TERM REDEMPTION FEES. CDSCs and Short-term Redemption
Fees may be waived under the following circumstances:
REDEMPTION UPON DISABILITY OR DEATH. The Funds will waive any otherwise
applicable CDSC or redemption fee on redemptions following the death or
disability of a shareholder. An individual will be considered disabled for
this purpose if he or she meets the definition thereof in Section 72(m)(7)
of the Code, which in pertinent part defines a person as disabled if such
person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite
duration." While the Funds do not specifically adopt the balance of Code's
definition which pertains to furnishing the Secretary of Treasury with
proof as he or she may require, the Distributor will require satisfactory
proof of death or disability before it determines to waive the CDSC or
redemption fee.
In cases of disability or death, the CDSC or redemption fee may be waived
when the descendent or disabled person is either an individual shareholder
or owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the
redemption is made within one year of the death or initial determination of
disability. This waiver of the CDSC or redemption fee applies to a total
or partial redemption.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS.
The Funds will waive the CDSC or redemption fee when a total or partial
redemption is made in connection with certain distributions from the
following types of retirement plans: deferred compensation plans under
Section 451 of the Code; custodial accounts maintained pursuant to Section
403(b)(7) of the Code, and pension or profit sharing plans qualified under
Section 401(a) of the Code. The charge may be waived upon the tax-free
rollover or transfer of assets to another retirement plan invested in one
or more of the Funds; in such event, as described below, the Funds will
"tack" the period for which the original shares were held on to the holding
period of the shares acquired in the transfer or rollover for purposes of
determining what, if any, CDSC or redemption fee is applicable in the event
that such acquired shares are redeemed following the transfer or rollover.
The CDSC or redemption fee also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Code, the return of excess deferral amounts
pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or
disability of the employee (see Code Section
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72(m)(7) and 72(t)(2)(A)(ii). In addition, the CDSC or redemption fee may
be waived on any minimum distribution required to be distributed in
accordance with Code Section 401(a)(9).
The Funds do not currently intend to waive the CDSC or redemption fee for
any distributions from IRAs or other retirement plans not specifically
described above.
REINVESTMENT OF REDEMPTION PROCEEDS IN SHARES OF THE SAME FUND WITHIN 120
DAYS AFTER REDEMPTION (CLASS B ONLY) . A Class B shareholder who has
redeemed Class B Retail Shares of a Fund may reinstate any portion or all
of the net proceeds of such redemption in Class A Retail Shares of any
other Fund. Class B redemption proceeds cannot be reinstated in Class B
Retail Shares. Any such reinstatements of Class B Retail Shares will be
made at the net asset value next determined after the reinstatement request
is received, which must be within 120 days after the date of the initial
redemption.
REDEMPTION BY INVESTMENT MANAGER. The Funds may waive CDSCs or redemption
fee when a total or partial redemption is made by the Investment Manager
with respect to its investments in a Fund.
INVOLUNTARY REDEMPTION OF CLASS A AND CLASS B RETAIL SHARES IN ACCOUNTS THAT DO
NOT HAVE THE REQUIRED MINIMUM BALANCE. The Funds reserve the right to redeem
shareholder accounts with balances of less than a specified dollar amount as set
forth in the relevant prospectus. Prior to such redemptions, shareholders will
be notified in writing and allowed a specified period of time to purchase
additional shares to bring the account up to the required minimum balance.
Redemptions at the discretion of the Funds are not subject to the short-term
redemption fee
REDEMPTIONS IN KIND
The Funds have committed themselves to pay in cash all requests for redemption
of Fund shares by any shareholder of record, limited in amount, however, during
any 90-day period to the lesser of $250,000 or 1% of the value of each Fund's
net assets at the beginning of such period. This commitment is irrevocable
without the prior approval of the SEC. In the case of requests for redemption in
excess of such amounts, in an emergency, or if the payment of such a redemption
in cash would be detrimental to the existing shareholders of the Fund, the Board
of Directors reserves the right to make payments in whole or in part in
securities or other assets held by the Fund from which the shareholder is
redeeming. In such circumstances, the assets distributed would be valued using
the same methods used to determine the Fund's net asset value. Should a Fund
make a redemption in kind, the recipient shareholder may incur brokerage fees
and additional tax costs in converting the securities to cash.
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.
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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 regular
trading of the New York Stock Exchange (normally considered 4:00 p.m. Eastern
Time). When the New York Stock Exchange is closed for regular trading or when
trading is restricted or suspended for any reason other than its customary
weekend or holiday closings, or under emergency circumstances as determined by
the SEC to merit such action, the Funds will determine NAV at the close of
regular trading, the exact time of which will coincide with the closing of the
New York Stock Exchange. If there is such a restriction or suspension, any
shareholder may withdraw any demand for redemption or any tender of shares which
has been received by the Transfer Agent during any such period, the applicable
NAV of which would but for such restriction or suspension be calculated as of a
time during such period. Upon such withdrawal, the Transfer Agent shall return
to the shareholder the share certificates tendered, if any.
Securities listed or traded on the New York Stock Exchange or on a foreign
securities exchange ("Listed Securities") are valued at the last quoted sales
price on that exchange prior to the time when the Funds' assets are valued.
Securities listed or traded on certain foreign exchanges whose operations are
similar to the U.S. over-the-counter market are valued at the price within the
limits of the latest available current bid and asked prices deemed by the
Investment Manager best to reflect a fair value. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at the spot exchange rates
at 1:00 p.m. Eastern Time or at such other rates as the Investment Manager may
determine to be appropriate in computing NAV. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security by the Investment Manager.
Listed securities that are not traded on a particular day, and securities
regularly traded in the over-the-counter market, are valued at the price within
the limits of the latest available current bid and asked prices deemed by the
Investment Manager best to reflect a fair value. In instances where the price of
a security determined above is deemed by the Investment Manager not to be
representative, the security is valued in such a manner as prescribed by the
Funds' Board of Directors to reflect the security's fair value. Because the
Funds invest in securities that are traded in foreign markets on days the Funds
are not open for business, the Funds' NAV may be significantly affected on days
when shareholders do not have access to the Funds to purchase or redeem shares.
For purposes of determining the Funds' NAV, all assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at exchange
rates quoted by a major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established in good
faith by the Board of Directors. The Board of Directors monitors the Funds'
method of valuation on an ongoing basis.
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
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<PAGE>
on the mean between the bid and asked prices, as the case may be, as of 4:00
p.m. Eastern Time. When the seller writes a call, an amount equal to the premium
received is included as an asset, and an equivalent deferred credit is included
as a liability. If a call written by a Fund is exercised, the proceeds are
increased by the premium received. If a call expires, a Fund has a gain in the
amount of the premium; if a Fund enters into a closing purchase transaction, the
Fund will have a gain or loss depending on whether the premium was more or less
than the cost of the closing transaction. If a put held by a Fund is exercised,
the amount the Fund receives on sale of the underlying investment is reduced by
the amount of the premium paid by the Fund.
Futures are valued at the last sale price as of the close of the commodities
exchange on which they are traded, unless such exchange closes later than 4:00
p.m. Eastern Time, in which case such Futures are valued at the last sale price
as of 4:00 p.m. Eastern Time. Should the Board of Directors determine that such
price does not reflect the instrument's fair value, such instruments will be
valued at their fair market value as determined by, or in accordance with
valuation procedures and guidelines established by, the Board of Directors.
As noted in each prospectus, the purchase and redemption prices of a Fund's
shares are based upon the Fund's NAV of each such class. Each Fund determines
its NAV of each class by subtracting the Fund's liabilities (including accrued
expenses and dividends payable) attributable to that class from its total assets
(the value of the securities the Fund holds plus cash and the value of other
assets, including income accrued but not yet received) attributable to that
class and dividing the result by the total number of shares outstanding. The NAV
per share of the Fund is calculated at the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern Time) every day the Exchange is
open.
REINVESTMENT DATE
The dividend reinvestment date is the date on which additional Fund shares are
purchased for shareholders who have elected to have their Fund dividends
reinvested. Automatic reinvestments in additional shares are made without a
sales charge as of the ex-dividend date using the relevant Fund's NAV determined
on that date, and are credited to your account on that date.
RESTRICTIONS ON TIMED EXCHANGES
With regard to accounts that are administered by market timing services ("Timing
Firms") to purchase or redeem shares based on changing economic and market
conditions ("Timing Accounts"), the Funds reserve the right to refuse any new
timing arrangements, as well as any new purchases (as opposed to exchanges) of
Fund shares from Timing Firms. The Funds also reserve the right to temporarily
or permanently terminate the exchange privilege or to reject any specific
purchase order for any person whose transactions seem to follow a timing pattern
who (i) makes an exchange request out of a Fund within two weeks of an earlier
exchange request out of such fund, or (ii) makes more than two exchanges out of
a Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1/4 of 1% of a Fund's net assets. Accounts
under common ownership or control, including accounts administered so as to
redeem or purchase shares based upon certain predetermined market indicators,
will be aggregated for purposes of the exchange limits.
Each Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person or group if, in the Investment Manager's
judgment, a Fund would be unable to invest effectively in accordance with its
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."
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TAX STATUS OF THE FUNDS. The Funds intend to qualify each year as "regulated
investment companies" under subchapter M of the Code for federal income tax
purposes, to avoid liability for federal income tax on income and capital gains
distributed to shareholders. In order for each Fund to continue to qualify for
federal income tax treatment as a "regulated investment company" under the Code,
at least 90% of its gross income for a taxable year must be derived from
qualifying income, i.e., dividends, interest, income derived from loans of
securities, and gains from the sale of securities or certain currency positions.
In addition, the Funds intend to declare at least annually distributions of
substantially all of their net taxable income and net realized capital gains
within each calendar year to shareholders of their Class A and Class B and
Institutional Class shares. The Company's Board of Directors retains the right
to determine, for any particular year, that one or more of the Funds should not
qualify as a regulated investment company. In any year in which a Fund does not
so qualify, the Fund will be subject to federal and state income tax as a
regular corporation, and all distributions of its current or accumulated
earnings and profits (including distributions derived from net realized long-
term capital gains) will be taxed to shareholders as ordinary income. Global
Income Fund seeks to pay monthly dividends from net investment income, if any,
which may include all or a portion of their respective net realized short-term
gains. The Funds also intend to comply with other tax rules that may be
applicable to regulated investment companies.
DIVIDENDS. Gains (losses) attributable to foreign currency fluctuations are
generally taxable as ordinary income and therefore increase (decrease) dividend
income. However, this rule generally does not apply to equity securities.
Because the Funds invest primarily in foreign securities (other than Smaller
Companies Fund, however, that Fund may from time to time may invest primarily in
foreign securities), corporate shareholders should not expect dividends from the
Funds to qualify for the dividends received deduction. If the Funds earn
qualifying dividends from U.S. corporations, they will notify corporate
shareholders annually of the percentage of the Funds' dividends which qualify
for the dividends received deduction. Dividends are declared annually (Global
Income Fund seeks to declare monthly dividends out of net investment income, if
any). The Funds will send each shareholder a notice promptly after the end of
the calendar year describing the tax status of dividends and capital gain
distributions made during the prior year. The per share dividend on Class B
Retail Shares are expected to be lower than the per share dividends on Class A
Retail Shares and Institutional Class shares as a result of the higher
distribution fees and expenses and incremental transfer agency fees applicable
to Class B.
CAPITAL GAINS DISTRIBUTIONS. Other capital gains earned by the Funds on the sale
of securities and distributed to shareholders are generally taxable to
shareholders as other capital gains, regardless of the length of time that the
shareholders have held their shares. If a shareholder receives a capital gain
distribution on shares of a Fund and such shares are held for less than six
months and are sold at a loss, the portion of the loss equal to the amount of
the capital gain distribution (to the extent not otherwise disallowed) will be
considered a capital loss for tax purposes. Short-term capital gains distributed
by the Funds are taxable to shareholders as dividends, not as capital gains.
Distributions from the short-term capital gains do not qualify for the dividends
received deduction.
FEDERAL INCOME TAX TREATMENT OF OPTIONS. Certain option transactions have
special tax implications for the Funds. Listed non-equity options, including
options on currencies, will be considered to have been closed out at the end of
the Funds' taxable year, and any gains or losses will be recognized for tax
purposes at that time. Such gains or losses will be characterized as 60% long-
term capital gain or loss and 40% short-term capital gain or loss regardless of
the holding period of the option. Gains or losses on unlisted currency options
will not be subject to this treatment and will generally result in ordinary
income or loss. In addition, losses on purchased puts and written covered calls,
excluding "qualified covered call options" on equity securities, 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.
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FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. Except for transactions the Funds
have identified as hedging transactions, the Funds are required for federal
income tax purposes to recognize as income for each taxable year their net
unrealized gains and losses on listed Futures Contracts as of the end of the
year, as well as those actually realized during the year. Except for
transactions in Futures Contracts which are classified as part of a "mixed
straddle," any gain or loss recognized with respect to a Futures Contract is
considered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the Futures Contract. In
the case of a Futures transaction classified as a "mixed straddle," the
recognition of losses may be deferred to a later taxable year.
Sales of Futures Contracts which are intended to hedge against a change in the
value of securities or currencies held by the Funds may affect the holding
period of such securities or currencies and, consequently, the nature of the
gain or loss on such securities or currencies upon disposition. It is
anticipated that any net gain realized from the closing out of Futures Contracts
will be considered gain from the sale of securities or currencies and therefore
be qualifying income for purposes of the 90% test.
The Funds will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fiscal year) on Futures transactions. Such
distributions will be combined with distributions of capital gains realized on a
Fund's other investments and shareholders will be advised of the nature of such
distributions.
FOREIGN TAXES. Income received by the Funds may give rise to withholding and
other taxes imposed by foreign countries. If more than 50% of the value of a
Fund's assets at the close of a taxable year consists of securities of foreign
corporations, the Fund may make an election that will permit its shareholders to
take a credit (or, if more advantageous, a deduction) for foreign income taxes
paid by the Fund, subject to limitations contained in the Code. Shareholders
would then include in gross income both dividends paid to them by the Fund and
the foreign taxes paid by the Fund on its foreign investments. The Funds cannot
assure shareholders that they will be eligible for the foreign tax credit. The
Funds will advise shareholders annually of their share of any creditable foreign
taxes paid by the Funds.
The foregoing discussion and the related discussion in the prospectuses have
been prepared by management of the Company and do not purport to be a complete
description of all tax implications of an investment in the Funds. Shareholders
are advised to consult with their own tax advisors concerning the application of
foreign, federal, state, and local taxes to an investment in the Funds. Goodwin
Procter & Hoar LLP have expressed no opinion in respect thereof.
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.
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Effective September 1, 1998, the sales charge on Class A Retail Shares has been
eliminated. Prior to that time, 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 Retail 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 Retail 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 after
reallowances of front-end sales charges to dealers of $847,100 for sales of
Class A Retail 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
Retail 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 Retail Shares of International Equity Fund,
Emerging Markets Equity Fund, Smaller Companies Fund, Asia Fund, Latin America
Fund, and Global Income Fund. During the period January 1, 1997 through May 2,
1997, the Van Kampen American Capital received sales charges of $20,718 after
reallowances of front-end sales charges to dealers of $244,855 for Class A
Retail Shares of International Equity Fund, Emerging Markets Equity Fund,
Smaller Companies Fund, Asia Fund, Latin America Fund, and Global Income Fund.
During the period May 5, 1997 through December 31, 1997, the FPS Broker Services
received sales charges of $67,480 after reallowances of front-end sales charges
to dealers of $408,356 for Class A Retail 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 Retail Shares (prior to February 1, 1998, the annual rate was 0.50% for
all Funds except Global
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<PAGE>
Income which was 0.35%). Under the Class B Plan, each Fund pays a distribution
and service fee to the Distributor at an annual rate of 1% of the Fund's
aggregate average daily net assets attributable to its Class B Retail Shares.
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 Retail Shares in the
amounts of $139,291, $300,038, $138,948, $204,218, $85,171, and $24,092,
respectively. During the period from October 3, 1994 through December 31, 1994,
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 Retail 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 Retail 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 Retail Shares
in the amounts of $140,462, $392,612, $1,889,748, $40,672, $33,405 and $105,247,
respectively. During the period from January 1, 1997 through May 2, 1997, 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 Retail Shares in the amounts of $40,920, $101,294, $337,638, $5,593, $7,974,
and $19,711, respectively. During the period from May 5, 1997 through December
31, 1997, FPS Broker Services 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 Retail Shares in the amounts of $67,169, $165,578, $531,694, $7,683, $18,878,
and $27,671, 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.
34
<PAGE>
The distribution and service fees attributable to Class B Retail Shares are
designed to permit an investor to purchase such shares without the assessment of
a front-end sales charge and at the same time permit the Distributor to
compensate Service Organizations with respect to such shares. In this regard,
the purpose and function of the combined CDSC and distribution and service fees
are the same as those of the initial sales charge and distribution fee with
respect to the Class A Retail Shares of the Funds in that in both cases the
sales charge and distribution charge provide for the financing of the
distribution of the Funds' shares.
As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements and selling agreements were approved by the Company's Board
of Directors, including a majority of the Directors who are not interested
persons (as defined in the 1940 Act) of the Company and who have no direct or
indirect financial interest in the operation of any of the Plans or in any
agreements related to a Plan (the "Independent Directors"). In approving each
Plan in accordance with the requirements of Rule 12b-1, the Directors determined
that there is a reasonable likelihood that each Plan will benefit the Funds and
their respective shareholders. Information with respect to distribution
revenues and expenses is presented to the Directors each year for their
consideration in connection with their deliberations as to the continuance of
the Plans. In their review of the Plans, the Directors are asked to take into
consideration expenses incurred in connection with the distribution of each
class of shares separately. The distribution charge and the sales charge of a
particular class will not be used to subsidize the sale of the other classes.
Each Plan requires the Distributor to provide the Company's Board of Directors
at least quarterly with a written report of the amounts expended pursuant to the
Plan and the purposes for which such expenditures were made. Unless sooner
terminated in accordance with their terms, the Plans will continue in effect
initially for a period of one year, and thereafter will continue in effect so
long as such continuance is specifically approved at least annually by the
Company's Board of Directors, including a majority of the Independent Directors.
Each Plan may be terminated with respect to a class of any Fund by vote of a
majority of the Independent Directors, or by vote of a majority of the
outstanding voting shares of the respective class. Any change in a Distribution
Plan that would materially increase the distribution expenses borne by a Fund
requires shareholder approval, voting separately by class; otherwise, each Plan
may be amended by a majority of the Board of Directors, including a majority of
the Independent Directors, by vote cast in person at a meeting called for the
purpose of voting upon such amendment. So long as any Plan is in effect, the
selection or nomination of the Independent Directors is committed to the
discretion of the Independent Directors.
The Glass-Steagall Act generally prohibits banks and their affiliates from
engaging in the business of underwriting, selling or distributing securities.
Although the scope of this prohibition under the Glass-Steagall Act has not been
clearly defined by the courts or appropriate regulatory agencies, applicable
precedents do not preclude a bank from performing shareholder support, servicing
and recordkeeping functions. The Distributor intends to engage banks to perform
only such functions with respect to the Funds. However, changes in federal or
state statutes and regulations pertaining to the permissible activities of banks
and their affiliates or subsidiaries, as well as further judicial or
administrative decisions or interpretations, could prevent a bank from
continuing to perform all or a part of the contemplated services. If a bank were
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,
35
<PAGE>
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").
36
<PAGE>
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 from the $1,000 initial investment (prior to September 1,
1998, Class A Retail Shares were subject to a maximum sales charge of 4.95%);
(2) reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Company's Board of Directors; (3) a complete
redemption at the end of any period illustrated, and (4) deduction of any
applicable CDSC. The Standardized Returns of the Class A Retail Shares of the
following Funds for the periods indicated are:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return as of 6/30/98
-----------------------------------------------------------------
Fund One Year Five Year Since Inception
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Equity (inception 1/7/92) 0.49% 9.42% 10.19%
- -------------------------------------------------------------------------------------------------------------------------
Emerging Markets Equity (inception 1/7/92) -40.72% -1.79% 2.92%
- -------------------------------------------------------------------------------------------------------------------------
Smaller Companies (inception 1/1/93) -3.46% 15.51% 19.80%
- -------------------------------------------------------------------------------------------------------------------------
Asia (inception 1/1/94) -57.96% n/a -18.56%
- -------------------------------------------------------------------------------------------------------------------------
Latin America (inception 3/7/94) -34.77% n/a -7.09%
- -------------------------------------------------------------------------------------------------------------------------
Global Income (inception 1/7/92) 1.58% 2.03% 4.33%
- -------------------------------------------------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return as of 6/30/98
At Maximum Offering Price
----------------------------------------------------------------------
Fund One Year Three Year Five Year Since Inception
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Equity (inception 1/7/92) 0.49% 9.63% 9.42% 10.19%
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Equity (inception 1/7/92) -40.72% -9.05% -1.79% 2.92%
- ------------------------------------------------------------------------------------------------------------------------------
Smaller Companies (inception 1/1/93) -3.46% -0.81% 15.51% 19.80%
- ------------------------------------------------------------------------------------------------------------------------------
Asia (inception 1/1/94) -57.96% -20.21% n/a -18.56%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Latin America (inception 3/7/94) -34.77% 3.61% n/a -7.09%
- ------------------------------------------------------------------------------------------------------------------------------
Global Income (inception 1/7/92) 1.58% 0.92% 2.03% 4.33%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return as of 6/30/98
At Net Asset Value
----------------------------------------------------------------------
Fund One Year Three Year Five Year Since Inception
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Equity (inception 1/7/92) 5.72% 11.50% 10.53% 10.66%
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Equity (inception 1/7/92) -37.64% -7.66% -0.79% 3.59%
- ------------------------------------------------------------------------------------------------------------------------------
Smaller Companies (inception 1/1/93) 1.56% 0.89% 16.68% 20.22%
- ------------------------------------------------------------------------------------------------------------------------------
Asia (inception 1/1/94) -55.77% -18.85% n/a -16.29%
- ------------------------------------------------------------------------------------------------------------------------------
Latin America (inception 3/7/94) -31.37% 5.38% n/a -5.60%
- ------------------------------------------------------------------------------------------------------------------------------
Global Income (inception 1/7/92) 6.87% 2.65% 3.07% 4.95%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 Retail Shares of Global Income Fund for the one month
period ended June 30, 1998 was 3.62%.
As of January 1, 1995, all of the outstanding shares of each Fund were
redesignated as Class A Retail Shares without any other changes, and Class B and
Class C shares were authorized for issuance. As of June 27, 1997, all Class C
shares were redesigned as Institutional Class shares. Yield and total return
are calculated separately for Class A, Class B Retail Shares and Institutional
Class shares of each Fund. Class A total return figures included the maximum
front-end sales charge of 4.95% prior to September 1, 1998; 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:
38
<PAGE>
(1) Various Salomon Brothers World Bond Indices, which measure the total
return performance of high-quality securities in major sectors of the worldwide
bond markets.
(2) The Shearson Lehman Government Corporate Bond Index, which is a
comprehensive measure of all public obligations of the U.S. Treasury (excluding
flower bonds and foreign targeted issues), all publicly issued debt of agencies
of the U.S. government (excluding mortgage backed securities), and all public,
fixed rate, non-convertible investment grade domestic corporate debt rated at
least Aa by Moody's or AA by Standard & Poor's, or, in the case of bonds not
rated by Moody's or Standard & Poor's, BBB by Fitch Investors Service (excluding
Collateralized Mortgage Obligations).
(3) Average of Savings Accounts, which is a measure of all kinds of savings
deposits, including longer-term certificates (based on figures supplied by the
U.S. League of Savings Institutions). Savings accounts offer a guaranteed rate
of return on principal, but no opportunity for capital growth. During a portion
of the period, the maximum rates paid on some savings deposits were fixed by
law.
(4) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g., food,
clothing, shelter, fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
(5) Data and mutual fund rankings and comparisons published or prepared by
Lipper Analytical Data Services, Inc. ("Lipper"), Morningstar Inc.
("Morningstar"), Micropal, Inc. ("Micropal"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Company Services ("Wiesenberger") and/or other
companies that rank or compare mutual funds by overall performance, investment
objectives, assets, expense levels, periods of existence and/or other factors.
In this regard, each Fund may be compared to its "peer group" as defined by
Lipper, Morningstar, Micropal, CDA, Wiesenberger and/or other firms, as
applicable or to specific funds or groups of funds within or without such peer
group.
(6) Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and a GNP-weighted index, beginning in 1975. The
returns are broken down by local market and currency.
(7) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(8) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500 of the
largest publicly traded stocks in the U.S., and Russell 2000 Index, NASDAQ
Composite Index and the Wilshire 500 Stock Index, which are recognized indices
composed of capitalization-weighted average share prices of smaller company
stocks.
(9) Salomon Brothers Broad Investment Grade Index, which is a widely used
index composed of U.S. domestic government, corporate, and mortgage-backed fixed
income securities.
(10) Dow Jones Industrial Average.
(11) Financial News Composite Index.
(12) Morgan Stanley Capital International World Indices, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far East
Index ("EAFE Index"). The EAFE Index is an unmanaged index of more than 800
companies located in Europe, Australia and the Far East.
(13) International Finance Corporation (IFC) Emerging Markets Data Base
which provides detailed statistics on bond and stock markets in developing
countries.
39
<PAGE>
(14) J.P. Morgan & Co. Bond Indices, including, among others, the J.P.
Morgan Traded Government Bond Index which is an index composed of liquid non-
U.S. fixed income securities based on market weightings and currency since 1986.
(15) Chemical Emerging Markets Debt Index.
(16) Morgan Stanley Capital International Latin America Emerging Market
Indices, including the Morgan Stanley Emerging Markets Free Latin America Index
(which excludes securities issued by Mexican banks and securities companies
which cannot be purchased by foreigners) and the Morgan Stanley Emerging Markets
Global Latin America Index. Both indices include 60% of the market
capitalization of the following countries: Argentina, Brazil, Chile, and
Mexico. The indices are weighted by market capitalization and are calculated
without dividends reinvested.
(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, 1997 and
unaudited financial statements for the semi-annual period ended June 30, 1998
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, 1997
and the Semi-Annual Report to Shareholders dated June 30, 1998, 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 First Data Investor
Services Group, Inc., 3200 Horizon Drive, King of Prussia, PA 19406, to obtain a
free copy.
40
<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
41
<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.
42
<PAGE>
THE GOVETT FUNDS, INC.
PART C TO FORM N-1A DATED DECEMBER ___, 1998
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 Equity Fund
(formerly 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, 1997:
Schedule of Investments as of December 31, 1997; Statement of
Assets and Liabilities as of December 31, 1997; Statement of
Operations for the year ended December 31, 1997; Statements of
Changes in Net Assets for the years ended December 31, 1997 and
December 31, 1996; Financial Highlights (For A Share Outstanding
Throughout the years or indicated periods Ended December 31,
1997, December 31, 1996, December 31, 1995, December 31, 1994,
and December 31, 1993); related Notes to Financial Statements;
and the Report of the Independent Accountants.
(2) The following unaudited financial statements for the Govett
International Equity Fund, Govett Emerging Markets Equity Fund,
Govett Smaller Companies Fund, Govett Asia 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, 1998:
Schedule of Investments as of June 30, 1998; Statement of Assets
and Liabilities as of June 30, 1998; Statement of Operations for
the period ended June 30, 1998; Statements of Changes in Net
Assets for the periods ended June 30, 1998 and December 31, 1997;
Financial Highlights (For A Share Outstanding Throughout the
years or indicated periods Ended June 30, 1998, December 31,
1997, December 31, 1996, December 31, 1995, December 31, 1994,
and December 31, 1993); and related Notes to Financial
Statements.
(3) The Govett International Smaller Companies Fund (formerly Govett
Asian Smaller Companies Fund), Govett China Fund, and Govett
Europe Fund series of Registrant, as of the date of this Post-
Effective Amendment has been filed with the Commission, have not
commenced operations, and as they have no assets or liabilities,
financial statements have not been prepared or filed for the
Govett International Smaller Companies Fund, Govett China Fund,
or Govett Europe Fund.
(b) Exhibits
1a. Articles of Amendment and Restatement*
1b. Articles Supplementary (6)
1
<PAGE>
2. By-Laws (3)
3. Voting Trust Agreement (Not Applicable)
4. Specimen Share Certificate (To be provided by amendment)
5a. Investment Management Contract (6)
5b. Investment Subadviser Contract (6)
6a. Underwriting Agreement (5)
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 dated December 16, 1991 (2), as amended,
by Amendment dated May 13th, 1996*; by Amendment dated November,
1996*; by Amendment dated November 25th, 1997*;
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 LLP,
counsel to the Funds (6)
11. Consent and Report of Independent Accountants
PricewaterhouseCoopers LLP*
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 (6)
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*
19. Power of Attorney (7)
* filed herewith
(1) Incorporated by reference to like-numbered exhibits filed with Pre-
Effective Amendment No. 2 to this Registration Statement on September
23, 1991.
(2) Incorporated by reference to like-numbered exhibits filed with Pre-
Effective Amendment No. 3 to this Registration Statement on December
19, 1991.
(3) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 16 to this Registration Statement on April 24,
1996.
(4) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 17 to this Registration Statement on May 1,
1997.
(5) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 18 to this Registration Statement on September
1, 1997.
(6) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 19 to this Registration Statement on October
7, 1997.
(7) Incorporated by reference to like-numbered exhibits filed with Post-
Effective Amendment No. 22 to this Registration Statement on April 17,
1998.
2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
AS OF THE DATE OF THIS AMENDMENT, CLASS B SHARES HAVE NOT BEEN OFFERED
TO THE PUBLIC.
Number of Record holders
Class A Shares as of September 30, 1998
-------------- ------------------------
International Equity Fund 1,577
Emerging Markets Equity Fund 4,618
Smaller Companies Fund 21,758
Asia Fund 447
Latin America Fund 626
Global Income Fund 666
Institutional Class Shares Number of Record holders
as of September 30, 1998
International Equity Fund 246
Emerging Markets Equity Fund 0
Smaller Companies Fund 0
Asia Fund 0
Latin America Fund 0
Global Income Fund 0
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
3
<PAGE>
agreement make further provision for indemnification of directors,
officers, employees and agents to the fullest extent permitted by the
Maryland General Corporation Law.
"Section 3. No provision of this Article shall be effective to
protect or purport to protect any director or officer of the
Registrant against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
"Section 4. References to the Maryland General Corporation Law in
this Article are to the law as from time to time amended. No further
amendment to the Articles of Incorporation of the Registrant shall
decrease, but may expand, any right of any person under this Article
based on any event, omission or preceding prior to such amendment."
Article VII of the Registrant's Bylaws also provide for
indemnification by the Registrant of its officers and directors and
others to the fullest extent permitted by Maryland law and the
Investment Company Act of 1940. The Bylaws also provide for the
advance of certain expenses incurred by such persons under certain
circumstances.
"Section 11 of the Investment Management Contract filed as Exhibit 5
to Post-Effective Amendment No. 19 provides that AIB Govett, Inc.
(the "Manager") shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Registrant or any of
its portfolios in connection with the matters to which the contract
relates, except for losses resulting from the willful misfeasance,
bad faith or gross negligence of the Manager in the performance of
its duties or from reckless disregard by the Manager of its
obligations and duties under the contract.
Registrant also participates in a policy of insurance which insures
Registrant, the Manager and Distributor, and their respective
present, past and future directors, partners, officers, trustees and
employees against liability incurred on account of any breach of
duty, neglect, error, misstatement, misleading statement, omission or
other wrongful act done or attempted by any insured (each a "Wrongful
Act") in connection with the management and operation of Registrant,
or the provision of investment advisory or distribution services to
or on behalf of Registrant, but excluding losses incurred by reason
of actual fraud, dishonesty, criminal or malicious acts or omissions
finally adjudicated. No coverage is provided for any Wrongful Act
committed with knowledge that it was a Wrongful Act.
The Underwriting Agreement between Registrant and 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.
4
<PAGE>
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 ADVISER
28a. AIB Govett, Inc. ("AIB Govett") serves as investment adviser to all of
the series of the Registrant. A description of the directors and
officers of AIB Govett, and other required information, is included in
AIB Govett's Form ADV and schedules thereto, as amended, which is on
file at the SEC (File No. 801-54821). AIB Govett's Form ADV, as
amended, is incorporated herein by reference.
28b. AIB Govett Asset Management Limited ("AIB Govett London", formerly
John Govett & Co. Limited) serves as investment subadviser to all of
the series of the Registrant. A description of the directors and
officers of AIB Govett London, and other required information, is
included in AIB Govett London's Form ADV and schedules thereto, as
amended, which is on file at the SEC (File No. 801-34730). AIB Govett
London's Form ADV, as amended, is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITER
29a. FPS Broker Services, Inc. ("FPSB"), the principal underwriter for the
Registrant's securities, currently acts as principal underwriter for
the following entities:
Bjurman Funds
First Mutual Funds
The Govett Funds, Inc.
IAA Trust Mutual Funds
Matthews International Funds
McM Funds
Metropolitan West Funds
Polynous Trust
Smith Breeden Series Fund
Smith Breeden Short Duration U.S. Government Fund
Smith Breeden Trust
The Stratton Funds, Inc.
Stratton Growth Fund, Inc.
Stratton Monthly Dividend Shares, Inc.
5
<PAGE>
29b. The table below sets forth certain information as to the FPSB's
Officers and Control Persons: Directors,
Position Position and
Name and Principal and Offices Offices with
Business Address with Underwriter Registrant
---------------- ---------------- ----------
Kenneth J. Kempf Director and None
3200 Horizon Drive President
P.O. Box 61503
King of Prussia, PA 19406-0903
Lynne M. Cannon Vice President None
3200 Horizon Drive and Principal
P.O. Box 61503
King of Prussia, PA 19406-0903
Rocco C. Cavalieri Director and None
3200 Horizon Drive Vice President
P.O. Box 61503
King of Prussia, PA 19406-0903
Gerald J. Holland Director, Senior
3200 Horizon Drive Vice President
P.O. Box 61503 and Principal
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
Carolyn F. Mead, Esq. Secretary
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
James W. Stratton may be considered a control person of FPSB due to his
direct or indirect ownership of the FPSB.
29c. Not applicable
6
<PAGE>
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 Adviser)
250 Montgomery Street, Suite 1200
San Francisco, CA 94104
AIB Govett Asset Management Limited (Subadviser)
Shackleton House
4 Battle Bridge Lane
London SE1 2HR England
The Chase Manhattan Bank (Global Custodian)
4 Chase Metro Tech Center
Brooklyn, NY 11245
Chase Global Funds Services Company (Fund Accounting/Administration)
73 Tremont Street, 11th Floor
Boston, MA 02108
First Data Investor Services Group, Inc. (Transfer Agent)
FPS Broker Services, Inc. (Distributor)
3200 Horizon Drive
King of Prussia, PA 19406-0903
ITEM 31. MANAGEMENT SERVICES
None.
7
<PAGE>
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.
8
<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 6th
day of October, 1998
THE GOVETT FUNDS, INC.
/s/ Sir Victor Garland
------------------------------
Sir Victor Garland, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Elliott L. Atamian *
- ---------------------------
Elliott L. Atamian Director
October 6, 1998
/s/ Patrick Cunneen *
- ---------------------------
Patrick Cunneen Chairman, Director
October 6, 1998
/s/ Sir Victor Garland
- ---------------------------
Sir Victor Garland President, Director
October 6, 1998
/s/ Colin Kreidewolf
- ---------------------------
Colin Kreidewolf Treasurer
October 6, 1998 (Principal Financial and Accounting Officer)
/s/ James M. Oates *
- ---------------------------
James M. Oates Director
October 6, 1998
/s/ Frank R. Terzolo *
- ---------------------------
Frank R. Terzolo Director
October 6, 1998
* By /s/ Alice L. Schulman
---------------------
October 6, 1998
Alice L. Schulman, Attorney In Fact
</TABLE>
9
<PAGE>
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 to provide that
the designation of the shares of Common Stock of the Govett Asian Smaller
Companies Fund series of the Corporation is hereby changed to "Govett
International Smaller Companies Fund".
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 Treasurer and attested by its Secretary on
this 30/th/ day of September, 1998.
THE GOVETT FUNDS, INC.
/s/ Colin Kreidewolf
By: ----------------------------
Colin J. Kreidewolf
Treasurer
ATTEST:
/s/ Alice L. Schulman
- ---------------------------
Alice L. Schulman
Secretary
<PAGE>
The undersigned, Treasurer of The Govett Funds, Inc., who executed on
behalf of said Corporation the forgoing 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
Treasurer
<PAGE>
AMENDMENT TO GLOBAL CUSTODY AGREEMENT
AMENDMENT, dated May 13/th/, 1996, to the December 16, 1991 global custody
agreement ("Agreement") between The Chase Manhattan Bank, N.A. ("Bank") and The
Govett Funds, Inc. ("Customer"),
It is hereby agreed as follows:
1. Unless otherwise provided for herein, all terms and conditions of the
Agreement are expressly incorporated herein by reference and except as modified
hereby, the Agreement is confirmed in all respects. Capitalized terms used
herein without definition shall have the respective meanings ascribed to them in
the Agreement.
2. With respect to domestic U.S. and Canadian Securities (the latter if
held in DTC), the following provisions will apply rather than the pertinent
provisions of Section 8 of the Agreement:
The Bank will send to the Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of the Bank's
nominee or the nominee of a central depository) and communications with respect
to Securities in the Custody Account as call for voting or relate to legal
proceedings within a reasonable time after sufficient copies are received by the
Bank for forwarding to its customers. In addition, the Bank will follow coupon
payments, redemptions, exchanges or similar matters with respect to Securities
in the Custody Account and advise the Customer or the Authorized Person for such
Account of rights issued, tender offers or any other discretionary rights with
respect to such Securities, in each case, of which the Bank has received notice
from the issuer of the Securities, or as to which notice is published in
publications routinely utilized by the Bank for this purpose.
IN WITNESS WHEREOF, the parties have executed this AMENDMENT as of the date
first above written.
THE GOVETT FUNDS, INC. THE CHASE MANHATTAN BANK, N.A.
/s/ Colin Kreidewolf /s/ Richard A. Warne
By: ------------------------- By: --------------------------
Name: Colin Kreidewolf Name: Richard A. Warne
Title: Treasurer Title: Vice President
Date: 5.10.96 Date: 13.5.96
<PAGE>
AMENDMENT, dated November , 1996, to the December 16, 1991 Global Custody
Agreement ("Agreement"), between THE CHASE MANHATTAN BANK and THE GOVETT FUNDS,
INC.
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is confirmed in all
respects. Capitalized terms used herein without definition shall have the
meaning ascribed to them in the Agreement.
Section 2. The Agreement is amended by adding the following at the end of
existing (S)4(d):
Where Securities are deposited by a Subcustodian with a securities
depository, Bank shall cause the Subcustodian to identify on its books as
belonging to Bank, as agent, the Securities shown on the Subcustodian's
account on the books of the securities depository.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
THE GOVETT FUNDS, INC. THE CHASE MANHATTAN BANK
/s/ Colin Kreidewolf /s/ Richard A. Warne
By: ------------------------------ By: ----------------------------
Name: Colin Kreidewolf Name: Richard A. Warne
Title: Treasurer & Vice President Title: Vice President
Date: 6.19.97 Date: 15/5/97
<PAGE>
AMENDMENT, dated 25/th/ November, 1997 to the December 16, 1991 custody
agreement, as amended ("Agreement"), between The Govett Funds, Inc.
("Customer"), having a place of business at 600 Montgomery Street, San Francisco
CA 94111 U.S.A. and The Chase Manhattan Bank ("Bank"), having a place of
business at 270 Park Ave., New York, N.Y. 10017-2070, U.S.A.
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is confirmed in all
respects. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Agreement.
Section 2. The Agreement is amended as follows by adding the following as
new (S)15:
"Unless the context clearly requires otherwise, the following words shall
have the meanings set forth below when used herein:
"(a) "CMBI" shall mean Chase Manhattan Bank International, an
indirect wholly-owned subsidiary of Bank, located in Moscow, Russia, and any
nominee companies appointed by it.
"(b) "International Financial Institution" shall mean any bank in
the top 1,000 (together with their affiliated companies) as measured by "Tier 1"
capital or any broker/dealer in the top 100 as measured by capital.
"(c) "Negligence" shall mean the failure to exercise "Reasonable
Care".
"(d) "No-Action Letter" shall mean the response of the Securities
and Exchange Commission's Office of Chief Counsel of Investment Management,
dated April 18, 1995, in respect of the Templeton Russia Fund, Inc. (SEC Ref.
No. 95-151-CC, File No. 811-8788) providing "no-action" relief under (S)17(f) of
The Investment Company Act of 1940, as amended, and SEC Rule 17f-5 thereunder,
in connection with custody of such Templeton Russia Fund, Inc.'s investments in
Russian Securities.
"(e) "Reasonable Care" shall mean the use of reasonable custodial
practices under the applicable circumstances as measured by the custodial
practices then prevailing in Russia of International Financial Institutions
acting as custodians for their institutional investor clients in Russia.
"(f) "Registrar Company" shall mean any entity providing share
registration services to an issuer of Russian Securities.
"(g) "Registrar Contract" shall mean a contract between CMBI and a
Registrar Company (and as the same may be amended from time to time) containing,
inter alia, the contractual provisions described at paragraphs (a)-(e) on pps.
- ----------
5-6 of the No-Action Letter.
"(h) "Russian Security" shall mean a Security issued by a Russian
issuer.
"(i) "Share Extract" shall mean: (1) an extract of its share
registration books issued by a Registrar Company indicating an investor's
ownership of a security; and (2) a form prepared by CMBI or its agent in those
cases where a Registrar Company is unwilling to issue a Share Extract.
<PAGE>
Section 3. Section 6(a) of the Agreement is amended by adding the
following at the end thereof: "With respect to Russia, payment for Russian
Securities shall not be made prior to the issuance and receipt of the Share
Extract (as defined in Section 15(i)(1)) relating to such Russian Security.
Delivery of Russian Securities may be made in accordance with the customary or
established securities trading or securities processing practices and procedures
in Russia. Delivery of Russian Securities may also be made in any manner
specifically required by Instructions acceptable to the Bank. Customer shall
promptly supply such transaction and settlement information as may be requested
by Bank or CMBI in connection with particular transactions."
Section 4. Section 8 of the Agreement is amended by adding a new paragraph
to the end thereof as follows: "It is understood and agreed that Bank need only
use its reasonable efforts with respect to performing the functions described in
the (S)8 with respect to Russian Securities (except that Bank shall use
Reasonable Care with respect to its duties to transmit information to Customer),
it being understood that proxy voting services are not available. To the extent
that Bank receives proxy materials (whether or not received in a timely
fashion), it will forward the same to Customer upon request and without
translation."
Section 5. Section 12(a)(i) of the Agreement is amended with respect to
Russian custody by deleting the phrase "reasonable care" wherever it appears and
substituting, in lieu thereof, the phrase "Reasonable Care".
Section 6. Section 12(a)(i) of the Agreement is further amended with
respect to Russian custody by inserting the following at the end of the first
sentence thereof: "; provided that, with respect to Russian Securities, Bank's
responsibilities shall be limited to safekeeping relevant Share Extracts."
Section 7. Section 12(a)(i) of the Agreement is further amended with
respect to Russian custody by inserting the following after the second sentence
thereof: "Delegation by Bank to CMBI shall not relieve Bank of any
responsibility to Customer for any loss due to such delegation, and Bank shall
be liable for any loss or claim arising out of or in connection with the
performance by CMBI of such delegated duties to the same extent as if Bank had
itself provided the custody services hereunder. In connection with the
foregoing, neither Bank nor CMBI shall assume responsibility for, and neither
shall be liable for, any action or inaction of any Registrar Company and no
Registrar Company shall be, or shall be deemed to be, Bank, CMBI, a
Subcustodian, a securities depository or the employee, agent or personnel of any
of the foregoing. To the extent that CMBI employs agents to perform any of the
functions to be performed by Bank or CMBI with respect to Russian Securities,
neither Bank or CMBI shall be responsible for any act, omission, default or for
the solvency of any such agent unless the appointment of such agent was made
with Negligence or in bad faith, except that where Bank or CMBI uses (i) an
affiliated nominee or (ii) an agent to perform the share registration or share
confirmation functions described in paragraphs (a)-(e) on pps. 5-6 of the No-
Action Letter, and, to the extent applicable to CMBI, the share registration
functions described on pps. 2-3 of the No-Action Letter, Bank and CMBI shall be
liable to Customer as if CMBI were responsible for performing such services
itself."
Section 8. Section 12(a)(ii) is amended with respect to Russian custody by
deleting the word "negligently" and substituting, in lieu thereof, the word
"Negligently".
Section 9. Section 12(a)(iii) is amended with respect to Russian custody
by deleting the word "negligence" and substituting, in lieu thereof, the word
"Negligence".
Section 10. Add a new Section 16 to the Agreement as follows:
<PAGE>
"(a) Bank will advise Customer (and will update such advice from
time to time as changes occur) of those Registrar Companies with which CMBI has
entered into a Registrar Contract. Bank shall cause CMBI both to monitor each
Registrar Company and to promptly advise Customer and its investment advisor
when CMBI has actual knowledge of the occurrence of any one or more of the
events described in paragraphs (i)-(v) on pps. 8-9 of the No-Action Letter with
respect to a Registrar Company that serves in that capacity for any issuer the
shares of which are held by Customer.
"(b) Where Customer is considering investing in the Russian
Securities of an issuer as to which CMBI does not have a Registrar Contact with
the issuer's Registrar Company, Customer may request that Bank ask that CMBI
both consider whether it would be willing to attempt to enter into such a
Registrar Contract and to advise Customer of its willingness to do so. Where
CMBI has agreed to make such an attempt, Bank will advise customer of the
occurrence of any one or more of the events described in paragraphs (i)-(iv) on
pps. 8-9 of the No-Action Letter of which CMBI has actual knowledge.
"(c) Where Customer is considering investing in the Russian
Securities of an issuer as to which CMBI has a Registrar Contract with the
issuer's Registrar Company, Customer may advise Bank of its interest in
investing in such issuer and, in such event, Bank will advise Customer of the
occurrence of any one or more of the events described in paragraphs (i)-(v) on
pps. 8-9 of the No-Action Letter of which CMBI has actual knowledge."
Section 11. Add a new Section 17 to the Agreement as follows: "Customer
shall pay for and hold Bank and CMBI harmless from any liability or loss
resulting from the imposition or assessment of any taxes (including, but not
limited to, state, stamp and other duties) or other governmental charges, and
any related expenses incurred by Bank, CMBI or their respective agents with
respect to income on Customer's Russian Securities."
Section 12. Add a new Section to the Agreement as follows: "Customer
acknowledges and agrees that CMBI may not be able, in given cases and despite
its reasonable efforts, to obtain a Share Extract from a Registrar Company and
CMBI shall not be liable in any such event including with respect to any losses
resulting from such failure."
Section 13. Add a new Section 19 to the Agreement as follows: "Customer
acknowledges that it has received, reviewed and understands Bank's market report
for Russia, including, but not limited to, the risks described therein."
Section 14. Add a new Section 20 to the Agreement as follows: "Subject to
the cooperation of a Registrar Company, for at least the first two years
following CMBI's first use of a Registrar Company, Bank shall cause CMBI to
conduct share confirmations on at least a quarterly basis, although thereafter
confirmations may be conducted on a less frequent basis is Customer's Board of
Director's, in consultation with CMBI, determines it to be appropriate."
Section 15. Add a new Section 21 to the Agreement as follows: "Bank shall
cause CMBI to prepare for distribution to Customer's Board of Directors a
quarterly report identifying: (i) any concerns it has regarding the Russian
share registration system that should be brought to the attention of the Board
of Directors; and (ii) the steps CMBI has taken during the reporting period to
ensure that Customer's interests continue to be appropriately recorded."
<PAGE>
Section 16. Add a new Section 22 to the Agreement as follows: "Except as
provided in new (S)16(b), the services to be provided by Bank hereunder will be
provided only in relation to Russian Securities for which CMBI has entered into
a Registrar Contract with the relevant Registrar Company."
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
THE GOVETT FUNDS, INC. THE CHASE MANHATTAN BANK
/s/ Colin Kreidewolf /s/ Richard A. Warne
By: -------------------------- By: ----------------------------
Name: Colin Kreidewolf Name: Richard A. Warne
Title: Treasurer Title: Vice President
Date: 25/11/97 Date: 25/11/97
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporations by reference in the Registration Statement on
Form N-1A (the "Registration Statement") of our report dated February 20, 1998,
relating to the financial statements and financial highlights for the year ended
December 31, 1997 appearing in the December 31, 1997 Annual Report to
Shareholders of the Govett Funds, Inc. which are also incorporated by reference
into the Registration Statement, and to the inclusion in this Registration
Statement of our report dated February 21, 1997, relating to the statement of
changes in net assets for the year ended December 31, 1996 and the financial
highlights for each of the four years in the period ended December 31, 1996 of
the Govett Funds, Inc.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston Massachusetts
October 2, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of the Govett Funds, Inc.
In our opinion, the statement of changes in net assets for the year ended
December 31, 1996 and the financial highlights for each of the four years ended
December 31, 1996 (appearing on pages 32 through 37 of The Govett funds, Inc.
(the "Company") 1997 Annual Report which have been incorporated by reference in
the Company's registration statement on Form N-1A) present fairly, in all
material respects, the changes in their net assets and the financial highlights
of Govett International Equity Fund, Govett Emerging Markets fund, Govett
Smaller Companies fund, Govett Pacific Strategy Fund, Govett Latin America Fund,
and Govett Global Income Fund (constituting The Govett Funds, Inc., hereafter
referred to as the "Funds") for each of the periods referred to above, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with general
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above. We have
not audited the financial statements of the Funds for any period subsequent to
December 31, 1996.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston Massachusetts
February 21, 1997
<PAGE>
Schedule or Computation of Performance Quotations
Govett Emerging Markets Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1998)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year Five Years 01/07/9
-------- ---------- -------
P = $ 1,000 P = $1,000 P = $1,000
T = - 40.72% T = - 1.79% T = 2.92%
N = 1 years N = 5 years N = 6.48 years
ERV = $ 593 ERV = $ 914 ERV = $1,205
<PAGE>
Schedule or Computation of Performance Quotations
Govett Smaller Companies Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1998)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year Five Years 01/01/93
-------- ---------- --------
P = $1,000 P = $1,000 P = $1,000
T = -3.46% T = 15.51% T = 19.80%
N = 1 years N = 5 years N = 5.50 years
ERV = $965 ERV = $2,056 ERV = $2,701
<PAGE>
Schedule or Computation of Performance Quotations
Govett Latin America Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1998)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year 03/07/94
-------- --------
P = $1,000 P = $1,000
T = -34.77% T = -7.09%
N = 1 years N = 4.32 years
ERV = $652 ERV = $728
<PAGE>
Schedule or Computation of Performance Quotations
Govett Asia Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1998)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year 01/01/94
-------- --------
P = $1,000 P = $1,000
T = -57.96% T = -18.56%
N = 1 years N = 4.50 years
ERV = $420 ERV = $397
<PAGE>
Schedule or Computation of Performance Quotations
Govett Global Income Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1998)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year Five Years 01/07/92
-------- ---------- --------
P = $1,000 P = $1,000 P = $1,000
T = 1.58% T = 2.03% T = 4.33%
N = 1 years N = 5 years N = 6.48 years
ERV = $1,016 ERV = $1,106 ERV = $1,316
2. Yield (30 days ending June 30, 1998)
Yield = 2[(( a - b) / (c* d ) + 1 ) - 1 /6/]
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 = $40,486.73
b = $12,340.73
c = 1,194,347
d = 7.86
Yield = 3.62%
<PAGE>
Schedule or Computation of Performance Quotations
Govett International Equity Portfolio
Exhibit 16
1. Average Annual Return (As of June 30, 1998)
at Maximum Offering Price
P (1+T)/N/ = ERV
Where: P = A hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at end of the period
Since Inception
One Year Five Years 01/07/92
-------- ---------- --------
P = $1,000 P = $1,000 P = $1,000
T = 0.49% T = 9.42% T = 10.19%
N = 1 years N = 5 years N = 6.48 years
ERV = $1,005 ERV = $1,568 ERV = $1,875
<PAGE>
[ARTICLE] 6
[CIK] 0000869698
[NAME] THE GOVETT FUNDS, INC.
[SERIES]
[NUMBER] 01
[NAME] GOVETT GLOBAL INCOME FUND
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 7,725,838
[INVESTMENTS-AT-VALUE] 7,880,317
[RECEIVABLES] 159,240
[ASSETS-OTHER] 3,087
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 8,042,644
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 12,175
[OTHER-ITEMS-LIABILITIES] 159,831
[TOTAL-LIABILITIES] 172,006
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 12,622,744
[SHARES-COMMON-STOCK] 1,000,824
[SHARES-COMMON-PRIOR] 1,314,632
[ACCUMULATED-NII-CURRENT] (78,276)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (4,794,054)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 120,224
[NET-ASSETS] 7,870,638
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 287,676
[OTHER-INCOME] 0
[EXPENSES-NET] (84,819)
[NET-INVESTMENT-INCOME] 202,857
[REALIZED-GAINS-CURRENT] (235,386)
[APPREC-INCREASE-CURRENT] 318,419
[NET-CHANGE-FROM-OPS] 285,890
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (212,267)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 7,961
[NUMBER-OF-SHARES-REDEEMED] (337,415)
[SHARES-REINVESTED] 15,646
[NET-CHANGE-IN-ASSETS] (2,406,006)
[ACCUMULATED-NII-PRIOR] (68,866)
[ACCUMULATED-GAINS-PRIOR] (4,558,668)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 34,170
[INTEREST-EXPENSE] 5,239
[GROSS-EXPENSE] 144,973
[AVERAGE-NET-ASSETS] 9,169,977
[PER-SHARE-NAV-BEGIN] 7.82
[PER-SHARE-NII] 0.15
[PER-SHARE-GAIN-APPREC] 0.07
[PER-SHARE-DIVIDEND] (0.18)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.86
[EXPENSE-RATIO] 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000869698
[NAME] THE GOVETT FUNDS, INC.
[SERIES]
[NUMBER] 02
[NAME] GOVETT INTERNATIONAL EQUITY FUND
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 8,938,937
[INVESTMENTS-AT-VALUE] 12,866,146
[RECEIVABLES] 30,465
[ASSETS-OTHER] 3,343
[OTHER-ITEMS-ASSETS] 604,872
[TOTAL-ASSETS] 13,504,826
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 129,682
[TOTAL-LIABILITIES] 129,682
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 8,707,880
[SHARES-COMMON-STOCK] 1,078,928
[SHARES-COMMON-PRIOR] 1,279,859
[ACCUMULATED-NII-CURRENT] (83,337)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 831,744
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 3,918,857
[NET-ASSETS] 13,375,144
[DIVIDEND-INCOME] 143,404
[INTEREST-INCOME] 2,928
[OTHER-INCOME] 0
[EXPENSES-NET] (172,435)
[NET-INVESTMENT-INCOME] (26,103)
[REALIZED-GAINS-CURRENT] 831,741
[APPREC-INCREASE-CURRENT] 1,289,472
[NET-CHANGE-FROM-OPS] 2,095,110
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (335,006)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 78,344
[NUMBER-OF-SHARES-REDEEMED] (304,859)
[SHARES-REINVESTED] 25,584
[NET-CHANGE-IN-ASSETS] (577,203)
[ACCUMULATED-NII-PRIOR] (57,234)
[ACCUMULATED-GAINS-PRIOR] 335,009
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 68,959
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 219,321
[AVERAGE-NET-ASSETS] 13,909,209
[PER-SHARE-NAV-BEGIN] 10.90
[PER-SHARE-NII] (0.03)
[PER-SHARE-GAIN-APPREC] 1.83
[PER-SHARE-DIVIDEND] (0.30)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.40
[EXPENSE-RATIO] 2.50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000869698
[NAME] THE GOVETT FUNDS, INC.
[SERIES]
[NUMBER] 03
[NAME] GOVETT EMERGING MARKETS EQUITY FUND
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 19,687,870
[INVESTMENTS-AT-VALUE] 17,512,256
[RECEIVABLES] 647,505
[ASSETS-OTHER] 3,087
[OTHER-ITEMS-ASSETS] 1,419,876
[TOTAL-ASSETS] 19,582,724
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 168,582
[TOTAL-LIABILITIES] 168,582
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 30,595,391
[SHARES-COMMON-STOCK] 1,989,192
[SHARES-COMMON-PRIOR] 2,688,385
[ACCUMULATED-NII-CURRENT] (57,500)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (8,873,688)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (2,250,061)
[NET-ASSETS] 19,414,142
[DIVIDEND-INCOME] 358,595
[INTEREST-INCOME] 9,594
[OTHER-INCOME] 0
[EXPENSES-NET] (341,356)
[NET-INVESTMENT-INCOME] 26,833
[REALIZED-GAINS-CURRENT] (2,782,992)
[APPREC-INCREASE-CURRENT] (2,317,117)
[NET-CHANGE-FROM-OPS] (5,073,276)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (337,867)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 119,257
[NUMBER-OF-SHARES-REDEEMED] (843,515)
[SHARES-REINVESTED] 25,065
[NET-CHANGE-IN-ASSETS] (13,484,848)
[ACCUMULATED-NII-PRIOR] 253,534
[ACCUMULATED-GAINS-PRIOR] (6,090,696)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 134,118
[INTEREST-EXPENSE] 7,238
[GROSS-EXPENSE] 499,115
[AVERAGE-NET-ASSETS] 26,951,961
[PER-SHARE-NAV-BEGIN] 12.24
[PER-SHARE-NII] 0.03
[PER-SHARE-GAIN-APPREC] (2.36)
[PER-SHARE-DIVIDEND] (0.15)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.76
[EXPENSE-RATIO] 2.50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000869698
[NAME] THE GOVETT FUNDS, INC.
[SERIES]
[NUMBER] 05
[NAME] GOVETT SMALLER COMPANIES FUND
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 84,812,467
[INVESTMENTS-AT-VALUE] 88,520,102
[RECEIVABLES] 1,928,932
[ASSETS-OTHER] 3,087
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 90,452,121
[PAYABLE-FOR-SECURITIES] 3,087
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 0
[TOTAL-LIABILITIES] 2,775,659
[SENIOR-EQUITY] 2,775,659
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 110,798,906
[SHARES-COMMON-PRIOR] 4,500,825
[ACCUMULATED-NII-CURRENT] 6,701,087
[OVERDISTRIBUTION-NII] (929,517)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (25,900,562)
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 3,707,635
[DIVIDEND-INCOME] 87,676,462
[INTEREST-INCOME] 77,588
[OTHER-INCOME] 47,077
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] (1,054,182)
[REALIZED-GAINS-CURRENT] (929,517)
[APPREC-INCREASE-CURRENT] (4,652,779)
[NET-CHANGE-FROM-OPS] 8,764,056
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,510,566
[NUMBER-OF-SHARES-REDEEMED] (4,710,828)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (40,248,606)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (21,247,783)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 528,197
[INTEREST-EXPENSE] 27,524
[GROSS-EXPENSE] 1,473,271
[AVERAGE-NET-ASSETS] 106,169,568
[PER-SHARE-NAV-BEGIN] 19.09
[PER-SHARE-NII] (0.21)
[PER-SHARE-GAIN-APPREC] 0.60
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 19.48
[EXPENSE-RATIO] 1.95
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000869698
[NAME] THE GOVETT FUNDS, INC.
[SERIES]
[NUMBER] 07
[NAME] GOVETT ASIA FUND
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 897,165
[INVESTMENTS-AT-VALUE] 758,992
[RECEIVABLES] 127,664
[ASSETS-OTHER] 3,087
[OTHER-ITEMS-ASSETS] 158,129
[TOTAL-ASSETS] 1,047,872
[PAYABLE-FOR-SECURITIES] 42,177
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 56,425
[TOTAL-LIABILITIES] 98,602
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 4,012,073
[SHARES-COMMON-STOCK] 215,341
[SHARES-COMMON-PRIOR] 247,853
[ACCUMULATED-NII-CURRENT] (24,209)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (2,902,250)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (136,344)
[NET-ASSETS] 949,270
[DIVIDEND-INCOME] 9,760
[INTEREST-INCOME] 1,454
[OTHER-INCOME] 0
[EXPENSES-NET] (16,118)
[NET-INVESTMENT-INCOME] (4,904)
[REALIZED-GAINS-CURRENT] (577,529)
[APPREC-INCREASE-CURRENT] 234,398
[NET-CHANGE-FROM-OPS] (348,035)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 23,830
[NUMBER-OF-SHARES-REDEEMED] (56,342)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (523,209)
[ACCUMULATED-NII-PRIOR] (19,305)
[ACCUMULATED-GAINS-PRIOR] (2,324,721)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6,450
[INTEREST-EXPENSE] 24
[GROSS-EXPENSE] 105,572
[AVERAGE-NET-ASSETS] 1,298,284
[PER-SHARE-NAV-BEGIN] 5.94
[PER-SHARE-NII] (0.03)
[PER-SHARE-GAIN-APPREC] (1.50)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 4.41
[EXPENSE-RATIO] 2.50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000869698
[NAME] THE GOVETT FUNDS, INC.
[SERIES]
[NUMBER] 08
[NAME] GOVETT LATIN AMERICAN FUND
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 3,363,919
[INVESTMENTS-AT-VALUE] 2,810,495
[RECEIVABLES] 214,888
[ASSETS-OTHER] 3,116
[OTHER-ITEMS-ASSETS] 85,187
[TOTAL-ASSETS] 3,113,686
[PAYABLE-FOR-SECURITIES] 32,249
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 101,379
[TOTAL-LIABILITIES] 133,628
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 4,722,333
[SHARES-COMMON-STOCK] 405,647
[SHARES-COMMON-PRIOR] 536,719
[ACCUMULATED-NII-CURRENT] 31,317
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1,221,687)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (551,905)
[NET-ASSETS] 2,980,058
[DIVIDEND-INCOME] 81,909
[INTEREST-INCOME] 1,816
[OTHER-INCOME] 0
[EXPENSES-NET] (52,408)
[NET-INVESTMENT-INCOME] 31,317
[REALIZED-GAINS-CURRENT] (210,945)
[APPREC-INCREASE-CURRENT] (863,461)
[NET-CHANGE-FROM-OPS] (1,043,059)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 20,345
[NUMBER-OF-SHARES-REDEEMED] (151,417)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (2,157,524)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (1,010,742)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 20,875
[INTEREST-EXPENSE] 297
[GROSS-EXPENSE] 119,116
[AVERAGE-NET-ASSETS] 4,203,278
[PER-SHARE-NAV-BEGIN] 9.57
[PER-SHARE-NII] 0.08
[PER-SHARE-GAIN-APPREC] (2.30)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.35
[EXPENSE-RATIO] 2.50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
AMENDED AND RESTATED MULTI-CLASS PLAN
FOR
THE GOVETT FUNDS, INC.
AS AMENDED AND RESTATED ON AUGUST 14, 1998
This AMENDED AND RESTATED Multi-Class Plan (THE "PLAN") is adopted pursuant
to Rule 18f-3 under the Act to provide for the issuance and distribution of
multiple classes of shares by each SERIES OF THE GOVETT FUNDS, INC. (EACH SERIES
A "FUND" AND COLLECTIVELY THE "FUNDS") WHICH IS IN EXISTENCE ON THE DATE THIS
PLAN WAS ADOPTED OR WHICH MAY BE CREATED SUBSEQUENTLY, each hereto in accordance
with the terms, procedures and conditions set forth below. A majority of the
Directors of the Company, including a majority of the Directors who are not
interested persons of the Company within the meaning of the Act, found this
Plan, including the expense allocations, to be in the best interest of each Fund
and each Class of Shares of each Fund and adopted this Plan on AUGUST 14,
1998.
A. Definitions. As used herein, the terms set forth below shall have the
meanings ascribed to them below.
1. The Act - Investment Company Act of 1940, as amended.
-------
2. CDSC - contingent deferred sales charge ASSESSED ON CLASS B
----
RETAIL SHARES.
3. CDSC Period - the period of years following acquisition during
-----------
which CLASS B RETAIL Shares are assessed a CDSC upon redemption.
4. Class - a class of Shares of a Fund.
-----
5. Class A RETAIL Shares - ARE DESCRIBED in Section B. 1.
---------------------
6. Class B RETAIL Shares - ARE DESCRIBED in Section B.1 2.
---------------------
7. Company - The Govett Funds, Inc., a corporation organized under
-------
the laws of the State of Maryland.
8. Directors - the directors of the Company.
---------
9. Distribution Expenses - expenses incurred in activities which are
---------------------
primarily intended to result in the distribution and sale of
Shares as defined in a Plan of Distribution and/or board
resolutions.
10. Distribution Fee - a fee paid by a Fund to the Distributor in
----------------
reimbursement of Distribution Expenses.
11. Distributor - THE DISTRIBUTOR OF THE SHARES PURSUANT TO AN
-----------
AGREEMENT, DULY AUTHORIZED BY THE DIRECTORS, WITH THE
COMPANY.
1
<PAGE>
12. Fund - a separate series of Shares of the Company, with the
----
Shares of each such series representing a beneficial interest in
a separate portfolios of securities and other assets.
13. Institutional Class Shares - ARE DESCRIBED in Section B. 13.
--------------------------
14. Money Market Fund - Zurich Kemper Cash Account Trust Money Market
-----------------
Portfolio.
15. Plan of Distribution - Any plan adopted under Rule 12b-1 under
--------------------
the Act with respect to payment of a Distribution Fee.
16. REDEMPTION FEE - A FEE, PAYABLE TO THE AFFECTED FUND, WHICH THE
COMPANY MAY IMPOSE ON ANY SHARES FOR ANY PURPOSE, INCLUDING
DISCOURAGING SHORT-TERM TRADING AND OFFSETTING THE COSTS
RESULTING FROM SUCH ACTIVITY. SEE SECTION I.
17. Service Fee - a fee paid to financial intermediaries for the
-----------
ongoing provision of personal services to Fund shareholders
and/or the maintenance of shareholder accounts.
18. Share - a share of IN COMMON STOCK, $0.00001 PAR VALUE, OF a
-----
Fund.
B. Classes. AS OF THE DATE HEREOF, E Each Fund may offer three Classes
as follows. ADDITIONAL CLASSES MAY BE CREATED OR ELIMINATED BY THE
BOARD OF DIRECTORS FROM TIME TO TIME AND THIS PLAN SHALL BE AMENDED TO
REFLECT SUCH CHANGES.
1. Class A RETAIL Shares. Class A RETAIL Shares shall be offered at
----------------------
net asset value. Class A RETAIL Shares shall be subject to
ongoing Distribution Fees approved from time to time by the
Directors and set forth in the Fund's prospectus. CLASS A RETAIL
SHARES MAY ALSO BE SUBJECT TO A REDEMPTION FEE, AS APPROVED FROM
TIME TO TIME BY THE DIRECTORS AND SET FORTH IN THE FUND'S
PROSPECTUS. Although shares of the Money Market Fund are not
designated as "Class A RETAIL" they shall be treated as Class A
shares for the purposes of this Plan.
2
<PAGE>
2. Class B RETAIL Shares. Class B RETAIL Shares shall be (1)
----------------------
offered at net asset value, (2) subject to a CDSC for the CDSC
Period set forth in Section D. 1, (3) subject to ongoing Service
Fees and Distribution Fees approved from time to time by the
Directors and set forth in the Fund's prospectus, (4) SUBJECT TO
A REDEMPTION FEE, AS APPROVED FROM TIME TO TIME BY THE DIRECTORS
AND SET FORTH IN THE FUNDS' PROSPECTUS, and (-4-5) converted to
Class A RETAIL shares eight years after the calendar month in
which the shareholder's order to purchase was accepted.
3. Institutional Class Shares. Institutional Class Shares shall be
---------------------------
(1) offered at net asset value, and (32) subject to ongoing
Service Fees and Distribution Fees approved from time to time by
the Directors and set forth in the Funds' prospectus.
INSTITUTIONAL CLASS SHARES MAY ALSO BE SUBJECT TO A REDEMPTION
FEE, AS APPROVED FROM TIME TO TIME BY THE BOARD OF DIRECTORS AND
SET FORTH IN THE FUND'S PROSPECTUS.
C. Rights and Privileges of Classes. Each Class of each Fund will
represent an interest in the same portfolio of investments of that
Fund and will have identical voting, dividend, liquidation and other
rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except as
described otherwise herein.
D. CDSC. A CDSC may be imposed upon redemption of Class A Shares and
Class B RETAIL Shares subject to the following conditions:
1. CDSC Period. The CDSC Period for Class B RETAIL Shares shall be
-----------
no more than twenty years as recommended by the Distributor and
approved by the Directors.
2. CDSC Rate. The CDSC rate shall be recommended by the Distributor
---------
and approved by the Directors. If a CDSC is imposed for a period
greater than one year the CDSC rate must decline during the CDSC
Period such that (a) the CDSC rate is less in the last year of
the CDSC Period than in the first and (b) in each succeeding year
the CDSC rate shall be less than or equal to the CDSC rate in the
preceding year.
3. Disclosure and Changes. The CDSC rates and CDSC Period shall be
----------------------
disclosed in a Fund's prospectus and may be decreased at the
discretion of the Distributor but may not be increased unless
approved as set forth in Section L-M.
4. Method of Calculation. The CDSC shall be assessed on an amount
---------------------
equal to the lesser of the then current market value or the cost
of the Shares being redeemed. No sales charge shall be imposed
on increases in the net asset value of the Shares being redeemed
above the initial purchase price.
3
<PAGE>
No CDSC shall be assessed on Shares derived from reinvestment of
dividends or capital gains distributions. The order in which
Class B RETAIL Shares are to be redeemed when not all of such
Shares would be subject to a CDSC shall be as determined by the
Distributor in accordance with the Act AND THE RULES OF THE
COMMISSION.
5. Waiver. The Distributor may in its discretion waive a CDSC
------
otherwise due upon the redemption of Shares under circumstances
previously approved by the Directors and disclosed in the Fund's
prospectus or statement of additional information and as allowed
under the Act AND THE RULES OF THE COMMISSION.
6. Calculation of offering price. The offering price of Shares
-----------------------------
subject to a CDSC shall be computed in accordance with Rule 22c-1
and Section 22(d) of the Act and the rules and regulations
thereunder.
7. Retention by Distributor. The CDSC paid with respect to Shares
------------------------
of a Fund may be retained by the Distributor to reimburse the
Distributor for commissions paid by it in connection with the
sale of Shares subject to a CDSC and Distribution Expenses to the
extent of such commissions and Distribution Expenses eligible for
reimbursement and approved by the Directors.
E. Service and Distribution Fees. RETAIL Shares shall be subject to a
Distribution Fee, Class B RETAIL Shares shall be subject to a Service
Fee and a Distribution Fee and Institutional Class Shares shall not be
subject to a Service Fee or a Distribution Fee. The Service Fee
applicable to each of Class A RETAIL and Class B RETAIL Shares shall
not exceed 0.25% per annum of the average daily net assets of the
Class and the Distribution Fee shall not exceed 0.75% per annum of the
average daily net assets of the Class. All other terms and conditions
with respect to Service Fees and Distribution Fees shall be governed
by the plans adopted by the Company with respect to such fees and Rule
12b-1 of the Act.
F. Conversion. Class B RETAIL SHARES purchased through the reinvestment
of dividends and distributions paid on CLASS B RETAIL SHARES subject
to conversion shall be treated as if held in a separate sub-account.
Each time any Shares in a Class B Shareholder's account (other than
CLASS B RETAIL Shares held in the sub-account) convert to Class A
RETAIL Shares, a proportionate number of Shares held in the sub-
account shall also convert to Class A RETAIL Shares. All conversions
shall be effected on the basis of the relative net asset values of the
two Classes without the imposition of any sales load or other charge.
So long as any Class of Shares converts into Class A RETAIL Shares,
the Distributor shall waive or reimburse each Fund, or take such other
actions with the approval of the DIRECTORS as may be reasonably
necessary, to ensure the expenses, including payments authorized under
a Plan of Distribution, applicable to the Class A RETAIL Shares are
not higher than the expenses, including payments authorized under the
Plan of Distribution, applicable to the class of shares converting
into Class A
4
<PAGE>
Shares.
G. Allocation of Expenses, Income and Gains Among Classes.
1. Expenses applicable to a particular class. Each Class of each
------------------------------------------
Fund shall pay any Service Fee OR Distribution Fee applicable to
that Class. Other expenses applicable to a particular Class, such
as incremental transfer agency fees, but not including advisory
or custodial fees or other expenses related to the management of
the Fund's assets, shall be allocated between Classes in
different amounts if they are actually incurred in different
amounts by the Classes or the Classes receive services of a
different kind or to a different degree than other Classes.
2. Distribution Expenses. Distribution Expenses actually
---------------------
attributable to the sale of all Classes shall be allocated to
each Class based upon the ratio which sales of each Class bears
to the sales of all Shares of the Fund. For this purpose, Shares
issued upon reinvestment of dividends or distributions, upon
conversion from Class B RETAIL to Class A RETAIL Shares, or upon
stock splits, will not be considered sales.
3. Income, capital gains and losses, and other expenses applicable
---------------------------------------------------------------
to all Classes. Income, realized and unrealized capital gains and
--------------
losses, and expenses, such as advisory fees applicable to all
Classes, shall be allocated to each Class on the basis of the net
asset value of that Class in relation to the net asset value of
the Fund.
4. Determination of nature of expenses. The Directors shall
-----------------------------------
determine in their sole discretion whether any expense other than
those listed herein is properly treated as attributed to a
particular Class or all Classes.
G. Exchange Privilege. Exchanges of Shares shall be permitted between
Funds as follows.
1. General. Shares of one Fund may be exchanged for Shares of the
-------
same Class of another Fund at net asset value and without sales
charge, provided that the account holder remains the same and
-------- ----
provided that the Distributor may specify that certain Funds may
-------- ----
not be exchanged within a designated period, which shall not
exceed 90 days, after acquisition without prior Distributor
approval.
2. MONEY MARKET FUND.
5
<PAGE>
THE MONEY MARKET FUND, WHICH IS NOT A SERIES OF THE COMPANY, IS
OFFERED TO FUND SHAREHOLDERS. EXCHANGES INTO AND OUT OF MONEY
MARKET FUND MAY BE MADE SUBJECT TO THE FOLLOWING CONDITIONS.
A. EXCHANGES INTO MONEY MARKET FUND. SHARES OF ANY CLASS OF ANY
FUND MAY BE EXCHANGED INTO MONEY MARKET FUND, SUBJECT TO ANY
APPLICABLE REDEMPTION FEE AND WITHOUT THE IMPOSITION OF ANY
APPLICABLE CDSC, PROVIDED THAT
(I) SHARES SUBJECT TO A CDSC DO NOT "AGE" WITH RESPECT TO
THE CDSC HOLDING PERIOD WHILE THE SHARES ARE INVESTED
IN MONEY MARKET FUND; AND
(II) SHARES EXCHANGED INTO MONEY MARKET FUND CAN ONLY BE
EXCHANGED FOR FUND SHARES OF THE SAME CLASS FROM WHICH
THEY EXCHANGED OUT OF MONEY MARKET FUND.
B. EXCHANGES OUT OF MONEY MARKET FUND.
(I) NO FEES ARE IMPOSED ON EXCHANGES OUT OF MONEY MARKET
FUND INTO ANY FUND. HOWEVER, SHARES WHICH WERE SUBJECT
TO A CDSC PRIOR TO THE EXCHANGE RESUME AGING WITH
RESPECT TO THE CDSC HOLDING PERIOD, AND INITIAL
PURCHASES INTO A CLASS SUBJECT TO A CDSC BECOME SUBJECT
TO ANY APPLICABLE CDSC.
(II) FUND SHARES PURCHASED BY EXCHANGE OUT OF MONEY MARKET
FUND BECOME SUBJECT TO ANY APPLICABLE REDEMPTION FEE.
2. CDSC Computation. The acquired CLASS B RETAIL Shares will remain
----------------
subject to the CDSC rate schedule and CDSC Period for the
original Fund upon the redemption of the CLASS B RETAIL Shares
from the Govett complex of funds. For purposes of computing the
CDSC payable on a disposition of the new Class B RETAIL Shares,
the holding period for the original Shares shall be added to the
holding period of the new Shares.
I. REDEMPTION FEE. EFFECTIVE SEPTEMBER 1, 1998, FROM TIME TO TIME THE
COMPANY MAY, IN ACCORDANCE WITH APPLICABLE RULES AND REGULATIONS AND
UPON APPROVAL OF THE DIRECTORS, IMPOSE A REDEMPTION OR EXCHANGE FEE ON
ANY CLASS OF SHARES (A "REDEMPTION FEE") FOR ANY PURPOSE, INCLUDING
DISCOURAGING SHORT-TERM TRADING AND OFFSETTING THE COSTS FOR SUCH
TRADING ACTIVITY. THIS FEE, WHICH IS PAYABLE TO THE AFFECTED FUND,
SHALL OPERATE AS DESCRIBED IN THE FUNDS' PROSPECTUS, AND MAY NOT BE
IMPOSED ON SHARES ACQUIRED THROUGH THE REINVESTMENT OF DIVIDENDS OR
CAPITAL GAINS
6
<PAGE>
DISTRIBUTIONS. THE "FIRST-IN, FIRST-OUT" METHOD SHALL BE USED TO
DETERMINE THE HOLDING PERIOD. ALL SHARES PURCHASED PRIOR TO SEPTEMBER
1, 1998 ARE EXEMPT FROM THE REDEMPTION FEE AND WOULD BE CONSIDERED TO
BE REDEEMED FIRST. THE COMPANY MAY WAIVE THE REDEMPTION FEE UNDER
CERTAIN CIRCUMSTANCES, AND THE CONDITIONS OF SUCH WAIVERS SHALL BE
DESCRIBED IN THE FUNDS' PROSPECTUS.
J. Voting Rights of Classes.
1. Shareholders of each Class shall have exclusive voting rights on any
matter submitted to them that relates solely to the Plan of
Distribution related to that Class, provided that.
a. If any amendment is proposed to the plan under which Service
Fees are paid with respect to Class A RETAIL Shares of a
Fund that would increase materially the amount to be borne
by Class A RETAIL Shares under that plan, then no Class B
RETAIL Shares shall convert into Class A RETAIL Shares of
that Fund until the holders of Class B RETAIL Shares of that
Fund have also approved the proposed amendment.
b. If the holders of the Class B RETAIL Shares referred to in
subparagraph a. do not approve the proposed amendment, the
Directors and the Distributor shall take such action as is
necessary to ensure that the Class B RETAIL Shares shall
convert into another Class identical in all material
respects to Class A RETAIL Shares of the Fund as
constituted prior to the amendment.
2. Shareholders shall have separate voting rights on any matter
submitted to shareholders in which the interest of one Class
differs from the interests of any other Class.
K. Dividends. Dividends paid by a Fund with respect to each Class, to the
extent any dividends are paid, will be calculated in the same manner
at the same time on the same day and will be in substantially the same
amount, except any Distribution Fees, Service Fees or incremental
expenses relating to a particular Class will be borne exclusively by
that Class.
L. Reports to Directors. The Distributor shall provide to the Directors
quarterly and annually statements concerning distribution and
Shareholder servicing expenditures complying with paragraph (b)(3)(ii)
of Rule 12b-1 of the Act, as it may be amended from time to time. The
Distributor also shall provide the Directors such information as the
Directors may from time to time deem to be reasonably necessary to
evaluate this Plan.
M. Amendment. Any material amendment to this Plan, shall be approved by
the affirmative vote of a majority of the Directors including the
affirmative vote of the Directors who are not interested persons of
the Company, except that any amendment that increases the CDSC rate
schedule or CDSC Period must also be
7
<PAGE>
approved by the affirmative vote of a majority of the Shares of the
affected Class. The Distributor shall provide the Directors such
information as may be reasonably necessary to evaluate any amendment
to this Plan.
8
