<PAGE>
[LOGO OF
GOVETT FUNDS
APPEARS HERE]
ANNUAL REPORT
December 31, 1998
<PAGE>
[LOGO OF GOVETT APPEARS HERE]
<PAGE>
CONTENTS
LETTER TO THE SHAREHOLDERS 1
PORTFOLIO MANAGEMENT REVIEW 2
FINANCIAL STATEMENTS 11
<PAGE>
LETTER TO SHAREHOLDERS
<PAGE>
February 12, 1999
To Govett Funds Investors:
1998 was a year that tested the mettle of investment managers in most asset
classes as markets were rocked by a series of developments, primarily in the
emerging world, that rippled around the globe. At times, the ripple felt more
like a tidal wave!
The first half of the year was marked by growing challenges in Asia. Economies
slowed; the private sector and governments wrestled with excessive debt,
increasingly unstable currencies and shrinking exports. Rapidly fluctuating
conditions were the hallmark of these times, witness Malaysia's sudden
imposition of capital controls. As the "Asian Miracle" of the early and
mid-1990's appeared to collapse on itself, concern spread to other regions,
particularly Latin America. Russia's debt restructuring and devaluation,
announced in August, impacted the developed world, as the financial sector and
other investors moved to minimize and cover losses and several large hedge funds
staggered.
All this was balanced by the stimulating and reassuring effect of a series of
interest rate cuts, most notably in the U.S. and the UK. Developed Europe joined
the trend as nations prepared optimistically for the move to the euro single
currency and the year ended with strong gains in developed markets in November
and December, featuring a resurgence of smaller companies.
As developed markets rebounded, emerging markets joined the rally, selectively,
in the fourth quarter. The year ended with watchful eyes trained on Brazil and
China's currencies, and Japan's banking solution. Key Asian nations like
Thailand and Korea pressed forward with encouraging reforms. At year-end, growth
projections for many developed markets were modified downward, but not
dramatically. The year ended with a mixed view of corporate earnings in the U.S.
But considerable strength, resiliency and excellent valuations could be found in
both the developing and developed worlds.
In 1998, we made significant changes in our Govett Funds product line. At mid
year, AIB Govett developed a team to manage the Govett Smaller Companies Fund.
The team was strengthened by the inclusion of Julian Cooke, an experienced small
cap manager in AIB Govett's London office, and employees of the Funds'
subadviser based at our U.S. affiliate, Allied Investment Advisors of Baltimore,
MD, to work on the U.S. portion of the portfolio. Their first step was to shift
the Fund to a blend of U.S. and non-U.S. smaller companies and bring rigorous
discipline to stock selection. By the fourth quarter, performance had improved
dramatically, returning 28.3% in that quarter against 16.1% for the Russell
2000.
We also removed the 4.95% sales charge from the Class A Retail shares of our
Funds effective September 1, 1998 to make them more competitively priced,
especially for investment advisors making recommendations for a client's
portfolio. Increasingly, investors in the market for the long term seek the
counsel of professional investment advisers.
We closed two regional funds, Asia and Latin America, and these shareholders
approved the merger of their investments into Govett Emerging Markets Equity
Fund. In addition, on December 31, 1998, we added the Govett International
Smaller Companies Fund. It gives investors access to a newer form of
international diversification featuring smaller capitalization stocks in both
developed and developing markets.
We believe, now more than ever, that the Govett Funds are positioned to play a
prominent and rewarding role in the international component of a professionally
structured portfolio. Thank you for investing with us.
/s/Keith E. Mitchell
Keith E. Mitchell
President and Managing Director
AIB Govett, Inc.
- -------------
Past performance is no guarantee of future results, and the investment return
and principal value of an investment in the Fund will fluctuate, so that an
Investor's shares, when redeemed, may be worth more or less than the original
cost.
Govett funds are distributed by First Data Distributors, Inc., 4400 Computer
Drive, Westborough, MA 01581 (2/99)
Investors need to be aware that investing internationally poses special risks,
such as currency fluctuations, economic and political risks and risks not
associated with domestic securities. See the prospectus for details.
Investors should be aware that investing in the Smaller Companies Fund and the
International Smaller Companies Fund can pose special risks related to the
relatively small size of the companies in which they invest. See the prospectus
for details.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by any bank and are not federally insured by the FDIC, the Federal
Reserve or any other agency.
1
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PORTFOLIO MANAGEMENT REVIEW
- --------------------------------------------------------------------------------
Govett International Equity Fund
Market Conditions During The Year Ended December 31, 1998
1998 was a difficult year for equity markets as they assessed the impact of
emerging market turmoil on the global economy. Nonetheless, many markets -
notably the western developed equity markets - performed strongly over the year
1998 as a whole.
For much of 1998, the major equity markets went ahead strongly, on the view that
the global economy would withstand the negative impact of economic slowdown in
emerging markets. Supporting factors were lower inflation (which boosted real
incomes) and lower bond yields, which acted as an economic stimulus.
The strong upward trend in the western equity markets was reversed in July when
emerging market uncertainty spread to Russia and to other emerging markets in
Eastern Europe and Latin America, increasing the risks of a global economic
slowdown. Additional concerns were continuing economic and financial weakness in
Japan and financial losses in a number of major U.S. hedge funds (which had
borrowed substantial amounts from the major banks to invest in the markets).
Thus, by early October, global equity markets as a whole were 24% off their July
peak in local currencies.
Equity markets recovered during the fourth quarter, reacting positively to cuts
in interest rates in the U.S., UK and Europe. Those cuts in rates indicated that
Central Banks were seriously concerned about the downside risk to the global
economy and the global banking system and suggested that rates would be cut
further, if necessary, to restore stronger growth to the global economy.
Significantly, the U.S. equity market set new record highs late in the year
while, at the end of 1998, the world equity market index was about 27% higher in
local currencies than its early October low. The recovery in equity markets
occurred notwithstanding profit warnings from a number of companies and a poor
short-term outlook for profits. In this regard, equities were supported not only
by lower interest rates but by lower bond yields, strong liquidity flows into
the markets and a new wave of merger and takeover activity.
In Europe, the final preparations for EMU went smoothly, and we increasingly saw
a regional strategy being adopted by European corporations. This resulted in
record levels of M&A activity in Europe as national and pan-EMU industry leaders
were formed.
Fund Performance During The Year Ended December 31, 1998
The front-end sales charge on Class A Retail shares of 4.95% was eliminated
effective September 1, 1998. For the year ended December 31, 1998, total return
at NAV for Class A Retail shares of the Fund was 19.12%. This calculation
included reinvestment of capital gains distributions of $1.80 per share. In
comparison, the Morgan Stanley Capital International (MSCI) Europe, Asia and Far
East (EAFE) Index returned 20.33%, and the MSCI EAFE + Emerging (MSCI EAFE +
EMG) Index returned 14.94%. For the period ended December 31, 1998, the total
return at NAV for the Fund's Institutional Class shares was -1.15%, including
the reinvestment of capital gains distributions of $1.51 per share. In 1999, the
benchmark for this Fund has been changed to the MSCI EAFE + EMG to more
accurately reflect the portfolio's investment strategy of incorporating emerging
markets exposure.
Over the year, the Fund emphasized the developed European equity markets
consistently, with 45%-55% of its assets invested there. The Fund's second
heaviest weighting was consistently to the UK. During the height of the emerging
markets' difficulty, the weight in those markets fell as low as 2.5% of the
Fund. It was raised at year-end to 13.9%. Within this, exposure to the Latin
American region was low as Brazil's struggles continued despite President
Cardoso's re-election.
The Fund's cash position was as high as 16.5% as Russia's default and its
consequences played our during August. This cash was put to work during the
final quarter of the year and stood at only 2.2% of the Fund at year-end.
Current Strategy and Outlook For 1999
The Fund is currently predominantly invested in developed Europe, followed by
Japan and then by Asia ex-Japan. As of year-end 1998, the Fund's weighting to
developed markets was 84.2% with 13.9% in emerging markets and 1.9% in other
assets.
The Fund's sector strategy is to overweight the services sector, where the
high-growth, mobile telecommunications industry* is represented. The Fund has
underweight positions in capital equipment and oils*.
Global rate cuts had a significant positive effect on investor sentiment in late
1998, and this has continued into early 1999, compensating for the negative
fallout from an expected global economic slowdown in coming months. Markets
appear prepared to look through short-term economic slowdown in the expectation
that rate cuts will generate stronger growth later in 1999 and into the year
2000.
/s/ Louise McGuigan
Louise McGuigan
- ----------------------
*As of 12/31/98, the Fund held 14.80% of its total net assets in
telecommunications (of which, mobile telecommunications is a significant
component), 7.00% in capital equipment and 3.19% in oils.
2
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Fund's Country Allocations
Percentage of Fund's Total Net Assets as of December 31, 1998
- --------------------------------------------------------------------------------
. 73.9% Western Europe
. 13.1% Southeast Asia
. 2.4% Latin America
. 2.4% Northeast Asia
. 2.1% Southern Europe [PIE CHART APPEARS HERE]
. 1.8% Central/Eastern Europe
. 1% Indian Subcontinent
. 0.8% Middle East & N. Africa
. 0.5% Sub-Saharan Africa
. 0.1% Australasia
. 1.9% Other
- --------------------------------------------------------------------------------
1/7/92-12/31/98 Change in Value of a $10,000 Investment in Govett International
Equity Fund vs. MSCI EAFE Index and vs. MSCI EAFE+EMG
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Fund MSCI MSCI EAFE
NAV EAFE + EMG
01/07/1992 10,000 10,000 10,000
06/30/1992 10,000 9,016 9,124
12/31/1992 9,468 8,815 8,927
06/30/1993 11,685 10,882 10,941
12/31/1993 14,628 11,719 12,131
06/30/1994 13,976 12,765 13,030
12/31/1994 13,394 12,664 13,051
06/30/1995 13,908 13,014 13,205
12/31/1995 14,869 14,127 14,129
06/30/1996 16,413 14,786 14,901
12/31/1996 16,673 15,025 14,964
06/30/1997 18,237 16,733 16,897
12/31/1997 16,554 15,335 15,149
06/30/1998 19,281 17,801 16,934
12/31/1998 19,719 18,453 17,412
- ------------------------------------------------
Fund's Average Annual Class A
Total Return Retail Shares
- ------------------------------------------------
One Year 19.12%
- ------------------------------------------------
Three Year+ 9.87%
- ------------------------------------------------
Five Year+ 6.15%
- ------------------------------------------------
Since Inception (1/7/92)+ 10.21%
- ------------------------------------------------
Source: AIB Govett Asset Management Limited and Datastream
+ Annualized.
This graph compares the Fund's performance with the MSCI Europe Australia Far
East Index, a broad-based unmanaged index that represents the general
performance of international equity markets and with the MSCI EAFE+EMG Index, a
broad-based unmanaged index that represents the general performance of
international equity markets including exposure to emerging markets. Total
returns for the Fund at NAV and the index include reinvestment of all dividends
and capital gains. The indices to not include commissions or fees that an
investor purchasing the securities in the indices would pay. The total return
line for the indices does not include operating expenses (such as transactions
costs, management fees and sales charges) that reduce return. Past performance
is no guarantee of future results, and the investment return and principal value
of an investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than the original cost. Although the
investment characteristics of the indices are similar to those of the Fund, the
securities owned by the Fund and those composing each index are likely to be
different, and any securities that the Fund and the indices have in common are
likely to have different weightings in the respective portfolios. Investors
cannot invest directly in the indices.
3
<PAGE>
Govett Emerging Markets Equity Fund
Market Conditions During The Year Ended December 31, 1998
1998 proved to be a sharply volatile year, marked by initial optimism, followed
by a series of key events that caused a heavy decline in the third quarter
before leading to a rally at year end.
The first quarter witnessed an improved tone across emerging markets, driven by
a recovery in some parts of Asia from their distressed valuation levels at the
end of 1997. These included Thailand, Malaysia and Korea. However, concerns
lingered that proved well-founded - corporate debt at unsustainable levels, a
steady stream of bankruptcies and vulnerable currencies. These factors, combined
with government's unconvincing levels of commitment to tackle these issues led
to a reversal of these gains and justified the portfolio's continued underweight
position in the markets.
Fears about Asia were compounded in mid-year as the depth of Asia's slowdown
proved to be worse than initial GDP and earnings projections had shown. All this
was exacerbated by the general weakness of Japan (its worst recession in 50
years) and concerns regarding the authorities' commitment to tackle this
situation. Despite these challenges, foreign direct investment in emerging
markets, especially Asia, continued to runs at record levels.
Notwithstanding some signs of improvement in the asset class, investor
confidence was dealt a heavy blow in August when escalating problems in Russia
finally resulted in the restructuring of debt and devaluation of the ruble. The
portfolio had sold all of its holdings in the Russian equity market, but the
Russian crisis seemed to exacerbate concerns already in place over Asia's woes
and led to a sell off across virtually all emerging markets. Default and the
subsequent near collapse of several large hedge funds began to take its toll on
developed markets and also heightened concerns in the resilience of Latin
America.
The late year rally came selectively, and often in economies the Fund deemed too
risky for investment - such as Russia, Malaysia and Indonesia, where markets
bounced sharply off distressed valuation levels despite severe fundamental
problems.
Fund Performance During The Year Ended December 31, 1998
The front-end sales charge on Class A Retail shares of 4.95% was eliminated
effective September 1, 1998. For the year ended December 31, 1998, total return
at NAV was -34.18%. This calculation includes reinvestment of distributions of
15 cents per share. In comparison, the MSCI Emerging Markets Index fell by
- -23.21% during the period. Our focus on growth both at the country and stock
level, led to significant underperformance as this style was out of favor in
what was an extremely volatile and depressed year, where little premium was
given to growth or quality. We believe that this attitude will revert as markets
resume an upward trend based on signs of improving fundamentals.
Current Strategy and Outlook For 1999
The portfolio entered 1999 underweighted in Latin America, but heavy in emerging
Europe and certain markets in Asia.
The high correlation in emerging markets performance in 1998 is unlikely to be
repeated in 1999. Different countries will be in different stages of response
and adjustment to the crises that wracked them in 1998. Put simply, Asia is
closest to the bottom of its contraction phase, Latin America is just entering
in, while emerging Europe appears relatively cushioned from global slowdown
pressures.
There are signs of Asian recovery (albeit not without setbacks from time to
time), and there will be a positive focus on the peripheral markets of Southern
and Central Europe, where moves towards euro convergence will underpin economic
and corporate progress. 1999 is likely no be a year of continued volatility, but
attractive valuations and prospects for resumed economic growth should provide
some very attractive opportunities.
/s/ Rachael Maunder
Rachael Maunder
4
<PAGE>
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Fund's Country Allocations
Percentage of Fund's Total Net Assets as of December 31, 1998
- --------------------------------------------------------------------------------
. 29.4% Latin America
. 21.6% Northeast Asia
. 11.9% Southern Europe
. 11.5% Central/Eastern Europe [PIE CHART APPEARS HERE]
. 8.9% Indian Subcontinent
. 5.8% Southeast Asia
. 4.6% Sub-Saharan Africa
. 2.6% Middle East & N. Africa
. 3.7% Other
- --------------------------------------------------------------------------------
1/7/92-12/31/98 Change in Value of at $ 10,000 Investment in Govett Emerging
Markets Equity Fund vs. MSCI Emerging Markets Index
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Fund MSCI
NAV Global
--- ------
01/07/1992 10,000 10,000
06/30/1992 11,030 10,561
12/31/1992 10,720 10,456
06/30/1993 13,080 11,847
12/31/1993 19,267 17,646
06/30/1994 16,796 16,388
12/31/1994 16,829 17,457
06/30/1995 15,968 16,315
12/31/1995 15,510 15,851
06/30/1996 17,360 17,664
12/31/1996 17,384 16,801
06/30/1997 20,158 19,826
12/31/1997 15,577 14,542
06/30/1998 12,571 11,900
12/31/1998 10,252 11,166
- ------------------------------------------------
Fund's Average Annual At Net
Total Return Asset Value
- ------------------------------------------------
One Year -34.18%
- ------------------------------------------------
Three Year+ -12.89%
- ------------------------------------------------
Five Year+ -11.85%
- ------------------------------------------------
Since Inception (1/7/92)+ 0.36%
- ------------------------------------------------
Source: AIB Govett Asset Management Limited and Datastream
+ Annualized.
This graph compares the Fund's performance with the MSCI Emerging Markets Index
a broad-based unmanaged index that represents the general performance of equity
markets. Total returns for the Fund at NAV and the index include reinvestment of
all dividends and capitalizations. The index does not include commissions or
fees that an investor purchasing the securities in the index would pay. The
total return line for the index does not include operating expenses (such as
transactions costs, management fees and sales charges) that reduce returns. Past
performance is no guarantee of future results, and the investment return and
principal value of an investment in the Fund will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than the original
cost. Although the investment characteristics of the index are similar to those
of the Fund, the securities owned by the Fund and those composing the index are
likely to be different, and any securities that the Fund and the index have in
common are likely to have different weightings in the respective portfolios,
Investors cannot invest directly in the index.
5
<PAGE>
Govett Smaller Companies Fund
Market Conditions During The Year ended December 31, 1998
Smaller companies in the US. underperformed larger companies for most of the
year, following a trend that had been established the year before. This trend
continued despite the fact that smaller companies turned in improving
performance in many sectors and despite historically low valuations relative to
larger companies, where investors continued to seek a degree of defensiveness
and liquidity.
The U.S. stock market, like others worldwide, was volatile during the second
half of the year due to concerns about the outlook for economic growth and
pressures on the financial system. These concerns arose from the crisis in
Russia and other emerging markets, but were addressed adequately by the
concerted moves by monetary authorities to reduce interest rates to stimulate
growth. The Federal Reserve's action to cut rates in September and again in
October provided the basis for a strong recovery in markets.
Fund Performance During The Year Ended December 31, 1998
The front-end sales charge on Class A Retail shares of 4.95% was eliminated
effective September 1, 1998. For the year ended December 31, 1998, the total
return at NAV of the Fund was -11.73% which compares to a decline in the
Russell 2000 Index of -3.45%. The Fund's underperformance in the first three
quarters of the year was due in part to its emphasis on sectors that were
sensitive to decreased demand from Asia and to the disappointing performance of
a number of less liquid investments. The repositioning of the Fund incurred some
cost but the benefits have been seen in an improved performance in the fourth
quarter of the year, when the Fund produced a return of 28.3% compared to a
return from the Russell 2000 Index of 16.1%.
Current Strategy and Outlook For 1999
There have been two key elements to the re-positioning of the Fund. The first
has been a renewed focus on the inherent quality and growth potential of the
companies in which we invest. We focus on companies with strong market
positions, sound finances to facilitate growth, and a proven management team. We
aim to be long-term investors but clearly re-assess constantly the prospects
and valuations of a company. We do concentrate on certain business sectors with
attractive prospects, such as mobile telecommunications* and business services*.
The other element has been an expansion of our strategy of investing in smaller
companies outside the U.S., although holdings in U.S. companies will continue to
represent the majority of the portfolio. There are attractive opportunities in a
number of countries, although often in similar sectors, and at valuations that
can be even more attractive than those in the U.S. can. In addition, we have
generally invested in companies with higher marker valuations than we previously
did.
The economic background remains positive overall. The U.S. economy has continued
to expand and should grow again in 1999, although at a slower rate than last
year. While the Japanese economy remains weak, the rest of Asia has shown signs
of recovery and Europe overall offers reasonable prospects. Inflation is subdued
and interest rates are likely to remain low, which allows for a higher valuation
on equities and on those companies that are capable of delivering superior
growth. Many individual smaller companies worldwide have that potential, and
yet, the valuations of smaller companies relative to larger companies are low.
/s/ Julian Cooke
Julian Cooke
- ------------------
*As of 12/31/98, the Fund held 6.40% of its total net assets in
telecommunications (of which, mobile telecommunications is a significant
component) and 13.50% in business services.
6
<PAGE>
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Fund's Country Allocations
Percentage of Fund's Total Net Assets as of December 31, 1998
- --------------------------------------------------------------------------------
. 66.6% United States
. 8.3% United Kingdom
. 8.2% Japan
. 3.6% Netherlands
. 2.2% Sweden
. 1.9% Denmark [PIE CHART APPEARS HERE]
. 1.9% Poland
. 1.8% China
. 1.6% Belgium
. 1.4% Finland
. 2.5% Other
- --------------------------------------------------------------------------------
1/1/93-12/31/98 Change in Value of a $10,000 Investment in Govett
Smaller Companies Funds vs. Russell 2000 Index
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Govett Smaller Cos Total Return Index
<TABLE>
<CAPTION>
Fund Russell
NAV Index
<S> <C> <C>
01/01/1993 10,000 10,000
06/30/1993 12,720 10,684
12/31/1993 15,850 11,839
06/30/1994 15,750 11,001
12/31/1994 20,395 11,462
06/30/1995 26,794 12,986
12/31/1995 34,495 14,466
06/30/1996 36,833 15,869
12/31/1996 30,833 16,602
06/30/1997 27,090 18,147
12/31/1997 26,963 20,008
06/30/1998 27,514 20,941
12/31/1998 23,799 19,319
</TABLE>
- -------------------------------------------------------------------
Fund's Average Annual At Net
Total Return Asset Value
- -------------------------------------------------------------------
One Year -11.73%
- -------------------------------------------------------------------
Three Year+ -11.64%
- -------------------------------------------------------------------
Five Year+ 8.47%
- -------------------------------------------------------------------
Since Inception (1/1/93)+ 15.55%
- -------------------------------------------------------------------
Source: AIB Govett Asset Management Limited and Datastream
+ Annualized
This graph compares the Fund's performance with the Russell 2000 Index, a
broad-based unmanaged index that represents the general performance of U.S.
smaller companies primarily with "small cap" companies with market
capitalization of less than $500 million. Total return for the Fund at NAV
include reinvestment of all dividends and capital gains. The index does not
include the reinvestment of dividends or capital gains, commissions or fees that
an investor purchasing the securities in the index would pay. The total return
line for the index does not include operating expenses (such as transactions
costs, management fees and sales charges) that reduce returns. Past performance
is no guarantee of future results, and the investment return and principal value
of an investment in the Fund will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than the original cost. Although the
investment characteristics of the index are similar to those of the Fund, the
securities owned by the Fund and those composing the index are likely to be
different, and any securities that the Fund and the index have in common are
likely to have different weightings in the respective portfolios. Investors
cannot invest directly in the index.
7
<PAGE>
Govett Global Income Fund
Market Conditions During The Year Ended
December 31, 1998
With the exception of Japan, the major Government bond markets performed very
strongly in 1998. Ten-year yields in U.S. Treasuries fell from 5.74% at the end
of 1997 to 4.65% at the end of 1998. German ten-year yields fell from 5.35% to
3.87% during the same period. Bond markets benefited from a generally favorable
economic environment. Inflation moved lower, and, except for the U.S., economic
growth remained sluggish.
In the early part of the year, there were concerns that the U.S. Federal Reserve
would raise interest rates because of its concerns about the tightness of the
U.S. labor market. However, the Federal Reserve Board actually cut interest
rates from late September onwards. This action was taken to prevent an impending
credit crunch in debt markets. Fears of a credit crunch arose because investors
became increasingly risk averse during the third quarter following the
effective default on Russian domestic debt in August and the need for a rescue
package to bail out a large hedge fund in financial difficulties in late
September. The credit crunch raised fears of a world recession and caused
switching out of stocks into bonds during the third quarter.
Another effect of this "flight to quality" was to widen the spread between
highly rated liquid Government debt and other bond issues. Emerging market debt
was particularly badly hit in this environment. These spreads narrowed somewhat
in the fourth quarter as stock markets recovered following the Federal Reserve
action to cut rates. U.S. Treasuries slipped slightly, as investors became
concerned again about the strength of the U.S. economy.
European bond markets performed very well during the year. Very sluggish
economic growth and low inflation provided a good backdrop for European Bonds.
The prospect of a successful launch of the new euro currency on January 1, 1999
with eleven initial members also gave European bonds a boost. In fact, the
German Bundesbank cut its short-term interest rate from 3.30% to 3.0% in
mid-December to facilitate a smooth introduction of the new currency.
UK bonds also performed strongly with ten-year yields converging towards German
levels. Investors became more confident that the Monetary Policy Committee of
the Bank of England would keep inflation under control. Cuts in short-term
interest rates from 7.5% at the end of September to 6.25% at the end of December
boosted shorter maturities in particular.
In contrast, the Japanese bond market weakened during the year with 10-year
yields rising from 1.66% at the end of 1997 to 2.02% at the end of 1998.
Although the Japanese economy went into recession during the year, investors
feared an excess supply of Government bonds in 1999. A large issuance is planned
by the Japanese Government in 1999 in an attempt to stimulate the economy while
at the same time the Trust Fund bureau has indicated that it will reduce its
purchases of Japanese bonds in 1999.
On currencies, the U.S. dollar was generally weak. The Deutschmark benefited
from the expectation of flows into the new euro currency as it gained acceptance
as a new reserve currency. The Japanese yen also strengthened considerably
against the U.S. dollar in the fourth quarter of 1998. Demand for yen was high
as investors feared reversal of hedge fund yen "carry trades" and also
reparriation of funds by Japanese investors following the Japanese bond market
sell-off.
Fund Performance During The Year Ended
December 31, 1998
The front-end sales charge on Class A Retail shares of 4.95% was eliminated
effective September 1, 1998. For the year ended December 31, 1998, the total
return at NAV of the Fund was 7.65%. This figure reflects reinvestment of
distributions of 34 cents per share. In comparison, the Salomon Brothers World
Government Bond Index (the "Index") produced a return of 15.30%.
The Fund benefited from the increased exposure to longer maturities, which
performed well. As a result, overall portfolio duration increased from 5.8 years
at end 1997 to 6.9 years at the end of 1998 (the Index weighting was 5.7 years
at year end 1998). In particular the overweighting of UK long dated bonds and
Danish bonds was beneficial. The Fund's bias to the U.S. dollar base was a
negative in comparison to the Index because of the strengthening of the Japanese
yen and the Deutschmark against the U.S. dollar during the year. The sell-off in
the Russian bond market also affected performance adversely compared to the
Index, which contains no emerging market debt. In the third and fourth quarters,
we sold our remaining holding in Argentinean and Russian U.S. dollar denominated
bonds because of the continuing uncertainties surrounding emerging market debt.
The underweighting of the Japanese bond market, which performed badly, was a
positive during the year.
Current Strategy and Outlook For 1999
We are maintaining a positive stance towards bond markets as we feel that the
combination of global economic uncertainty and continuing low inflation should
be supportive. We will remain overweight in U.S. dollar denominated bonds, which
we feel offer good value. We will also maintain, in the short-term, the bias to
the U.S. dollar, which is currently benefiting from concerns over the weakness
of the European economy.
After the recent sell-off in Japanese bonds, we will look for suitable
opportunities to increase exposure in this market again. We will look to reduce
exposure to the UK bond market further as we feel that its re-rating is now
largely completed. Additionally, we will remain out of emerging bond markets
until the international economy picture stabilizes.
/s/ M. Howard Mahon
Howard Mahon
8
<PAGE>
- ----------------------------------------------------------------------
Fund's Country Allocations
Percentage of Fund's Total Net Assets as of December 31, 1998
- ----------------------------------------------------------------------
. 38.5% United States
. 13.8% United Kingdom
. 10.9% Germany [PIE CHART APPEARS HERE]
. 7.3% Ireland
. 7.1% Norway
. 6.2% Austria
. 4.8% Denmark
. 3.6% Netherlands
. 2.6% New Zealand
. 5.2% Other
- -------------------------------------------------------------------------------
1/7/92 - 12/31/98 Change in Value of a $10,000 Investment in Govett
Global Income Fund vs. Salomon Brothers World
Government Bond Index
- -------------------------------------------------------------------------------
Govett Global Income Total Return Index
[LINE GRAPH APPEARS HERE]
Fund Salomon
NAV Index
------ ------
01/07/1992 10,000 10,000
06/30/1992 10,300 10,313
12/31/1992 10,895 10,553
06/30/1993 11,759 11,441
12/31/1993 12,819 11,953
06/30/1994 11,586 12,034
12/31/1994 11,645 12,234
06/30/1995 12,648 14,295
12/31/1995 13,289 14,563
06/30/1996 13,075 14,348
12/31/1996 13,334 15,090
06/30/1997 12,800 14,904
12/31/1997 13,286 15,125
06/30/1997 13,680 15,547
12/31/1997 14,303 17,440
06/30/1998 13,680 15,547
12/31/1998 14,303 17,440
- -------------------------------------------------------------------------------
Fund's Average Annual At Net
Total Return Asset Value
- -------------------------------------------------------------------------------
One Year 7.65%
- -------------------------------------------------------------------------------
Three Year+ 2.48%
- -------------------------------------------------------------------------------
Five Year+ 2.21%
- -------------------------------------------------------------------------------
Since inception (1/7/92)+ 5.26%
- -------------------------------------------------------------------------------
Source: AIB Govett Asset Management Limited and Datastream
+ Annualized.
This graph compares the Fund's performance with Salomon Brothers World
Government Bond Index, a broad-based unmanaged index that represents the
general performance of government bonds in major bond markets. Total returns
for the Fund at NAV and the index include reinvestment of all dividends and
capital gains. The index does not include commissions or fees that an investor
purchasing the securities in the index would pay. The total return line for the
index does not include operating expenses (such as transaction costs, management
fees and sales charges) that reduce returns. Past performance is no guarantee of
future results, and the investment return and principal value of an investment
in the Fund will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost. Although the investment
characteristics of the index are similar to those of the Fund, the securities
owned by the Fund and those composing the index are likely to be different, and
any securities that the fund and the index have in common are likely to have
different weightings in the respective portfolios. Investors cannot invest
directly in the index.
9
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
10
<PAGE>
Govett International Equity Fund
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Value
Shares Description (See Note 1)
- -----------------------------------------------------------------
<S> <C> <C>
Common Stocks - 96.5%
AUSTRALIA - 0.1%
1,966 National Australia Bank . . . . $ 29,635
-----------
CHILE - 0.4%
3,800 Cia. de Telecomunicacoes de
Chile ADR . . . . . . . . . . 78,613
-----------
EGYPT - 0.3%
3,650 Suez Cement GDR . . . . . . . . 50,370
-----------
FINLAND - 2.6%
4,035 Nokia Oyj . . . . . . . . . . . 490,630
-----------
FRANCE - 16.2%
1,587 Accor . . . . . . . . . . . . . 343,550
3,715 Axa . . . . . . . . . . . . . . 538,358
3,040 Banque Nationale de Paris . . . 250,292
1,900 CNP Assurances* . . . . . . . . 57,719
1,324 Groupe Danone . . . . . . . . . 378,996
362 L' Air Liquide . . . . . . . . 66,383
1,290 Lafarge . . . . . . . . . . . . 122,549
2,055 Rhone-Poulenc . . . . . . . . . 105,737
940 Suez Lyonnaise des Eaux . . . . 193,062
3,761 Total . . . . . . . . . . . . . 380,844
2,441 Vivendi . . . . . . . . . . . . 633,232
-----------
3,070,722
-----------
GERMANY - 5.7%
4,049 Deutsche Bank . . . . . . . . . 238,785
2,690 Hoechst . . . . . . . . . . . . 111,216
2,148 HypoVereinsbank . . . . . . . . 169,881
3,723 Mannesmann . . . . . . . . . . 430,608
2,073 Siemens . . . . . . . . . . . . 136,210
-----------
1,086,700
-----------
GREECE - 1.6%
1,430 Alpha Credit Bank . . . . . . . 149,295
3,900 Hellenic Telecommunication
Organization . . . . . . . . . 103,812
1,600 Panafon Hellenic Telecom
GDR* . . . . . . . . . . . . . 41,720
-----------
294,827
-----------
HONG KONG - 2.9%
8,316 Hong Kong & Shanghai Bank
Holdings . . . . . . . . . . . 216,701
14,000 Hutchinson Whampoa . . . . . . 98,938
92,000 New World Development . . . . . 231,566
-----------
547,205
-----------
HUNGARY - 1.0%
6,200 Magyar Tavkozlesi Rt. ADR . . . 184,838
-----------
INDIA - 1.0%
8,000 Mahanagar Telephone Nigam
GDR . . . . . . . . . . . . . 97,600
11,250 State Bank of India GDR . . . . 93,656
-----------
191,256
-----------
IRELAND - 3.2%
9,600 Bank of Ireland . . . . . . . . 213,457
10,700 CRH . . . . . . . . . . . . . . 184,604
6,000 DCC . . . . . . . . . . . . . . 50,866
6,000 Green Property . . . . . . . . 33,910
2,000 Iona Technologies ADR* . . . . 76,000
15,000 Kingspan Group . . . . . . . . 49,527
-----------
608,364
-----------
ISRAEL - 0.5%
1,100 Koor Industries . . . . . . . . 96,073
-----------
ITALY - 4.8%
9,267 Assicurazioni Generali . . . . 386,709
10,780 Instituto Bancario San Paolo di
Torino . . . . . . . . . . . . 190,369
38,700 Telecom Italia . . . . . . . . 330,009
-----------
907,087
-----------
JAPAN - 10.2%
18,000 Fujitsu . . . . . . . . . . . . 240,053
6,000 Honda Motor . . . . . . . . . . 197,253
4,000 Ito-Yokado . . . . . . . . . . 280,018
13,000 Matsushita Electric Industries 230,279
10,000 Ricoh . . . . . . . . . . . . . 92,335
7,000 Shin-Etsu Chemical . . . . . . 168,720
2,800 Sony . . . . . . . . . . . . . 204,200
7,000 Takeda Chemical Industries . . 269,827
20,000 Toppan Printing . . . . . . . . 244,572
-----------
1,927,257
-----------
KOREA - 1.7%
7,800 Korea Electric Power ADR . . . 122,362
12,880 Samsung Electronics GDR
(non-voting shares)* . . . . . 194,166
-----------
316,528
-----------
MEXICO - 1.3%
97,000 Cifra* . . . . . . . . . . . . 118,384
2,700 Telefonos de Mexico ADR . . . . 131,456
-----------
249,840
-----------
NETHERLANDS - 8.3%
2,482 Fortis Amev . . . . . . . . . . 205,655
6,886 ING Groep . . . . . . . . . . . 419,856
10,557 Koninklijke Ahold . . . . . . . 390,146
917 Royal Dutch Petroleum . . . . . 45,657
</TABLE>
See accompanying notes to the financial statements.
11
<PAGE>
Govett International Equity Fund (continued)
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Value
Shares Description (See Note 1)
- -----------------------------------------------------------------
<S> <C> <C>
Common Stocks - (continued)
NETHERLANDS - (CONTINUED)
13,260 VNU . . . . . . . . . . . . . . $ 499,924
-----------
1,561,238
-----------
POLAND - 0.8%
29,361 Telekomunikacja Polska GDR* . . 149,741
-----------
SOUTH AFRICA - 0.5%
700 AngloGold . . . . . . . . . . . 27,238
4,300 South African Breweries . . . . 72,345
-----------
99,583
-----------
SPAIN - 0.0%
14 Banco Santander . . . . . . . . 278
-----------
SWITZERLAND - 10.1%
206 Nestle . . . . . . . . . . . . 449,099
276 Novartis . . . . . . . . . . . 543,347
44 Roche Holding . . . . . . . . . 537,689
430 Swisscom* . . . . . . . . . . . 180,277
640 UBS* . . . . . . . . . . . . . 196,923
-----------
1,907,335
-----------
TAIWAN - 0.7%
15,015 Asustek Computer GDR* . . . . . 131,757
-----------
THAILAND - 0.0%
3,000 Finance One Public* . . . . . . 0
-----------
TURKEY - 0.5%
2,750,000 Sabanci Holding . . . . . . . . 42,279
4,340,000 Yapi ve Kredi Bankasi . . . . . 50,216
-----------
92,495
-----------
UNITED KINGDOM - 22.1%
6,776 Allied Domecq . . . . . . . . . 62,515
8,731 Allied Zurich* . . . . . . . . 130,234
35,007 ASDA Group . . . . . . . . . . 93,922
7,500 Barclays . . . . . . . . . . . 161,725
34,190 Barratt Developments . . . . . 131,408
8,566 BP Amoco . . . . . . . . . . . 127,916
10,756 British American Tobacco . . . 94,582
10,000 British Telecommunications . . 150,661
7,478 CGU . . . . . . . . . . . . . . 117,081
8,050 Computacenter* . . . . . . . . 58,933
14,500 Cookson Group . . . . . . . . . 31,605
9,250 Diageo . . . . . . . . . . . . 105,271
9,500 General Electric . . . . . . . 85,750
9,425 Glaxo Wellcome . . . . . . . . 324,297
8,047 Granada Group . . . . . . . . . 142,257
18,398 Lloyds TSB Group . . . . . . . 261,727
15,599 Marks & Spencer . . . . . . . . 106,996
12,500 National Power . . . . . . . . 107,733
9,845 National Westminister Bank . . 189,850
15,722 Prudential . . . . . . . . . . 237,392
7,542 Railtrack Group . . . . . . . . 197,140
14,729 Royal & Sun Alliance Insurance
Group. . . . . . . . . . . . . 120,266
7,289 Severn Trent . . . . . . . . . 124,066
14,929 Shell Transport & Trading . . . 91,720
20,899 Siebe . . . . . . . . . . . . . 82,411
12,650 Unilever . . . . . . . . . . . 141,860
9,000 Viridian Group . . . . . . . . 108,865
18,352 Vodafone Group . . . . . . . . 298,019
10,263 Yorkshire Water . . . . . . . . 93,918
4,434 Zeneca Group . . . . . . . . . 193,068
-----------
4,173,188
-----------
TOTAL - COMMON STOCKS
(Cost $15,454,868) . . . . . . 18,245,560
-----------
Preferred Stocks - 1.6%
BRAZIL - 0.7%
933,000 Telesp . . . . . . . . . . . . 127,180
-----------
GERMANY - 0.9%
1,895 Henkel KGaA . . . . . . . . . . 164,881
-----------
TOTAL - PREFERRED STOCKS
(Cost $342,764) . . . . . . . 292,061
-----------
Rights* - 0.0%
TAIWAN - 0.0%
17,000 Compal Electronics Rights . . .
(Cost $0) 27
-----------
TOTAL INVESTMENTS -
98.1%
(COST $15,797,632) . . . . 18,537,648
Other Assets and Liabilities
(net) - 1.9% . . . . . . . . 362,949
-----------
TOTAL NET ASSETS -
100.0% . . . . . . . . . . . . $18,900,597
===========
</TABLE>
* Non-income producing security
ADR American Depositary Receipt
GDR Global Depositary Receipt
See accompanying notes to the financial statements.
12
<PAGE>
Govett International Equity Fund (continued)
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Geographic Concentration
<S> <C>
United Kingdom ................................................... 22.1%
France ........................................................... 16.2
Japan ............................................................ 10.2
Switzerland ...................................................... 10.1
Netherlands ...................................................... 8.3
Germany .......................................................... 6.6
Italy ............................................................ 4.8
Ireland .......................................................... 3.2
Hong Kong ........................................................ 2.9
Finland .......................................................... 2.6
Other ............................................................ 11.1
-----
98.1
Other Assets and Liabilities (net) ............................... 1.9
-----
Total Net Assets ................................................. 100.0%
=====
</TABLE>
<TABLE>
<CAPTION>
SECTOR CONCENTRATION
<S> <C>
Telecommunications ............................................... 14.8%
Banking .......................................................... 12.8
Insurance ........................................................ 11.7
Health & Personal Care ........................................... 9.8
Retail ........................................................... 9.1
Capital Equipment ................................................ 7.0
Services ......................................................... 6.4
Electrical & Electronics ......................................... 6.2
Energy Resources ................................................. 4.8
Broadcasting & Publishing ........................................ 4.7
Other ............................................................ 10.8
-----
98.1
Other Assets and Liabilities (net) ............................... 1.9
-----
Total Net Assets ............................................... 100.0%
=====
</TABLE>
See accompanying notes to the financial statements.
13
<PAGE>
Govett Emerging Markets Equity Fund
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Value
Shares Description (See Note 1)
- ------------------------------------------------------------
<S> <C> <C>
Common Stocks - 88.5%
ARGENTINA - 5.1%
15,560 Telefonica de Argentina ADR $ 434,708
11,500 YPF ADR . . . . . . . . . . 321,281
-----------
755,989
-----------
BRAZIL - 1.5%
11,832 Cemig ADR . . . . . . . . . 225,241
-----------
CHILE - 3.3%
13,070 Cia. de Telecomunicacoes de
Chile ADR . . . . . . . . . 270,386
8,600 Enersis ADR . . . . . . . . 221,987
-----------
492,373
-----------
CHINA - 1.4%
6,000 Huaneng Power International
ADR*. . . . . . . . . . . . 87,000
675,000 Qingling Motors H . . . . . 118,494
-----------
205,494
-----------
CROATIA - 0.9%
7,858 Pliva GDR . . . . . . . . . 130,443
-----------
CZECH REPUBLIC - 1.5%
1,620 SPT Telekom GDR* . . . . . . 24,057
12,564 SPT Telekom* . . . . . . . . 192,001
-----------
216,058
-----------
GREECE - 9.4%
3,460 Alpha Credit Bank . . . . . 361,231
16,220 Hellenic Telecommunication
Organization . . . . . . . 431,753
1,580 National Bank of Greece . . 355,652
1,975 Panafon Hellenic Telecom* . 52,924
2,450 Titan Cement . . . . . . . . 188,206
-----------
1,389,766
-----------
HONG KONG - 4.4%
30,000 Cheung Kong Infrastructure
Holdings . . . . . . . . . 66,992
68,000 China Telecom . . . . . . . 117,616
7,400 Hong Kong & Shanghai Bank
Holdings. . . . . . . . . . 184,349
11,000 Hutchinson Whampoa . . . . . 77,737
80,000 New World Development . . . 201,362
-----------
648,056
-----------
HUNGARY - 6.0%
13,740 Magyar Tavkozlesi Rt. ADR . 409,623
8,662 MOL Magyar Olaj-es Gazipari
GDR . . . . . . . . . . . . 239,288
4,800 OTP Bank GDR . . . . . . . . 237,600
-----------
886,511
-----------
INDIA - 8.9%
14,800 Bajaj Auto . . . . . . . . . 181,646
9,450 Castrol (India) . . . . . . 168,774
83 Hindalco Industries . . . . 1,002
7,150 Hindustan Lever . . . . . . 280,057
1,200 Infosys Technologies . . . . 83,862
16,800 ITC . . . . . . . . . . . . 296,680
98 Larsen & Toubro . . . . . . 370
48,500 Mahanagar Telephone Nigam . 209,211
1,900 NIIT . . . . . . . . . . . . 72,642
550 Reliance Industries . . . . 1,580
2,300 Reliance Industries GDR . . 13,052
-----------
1,308,876
-----------
ISRAEL - 2.6%
48,000 Bank Hapoalim . . . . . . . 86,964
2,800 ECI Telecom . . . . . . . . 99,750
2,220 Koor Industries . . . . . . 193,893
-----------
380,607
-----------
KOREA - 11.6%
13,660 Housing & Commercial Bank . 169,189
22,240 Korea Electric Power . . . . 550,916
20,980 LG Chemical . . . . . . . . 228,461
4,640 Pohang Iron & Steel . . . . 292,936
6,980 Samsung Electronics . . . . 468,234
-----------
1,709,736
-----------
MEXICO - 11.7%
20,700 Cemex ADR . . . . . . . . . 102,351
171,250 Cifra* . . . . . . . . . . . 209,002
76,741 Femsa . . . . . . . . . . . 208,173
49,890 Grupo Carso de CV . . . . . 169,358
7,000 Grupo Mexico . . . . . . . . 15,559
88,000 Grupo Modelo . . . . . . . . 185,815
3,600 Grupo Televisa GDR* . . . . 88,875
44,000 Organizacion Soriana . . . . 140,028
1,950 Telefonos de Mexico ADR . . 94,941
208,000 Telefonos de Mexico* . . . . 504,344
-----------
1,718,446
-----------
POLAND - 3.1%
2,930 Bank Rozwoju Eksportu . . . 67,615
75,178 Telekomunikacja Polska
GDR* . . . . . . . . . . . 383,408
-----------
451,023
-----------
SOUTH AFRICA - 4.6%
5,200 AngloGold . . . . . . . . . 202,341
</TABLE>
14
<PAGE>
Govett Emerging Markets Equity Fund (continued)
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Value
Shares Description (See Note 1)
- ------------------------------------------------------------
<S> <C> <C>
Common Stocks - (continued)
SOUTH AFRICA - (CONTINUED)
11,500 Liberty Life . . . . . . . . $ 158,143
20,000 Rembrandt Group . . . . . . 122,236
11,800 South African Breweries . . 198,528
-----------
681,248
-----------
TAIWAN - 6.0%
13,000 Asustek Computer* . . . . . 121,446
84,420 CTCI* . . . . . . . . . . . 121,049
42,000 Hon Hai Precision Industry* 232,030
59,000 Nien Hsing Textile* . . . . 140,084
86,000 President Chain Store . . . 270,919
-----------
885,528
-----------
THAILAND - 4.0%
23,900 Advanced Info Service . . . 142,019
141,500 Bangkok Expressway* . . . . 140,138
325,700 Krung Thai Bank . . . . . . 176,962
18,300 PTT Exploration and
Production* . . . . . . . . 128,880
-----------
587,999
-----------
TURKEY - 2.5%
80,000 Migros Turk TAS . . . . . . 79,883
7,580,000 Sabanci Holding . . . . . . 116,538
14,736,000 Yapi ve Kredi Bankasi . . . 170,502
-----------
366,923
-----------
TOTAL - COMMON STOCKS (Cost
$13,496,341). . . . . . . . 13,040,317
-----------
Preferred Stocks - 7.8%
BRAZIL - 7.8%
13,400 Cia Vale Do Rio Doce . . . . 171,902
10,412,400 Copel . . . . . . . . . . . 74,974
1,111,900 Petrobras . . . . . . . . . 126,075
17,960,318 Tele Norte Leste
Participacoes* . . . . . . 224,458
26,158,900 Tele Sudeste Celular
Participacoes* . . . . . . 110,416
2,423,649 Telesp . . . . . . . . . . . 330,375
2,543,000 Telesp Celular* . . . . . . 111,759
-----------
1,149,959
-----------
TOTAL - PREFERRED STOCKS
(Cost $1,517,748) . . . . . 1,149,959
-----------
Warrants and Rights* - 0.0%
MALAYSIA - 0.0%
971 Rashid Hussain Berhad
Warrants, expire 3/25/02 . $ 0
-----------
PHILIPPINES - 0.0%
16,200 Belle Corp. Warrants,
expire 10/06/00 . . . . . . 36
-----------
TAIWAN - 0.0%
1,400 Compal Electronics Rights . 2
-----------
TOTAL - WARRANTS AND RIGHTS
(Cost $1,277) . . . . . . . 38
-----------
TOTAL INVESTMENTS - 96.3%
(COST $15,015,366) . . 14,190,314
Other Assets and Liabilities
(net) - 3.7% . . . . . . . 543,439
-----------
TOTAL NET ASSETS -
100.0% . . . . . . . . . . . $14,733,753
===========
</TABLE>
* Non-income producing security
ADR American Depositary Receipt
GDR Global Depositary Receipt
See accompanying notes to the financial statements.
15
<PAGE>
Govett Emerging Markets Equity Fund (continued)
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Geographic Concentration
<S> <C>
Mexico ........................................................... 11.7%
Korea ............................................................ 11.6
Greece ........................................................... 9.4
Brazil ........................................................... 9.3
India ............................................................ 8.9
Hungary .......................................................... 6.0
Taiwan ........................................................... 6.0
Argentina ........................................................ 5.1
South Africa ..................................................... 4.6
Hong Kong ........................................................ 4.4
Other ............................................................ 19.3
-----
96.3
Other Assets and Liabilities (net) ............................... 3.7
-----
Total Net Assets ................................................. 100.0%
=====
</TABLE>
<TABLE>
<CAPTION>
SECTOR CONCENTRATION
<S> <C>
National Telecommunications ...................................... 19.1%
Banking .......................................................... 12.3
Regional Telecommunications ...................................... 9.0
Energy Resources ................................................. 8.2
Utilities-Electrical & Gas ....................................... 7.4
Electrical & Electronics ......................................... 7.1
Health & Personal Care ........................................... 4.8
Retail ........................................................... 4.7
Beverages & Tobacco .............................................. 4.0
Building Materials & Components .................................. 3.2
Other ............................................................ 16.5
-----
96.3
Other Assets and Liabilities (net) ............................... 3.7
-----
Total Net Assets ............................................... 100.0%
=====
</TABLE>
See accompanying notes to the financial statements.
16
<PAGE>
Govett Smaller Companies Fund
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Value
Shares Description (See Note 1)
- -------------------------------------------------------------------
<S> <C> <C>
Common Stocks - 102.3%
AUSTRALIA - 0.6%
Retail - 0.6%
315,937 David Jones . . . . . . . . . . . $ 348,462
------------
BELGIUM - 1.6%
Retail - 1.6%
1,200 Colruyt NV . . . . . . . . . . . 999,711
------------
CHINA - 1.8%
Appliances & Household Durables - 1.8%
1,200,000 Guangdong Kelon Electrical
Holdings . . . . . . . . . . . . 1,068,766
------------
DENMARK - 1.9%
Services - 1.9%
18,000 ISS International Service
System . . . . . . . . . . . . . 1,170,870
------------
FINLAND - 1.4%
Services - 1.4%
20,000 JOT Automation Group Oyj* . . . . 827,621
------------
GREECE - 0.2%
Telecommunications - 0.2%
5,390 Panafon Hellenic Telecom
GDR* . . . . . . . . . . . . . . 140,544
------------
ISRAEL - 0.9%
Telecommunications - 0.9%
55,000 ForSoft* . . . . . . . . . . . . 570,625
------------
ITALY - 1.0%
Publishing - 1.0%
240,000 Class Editori* . . . . . . . . . 607,729
------------
JAPAN - 8.2%
Electrical & Electronics - 4.1%
26,700 Fuji Soft ABC . . . . . . . . . . 1,360,434
44,800 Meitec . . . . . . . . . . . . . 1,119,504
------------
2,479,938
------------
Services - 4.1%
20,000 Fujitsu Support & Service . . . . 1,444,395
53,000 H.I.S. . . . . . . . . . . . . . 1,094,285
------------
2,538,680
------------
5,018,618
------------
NETHERLANDS - 3.6%
Electronic Components & Instruments - 1.8%
113,000 Magnus Holding NV* . . . . . . . 1,089,142
------------
Services - 1.8%
16,000 Cap Gemini . . . . . . . . . . . 1,116,140
------------
2,205,282
------------
NORWAY - 0.9%
Electrical & Electronics - 0.9%
81,710 Tandberg* . . . . . . . . . . . . 548,267
------------
POLAND - 1.9%
National Telecommunications - 1.9%
222,970 Telekomunikacja Polska GDR* . . . 1,137,147
------------
SWEDEN - 2.2%
Financial Services - 2.2%
84,000 Securitas . . . . . . . . . . . . 1,307,353
------------
THAILAND - 1.2%
Telecommunications - 1.2%
437,000 Total Access Communication* . . . 751,640
------------
UNITED KINGDOM - 8.3%
Electrical & Electronics - 2.3%
179,033 RM . . . . . . . . . . . . . . . 1,380,683
------------
Electronic Components & Instruments - 1.0%
100,000 Critchley Group . . . . . . . . . 628,099
------------
Health & Personal Care - 3.5%
108,127 Nestor Healthcare Group . . . . . 736,714
100,000 Seton Scholl Healthcare Group . . 1,397,624
------------
2,134,338
------------
Transportation - 1.5%
150,000 Metroline . . . . . . . . . . . . 899,720
------------
5,042,840
------------
UNITED STATES - 66.6%
Appliances & Household Durables - 1.3%
100,000 Windmere-Durable Holdings* . . . 775,000
------------
Banking - 1.6%
40,000 North Fork Bancorp . . . . . . . 957,500
------------
Consumer Products (Cyclical) - 1.5%
15,000 Veritas Software* . . . . . . . . 899,063
------------
Electrical & Electronics - 10.7%
20,000 Ascend Communications* . . . . . 1,315,000
25,000 Chancellor Media* . . . . . . . . 1,196,875
35,000 CIENA* . . . . . . . . . . . . . 511,875
15,000 Jabil Circuit* . . . . . . . . . 1,119,375
20,000 Networks Associates* . . . . . . 1,325,000
20,000 Synopsys* . . . . . . . . . . . . 1,085,000
------------
6,553,125
------------
Electronic Components & Instruments - 11.4%
25,000 Comverse Technology* . . . . . . 1,775,000
50,000 Electronics For Imaging* . . . . 2,009,375
30,000 MMC Networks* . . . . . . . . . . 397,500
20,000 Seagate Technology* . . . . . . . 605,000
45,000 USWeb* . . . . . . . . . . . . . 1,186,875
</TABLE>
17
<PAGE>
Govett Smaller Companies Fund (continued)
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Value
Shares Description (See Note 1)
- -------------------------------------------------------------------
<S> <C> <C>
Common Stocks - (continued)
UNITED STATES - (CONTINUED)
Electronic Components & Instruments - (continued)
15,000 Xilink* . . . . . . . . . . . . . $ 976,875
------------
6,950,625
------------
Energy Resources - 0.4%
40,000 Stolt Comex Seaway* . . . . . . . 270,000
------------
Financial Services - 4.1%
40,000 Paine Webber Group . . . . . . . 1,545,000
40,000 Waddell & Reed Financial . . . . 947,500
------------
2,492,500
------------
Food & Household Products - 6.4%
57,000 Dial . . . . . . . . . . . . . . 1,645,875
25,000 Interstate Bakeries . . . . . . . 660,938
17,000 Suiza Foods* . . . . . . . . . . 865,937
23,000 WestPoint Stevens* . . . . . . . 725,938
------------
3,898,688
------------
Health & Personal Care - 8.9%
12,000 Amgen* . . . . . . . . . . . . . 1,254,750
15,000 Arterial Vascular Engineering* . 787,500
10,000 Biogen* . . . . . . . . . . . . . 830,000
40,000 Chiron* . . . . . . . . . . . . . 1,047,500
30,000 Covance* . . . . . . . . . . . . 873,750
15,000 Dura Pharmaceuticals* . . . . . . 227,812
20,000 SangStat Medical* . . . . . . . . 425,000
------------
5,446,312
------------
Machinery & Engineering - 2.7%
20,000 Kulicke & Soffa Industries* . . . 355,000
50,000 Rental Service* . . . . . . . . . 784,375
20,000 Smith International* . . . . . . 503,750
------------
1,643,125
------------
Multi - Industry - 1.4%
50,000 Personnel Group of America* . . . 875,000
------------
Retail - 7.8%
30,000 Barnes & Noble* . . . . . . . . . 1,275,000
25,000 Borders Group* . . . . . . . . . 623,437
25,000 Linens N Things* . . . . . . . . 990,625
50,000 Office Depot* . . . . . . . . . . 1,846,875
------------
4,735,937
------------
Services - 4.3%
50,000 Allied Waste Industries* . . . . 1,181,250
44,000 Young & Rubicam* . . . . . . . . 1,424,500
------------
2,605,750
------------
Telecommunications - 4.1%
10,000 Excite* . . . . . . . . . . . . . 420,625
35,000 Infoseek* . . . . . . . . . . . . 1,728,125
20,000 Tekelec* . . . . . . . . . . . . 331,250
2,480,000
------------
40,582,625
------------
TOTAL - COMMON STOCKS (Cost
$52,107,226) . . . . . . . . . . 62,328,100
------------
TOTAL INVESTMENTS - 102.3% (Cost
$52,107,226) . . . . . . . . . . 62,328,100
Other Assets and Liabilities (net)
- (2.3)% . . . . . . . . . . . . (1,376,273)
------------
TOTAL NET ASSETS -
100.0% . . . . . . . . . . . . . $ 60,951,827
============
</TABLE>
* Non-income producing security
GDR Global Depositary Receipt
<TABLE>
<CAPTION>
GEOGRAPHIC CONCENTRATION
<S> <C>
United States .................................................... 66.6%
United Kingdom ................................................... 8.3
Japan ............................................................ 8.2
Netherlands ...................................................... 3.6
Sweden ........................................................... 2.2
Denmark .......................................................... 1.9
Poland ........................................................... 1.9
China ............................................................ 1.8
Belgium .......................................................... 1.6
Finland .......................................................... 1.4
Other ............................................................ 4.8
-----
102.3
Other Assets and Liabilities (net) ............................... (2.3)
-----
Total Net Assets ............................................... 100.0%
=====
</TABLE>
<TABLE>
<CAPTION>
SECTOR CONCENTRATION
<S> <C>
Electrical & Electronics ......................................... 18.0%
Electronic Components & Instruments .............................. 14.2
Services ......................................................... 13.5
Health & Personal Care ........................................... 12.4
Retail ........................................................... 10.0
Telecommunications ............................................... 6.4
Food & Household Products ........................................ 6.4
Financial Services ............................................... 6.3
Appliances & Household Durables .................................. 3.1
Machinery & Engineering .......................................... 2.7
Other ............................................................ 9.3
-----
102.3
Other Assets and Liabilities (net) ............................... (2.3)
-----
Total Net Assets ............................................... 100.0%
=====
</TABLE>
See accompanying notes to the financial statements.
18
<PAGE>
Govett Global Income Fund
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Principal Value
Amount Description (See Note 1)
- ---------------------------------------------------------------
<S> <C> <C> <C>
Corportate Bonds - 14.4%
IRELAND - 7.3%
USD 500,000 BGB Finance
6.50%, 09/03/01 . . . . . . $ 513,125
----------
NORWAY - 7.1%
USD 500,000 Telenor Series E
5.75%, 03/26/01 . . . . . . 503,750
----------
TOTAL - CORPORATE BONDS (Cost
$998,751). . . . . . . . . . 1,016,875
----------
Government Bonds and Notes - 80.4%
AUSTRIA - 6.2%
ATS 4,500,000 Republic of Austria
6.25%, 05/31/06 . . . . . . 440,194
----------
DENMARK - 4.8%
DKK 1,900,000 Kingdom Of Denmark 6.00%,
11/15/09 . . . . . . . . . . 341,072
----------
GERMANY - 10.9%
DEM 580,000 Deutschland Republic 6.00%,
06/20/16 . . . . . . . . . . 413,813
DEM 400,000 Deutschland Republic 6.25%,
01/04/24 . . . . . . . . . . 291,509
DEM 100,000 Deutschland Republic 5.625%,
01/04/28 . . . . . . . . . . 67,627
----------
772,949
----------
NETHERLANDS - 3.6%
NLG 400,000 Netherlands Government 7.00%,
06/15/05 . . . . . . . . . . 252,410
----------
NEW ZEALAND - 2.6%
NZD 300,000 New Zealand Government
8.00%, 11/15/06 . . . . . . 183,319
----------
UNITED KINGDOM - 13.8%
GBP 500,000 U.K. Treasury
9.75%, 08/27/02 . . . . . . 971,681
----------
UNITED STATES - 38.5%
USD 400,000 U.S. Treasury Bond
6.50%, 11/15/26 . . . . . . 465,500
USD 651,000 U.S. Treasury Bond 6.125%,
11/15/27 . . . . . . . . . . 729,120
USD 200,000 U.S. Treasury Note
6.50%, 08/31/01 . . . . . . 209,063
USD 1,150,000 U.S. Treasury Note
7.50%, 02/15/05 . . . . . . $1,316,391
----------
2,720,074
----------
TOTAL - GOVERNMENT BONDS AND
NOTES (Cost $5,191,195) . . 5,681,699
----------
TOTAL INVESTMENTS - 94.8%
(COST $6,189,946) . . . 6,698,574
Other Assets and Liabilities
(net) - 5.2% . . . . . . . . 369,720
----------
TOTAL NET ASSETS -
100.0% . . . . . . . . . . . $7,068,294
==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
ATS Austrian Schilling
DEM German Mark
DKK Danish Krone
GBP British Pound
NLG Netherland Guilder
NZD New Zealand Dollar
USD United States Dollar
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC CONCENTRATION
<S> <C>
United States .................................................... 38.5%
United Kingdom ................................................... 13.8
Germany .......................................................... 10.9
Ireland .......................................................... 7.3
Norway ........................................................... 7.1
Austria .......................................................... 6.2
Denmark .......................................................... 4.8
Netherlands ...................................................... 3.6
New Zealand ...................................................... 2.6
-----
94.8
Other Assets and Liabilities (net) ............................... 5.2
-----
Total Net Assets ............................................... 100.0%
=====
</TABLE>
See accompanying notes to the financial statements.
19
<PAGE>
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Emerging
International Markets Smaller Global
Equity Equity Companies Income
Fund Fund Fund Fund
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value
(Note 1) - (see
accompanying Schedule
of Investments) . . $18,537,648 $ 14,190,314 $ 62,328,100 $ 6,698,574
Cash . . . . . . . . 409,428 541,730 - 216,193
Foreign currency, at
value (Note 1) . . . 53,022 383,622 - -
Receivable from:
Securities sold . . - 98,561 1,461,769 -
Net open forward
currency contracts
(Note 8) . . . . . - - - 17,204
Fund shares sold . . 13,157 82,279 15,762 -
Dividends and
interest. . . . . . 37,119 118,659 29,987 161,947
Investment manager
(Note 2) . . . . . 13,015 - - 15,244
Other assets . . . . 19,868 17,858 18,997 16,409
----------- ------------ ------------ -----------
Total assets . . . . 19,083,257 15,433,023 63,854,615 7,125,571
----------- ------------ ------------ -----------
LIABILITIES:
Overdraft payable . . - - 1,215,949 -
Payable for:
Securities purchased - 403,874 1,088,533 -
Fund shares
repurchased . . . . 26,311 84,965 361,800 -
Investment manager
(Note 2) . . . . . - 3,798 20,418 -
Directors' fees (Note
2). . . . . . . . . 120 361 120 120
Professional fee . . 32,708 53,333 32,708 32,708
Accrued expenses and
other liabilities . 123,521 152,939 183,260 24,449
----------- ------------ ------------ -----------
Total liabilities . 182,660 699,270 2,902,788 57,277
----------- ------------ ------------ -----------
NET ASSETS . . . . . $18,900,597 $ 14,733,753 $ 60,951,827 $ 7,068,294
=========== ============ ============ ===========
NET ASSETS CONSIST OF:
Paid-in-capital . . . $15,621,295 $ 29,135,181 $ 94,903,771 $11,378,210
Undistributed net
investment loss . . - (42,101) (28,208) (149,966)
Accumulated net
realized gain (loss)
on investments and
foreign currency
transactions . . . . 537,691 (13,512,140) (44,145,154) (4,685,819)
Net unrealized
appreciation
(depreciation) of
investments, forward
currency contracts
and net other assets 2,741,611 (847,187) 10,221,418 525,869
----------- ------------ ------------ -----------
NET ASSETS . . . . . $18,900,597 $ 14,733,753 $ 60,951,827 $ 7,068,294
=========== ============ ============ ===========
CLASS A RETAIL SHARES:
NET ASSETS . . . . . $12,222,570 $ 14,733,753 $ 60,951,827 $ 7,068,294
=========== ============ ============ ===========
SHARES OUTSTANDING
(UNLIMITED NUMBER OF
SHARES AUTHORIZED) . 1,094,315 1,851,588 3,617,197 876,402
=========== ============ ============ ===========
NET ASSET VALUE,
OFFERING AND
REDEMPTION PRICE PER
SHARE. . . . . . . . $ 11.17 $ 7.96 $ 16.85 $ 8.07
=========== ============ ============ ===========
INSTITUTIONAL CLASS
SHARES:
NET ASSETS . . . . . $ 6,678,027
===========
SHARES OUTSTANDING
(UNLIMITED NUMBER OF
SHARES AUTHORIZED) . 596,836
===========
NET ASSET VALUE,
OFFERING AND
REDEMPTION PRICE PER
SHARE. . . . . . . . $ 11.19
===========
Cost of investments . $15,797,632 $ 15,015,366 $ 52,107,226 $ 6,189,946
Cost of foreign
currency . . . . . . $ 52,813 $ 382,227 $ - $ -
</TABLE>
See accompanying notes to the financial statements.
20
<PAGE>
Statements of Operations
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Emerging
International Markets Smaller Global
Equity Equity Companies Income
Fund Fund Fund Fund
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest* . . . . . . $ 38,794 $ 34,686 $ 203,822 $ 510,235
Dividends* . . . . . 231,059 503,505 199,258 -
---------- ----------- ------------ ---------
Total investment
income. . . . . . . 269,853 538,191 403,080 510,235
---------- ----------- ------------ ---------
EXPENSES:
Management fee
(Note 2) . . . . . . 155,629 209,395 838,390 61,731
Custody and
administration fees 111,362 255,920 350,459 40,566
12b-1 fee (Note 3) . 46,469 76,981 308,242 28,813
Professional fee . . 63,463 69,164 62,163 62,238
Transfer agent fee . 57,547 142,634 658,837 26,402
Registration and
filing fees . . . . 15,969 22,298 61,561 14,215
Directors' fees and
expenses . . . . . . 26,465 27,664 26,665 27,665
Insurance . . . . . . 8,605 8,457 8,605 9,281
Commitment Fee (Note
4) . . . . . . . . . 5,452 11,437 26,584 8,994
Other . . . . . . . . 12,053 24,528 65,413 5,378
---------- ----------- ------------ ---------
Total expenses . . . 503,014 848,478 2,406,919 285,283
---------- ----------- ------------ ---------
Less: Expenses
reimbursed and fees
waived by the Manager
(Note 2) . . . . . . (140,867) (324,811) (772,450) (141,236)
---------- ----------- ------------ ---------
Net operating expenses 362,147 523,667 1,634,469 144,047
---------- ----------- ------------ ---------
Interest (Note 4) . . - 7,333 36,100 6,489
---------- ----------- ------------ ---------
NET INVESTMENT INCOME
(LOSS) . . . . . . . (92,294) 7,191 (1,267,489) 359,699
---------- ----------- ------------ ---------
REALIZED AND
UNREALIZED GAIN
(LOSS):
Net realized gain
(loss) on:
Investment
transactions. . . . 2,806,717 (7,419,424) (22,897,372) (127,151)
Foreign currency
transactions and
forward foreign
currency contracts. 119,300 (259,641) (52,863) (362,098)
---------- ----------- ------------ ---------
Net realized gain
(loss) . . . . . . 2,926,017 (7,679,065) (22,950,235) (489,249)
---------- ----------- ------------ ---------
Net unrealized
appreciation
(depreciation) on:
Investments . . . . 132,470 (909,917) 15,277,296 722,288
Foreign currency
transactions and
forward foreign
currency contracts. (20,244) (4,326) 543 1,776
---------- ----------- ------------ ---------
Net unrealized
appreciation
(depreciation)
during the period 112,226 (914,243) 15,277,839 724,064
---------- ----------- ------------ ---------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) . . . . . . . 3,038,243 (8,593,308) (7,672,396) 234,815
---------- ----------- ------------ ---------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS . . . . . $2,945,949 $(8,586,117) $ (8,939,885) $ 594,514
========== =========== ============ =========
*Net of foreign taxes
withheld of . . . . $ 32,073 $ 8,283 $ 3,609 $ 156
</TABLE>
See accompanying notes to the financial statements.
21
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Emerging Markets
International Equity Fund Equity Fund
-------------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
------------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS FROM:
OPERATIONS:
Net investment income
(loss) . . . . . . . $ (92,294) $ (219,105) $ 7,191 $ (290,519)
Net realized gain
(loss) on investment
and foreign currency
transactions . . . . 2,926,017 542,801 (7,679,065) 261,861
Net change in
unrealized
appreciation
(depreciation) on
investments, forward
currency contracts,
foreign currency, and
net other assets . . 112,226 (90,140) (914,243) (2,490,178)
----------------- ------------ ------------ ------------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 2,945,949 233,556 (8,586,117) (2,518,836)
----------------- ------------ ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS:
Class A Retail Shares
From net investment
income:. .. . . . - - (337,697) -
In excess of net
investment income: - - - -
From net realized
gains: . . . . . (1,795,430) (398,221) - -
Return of capital: - - - -
Institutional Class
Shares:
From net realized
gains:. . . . . . (792,286) - - -
----------------- ------------ ------------ ------------
Total distributions
to shareholders . . (2,587,716) (398,221) (337,697) -
----------------- ------------ ------------ ------------
FUND SHARE
TRANSACTIONS (NOTE
6):
CLASS A RETAIL SHARES:
Proceeds from shares
sold . . . . . . . . 1,654,711 5,058,342 2,989,068 30,078,065
Proceeds from shares
issued in connection
with merger of Latin
America Fund (Note
10). . . . . . . . . - - 1,238,739 -
Proceeds from shares
issued in connection
with merger of Asia
Fund (Note 10) . . . - - 801,620 -
Net asset value of
shares issued on
reinvestment of
distributions. . . . 1,696,393 372,030 313,058 -
Cost of shares
repurchased. . . . . (5,574,274) (17,135,065) (14,583,908) (51,474,083)
----------------- ------------ ------------ ------------
Net increase
(decrease) in net
assets resulting from
Retail Shares . . . (2,223,170) (11,704,693) (9,241,423) (21,396,018)
----------------- ------------ ------------ ------------
INSTITUTIONAL CLASS
SHARES:
Proceeds from shares
sold . . . . . . . . 1,775 - - -
Proceeds from shares
issued in connection
with merger of ARK
International Equity
Portfolio (Note 11) 6,072,870 - - -
Net asset value of
shares issued on
reinvestment of
distributions. . . . 790,393 - - -
Cost of shares
repurchased. . . . . (51,851) - - -
----------------- ------------ ------------ ------------
Net increase
(decrease) in net
assets resulting from
Institutional Class
Shares . . . . . . . 6,813,187 - - -
----------------- ------------ ------------ ------------
Net increase
(decrease) in net
assets resulting from
fund share
transactions . . . . 4,590,017 (11,704,693) (9,241,423) (21,396,018)
----------------- ------------ ------------ ------------
Total change in net
assets . . . . . . . 4,948,250 (11,869,358) (18,165,237) (23,914,854)
NET ASSETS:
Beginning of year . 13,952,347 25,821,705 32,898,990 56,813,844
----------------- ------------ ------------ ------------
End of year* . . . . $ 18,900,597 $ 13,952,347 $ 14,733,753 $ 32,898,990
================= ============ ============ ============
*Including
undistributed net
investment income
(loss) of . . . . . $ - $ (57,234) $ (42,101) $ 253,534
</TABLE>
See accompanying notes to the financial statements.
22
<PAGE>
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
Smaller Companies Fund Global Income Fund
-------------- --------------- ------------ --------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
- - -------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS FROM:
OPERATIONS:
Net investment income
(loss) . . . . . . . $ (1,267,489) $ (2,848,368) $ 359,699 $ 572,928
Net realized gain
(loss) on investment
and foreign currency
transactions . . . . (22,950,235) (8,405,338) (489,249) (1,079,921)
Net change in
unrealized
appreciation
(depreciation) on
investments, forward
currency contracts,
foreign currency, and
net other assets . . 15,277,839 (8,647,141) 724,064 135,243
- - ------------- ------------- ----------- ------------
Net increase
(decrease) in net
assets resulting from
operations . . . . . (8,939,885) (19,900,847) 594,514 (371,750)
- - ------------- ------------- ----------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS:
Class A Retail Shares
>From net investment
income:. .. . . . - - (78,701) (162,682)
In excess of net
investment income: - - - -
>From net realized
gains: . . . . . - - - -
Return of capital: - - (276,101) (638,355)
Institutional Class
Shares:
>From net realized
gains:. . . . . . - - - -
- - ------------- ------------- ----------- ------------
Total distributions
to shareholders . . - - (354,802) (801,037)
- - ------------- ------------- ----------- ------------
FUND SHARE
TRANSACTIONS (NOTE
6):
CLASS A RETAIL SHARES:
Proceeds from shares
sold . . . . . . . . 56,126,236 722,881,110 130,822 374,048
Proceeds from shares
issued in connection
with merger of Latin
America Fund (Note
10). . . . . . . . . - - - -
Proceeds from shares
issued in connection
with merger of Asia
Fund (Note 10) . . . - - - -
Net asset value of
shares issued on
reinvestment of
distributions. . . . - - 212,673 429,663
Cost of shares
repurchased. . . . . (114,159,592) (834,789,996) (3,791,557) (9,708,061)
- - ------------- ------------- ----------- ------------
Net increase
(decrease) in net
assets resulting from
Retail Shares . . . (58,033,356) (111,908,886) (3,448,062) (8,904,350)
- - ------------- ------------- ----------- ------------
INSTITUTIONAL CLASS
SHARES:
Proceeds from shares
sold . . . . . . . . - - - -
Proceeds from shares
issued in connection
with merger of ARK
International Equity
Portfolio (Note 11) - - - -
Net asset value of
shares issued on
reinvestment of
distributions. . . . - - - -
Cost of shares
repurchased. . . . . - - - -
- - ------------- ------------- ----------- ------------
Net increase
(decrease) in net
assets resulting from
Institutional Class
Shares . . . . . . . - - - -
- - ------------- ------------- ----------- ------------
Net increase
(decrease) in net
assets resulting from
fund share
transactions . . . . (58,033,356) (111,908,886) (3,448,062) (8,904,350)
- - ------------- ------------- ----------- ------------
Total change in net
assets . . . . . . . (66,973,241) (131,809,733) (3,208,350) (10,077,137)
NET ASSETS:
Beginning of year . 127,925,068 259,734,801 10,276,644 20,353,781
- - ------------- ------------- ----------- ------------
End of year* . . . . $ 60,951,827 $ 127,925,068 $ 7,068,294 $ 10,276,644
= ============= ============= =========== ============
*Including
undistributed net
investment income
(loss) of . . . . . $ (28,208) $ - $ (149,966) $ (68,866)
</TABLE>
23
<PAGE>
Financial Highlights
For a Share Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
International Equity Fund
-----------------------------------
Class A Retail Shares
-----------------------------------
Year Ended Year Ended
December 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $ 10.90 $ 11.19
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)+ . . . . . . . . . . . . . . . . . . . . (0.08) (0.24)
Net realized and unrealized gain (loss) on investments . . . . . . . 2.15 0.18
------- -------
Total from investment operations . . . . . . . . . . . . . . . . . 2.07 (0.06)
------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
>From net investment income . . . . . . . . . . . . . . . . . . . . . - -
In excess of net investment income . . . . . . . . . . . . . . . . . - -
>From net realized gain . . . . . . . . . . . . . . . . . . . . . . . (1.80) (0.23)
In excess of net realized capital gain . . . . . . . . . . . . . . . - -
Return of capital . . . . . . . . . . . . . . . . . . . . . . . . . . - -
------- -------
Total distributions . . . . . . . . . . . . . . . . . . . . . . . . (1.80) (0.23)
------- -------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . $ 11.17 $ 10.90
======= =======
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.12 % (0.71)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's) . . . . . . . . . . . . . . . . . . $12,223 $13,952
Net operating expenses to average daily net assets (Note A) . . . . . 2.45 % 2.50 %
Net investment income (loss) to average daily net assets . . . . . . (0.62)% (1.01)%
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . 109 % 51 %
- -----------------
Note A: For the years presented, AIB Govett, Inc., investment manager (or its
predecessors or affiliates thereof), waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds.
Without the waiver and reimbursement of expenses, the expense ratios as
a percentage of average net assets for the periods indicated would have
been:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3.30 % 3.12 %
(a) Commencement of Operations was July 24, 1998.
* Annualized
** Not annualized
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1.
<CAPTION>
International Equity Fund
-----------------------------------
Class A Retail Shares
-----------------------------------
Year Ended Year Ended
December 31, December 31,
1996 1995
---------------------- ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $ 11.27 $ 10.16
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)+ . . . . . . . . . . . . . . . . . . . . (0.11) (0.08)
Net realized and unrealized gain (loss) on investments . . . . . . . 1.45 1.20
------- -------
Total from investment operations . . . . . . . . . . . . . . . . . 1.34 1.12
------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
>From net investment income . . . . . . . . . . . . . . . . . . . . . (0.11) -
In excess of net investment income . . . . . . . . . . . . . . . . . (0.09) -
>From net realized gain . . . . . . . . . . . . . . . . . . . . . . . (1.22) (0.01)
In excess of net realized capital gain . . . . . . . . . . . . . . . - -
Return of capital . . . . . . . . . . . . . . . . . . . . . . . . . . - -
------- -------
Total distributions . . . . . . . . . . . . . . . . . . . . . . . . (1.42) (0.01)
------- -------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . $ 11.19 $ 11.27
======= =======
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.13 % 11.01 %
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's) . . . . . . . . . . . . . . . . . . $25,822 $28,546
Net operating expenses to average daily net assets (Note A) . . . . . 2.39 % 2.50 %
Net investment income (loss) to average daily net assets . . . . . . (1.06)% (0.64)%
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . 84 % 101 %
- -----------------
Note A: For the years presented, AIB Govett, Inc., investment manager (or its
predecessors or affiliates thereof), waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds.
Without the waiver and reimbursement of expenses, the expense ratios as
a percentage of average net assets for the periods indicated would have
been:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09 % 2.75 %
(a) Commencement of Operations was July 24, 1998.
* Annualized
** Not annualized
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1.
<CAPTION>
International Equity Fund
-------------------------
Class A Retail Shares
-------------------------
Year Ended
December 31,
1994
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $ 13.23
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)+ . . . . . . . . . . . . . . . . . . . . (0.12)
Net realized and unrealized gain (loss) on investments . . . . . . . (0.94)
-------
Total from investment operations . . . . . . . . . . . . . . . . . (1.06)
-------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
>From net investment income . . . . . . . . . . . . . . . . . . . . . -
In excess of net investment income . . . . . . . . . . . . . . . . . -
>From net realized gain . . . . . . . . . . . . . . . . . . . . . . . (2.01)
In excess of net realized capital gain . . . . . . . . . . . . . . . -
Return of capital . . . . . . . . . . . . . . . . . . . . . . . . . . -
-------
Total distributions . . . . . . . . . . . . . . . . . . . . . . . . (2.01)
-------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . $ 10.16
=======
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.44)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's) . . . . . . . . . . . . . . . . . . $32,296
Net operating expenses to average daily net assets (Note A) . . . . . 2.50 %
Net investment income (loss) to average daily net assets . . . . . . (0.98)%
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . 155 %
- -----------------
Note A: For the years presented, AIB Govett, Inc., investment manager (or its
predecessors or affiliates thereof), waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds.
Without the waiver and reimbursement of expenses, the expense ratios as
a percentage of average net assets for the periods indicated would have
been:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 2.74 %
(a) Commencement of Operations was July 24, 1998.
* Annualized
** Not annualized
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1.
<CAPTION>
International Equity Fund
-------------------------
Institutional Class Shares
-------------------------
Period Ended
December 31,
1998(a)
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $12.85
-----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)+ . . . . . . . . . . . . . . . . . . . . (0.02)
Net realized and unrealized gain (loss) on investments . . . . . . . (0.13)
-----------
Total from investment operations . . . . . . . . . . . . . . . . . (0.15)
-----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
>From net investment income . . . . . . . . . . . . . . . . . . . . . -
In excess of net investment income . . . . . . . . . . . . . . . . . -
>From net realized gain . . . . . . . . . . . . . . . . . . . . . . . (1.51)
In excess of net realized capital gain . . . . . . . . . . . . . . . -
Return of capital . . . . . . . . . . . . . . . . . . . . . . . . . . -
-----------
Total distributions . . . . . . . . . . . . . . . . . . . . . . . . (1.51)
-----------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . $11.19
===========
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.15)%**
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's) . . . . . . . . . . . . . . . . . . $6,678
Net operating expenses to average daily net assets (Note A) . . . . . 1.75%*
Net investment income (loss) to average daily net assets . . . . . . (0.47)%*
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . 109%
- -----------------
Note A: For the years presented, AIB Govett, Inc., investment manager (or its
predecessors or affiliates thereof), waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds.
Without the waiver and reimbursement of expenses, the expense ratios as
a percentage of average net assets for the periods indicated would have
been:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 2.90%*
(a) Commencement of Operations was July 24, 1998.
* Annualized
** Not annualized
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1.
</TABLE>
See accompanying notes to the financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
Emerging Markets Equity Fund
- --------------------------------------------------------------------
Class A Retail Shares
- --------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
- ------------ ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C>
$ 12.24 $ 13.66 $ 12.24 $ 13.29 $ 17.70
------- ------- ------- ------- -------
0.02 (0.11) (0.13) (0.06) (0.11)
(4.15) (1.31) 1.61 (0.98) (1.93)
------- ------- ------- ------- -------
(4.13) (1.42) 1.48 (1.04) (2.04)
------- ------- ------- ------- -------
(0.15) - - - -
- - (0.06) - -
- - - (0.01) (2.33)
- - - - (0.04)
- - - - -
------- ------- ------- ------- -------
(0.15) - (0.06) (0.01) (2.37)
------- ------- ------- ------- -------
$ 7.96 $ 12.24 $ 13.66 $ 12.24 $ 13.29
======= ======= ======= ======= =======
(34.18)% (10.40)% 12.08 % (7.84)% (12.65)%
$14,734 $32,899 $56,814 $75,887 $76,812
2.50 % 2.50 % 2.38 % 2.50 % 2.50 %
0.03 % (0.54)% (0.62)% (0.49)% (0.77)%
121 % 120 % 122 % 115 % 140 %
4.09 % 2.91 % 2.62 % 2.78 % 2.65 %
<CAPTION>
Smaller Companies Fund
- --------------------------------------------------------------------
Class A Retail Shares
- --------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
$ 19.09 $ 21.83 $ 29.96 $ 19.06 $ 15.85
------- -------- -------- -------- -------
(0.35) (0.43) (0.44) (0.30) (0.10)
(1.89) (2.31) (2.84) 13.32 4.47
------- -------- -------- -------- -------
(2.24) (2.74) (3.28) 13.02 4.37
------- -------- -------- -------- -------
- - - - -
- - - - -
- - (4.85) (2.12) (1.16)
- - - - -
- - - - -
------- -------- -------- -------- -------
- - (4.85) (2.12) (1.16)
------- -------- -------- -------- -------
$ 16.85 $ 19.09 $ 21.83 $ 29.96 $ 19.06
======= ======== ======== ======== =======
(11.73)% (12.55)% (10.62)% 69.13 % 28.68 %
$60,952 $127,925 $259,735 $517,990 $76,873
1.95 % 1.95 % 1.81 % 1.95 % 1.95 %
(1.51)% (1.64)% (1.40)% (1.64 % (1.13)%
104 % 77 % 406 % 280 % 519 %
2.91 % 2.59 % 2.08 % 2.12 % 2.40 %
</TABLE>
25
<PAGE>
Financial Highlights (continued)
For a Share Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
Global Income Fund
-----------------------------------------------------------------------------------------------
Class A Retail Shares
-----------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1998 1997 1996 1995
---------------------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period. $ 7.82 $ 8.32 $ 8.97 $ 8.48
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income+ 0.32 0.26 0.57 0.63
Net realized and
unrealized gain
(loss) on investments 0.27 (0.30) (0.54) 0.53
------- ------- ------- -------
Total from
investment
operations . . . . 0.59 (0.04) 0.03 1.16
------- ------- ------- -------
LESS DISTRIBUTIONS
TO SHAREHOLDERS:
>From net investment
income . . . . . . . (0.06) (0.12) (0.66) (0.63)
In excess of net
investment income. . - - (0.02) (0.04)
>From net realized gain - - - -
In excess of net
realized capital gain - - - -
Return of capital . . (0.28) (0.34) - -
------- ------- ------- -------
Total distributions (0.34) (0.46) (0.68) (0.67)
------- ------- ------- -------
Net asset value, end
of period. . . . . . $ 8.07 $ 7.82 $ 8.32 $ 8.97
======= ======= ======= =======
Total Return. . . . . 7.65% (0.35)% 0.34% 14.11%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of
period (000's) . . . $ 7,068 $10,277 $20,354 $41,181
Net operating expenses
to average daily net
assets (Note A). . . 1.75% 1.75% 1.64% 1.75%
Net investment income
(loss) to average
daily net assets . . 4.37% 4.23% 7.17% 7.45%
Portfolio turnover
rate . . . . . . . . 23% 76% 236% 249%
- -----------------
Note A: For the years presented, AIB Govett, Inc., investment manager (or its
predecessors or affiliates thereof), waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds.
Without the waiver and reimbursement of expenses, the expense ratios as
a percentage of average net assets for the periods indicated would have
been:
Expenses. . . . . 3.54% 2.82% 2.38% 1.93%
(a) Commencement of Operations was July 24, 1998.
* Annualized
** Not annualized
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1.
<CAPTION>
Year Ended
December 31,
1994
------------------------
<S> <C>
Net asset value,
beginning of period. $ 10.16
-------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income+ 0.76
Net realized and
unrealized gain (1.67)
(loss) on investments -------
Total from
investment (0.91)
operations . . . . -------
LESS DISTRIBUTIONS
TO SHAREHOLDERS:
>From net investment (0.24)
income . . . . . . .
In excess of net -
investment income. .
>From net realized gain -
In excess of net -
realized capital gain
Return of capital . . (0.53)
-------
Total distributions (0.77)
-------
Net asset value, end
of period. . . . . . $ 8.48
=======
Total Return. . . . . (9.16)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of $51,691
period (000's) . . .
Net operating expenses 1.75%
to average daily net
assets (Note A). . .
Net investment income 8.30%
(loss) to average
daily net assets . .
Portfolio turnover 701%
rate . . . . . . . .
- -----------------
Note A: For the years presented, AIB Govett, Inc., investment manager (or its
predecessors or affiliates thereof), waived a portion of its management
fee and reimbursed a portion of other operating expenses of the Funds.
Without the waiver and reimbursement of expenses, the expense ratios as
a percentage of average net assets for the periods indicated would have
been:
Expenses. . . . . 1.95%
(a) Commencement of Operations was July 24, 1998.
* Annualized
** Not annualized
+ Per share net investment income (loss) does not reflect the current
period's reclassification of permanent differences between book and tax
basis net investment income (loss). See Note 1.
</TABLE>
See accompanying notes to the financial statements.
26
<PAGE>
Notes to Financial Statements
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
The Govett Funds, Inc. (the "Company") was established as a Maryland corporation
on November 13, 1990. The Company's Articles of Incorporation permit the
Directors to create an unlimited number of series, each of which may issue one
or more separate classes of shares. The Company presently consists of seven
series which are registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act"). Five
series are currently being offered to the public (individually a "Fund" and
collectively the "Funds"): Govett International Equity Fund, Govett Emerging
Markets Equity Fund, Govett Smaller Companies Fund and Govett International
Smaller Companies Fund (each a diversified, open-end management investment
company), and Govett Global Income Fund (a non-diversified, open-end management
investment company). The financial statements for Govett International Smaller
Companies Fund are presented separately.
Each Fund has authorized the issuance of Class A, Class B and Institutional
Class shares. Presently, none of the Funds offer Class B shares and only the
International Equity Fund and International Smaller Companies Fund have
Institutional Class shares outstanding. Each class of shares has equal rights
as to assets and voting privileges. Class A and Class B have exclusive voting
rights for their respective distribution plan. Each class of shares differs in
its respective service, distribution and transfer agent expenses.
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 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, and
has a secondary objective of capital appreciation.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by International Equity
Fund, Emerging Markets Equity Fund, Smaller Companies Fund and Global Income
Fund (each a "Fund," collectively the "Funds") in the preparation of their
financial statements.
PORTFOLIO VALUATION--Portfolio securities listed or traded on domestic or
foreign securities exchanges are valued at the last quoted sales price.
Securities listed or traded on the over-the-counter market are valued at the
mean between the latest available current bid and asked prices. Bonds and
short-term debt securities with remaining maturities in excess of 60 days are
valued at the mean of representative quoted bid and asked prices for such
securities or, if such prices are not available, they are based on prices for
securities of comparable maturity, quality and type. Prices are obtained from
pricing services as authorized by the Company's Board of Directors. Short-term
debt securities which mature in 60 days or less are valued at amortized cost.
Foreign securities quoted in foreign currency are translated into U.S. dollars
at the foreign currency rates applicable on that day or at such other rates as
AIB Govett, Inc. ("AIB Govett" or the "Manager") and AIB Govett Asset Management
Limited ("AIB Govett London" or the "Subadviser") may determine to be
appropriate in computing net asset value. Securities for which there are no
representative quotations or valuations are valued at fair value as determined
in good faith by the Board of Directors.
REPURCHASE AGREEMENTS--Each Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
The value of the collateral is at least equal at all times to the total amount
of the repurchase obligations, including interest. In the event of counterparty
default, the Fund has the right to use the collateral to offset losses incurred.
The Fund may experience a loss if the Fund is delayed or prevented from
exercising its rights to dispose of the collateral securities, including the
risk of a possible decline in the value of the underlying securities during the
period while the Fund seeks to assert its rights. The Manager and Subadviser,
acting under the supervision of the Board of Directors, review the value of the
collateral and the creditworthiness of those banks and dealers with which the
Fund enters into repurchase agreements to evaluate potential risks.
FOREIGN CURRENCY TRANSLATION--The accounting records of the Funds are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the foreign currency exchange rates applicable on that day. Purchases and
sales of securities, income receipts and expense payments are translated into
U.S. dollars at the prevailing exchange rate on the respective dates of the
transactions. Net realized gains and losses on foreign currency transactions
represent net gains and losses from
27
<PAGE>
Notes to Financial Statements (continued)
sales and maturities of forward currency contracts, disposition of foreign
currencies, currency gains and losses realized between the trade and settlement
dates on securities transactions and the difference between the amount of net
investment income accrued and the U.S. dollar amount actually received. The
effects of changes in foreign currency exchange rates on investments in
securities are not segregated in the Statement of Operations from the effects of
changes in market prices of those securities, but are included with the net
realized and unrealized gain or loss on investment transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT--The Funds may enter into forward
foreign currency exchange contracts in connection with planned purchases or
sales of securities or to hedge the value of some or all of a Fund's portfolio
securities. A forward foreign currency contract is an agreement between two
parties to buy and sell a currency at a set price on a future date. The market
value of a forward foreign currency contract fluctuates with changes in currency
exchange rates applicable on that day. Forward foreign currency contracts are
marked-to-market daily using the forward foreign currency exchange rates
applicable on that day or at such other rates as the Subadviser may determine to
be appropriate. The change in value is recorded by the Funds as an unrealized
gain or loss. When a forward foreign currency contract is extinguished, either
by delivering the currency or by entering into another forward foreign currency
contract, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value of the
contract at settlement date.
TAXES--The Funds intend to continue to qualify as regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended. The Funds'
policy is to distribute all of their taxable income, including any net realized
gain on investments, to shareholders within the prescribed time periods.
Therefore, no provision for income or excise tax is necessary.
As a result of the merger of Latin America Fund and Asia Fund with Emerging
Markets Equity Fund, Emerging Markets Equity Fund absorbed the capital loss
carryforwards of Latin America and Asia Fund. However, the use of these losses
may be limited by tax laws.
At December 31, 1998, the following Funds had capital loss carryforwards for
Federal tax purposes available to offset future net capital gains through the
indicated expiration dates:
<TABLE>
<CAPTION>
Emerging Smaller
Expiration Date December 31, Markets Equity Companies Global Income
- ---------------------------- -------------- --------- -------------
<S> <C> <C> <C>
2002 . . . . . . . . . . . $ 2,848,112 $ -- $2,025,272
2003. . . . . . . . . . . . 2,573,930 -- 170,438
2004. . . . . . . . . . . . 46,772 -- 1,412,148
2005. . . . . . . . . . . . 2,080,847 14,359,142 745,011
2006. . . . . . . . . . . . 10,135,022 29,786,012 --
------------ ----------- ----------
Total . . . . . . . . . . . $ 17,684,683 $44,145,154 $4,352,869
============ =========== ==========
</TABLE>
DISTRIBUTIONS TO SHAREHOLDERS--The International Equity Fund, Emerging Markets
Equity Fund and Smaller Companies Fund intend to declare and pay distributions
from net investment income and net realized gains, if any, annually. The Global
Income Fund seeks to declare dividends daily and to pay dividends monthly from
net investment income, if any, and to declare and pay distributions from net
realized gains, if any, annually.
Income and capital gains distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign currency
transactions, post-October losses, option and forward transactions, currency
contracts, organization costs, losses deferred due to wash sales transactions,
market discount and realized gains on sales of investments in passive foreign
investment companies.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to paid-in capital, undistributed net
investment income (loss) and accumulated net realized gain (loss) on investments
and foreign currency transactions. Undistributed net investment income (loss)
and accumulated net realized gain (loss) may include temporary book and tax
differences which should reverse in a subsequent period.
Distributions in excess of tax basis earnings and profits will be reported in
the Fund's financial statements as a return of capital. Furthermore, differences
in the recognition or classification of income between the financial statements
and tax earnings and profits which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of net
investment income or in excess of accumulated net realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME--Security transactions are
recorded as of the trade date. Dividend income is recorded on the ex-dividend
date. Interest income is recorded on an accrual basis. In determining the net
gain or loss on securities sold, the cost of securities is determined on the
identified cost basis. Original issue discount and premium on debt securities is
amortized using the yield to maturity method. Market discount on debt securities
is amortized on a straight-line
28
<PAGE>
Notes to Financial Statements (continued)
basis. Withholding taxes on foreign interest and dividend income have been
withheld in accordance with the applicable country's tax treaty with the U.S.
EXPENSES--A significant portion of the Company's expenses are directly related
to individual Funds. Fund expenses not directly attributable to the operations
of specific class of shares are allocated pro rata to each class on the basis of
the relative net assets of the respective classes. Expenses which are not
readily attributable to a specific Fund are allocated in such manner as deemed
equitable by the Company's Board of Directors, taking into consideration, among
other things, the nature and type of expense.
NOTE 2-MANAGEMENT FEES AND AFFILIATED SERVICE PROVIDERS
The Manager and Subadviser, pursuant to the terms of their respective investment
management contracts, provide all investment management services to the Funds.
As compensation for these services, the Manager earns a monthly fee computed at
an annual rate of 1.00% (0.75% for the Global Income Fund) of the value of the
average daily net assets of each Fund. The Manager agreed to voluntarily waive a
portion of its management fee and to reimburse a portion of the other operating
expenses of the International Equity Fund, Emerging Markets Equity Fund, Smaller
Companies Fund, and Global Income Fund through December 31, 1998, to the extent
that the Funds' annual ordinary operating expenses exceed 2.50% (1.75% for
Institutional Class shares), 2.50%, 1.95%, and 1.75% of its average daily net
assets, respectively. For Fiscal Year 1999, the Manager has agreed to
voluntarily waive a portion of its management fees and to reimburse a portion of
the other operating expenses of the Funds' to the extent that the Funds' annual
ordinary operating expenses exceed 2.35% (2.00% for Institutional Class shares),
1.85%, 2.35% and 2.35% of its average daily net assets, respectively.
Prior to January 1, 1998, AIB Govett London was investment adviser to all Funds.
On that date, following an internal reorganization that did not result in any
change of actual control or management of AIB Govett London or any change in the
management of the Funds, AIB Govett became investment adviser to the Funds, with
AIB Govett London serving as subadviser. AIB Govett and AIB Govett London are
wholly owned by AIB Asset Management Holdings. The terms of the new advisory
agreements were substantially similar to the prior agreements. Berkeley Capital
Management had served as subadvisor to the Smaller Companies Fund until January
9, 1997.
No officer, director or employee of the Manager or its affiliates receives any
compensation from the Company for serving as an officer or director of the
Company. The compensation of the unaffiliated directors of the Company is borne
by the Company.
NOTE 3-DISTRIBUTION AGREEMENT/12B-1 PLAN
The Funds have adopted a Distribution and Service Plan for their Class A shares
pursuant to Rule 12b-1 of the 1940 Act. The Funds pay the Distributor a
distribution fee, computed daily and paid quarterly, equal to an annual rate not
to exceed 0.50% of the value of each Fund's average daily net assets,
attributable to Class A shares, for providing ongoing distribution services and
facilities to the Fund's Class A shares. This is a "compensation plan" that does
not provide for continued payments to a distributor upon termination of the
distribution agreement.
Pursuant to Rule 12b-1, the Board of Directors of the Company approved a
modification of the existing Class A 12b-1 Plan which became effective February
1, 1998. The modification reduced the ongoing distribution fee paid by each
Fund to the Distributor to an annual rate of 0.35% of each Fund's aggregate
average daily net assets attributable to its Class A shares from an annual rate
of 0.50% for all Funds other than the Global Income Fund.
NOTE 4-LINE OF CREDIT
The Company entered into an agreement with Chase Manhattan Bank ("Chase") under
which Chase agreed to provide a 364 day committed line of credit to the Funds.
At November 30, 1998, the Funds discontinued use of the line of credit. The
Funds paid to Chase a commitment fee of 0.20% per annum on the unused amount of
the line of credit.
NOTE 5-PURCHASES AND SALES OF SECURITIES
Costs of purchases and proceeds from sales of securities, excluding short-term
obligations, for the year ended December 31, 1998, were as follows. Only the
Global Income Fund had long-term U.S. Government securities transactions.
<TABLE>
<CAPTION>
Purchases Sales
----------- --------------
<S> <C> <C>
International Equity . . . $16,121,659 $ 18,947,457
=========== ============
Emerging Markets Equity . $24,728,722 $ 36,257,645
=========== ============
Smaller Companies . . . . $84,397,160 $130,102,424
=========== ============
Global Income:
U.S Government securities $ 688,796 $ 1,146,672
Other Investments . . . . 1,153,912 4,448,500
----------- ------------
$ 1,842,708 $ 5,595,172
=========== ============
</TABLE>
NOTE 6-FUND SHARE TRANSACTIONS
The Company's Articles of Incorporation permit the Company's Board of Directors
to establish separate series (or
29
<PAGE>
Notes to Financial Statements (continued)
Funds) and to issue up to a total of three billion shares, with 250 million
shares authorized for each Fund. Transactions in fund shares for the periods
indicated below are as follows:
<TABLE>
<CAPTION>
International Equity Fund
-------------------------------------------
Institutional
Class A Retail Shares Class Shares
-------------------------- ----------------
Year Ended Year Ended Period Ended
12/31/98 12/31/97 12/31/98
------------ ------------- ----------------
<S> <C> <C> <C>
Shares sold . . . . . . . . . 135,936 435,290 1,224
Shares issued in connection
with merger of ARK
International Equity Fund . -- -- 529,774
Shares issued on reinvestment
of distributions . . . . . . 149,566 31,581 70,892
Shares repurchased . . . . . (471,046) (1,494,963) (5,054)
--------- ---------- -------
Net increase (decrease) . . . (185,544) (1,028,092) 596,836
Fund shares:
Beginning of period . . . . 1,279,859 2,307,951 --
--------- ---------- -------
End of period . . . . . . . 1,094,315 1,279,859 596,836
========= ========== =======
</TABLE>
<TABLE>
<CAPTION>
Emerging Markets Smaller Companies
Equity Fund Fund
----------------------- ------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/98 12/31/97
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold . . . . . . 263,337 2,079,986 2,955,025 36,785,127
Shares issued in
connection with merger
of
Asia Fund . . . . . . 105,054 -- -- --
Shares issued in
connection with merger
of Latin America Fund 186,487 -- -- --
Shares issued on
reinvestment of
distributions . . . . 25,065 -- -- --
Shares repurchased . . (1,416,740) (3,550,796) (6,038,915) (41,983,474)
---------- ---------- ---------- -----------
Net increase (decrease) (836,797) (1,470,810) (3,083,890) (5,198,347)
Fund shares:
Beginning of
period . . . . . . . . 2,688,385 4,159,195 6,701,087 11,899,434
---------- ---------- ---------- -----------
End of period . . . . 1,851,588 2,688,385 3,617,197 6,701,087
========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Global Income Fund
----------------------
Year Ended Year Ended
12/31/98 12/31/97
---------- -------------
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . 16,469 40,235
Shares issued on reinvestment of distributions 26,888 62,277
Shares repurchased. . . . . . . . . . . . . . (481,587) (1,235,195)
--------- ----------
Net decrease. . . . . . . . . . . . . . . . . (438,230) (1,132,683)
Fund shares:
Beginning of period. . . . . . . . . . . . . 1,314,632 2,447,315
--------- ----------
End of period. . . . . . . . . . . . . . . . 876,402 1,314,632
========= ==========
</TABLE>
NOTE 7-FEDERAL INCOME TAX COST
At December 31, 1998, the cost and gross unrealized appreciation and
depreciation in value of investments owned by the Funds, as computed on a
federal income tax basis, were as follows:
<TABLE>
<CAPTION>
International Emerging
Equity Markets Equity
Fund Fund
------------- ----------------
<S> <C> <C>
Aggregate cost . . . . . . . $15,797,632 $15,102,362
=========== ===========
Gross unrealized appreciation 3,319,451 1,228,760
Gross unrealized depreciation (579,435) (2,140,808)
----------- -----------
Net unrealized appreciation
(depreciation) . . . . . . . $ 2,740,016 $ (912,048)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Smaller Global
Companies Income
Fund Fund
------------ -------------
<S> <C> <C>
Aggregate cost . . . . . . . $52,107,226 $6,205,227
============ ============
Gross unrealized appreciation 14,436,700 494,173
Gross unrealized depreciation (4,215,826) (826)
------------ ------------
Net unrealized appreciation
(depreciation). . . . . . . $10,220,874 $ 493,347
============ ============
</TABLE>
NOTE 8-FINANCIAL INSTRUMENTS
The Funds regularly trade financial instruments with off-balance sheet risk in
the normal course of their investing activities to assist in managing exposure
to market risk, such as interest rates and foreign currency exchange rates.
These financial instruments include forward foreign currency exchange contracts.
The notional or contractual amounts of these instruments represent the
investment the Funds have in particular classes of financial instruments and do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risk associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
The difference between the offsetting or closed out transactions is receivable
or payable on the original settlement date. The forward foreign currency
contracts at December 31, 1998 were as follows:
30
<PAGE>
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
In
Settle Contracts to Exchange Net
Date Currency Deliver/Receive Currency For Unrealized
------- -------- --------------- -------- -------- Appreciation
--------------
<S> <C> <C> <C> <C> <C> <C>
Global Income Fund
SALES 1/14/99 DEM 1,164,000 USD 705,455 $ 6,498
1/14/99 GBP 537,000 USD 903,771 10,706
-------
$17,204
=======
- ----------------------------------------------------------------------------------------------
</TABLE>
The principal amounts of each non-U.S. dollar denominated contract is stated in
the currency in which the contract is denominated.
GBP - British Pound USD - United States Dollar
DEM - German Mark
NOTE 9-PORTFOLIO INVESTMENT RISKS
Each Fund may purchase securities of foreign issuers. Investing in securities
of foreign issuers involves special risks not typically associated with
investing in securities of U.S. issuers. These risks and considerations may
involve adverse political and economic developments and the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions. In addition, the securities of some foreign companies and
securities markets are less liquid and at times more volatile than securities of
comparable U.S. companies and U.S. securities.
NOTE 10-MERGER OF ASIA FUND AND LATIN AMERICA FUND
On December 18, 1998, Emerging Markets Equity Fund acquired all the net assets
of the Asia and Latin America Funds pursuant to a plan of reorganization
approved by Asia and Latin America Fund shareholders on December 15, 1998. The
merger was accomplished by a tax-free exchange of 291,541 shares of Emerging
Markets Equity Fund (valued at $2,235,733) for 182,159 shares of Asia Fund and
271,709 of Latin America Fund outstanding on December 18, 1998. Asia and Latin
America Funds' net assets at that date ($805,627 and $1,430,106, respectively),
including $4,007 and $191,367 of unrealized depreciation, respectively, were
combined with those of Emerging Markets Equity Fund. The aggregrate net assets
of Emerging Markets Equity Fund, Asia Fund and Latin America Fund immediately
before the merger were $12,325,440, $805,627 and $1,430,106, respectively.
NOTE 11-MERGER OF ARK INTERNATIONAL EQUITY FUND
On July 24, 1998, International Equity Fund acquired all the net assets of the
ARK International Equity Portfolio pursuant to a plan of reorganization approved
by the ARK International Equity Portfolio shareholders on July 24, 1998. The
merger was accomplished by a tax-free exchange of 529,774 shares of
International Equity Fund (valued at $6,808,077) for 592,388 shares of ARK
International Equity Portfolio outstanding on July 24, 1998. ARK International
Equity Portfolio's net assets at that date $6,808,077, including $735,207 of
unrealized depreciation, were combined with those of International Equity Fund.
The aggregrate net assets of International Equity Fund and ARK International
Equity Portfolio immediately before the merger were $13,456,570 and $6,808,077,
respectively.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED):
Govett International Equity Fund hereby designates $2,587,716, at the 20% tax
bracket, as a long-term capital gain dividend for the purpose of the dividend
paid deduction on the Fund's Federal income tax return.
For the year ended December 31, 1998, Govett Global Income Fund earned 33.6% of
it's income from direct U.S. treasury obligations.
31
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of the Govett Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Govett International Equity Fund,
Govett Emerging Markets Equity Fund, Govett Smaller Companies Fund, and Govett
Global Income Fund (four series of The Govett Funds, Inc., hereafter referred to
as the "Funds") at December 31, 1998, the results of each of their operations,
the changes in each of their net assets and their financial highlights for each
of the periods presented, 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 generally 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, 1998 by correspondence with the
custodians and brokers, provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 12, 1999
32
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
33
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
34
<PAGE>
THE GOVETT FUNDS, INC.
BOARD OF DIRECTORS
Patrick K. Cunneen, Chairman
Elliott L. Atamian
Sir Victor Garland
James M. Oates
Frank R. Terzolo
-----------------
Govett Funds Bulk Rate
P.O. Box 61503 U.S. Postage Paid
King of Prussia, PA 19406-0903 Permit #1285
Lancaster, PA
------------------
