Reg. ICA No. 811-8360
File No. 33-75340
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 5 |X|
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 5
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
201 South Lake Avenue, Suite 510
Pasadena, California 91101
----------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (818) 795-0039
Susan Penry-Williams, Esq.
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 Third Avenue
New York, New York 10022
----------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
Mr. James Atkinson
Guinness Flight Investment Funds
201 South Lake Avenue, Suite 510
Pasadena, California 91101
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
|_| IMMEDIATELY UPON FILING PURSUANT TO |_| ON FEBRUARY 1, 1996
PARAGRAPH (b) PURSUANT TO PARAGRAPH (b)
|_| 60 DAYS AFTER FILING PURSUANT TO |_| ON ( ) PURSUANT TO
PARAGRAPH (a)(1) PARAGRAPH (a)(1)
|X| 75 DAYS AFTER FILING PURSUANT TO |_| ON ( ) PURSUANT TO
PARAGRAPH (a)(2) PARAGRAPH (a)(2), OF RULE 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
|_| THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE SECURITIES
ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940 AND
ITS RULE 24f-2 NOTICE FOR ITS DECEMBER 31, 1994 FISCAL YEAR END WAS FILED ON
FEBRUARY 28, 1995 AND WILL FILE ON OR ABOUT FEBRUARY 29, 1996 ITS RULE 24f-2
NOTICE FOR ITS DECEMBER 31, 1995, FISCAL YEAR IN ACCORDANCE WITH RULE 24f-2.
<PAGE>
CROSS-REFERENCE SHEET
(Pursuant to Rule 404 showing location in each form of Prospectus of
the responses to the Items in Part A and location in each form of Prospectus and
the Statement of Additional Information of the responses to the Items in Part B
of Form N-1A).
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
GUINESS FLIGHT ASIA BLUE CHIP FUND
GUINESS FLIGHT ASIA SMALL CAP FUND
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
--------- ------------------ -----------------------
1 Front Cover Page *
2(a) Summary of Fund Expenses *
(b) Summary *
3(a) Financial Highlights *
(b) Not Applicable *
(c) Performance *
(d) Financial Highlights *
4(a) About the Funds; Investment *
Objectives, Programs and
Limitations
(c) Investment Strategies, Policies *
and Risks; Other Risk
Considerations
5(a) The Funds' Management *
(b) The Funds' Management - *
Investment Adviser; Fees and
Expenses
(c) The Funds' Management - *
Investment Adviser
(d) The Funds' Management - The *
Administrator, Distributor
(e) How to Purchase Shares; How *
to Redeem Shares; Dividends,
Distributions and Tax Matters
(f) The Funds' Management - Fees *
and Expenses, Administrator
(g) Not Applicable *
6(a) About the Funds *
-1-
<PAGE>
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
--------- ------------------ -----------------------
(b) Not Applicable *
(c) Not Applicable *
(d) Not Applicable *
(e) Cover Page; General *
Information
(f) Dividends, Distributions and *
Tax Matters - Dividends and
Distributions
(g) Dividends, Distributions and Tax Matters - Dividends
Tax Matters - Tax Matters and Distributions
7(a) How to Purchase Shares *
(b) How to Purchase Shares; *
Determination of Net Asset
Value
(c) Not Applicable *
(d) How to Purchase Shares - *
Opening an Account,
Additional Investments
(e) Not Applicable *
(f) The Funds' Management -
Distribution Plan
8(a) How to Redeem Shares *
(b) How to Redeem Shares *
(c) How to Redeem Shares - *
Redemption of Small Accounts
(d) Not Applicable *
9 Not Applicable *
-2-
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
GUINESS FLIGHT ASIA BLUE CHIP FUND
GUINESS FLIGHT ASIA SMALL CAP FUND
Item Number
Form N-1A, Statement of Additional
Part b Prospectus Caption Information Caption
--------- ------------------ -----------------------
10 * Front Cover Page
11 * Front Cover Page
12 * Not Applicable
13 Investment Objective, Programs Investment Objective and Policies;
and Limitations Investment Strategies and Risks;
Investment Restrictions and Policies
14 * Management of the Funds
15(a) * Not Applicable
(b) * Shareholder Reports
(c) * Management of the Funds
16(a) The Funds' Management - The Investment Adviser and
Investment Adviser Advisory Agreements
(b) The Funds' Management The Investment Adviser and
Advisory Agreements
(c) * Distribution Agreement and
Distribution and Service Plans
(d) The Funds' Management - Distribution Agreement and
Administrator Distribution and Service Plans
(e) * Not Applicable
(f) The Funds' Management - Distribution Agreement and
Distribution Plan Distribution and Service Plans
(g) * Not Applicable
-3-
<PAGE>
Item Number
Form N-1A, Statement of Additional
Part b Prospectus Caption Information Caption
--------- ------------------ -----------------------
(h) General Information - Transfer *
Agent, Custodian, Independent
Accountants
(i) * Not Applicable
17 Investment Objectives, Programs Portfolio Transactions
and Limitations
18 Description of the Funds
19(a) How to Purchase Shares; *
How to Redeem Shares
(b) Determination of Net Asset Value Computation of Net Asset Value
(c) * Not Applicable
20 Dividends, Distributions and Tax Matters
Tax Matters
21(a) * Distribution Agreement and
Distribution and Service Plan
(b) * Distribution Agreement and
Distribution and Service Plan
(c) * Not Applicable
22 * Performance Information
23 * Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
-4-
<PAGE>
PART A.
Guinness Flight China & Hong Kong Fund
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight Global Government Bond Fund
PROSPECTUS April 29, 1996
Please read this prospectus before investing. It is designed to provide you with
information and to help you decide if the Guinness Flight China & Hong Kong
Fund's, Guinness Flight Asia Blue Chip Fund's, Guinness Flight Asia Small Cap
Fund's or the Guinness Flight Global Government Bond Fund's goals match your
own. It should be retained for future reference. A Statement of Additional
Information, dated April 29, 1996 has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Statement of
Additional Information is available without charge upon request by calling the
Funds at 1-800-915-6565.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
(The "China Fund") seeks to provide investors with long term capital growth
through investments in the securities of China and Hong Kong. Under normal
conditions, 85% to 100% of the China Fund's total assets will be invested in
equity securities primarily traded in the markets of China and Hong Kong or in
equity securities of companies that derive a substantial portion of their
revenues from business activities with or in China and/or Hong Kong, but which
are listed on major exchanges elsewhere (e.g., London, New York, Singapore, and
Australia). To date, a majority of the securities held by the China Fund are
listed in Hong Kong. (See "Investment Objectives, Programs and Limitations," for
a more detailed discussion.)
GUINNESS FLIGHT ASIA BLUE CHIP FUND
(The "Asia Blue Chip Fund's") investment objective is long-term capital
appreciation through investments in equity securities of well established and
sizable companies located in the Asian continent. In pursuit of its investment
objective, the Asia Blue Chip Fund intends to invest 65% to 100% of its total
assets in a diversified portfolio of equity securities of companies traded on
the markets of the Asian continent that have a market capitalization of at least
$1 billion. Generally, the Asian continent includes the relatively more
developed markets of Hong Kong, Singapore, Malaysia, and Thailand, as well as
the relatively less developed and emerging markets of Korea and Taiwan in North
Asia; of China; of Indonesia, the Phillipines, and Viet Nam in the ASEAN region;
and of India, Pakistan, Sri Lanka and Bangladesh in East Asia. Under normal
market conditions, the Asia Blue Chip Fund will invest in a minimum of four
countries. (See "Investment Objectives, Programs and Limitations," for a more
detailed discussion.)
GUINNESS FLIGHT ASIA SMALL CAP FUND
(The "Asia Small Cap Fund's") investment objective is long-term capital
appreciation through investments in equity securities of smaller capitalization
issuers located in the Asian continent. In pursuit of its investment objective,
the Asia Small Cap Fund intends to invest 65% to 100% of its total assets in a
diversified portfolio of equity securities of companies traded on the markets of
the Asian continent that have a market capitalization of no more than $1
billion. Generally, the Asian continent includes the relatively more developed
markets of Hong Kong, Singapore, Malaysia, and Thailand, as well as the
relatively less developed and emerging markets of Korea and Taiwan in North
Asia; of China; of Indonesia, the Phillipines, and Viet Nam in the ASEAN region;
and of India, Pakistan, Sri Lanka and Bangladesh in East Asia. Under normal
market conditions, the Asia Small Cap Fund will invest in a minimum of four
countries. (See "Investment Objectives, Programs and Limitations," for a more
detailed discussion.)
- 2 -
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
(The "Global Government Fund") intends to provide investors with both current
income and capital appreciation. The Global Government Fund will invest in the
debt instruments of governments throughout the world. (See "Investment
Objectives, Programs and Limitations," for a more detailed discussion.)
Summary........................................................ 3
Summary of The Funds' Expenses................................. 5
Financial Highlights........................................... 6
Investment Objectives, Programs and Limitations................ 8
Investment Strategies, Policies and Risks...................... 12
Other Risk Considerations...................................... 14
Performance.................................................... 17
The Funds' Management.......................................... 18
How to Purchase Shares......................................... 21
How to Redeem Shares........................................... 23
Shareholder Services........................................... 26
Determination of Net Asset Value............................... 27
Dividends, Distributions and Tax Matters....................... 27
About the Funds................................................ 30
General Information............................................ 31
SUMMARY
THE FUNDS. Guinness Flight Investment Funds, Inc. (the "Guinness Funds") is a
Maryland corporation organized as an open-end, series, management investment
company. Currently, the Guinness Funds offer four separate series portfolios:
Guinness Flight China & Hong Kong Fund (the "China Fund"), Guinness Flight Asia
Blue Chip Fund ("Asia Blue Chip Fund"), Guinness Flight Asia Small Cap Fund
("Asia Small Cap Fund"), and Guinness Flight Global Government Bond Fund (the
"Global Government Fund") (collectively, the "Funds"), each of which pursues
unique investment strategies.
THE INVESTMENT ADVISER. Guinness Flight Investment Management Limited ("Guinness
Flight") serves as the Funds' investment adviser pursuant to Investment Advisory
Agreements (the "Advisory Agreements"). Under the terms of the Advisory
Agreements, Guinness Flight supervises all aspects of the Funds' operations and
provides investment advisory services to the Funds. As compensation for these
services, Guinness Flight receives a fee based on the Funds' average daily net
assets. See "Management of the Funds."
PURCHASING SHARES. Shares of the Funds are offered by this Prospectus at net
asset value. The minimum investment in the Funds is $5,000 or $2,000 for
investments through tax-qualified
- 3 -
<PAGE>
retirement plans. Additional investments must be at least $250. The Funds may
reduce or waive the minimum investment under certain conditions. See "How to
Purchase Shares."
EXCHANGE PRIVILEGE. Shares of a Fund may be exchanged for shares of any other
Fund, or for shares of the Seven Seas Series Money Market Fund, in the manner
and subject to the policies set forth herein. See "Shareholder Services --
Exchange Privilege."
REDEEMING SHARES. Shareholders may redeem all or a portion of their shares at
net asset value at any time. Under certain circumstances, a redemption fee of
1.00% will be charged to any shareholder of the China Fund, Asia Blue Chip Fund,
and the Asia Small Cap Fund who redeems shares purchased less than 30 days prior
to redemption. See "How to Redeem Shares" and "Redemption Fee."
DISTRIBUTIONS. The China Fund, Asia Blue Chip Fund, and Asia Small Cap Fund
declare and pay dividends from net investment income, if any, on a semi-annual
basis. The Global Government Fund declares and pays dividends monthly. In
addition, the Funds make distributions of realized capital gains, if any, on a
semi-annual basis. Dividends and distributions of the Funds may be paid directly
to you by check, or reinvested in additional shares of the Funds, including,
subject to certain conditions, in shares of a Fund other than the Fund making
the distribution. See "Dividends, Distributions and Tax Matters."
RISK CONSIDERATIONS. An investor should be aware that there are risks associated
with certain investment techniques and strategies employed by the Funds,
including those relating to investments in foreign securities. Such risks
include among others currency fluctuations, expropriation, confiscation,
diplomatic developments, and social instability. See "Investment Strategies,
Policies and Risks" and "Other Risk Considerations."
- 4 -
<PAGE>
SUMMARY OF THE FUNDS' EXPENSES
A. SHAREHOLDER TRANSACTION EXPENSES
Blue Small Global
China Chip Cap Govt
----- ---- ----- ------
Sales Charge Imposed on Purchases none none none none
Sales Charge Imposed on Reinvested Dividends none none none none
Deferred Sales Charge Imposed on Redemptions none none none none
Redemption Fee+ + + + none
Exchange Fee none none none none
+ Under certain circumstances, a redemption fee of 1.00% applies to
investors who redeem shares purchased less than 30 days prior to
redemption. See "How to Redeem Shares - Redemption Fee."
B. ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net
assets)
Advisory Fee 1.00% 1.00% 1.00% .75%
Rule 12b-1 Fee .00% .00% .00% .00%
Other Expenses (after expense reimbursement)+ .98% .98% .98% .98%
---- ---- ---- ----
Total Fund Operating Expenses
(after expense reimbursement)+ 1.98% 1.98% 1.98% 1.73%
C. EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT IN
A FUND, ASSUMING (1) A 5% ANNUAL RETURN AND (2) FULL REDEMPTION AT THE
END OF EACH TIME PERIOD:
One Year $20 $20 $20 $18
Three Year $62 $62 $62 $54
Five Year $107 $94
- 5 -
<PAGE>
Ten Year $231 $204
EXPLANATION OF TABLE: The purpose of the table is to assist you in understanding
the various costs and expenses that an investor in a Fund would bear directly or
indirectly.
A. SHAREHOLDER TRANSACTION EXPENSES represent charges paid when you purchase,
redeem or exchange shares of a Fund. See "How to Purchase Shares," "How to
Redeem Shares" and "Redemption Fee."
B. ANNUAL FUND OPERATING EXPENSES are based on a Fund's operating expenses for
the current fiscal year. The Funds incur "other expenses" for maintaining
shareholder records, furnishing shareholder statements and reports, and other
services. For the Asia Blue Chip Fund and Asia Small Cap Fund, "other expenses"
is based on estimated amounts for the current fiscal year. Guinness Flight or
the Administrator may, from time to time, voluntarily agree to defer or waive
fees or absorb some or all of the expenses of the Funds. To the extent that they
should do so, either may seek repayment of such deferred fees or absorbed
expenses after this practice is discontinued. However, no repayment will be made
if it would result in the China Fund's or the Global Government Fund's expense
ratio exceeding 1.98% and 1.73%, respectively. For the prior fiscal year,
Guinness Flight absorbed some of the expenses of the China Fund and Global
Government Fund. If Guinness Flight had not absorbed such expenses, "other
expenses" for the China Fund and Global Government Fund would have been 2.02%
and 20.77%, respectively and "total fund operating expenses" would have been
3.02% and 21.52%, respectively. Guinness Flight anticipates absorbing the
expenses of the Asia Blue Chip Fund and Asia Small Cap Fund. See "The Funds'
Management."
C. EXAMPLE OF EXPENSES. The hypothetical example illustrates the expenses
associated with a $1,000 investment in a Fund over periods of one and three
years, based on the estimated expenses in the above table and an assumed annual
rate of return of 5%. The 5% return and expenses should not be considered
indications of actual or expected Fund performance or expenses, both of which
may vary.
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers & Lybrand for the fiscal
period from June 30, 1994 (commencement of operations) to December 31, 1994, and
Ernst & Young LLP, independent accountants to the Funds, whose unqualified
report covering the fiscal period ending December 31, 1995 is included in the
Statement of Additional Information which may be obtained without charge by
calling the telephone number on the Prospectus cover page.
- 6 -
<PAGE>
Guinness Flight China & Hong Kong Fund
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- -------------------------------------------------------------------------------
For the Year June 30, 1994*
Ended through
December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------
Net asset value, beginning of period........... $11.47 $12.50
Income from investment operations:
Net investment income................. .14 .04
Net realized and unrealized gain (loss)
on investments..................... 2.20 (.96)
---- -----
Total from investment operations............... 13.81 (.92)
----- -----
Less distributions:
Dividends from net investment income (.14) (.04)
Distributions from net capital gains (.03) .07
----- ----
Total distributions............................ ( .17) (.11)
------ -----
Net asset value, end of period................. $13.64 $11.47
===== =====
Total return................................... 20 .45% (7.74)%
Ratios/supplemental data:
Net assets, end of period (thousands). $55,740 $2,287
Ratio of expenses to average net assets:
Before expense reimbursement.......... 3.02%++ 19.92%+
After expense reimbursement........... 1.98% 2.00%+
Ratio of net investment income to
average net assets:
Before expense reimbursement.......... 0.49% (17.15)%+
After expense reimbursement.......... 1.52% 0.78%+
Portfolio turnover rate........................ 10 .89% 27.25%
* Commencement of operations.
+ Annualized.
++ Includes indirectly paid expenses. Excluding indirectly paid expenses
for the year ended December 31, 1995, the "ratio of expenses to average
net assets before expense reimbursement" would have been 3.04%.
See accompanying notes to finanacial statements.
- 7 -
<PAGE>
Guinness Flight Global Government Bond Fund
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- -------------------------------------------------------------------------------
For the Year June 30, 1994*
Ended through
December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------
Net asset value, beginning of period............ $12.00 $12.50
Income from investment operations:
Net investment income.................. .69 .29
Net realized and unrealized
gain/loss on investments............ 1.01 (.58)
---- -----
Total from investment operations................ 1.70 (.29)
---- -----
Less distributions:
Dividends from net investment income (.65) (.21)
Distributions from net capital gains (.28) -0-
Total distributions............................. ( .93) (.21)
------ -----
Net asset value, end of period.................. $12.77 $12.00
===== =====
Total return.................................... 14 .49% (2.33)%
Ratios/supplemental data:
Net assets, end of period (thousands).. $1,153 $751
Ratio of expenses to average net assets:
Before expense reimbursement........... 21.52%++ 40.78%+
After expense reimbursement............ 1.73% 1.75%+
Ratio of net investment income to
average net assets:
Before expense reimbursement........... (14.26)% (34.18)%+
After expense reimbursement............ 5.53% 4.86%+
Portfolio turnover rate......................... 202.54% 46.15%
* Commencement of operations.
+ Annualized.
++ Includes indirectly paid expenses. Excluding indirectly paid expenses
for the year ended December 31, 1995, the "ratio of expenses to average
net assets before expense reimbursement" would have been 21.68%.
See accompanying notes to finanacial statements.
- 8 -
<PAGE>
INVESTMENT OBJECTIVES, PROGRAMS AND LIMITATIONS
THE CHINA FUND. The China Fund seeks to provide investors with long-term capital
growth. Under normal market conditions, 85% to 100% of the China Fund's total
assets will be invested in equity securities primarily traded in the markets of
China and Hong Kong or in equity securities of companies that derive a
substantial portion of their revenues from business activities with or in China
and/or Hong Kong, but which are listed on major exchanges elsewhere (e.g.,
London, New York, Singapore and Australia). To date, a majority of the
securities held by the China Fund are listed in Hong Kong. The principal offices
of these issuers may be located outside China and Hong Kong. The China Fund will
not invest more than 15% of its total assets in any equity securities other than
those of such issuers. As a matter of fundamental policy, the China Fund will
not invest more than 25% of its total assets in the securities (other than U.S.
Government securities) of issuers in any one industry, as defined by the Current
Directory of Companies Filing Annual Reports with the Securities and Exchange
Commission.
Equity securities, for purposes of the 85% policy, will be limited to common and
preferred stocks; special classes of shares available only to foreign persons in
markets that restrict the ownership of certain classes of equity to nationals or
residents of the country; convertible preferred stocks; and convertible
investment grade instruments. In addition, the China Fund may invest up to 5% of
its net assets in options on equity securities and up to 5% of its net assets in
warrants, including options and warrants traded in over-the-counter markets.
Notwithstanding the above information, the China Fund reserves the right to
invest up to 100% of its assets in cash, cash equivalents, or high quality
short-term money market instruments for temporary defensive purposes during
periods that Guinness Flight considers to be unsuitable for the Fund's normal
investment strategy. The China Fund may also purchase and sell stock index
futures to hedge against equity markets on a temporary basis.
THE ASIA BLUE CHIP FUND. The Asia Blue Chip Fund's investment objective is
long-term capital appreciation through investments in equity securities of well
established and sizable companies located in the Asian continent. In pursuit of
its investment objective, the Asia Blue Chip Fund intends to invest 65% to 100%
of its total assets in a diversified portfolio of equity securities of companies
traded on the markets of the Asian continent that have a market capitalization
of at least $1 billion. Generally, the Asian continent includes the relatively
more developed markets of Hong Kong, Singapore, Malaysia, and Thailand, as well
as the relatively less developed and emerging markets of Korea and Taiwan in
North Asia; of China; of Indonesia, the Phillipines, and Viet Nam in the ASEAN
region; and of India, Pakistan, Sri Lanka and Bangladesh in East Asia. Under
normal market conditions, the Asia Blue Chip Fund will invest in a minimum of
four countries. As a matter of fundamental policy, the Asia Blue Chip Fund will
not invest more than 25% of its assets in the securities (other than U.S.
Government securities) of issuers in any one industry, as defined by the Current
Directory of Companies Filing Annual Reports with the Securities and Exchange
Commission.
- 9 -
<PAGE>
Equity securities, for purposes of the 65% policy, will be limited to common and
preferred stocks; special classes of shares available only to foreign persons in
markets that restrict the ownership of certain classes of equity to nationals or
residents of the county; convertible preferred stocks; and convertible
investment grade instruments. In addition, the Asia Blue Chip Fund may invest up
to 5% of its net assets in options on equity securities and up to 5% of its net
assets in warrants, including options and warrants traded in over-the-counter
markets.
Notwithstanding the above information, the Asia Blue Chip Fund reserves the
right to invest up to 100% of its assets in cash, cash equivalents, or high
quality short-term money market instruments for temporary defensive purposes
during periods that Guinness Flight considers to be unsuitable for the Fund's
normal investment strategy. The Asia Blue Chip Fund may also purchase and sell
stock index futures to hedge against equity markets on a temporary basis.
THE ASIA SMALL CAP FUND. The Asia Small Cap Fund's investment objective is
long-term capital appreciation through investments in equity securities of
smaller capitalization issuers located in the Asian continent. In pursuit of its
investment objective, the Asia Small Cap Fund intends to invest 65% to 100% of
its total assets in a diversified portfolio of equity securities of companies
traded on the markets of the Asian continent that have a market capitalization
of no more than $1 billion. Generally, the Asian continent includes the
relatively more developed markets of Hong Kong, Singapore, Malaysia, and
Thailand, as well as the relatively less developed and emerging markets of Korea
and Taiwan in North Asia; of China; of Indonesia, the Phillipines, and Viet Nam
in the ASEAN region; and of India, Pakistan, Sri Lanka and Bangladesh in East
Asia. Under normal market conditions, the Asia Small Cap Fund will invest in a
minimum of four countries.As a matter of fundamental policy, the Asia Small Cap
Fund will not invest more than 25% of its assets in the securities (other than
U.S. Government securities) of issuers in any one industry, as defined by the
Current Directory of Companies Filing Annual Reports with the Securities and
Exchange Commission.
Equity securities, for purposes of the 65% policy, will be limited to common and
preferred stocks; special classes of shares available only to foreign persons in
markets that restrict the ownership of certain classes of equity to nationals or
residents of the county; convertible preferred stocks; and convertible
investment grade instruments. In addition, the Asia Small Cap Fund may invest up
to 5% of its net assets in options on equity securities and up to 5% of its net
assets in warrants, including options and warrants traded in over-the-counter
markets.
Notwithstanding the above information, the Asia Small Cap Fund reserves the
right to invest up to 100% of its assets in cash, cash equivalents, or high
quality short-term money market instruments for temporary defensive purposes
during periods that Guinness Flight considers to be unsuitable for the Fund's
normal investment strategy. The Asia Small Cap Fund may also purchase and sell
stock index futures to hedge against equity markets on a temporary basis.
THE GLOBAL GOVERNMENT FUND. The Global Government Fund intends to provide
investors with current income while seeking opportunities for capital
appreciation.
- 10 -
<PAGE>
The Global Government Fund's portfolio is managed in accordance with a global
investment strategy, which means that the Global Government Fund's investments
will be allocated among securities denominated in the United States dollar and
the currencies of a number of foreign countries. Fundamental economic strength,
credit quality and interest rate trends are the principal factors considered by
Guinness Flight in determining whether to increase or decrease the emphasis
placed upon a particular type of security in the Global Government Fund's
portfolio. Guinness Flight may further evaluate among other things, foreign
yield curves and regulatory and political factors, including the fiscal and
monetary policies of the countries in which the Global Government Fund may
invest. Although the Global Government Fund intends to invest substantially all
of its total assets directly in the debt of governments (or any of their
political subdivisions, authorities, agencies or instrumentalities), or of
supranational entities, throughout the world, the Global Government Fund may
also invest in certain futures, options, foreign currency contracts, repurchase
agreements, and other investments described below.
Under normal market conditions, the Global Government Fund will invest at least
65% of its total assets in bonds issued by the governments of at least three
different countries. For the purpose of this policy, a bond is a debt
instrument. The Global Government Fund will neither invest more than 25% of its
net assets in securities issued by a single foreign government, or in
supranational entities as a group, nor invest more than 25% of its net assets in
securities denominated in a single currency other than the U.S. Dollar, British
Pound Sterling, Canadian Dollar, French Franc, German Mark and Japanese Yen. The
Global Government Fund will invest in the entire range of maturities and may
adjust the average maturity of the investments held in the portfolio from time
to time, depending upon its assessment of relative yields of securities of
different maturities and its expectations of future changes in interest rates.
The Global Government Fund presently expects to invest in both dollar and
non-dollar denominated securities of issuers in the United States and the
industrialized Western European countries; in Canada, Japan, Australia and New
Zealand; and in Latin America. The Global Government Fund may invest up to 15%
of its assets in the fixed income securities of issuers in emerging market
countries. An emerging market is any country that the World Bank has determined
to have a low or middle income economy and may include every country in the
world except the United States, Australia, Canada, Japan, New Zealand and most
countries located in Western Europe such as Belgium, Denmark, France, Germany,
Great Britain, Italy, the Netherlands, Norway, Spain, Sweden and Switzerland.
Debt instruments of emerging market countries may be below investment grade,
commonly referred to as "junk bonds." "Investment grade" securities are those
rated within the four highest quality grades as determined by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("Standard &
Poor's"). Securities rated Aaa by Moody's and AAA by Standard & Poor's are
judged to be of the best quality and carry the smallest degree of risk.
Securities rated Baa by Moody's and BBB by Standard & Poor's lack high quality
investment characteristics and, in fact, have speculative characteristics as
well. Debt instruments that are deemed to be below investment grade entail
greater risks of untimely interest and principal
- 11 -
<PAGE>
payments, default, and price volatility than investment grade securities, and
may present problems of liquidity and valuation. See Appendix A of the Statement
of Additional Information for additional information concerning investment grade
debt ratings.
In order to protect and enhance the capital value of the Global Government Fund,
Guinness Flight employs an investment technique known as "Currency Overlay"
which allows Guinness Flight to manage the currency exposure of the underlying
bond portfolio. Using the Currency Overlay, Guinness Flight constructs a
portfolio of bonds denominated in a variety of currencies and then, using
forwards, options and futures contracts, reconstructs the currency portion of
the bond portfolio. The use of this technique allows Guinness Flight to invest
in the bond markets that it believes offers the best opportunities for total
return regardless of the prospects for the currencies involved, and then to
invest in the currencies that Guinness Flight believes offer the best
opportunities to protect and enhance capital. Guinness Flight intends to place
the Fund in the major currencies perceived to be in, or about to enter, a
strengthening phase and to avoid those in, or about to enter, a phase of
relative weakness. In making currency decisions, a wholly international stance
is pursued by Guinness Flight. Consideration is given to both fundamental
economic and financial data such as relative GNP growth, the Balance of Payments
position, inflation and interest rates, as well as short-term factors such as
political events and market sentiment. The Currency Overlay is employed on a
medium to long-term basis and not on a day to day trading approach. Not more
than 5% of the Global Government Fund's assets may be invested in initial
margins or premiums for the futures and options needed to construct the Currency
Overlay. Where Guinness Flight misperceives certain economic trends, the Global
Government Fund's net asset value may be adversely affected as a result of this
investment technique.
Notwithstanding the above, the Global Government Fund reserves the right to
invest up to 100% of its assets in cash, cash equivalents, high quality
short-term money market instruments, and in bills, notes or bonds issued by the
United States Treasury Department or by other agencies of the United States
Government for temporary defensive purposes during periods that Guinness Flight
considers to be unsuitable for the Fund's normal investment strategy. The Global
Government Fund may also purchase and sell index futures to hedge against
maturity risk on a temporary basis.
INVESTMENT STRATEGIES, POLICIES AND RISKS
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Funds may purchase or sell
forward foreign currency exchange contracts ("forward contracts") as part of
their portfolio investment strategy. A forward contract is an obligation to
purchase or sell a specific currency for an agreed
- 12 -
<PAGE>
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. A Fund may enter into a forward contract,
for example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S. dollar
price of the security ("transaction hedge"). Additionally, for example, when a
Fund believes that a foreign currency may suffer a substantial decline against
the U.S. dollar, it may enter into a forward sale contract to sell an amount of
that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency, or when a Fund
believes that the U.S. dollar may suffer a substantial decline against foreign
currency, it may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this situation, the
Fund may, in the alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Fund believes that the
U.S. dollar value of the currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the U.S. dollar value of the currency
in which portfolio securities of the Fund are denominated ("cross-hedge").
Unanticipated changes in currency prices may result in poorer overall
performance for a Fund than if it had not entered into such contracts.
FORWARD COMMITMENTS. The Funds may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") because new issues of securities are typically offered to
investors, such as the Funds, on that basis. Forward commitments involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. Although the Funds will enter into such contracts with the
intention of acquiring the securities, the Funds may dispose of a commitment
prior to a settlement date if Guinness Flight deems it appropriate to do so. A
Fund may realize short-term profits or losses upon the sale of forward
commitments.
COVERED CALL OPTIONS. Call options may also be used as a means of participating
in an anticipated price increase of a security on a more limited basis than
would be possible if the security itself were purchased. The Funds may write
only covered call options. Since it can be expected that a call option will be
exercised if the market value of the underlying security increases to a level
greater than the exercise price, this strategy will generally be used when
Guinness Flight believes that the call premium received by the Fund plus
anticipated appreciation in the price of the underlying security up to the
exercise price of the call, will be greater than the appreciation in the price
of the security. By writing a call option, A Fund limits its opportunity to
profit from any increase in the market value of the underlying security above
the exercise price of the option. The Funds will not write any put options.
PURCHASE AND SALE OF OPTIONS AND FUTURES ON STOCK INDICES. China Fund, Blue Chip
Asia Fund, and Asia Small Cap Fund may purchase and sell options and futures on
stock indices. If Guinness Flight expects general stock market prices to rise,
it might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
they want ultimately to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased may also increase, but
that
- 13 -
<PAGE>
increase would be offset in part by the increase in the value of a Fund's index
option or futures contract resulting from the increase in the index. If, on the
other hand, Guinness Flight expects general stock market prices to decline, it
might purchase a put option or sell a futures contract on the index. If that
index does in fact decline, the value of some or all of the equity securities in
a Fund's portfolio may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the Fund's position in such put
option or futures contract. Risks in the use of options and futures on stock
indices result from the possibility that changes in the stock indices may differ
substantially from the changes anticipated by the Funds when the hedged
positions were established.
ILLIQUID SECURITIES. The Funds will not invest more than 15% of their net assets
in illiquid securities, including repurchase agreements with maturities in
excess of seven days.
RESTRICTED SECURITIES. The Funds may invest in securities that are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"). These securities are
sometimes referred to as private placements. Although securities which may be
resold only to "qualified institutional buyers" in accordance with the
provisions of Rule 144A under the 1933 Act are technically considered
"restricted securities," the Funds may purchase Rule 144A securities without
regard to the limitation on investments in illiquid securities described above
in the "Illiquid Securities" section, provided that a determination is made that
such securities have a readily available trading market. Guinness Flight will
determine the liquidity of Rule 144A securities under the supervision of the
Guinness Funds' Board of Directors. The liquidity of Rule 144A securities will
be monitored by Guinness Flight, and if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, a Fund's holdings of
illiquid securities will be reviewed to determine what, if any, action is
required to assure that the Fund does not exceed its applicable percentage
limitation for investments in illiquid securities.
PORTFOLIO TURNOVER. Any particular security will be sold, and the proceeds
reinvested, whenever such action is deemed prudent from the viewpoint of a
Fund's investment objective, regardless of the holding period of that security.
A higher rate of portfolio turnover may result in higher transaction costs,
including brokerage commissions. To the extent that higher portfolio turnover
results in a higher rate of net realized capital gains to a Fund, the portion of
the Fund's distributions constituting taxable capital gains may increase. See
"Dividends, Distributions and Tax Matters." Guinness Flight anticipates that the
annual portfolio turnover rate will not exceed 100% for the China Fund, 100% for
the Asia Blue Chip Fund, 100% for the Asia Small Cap Fund, and 200% for the
Global Government Fund.
For further discussion with regard to the Funds' investment strategies, policies
and risks, see "Investment Strategies and Risks" in the Funds' Statement of
Additional Information.
OTHER RISK CONSIDERATIONS
- 14 -
<PAGE>
THE CHINA FUND -- RISK CONSIDERATIONS. The Chinese economy previously operated
as a Socialist economic system, relying heavily upon government planning from
1949, the year in which the Communists seized power, to 1978, the year Deng
Xiaoping instituted his first economic reforms.
Deng Xiaoping's economic reforms are transforming China's economy into a market
system that has stimulated significant economic growth. Deng Xiaoping's reform
began by improving the living standards of the 800 million rural workers. Farm
reform led to the doubling of China's farmers' incomes over the 1980's. The next
stage of reform gave rise to small scale entrepreneurs and stimulated light and
medium industry. In addition, a cheap and abundant supply of labor has attracted
foreign investment in China. Special Economic Zones (SEZ), five originally and
over thirty today, were set up, providing tax advantages to foreign investors.
Further, two stock exchanges have recently opened in China - the Shenzhen and
the Shanghai. Class "A" and Class "B" shares are traded on both exchanges. While
only resident Chinese can purchase Class "A" shares, foreign investors (such as
the China Fund) can purchase Class "B" shares. Over the period 1978 to 1995,
China's gross domestic product grew at approximately 10% per annum. By 1995,
China had become one of the world's major trading nations. The World Bank
forecasts that China will have the world's largest economy by 2003.
In 1984 China and Britain signed the Joint Declaration which allowed for the
termination of British rule in Hong Kong in July 1997, but which would maintain
the existing capitalist economic and social system of Hong Kong for 50 years
beyond that date.
Article 5 of the Sino-British Declaration 26.9.84 provides:
The current social and economic systems in Hong Kong will remain
unchanged and so will the lifestyle. Rights and freedoms, including
those of the person, of speech, of the press, of assembly, of
association, of travel, of movement, of correspondence, of choice, of
occupation, of academic research and of religious belief, will be
ensured by law in the Hong Kong Special Administrative Region. Private
property, ownership of enterprises, legitimate right of inheritance
and foreign investment will be protected by law.
Obviously there is a risk after 1997 when Hong Kong returns to China under the
"one country two systems" proposal. However, Hong Kong and China are
interdependent; 70% of foreign investment in China is from Hong Kong and China
has large shareholdings in Hong Kong companies. Guinness Flight believes that
China is unlikely to damage the Hong Kong economy and destroy the value of their
investments. Today, Hong Kong's stock market, is one of the largest in the world
and is highly liquid and extensively regulated.
Notwithstanding the beliefs of Guinness Flight, investors should realize that
there are significant risks to investing in Hong Kong and China , both before
and after 1997, including:
- 15 -
<PAGE>
(1) that the transition from Deng Xiaoping to a successor may result in an
open feud amongst China's leaders leading to political instability;
(2) that hard line Marxist Leninists might regain the political
initiative, either at the time of Deng Xiaoping's demise or at a
subsequent occasion;
(3) that social tensions caused by widely differing levels of economic
prosperity within Chinese society might create unrest, as they did in
the tragic events of 1989, culminating in the Tiananmen Square
incident; and
(4) that the threat of armed conflict exists over the unresolved situation
concerning Taiwan.
Nonetheless, Guinness Flight believes that the process of reform has now gone
too far to be easily reversed and that China will not deliberately damage the
Hong Kong economy in which it has become a substantial investor and on which so
much of its industry depends.
THE ASIA SMALL CAP FUND -- RISK CONSIDERATIONS. An investor should be aware that
investment in small capitalization issuers carry more risk than issuers with
market capitalizations greater than $1 billion. Generally, small companies rely
on limited product lines, financial resources, and business activities that make
them more susceptible to setbacks or downturns. In addition, the stock of such
companies may be more thinly traded. Accordingly, the performance of small
capitalization issuers may be more volatile.
THE GLOBAL GOVERNMENT FUND -- RISK CONSIDERATIONS. The obligations of foreign
government entities, including supranational issuers, have various kinds of
government support. Although obligations of foreign governmental entities
include obligations issued or guaranteed by national provincial, state or other
government with taxing power, or by their agencies, these obligations may or may
not be supported by the full faith and credit of a foreign government.
GENERAL ECONOMIC AND POLITICAL RISKS. The economies of foreign countries may
differ unfavorably from the United States economy in such respects as growth of
domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Further, such economies
generally are heavily dependent upon international trade and, accordingly, have
been and may continue to be adversely affected by economic conditions in
countries in which they trade, as well as trade barriers, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by such countries .
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulations, social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the Funds'
investments in those countries. In addition, it may be more difficult to obtain
a judgement in a court outside of the United States.
- 16 -
<PAGE>
INTEREST RATE FLUCTUATIONS. Generally, the value of fixed income securities will
change as interest rates fluctuate. During periods of falling interest rates,
the values of outstanding long term debt obligations generally rise. Conversely,
during periods of rising interest rates, the value of such securities generally
decline. The magnitude of these fluctuations generally will be greater for
securities with longer maturities.
SECURITIES MARKETS. Trading volume on foreign stock exchanges is substantially
less than that on the New York Stock Exchange. Further, securities of some
foreign companies are less liquid and more volatile than securities of
comparable United States companies. Securities without a readily available
market will be treated as illiquid securities for purposes of the Funds'
limitation on such purchases. Similarly, volume and liquidity in most foreign
bond markets can be substantially less than in the United States, and
consequently, volatility of price can be greater than in the United States.
Fixed commissions on foreign markets are generally higher than negotiated
commissions on United States exchanges, although the Funds will endeavor to
achieve the most favorable net results on their portfolio transactions and may
be able to purchase the securities in which the Funds may invest on other stock
exchanges where commissions are negotiable.
Many foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards practices and disclosure
requirements comparable to those applicable to United States companies.
Consequently, there may be less publicly available information about such
companies than about United States companies. Further, there is generally less
governmental supervision and regulations of foreign stock exchanges, brokers and
listed companies than in the United States.
INVESTMENT AND REPATRIATION RESTRICTIONS. Some foreign countries have laws and
regulations which currently preclude direct foreign investment in the securities
of their companies. However, indirect foreign investment in the securities
listed and traded on the stock exchanges in these countries is permitted by
certain foreign countries through investment funds which have been specially
authorized. The Funds may invest in these investment funds subject to the
provisions of the 1940 Act. If a Fund invests in such investment funds, the
Fund's shareholders will bear not only their proportionate share of the expenses
of the Fund, but also will bear indirectly similar expenses of the underlying
investment funds. Guinness Flight has agreed to waive its management fees with
respect to the portion of a Fund's assets invested in shares of other open-end
investment companies. A Fund would continue to pay its own management fees and
other expenses with respect to its investments in shares of closed-end
investment companies.
In addition to the foregoing investment restrictions, prior governmental
approval for foreign investments may be required under certain circumstances in
some foreign countries, and the extent of foreign investment in foreign
companies may be subject to limitation. Foreign ownership limitations also may
be imposed by the charters of individual companies to prevent, among other
concerns, violation of foreign investment limitations.
- 17 -
<PAGE>
Repatriation of investment income, capital and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some foreign
countries. A Fund could be adversely affected by delays in or a refusal to grant
any required governmental approval for such repatriation.
FOREIGN CURRENCY CONSIDERATIONS. Although the Funds' investments generally will
be denominated in foreign currencies and most income paid by such investments
will be in foreign currencies, the Funds will compute and distribute their
income in dollars. The computation of income will be made on the date of its
receipt by a Fund at the foreign exchange rate in effect on that date.
Therefore, if the value of the foreign currencies in which a Fund receives its
income falls relative to the dollar between the receipt of the income and the
making of Fund distributions, the Fund will be required to liquidate securities
in order to make distributions if the Fund has insufficient cash in dollars to
meet distribution requirements.
The value of the assets of a Fund as measured in dollars also may be affected
favorably or unfavorably by fluctuations in currency rates and exchange control
regulations. Further, a Fund may incur costs in connection with conversions
between various currencies.
For further discussion with regard to the Funds' other risk considerations, see
"Other Risk Factors and Special Considerations" in the Funds' Statement of
Additional Information.
PERFORMANCE
A Fund's total return shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and capital gain distributions
are reinvested. A cumulative total return reflects a Fund's performance over a
stated period of time. Average annual total return figures are annualized and,
therefore, represent the average annual percentage change over the period in
question. To illustrate the components of overall performance, the Funds may
separate their cumulative and average annual returns into income results and
capital gains or losses.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information and can be expected to fluctuate from time
to time. It is not necessarily indicative of future results. Accordingly, the
yield information may not provide a basis for comparison with investments which
pay a fixed rate of interest for a stated period of time. Yield is a function of
the type and quality of a Fund's investments, maturity and operating expense
ratio . A shareholder's investment in a Fund is not insured or guaranteed.
The performance of the Funds will vary from time to time and past results are
not necessarily representative of future results. A Fund's performance is a
function of its portfolio management in selecting the type and quality of
portfolio securities, and is affected by operating expenses of the Fund as well
as by general market conditions.
- 18 -
<PAGE>
THE FUNDS' MANAGEMENT
The overall management of the business and affairs of the Funds is vested in the
Guinness Funds' Board of Directors. The Board of Directors approves all
significant agreements between the Guinness Funds, on behalf of a Fund, and
persons or companies furnishing services to a Fund. The day-to-day operations of
each Fund are delegated to the officers of the Guinness Funds and to Guinness
Flight, subject always to the investment objective and policies of each Fund and
to the general supervision of the Guinness Funds' Board of Directors.
Information concerning the Board of Directors may be found in the Statement of
Additional Information.
INVESTMENT ADVISER. Guinness Flight is headquartered in London, England, at
Lighterman's Court, 5 Gainsford Street, Tower Bridge SE1 2NE, and has a U.S.
office at 201 South Lake Avenue, Suite 510, Pasadena, California 91101 and at
Upper Ground Floor, Far East Center, 16 Harcourt Road, Admiralty, Hong Kong.
Guinness Flight serves as the investment adviser to the China Fund and Global
Government Fund pursuant to Investment Advisory Agreements dated as of May 6,
1994, and to the Asia Blue Chip Fund and Asia Small Cap Fund pursuant to
Investment Advisory Agreements dated April o, 1996 (the "Advisory Agreements").
Under the terms of the Advisory Agreements, Guinness Flight supervises all
aspects of the Funds' operations and provides investment advisory services to
the Funds. Guinness Flight was organized in 1985 and is registered with the
Securities and Exchange Commission under the Investment Advisers Act of 1940, as
amended. The Funds are managed by a team of portfolio managers. The following
are biographies of key personnel who are responsible for ultimate investment
decisions.
MICHAEL DALEY -- Mr. Daley joined Guinness Flight as a Director of the
Fixed Income Team in 1994. Prior to joining Guinness Flight, he was a
founding member in 1986 of Morgan Stanley Asset Management's London
operation where he served as Director, Vice President and Head of Fixed
Income. In 1991, he established his own firm, Strategic Value
Management Limited.
RICHARD FARRELL -- Mr. Farrell joined Guinness Mahon, a predecessor
entity of Guinness Flight, in 1978. He specializes in Far Eastern
markets and currently is the investment adviser to the Guinness Flight
Global Strategy Fund's Japan Fund, Japan & Pacific Fund, and Japan
Smaller Companies Fund. These funds are currently available only to
overseas investors.
HOWARD FLIGHT -- Mr. Flight has been involved in asset management for
over 25 years throughout the world. He joined Guinness Mahon in 1979 as
a director of the investment department. In 1987, he became Joint
Managing Director of Guinness Flight. Presently, he is responsible for
Guinness Flight's currency and fixed interest operations as
- 19 -
<PAGE>
Investment Director. Until its dissolution, he was a member of H.M.
Treasury Tax Consultative Committee.
TIMOTHY GUINNESS -- Mr. Guinness originally joined Guinness Mahon in
1977 in the Corporate Finance Department, and later transferred to the
Investment Department, becoming Senior Investment Director in 1982. He
served as Fund Manager of both the Guinness Flight Global Equity Fund
and United Kingdom Equity Fund. These funds are currently available
only to overseas investors. In 1987, he became Joint Managing Director
and leads the global equity team as Investment Director.
LYNDA JOHNSTONE -- Ms. Johnstone joined Guinness Mahon in 1986 in the
Investment Department as a member of the Equity Team. Currently, she is
responsible for running the Guinness Flight Global Strategy Fund's,
Hong Kong Fund and ASEAN Fund. These funds are currently available only
to overseas investors.
NERISSA LEE - Ms. Lee joined Guinness Flight in 1995 in Guinness
Flight's Hong Kong office and specializes in Far Eastern markets. She
has a degree in economics from Hong Kong University and 20 years of
experience in Asian markets. She started in the research department of
the Hong Kong stock exchange and has been managing funds for 8 years.
Currently, Ms. Lee manages the Guinness Flight Global Strategy Fund's
Asian Smaller Companies Fund and the Guinness Flight Select Fund's
China Fund. These funds are currently available only to overseas
investors.
PHILIP SAUNDERS -- Mr. Saunders joined Guinness Mahon in 1980. He
gained experience in all principal operating areas before joining the
investment department on a permanent basis as a member of the Currency
and Fixed Interest team. He assumed responsibility for the day to day
management of the Guinness Flight managed currency, international and
global bond funds and portfolios in 1984 and assumed responsibility as
Fixed Income Investment Director in 1987. These funds are currently
available only to overseas investors.
JOHN STOPFORD -- Mr. Stopford joined Guinness Flight in 1993.
Currently, he is a member of the Fixed Income Team, specializing in
"core" European bond markets. Prior to joining Guinness Flight, he was
responsible for European fixed income fund management at Mitsui Trust
Asset Management (U.K.) Ltd.
TIMOTHY THOMAS -- Mr. Thomas joined Guinness Mahon in 1984 as an
assistant manager in the Investment Department. After leaving the
organization to receive a Master's Degree in Business Administration,
he re-joined Guinness Mahon in 1987 to specialize in international
equity investment. He has managed the Guinness Flight Global Strategy
Fund's Global Equity Fund and the Guinness Flight International
Accumulation Fund's International Equity Fund. These funds are
currently available only to overseas investors.
Guinness Flight's legal counsel believes that Guinness Flight may provide
services described in its Investment Advisory Agreements to the Funds without
violating the federal banking law
- 20 -
<PAGE>
commonly known as the Glass-Steagall Act. The Act generally bars banks or
investment advisers deemed to be controlled by banks from publicly underwriting
or distributing certain securities. Because of stock ownership by a subsidiary
of a foreign bank in Guinness Flight's parent, Guinness Flight Global Asset
Management Limited, such restrictions may be deemed to apply.
The U.S. Supreme Court in its 1981 decision in Board of Governors of the Federal
System v. Investment Company Institute determined that, consistent with the
requirements of the Act, a bank may serve as an investment adviser to a
registered, closed-end investment company. Other decisions of banking regulators
have supported the position that a bank may act as investment adviser to a
registered, open-ended investment company. Based on the advice of its counsel,
Guinness Flight believes that the Court's decision, and these other decisions of
banking regulators, permit it to serve as investment adviser to a registered,
open-end investment company.
Possible future changes in federal law or administrative or judicial
interpretations of current or future law, however, could prevent Guinness Flight
from continuing to perform investment advisory services for the Funds. If that
occurred, the Board of Directors of Guinness Funds promptly would seek to obtain
the services of another qualified adviser, as necessary. The Directors would
then consider what action would be in the best interest of the Funds'
shareholders.
For a discussion of Guinness Flight's brokerage allocation policies and
practices, see "Portfolio Transactions" in the Statement of Additional
Information. In accordance with policies established by the Board of Directors,
Guinness Flight may take into account sales of shares of each Fund advised by
Guinness Flight in selecting broker-dealers to effect portfolio transactions on
behalf of the Funds.
FEES AND EXPENSES. Pursuant to the Advisory Agreements, Guinness Flight is paid
a monthly fee from the China Fund , Asia Blue Chip Fund, and Asia Small Cap Fund
at an annual rate of 1.00% of each Fund's average daily net assets, and a
monthly fee from the Global Government Fund calculated at an annual rate of .75%
of its average daily net assets. These fees are higher than those charged by
most investment companies. However, the Board of Directors believes that such
fees are appropriate because of the complexity of managing funds that invest in
global markets. Guinness Flight or Investment Company Administration Corporation
may, from time to time, voluntarily agree to defer or waive fees or absorb some
or all of the expenses of the Funds. To the extent that they should do so, they
may seek repayment of such deferred fees and absorbed expenses after this
practice is discontinued. However, no repayment will be made if it would result
in the China Fund's , Asia Blue Chip Fund's and Asia Small Cap Fund's expense
ratio exceeding 1.98% , or if it would result in the Global Government Fund's
expense ratio exceeding 1.73%.
ADMINISTRATOR. Pursuant to an Administration Agreement, Investment Company
Administration Corporation ("ICAC") serves as administrator of the Funds. As the
administrator, ICAC provides certain administrative services, including, among
other responsibilities, coordinating relationships
- 21 -
<PAGE>
with independent contractors and agents, preparing for signature by officers and
filing of certain documents required for compliance with applicable laws and
regulations, preparing financial statements, and arranging for the maintenance
of books and records. ICAC receives from each Fund a fee computed daily and paid
monthly at an annual rate equal to .25% of their respective average daily net
assets.
DISTRIBUTOR. The Guinness Funds have entered into a Distribution Agreement (the
"Distribution Agreement") with First Fund Distributors, Inc. ("First Fund"), a
registered broker-dealer, to act as the principal distributor of the shares of
the Funds. The Distribution Agreement provides First Fund with the right to
distribute shares of the Funds through affiliated broker-dealers and through
other broker-dealers or financial institutions with whom First Fund has entered
into selected dealer agreements.
DISTRIBUTION PLAN. The Funds have adopted a Distribution Plan (the "Plan") under
Rule 12b-1 under the 1940 Act. No separate payments are authorized to be made by
a Fund under the Plan. Rather, the Plan recognizes that Guinness Flight or ICAC
may use fee revenues, or other resources to pay expenses associated with
shareholder servicing and recordkeeping functions. The Plan also provides that
Guinness Flight or ICAC may make payments from these sources to third parties,
including affiliates, such as banks or broker-dealers, that provide such
services. See "The Funds' Management -- Fees and Expenses."
For additional information concerning the operation of the Plan, see
"Distribution Agreements and Distribution Plans" in the Statement of Additional
Information.
SHAREHOLDER SERVICING. The Funds may enter into Shareholder Servicing Agreements
whereby the Adviser or Administrator pays a shareholder servicing agent for
shareholder services and account maintenance, including responding to
shareholder inquiries, direct shareholder communications, account balance,
maintenance and dividend posting.
HOW TO PURCHASE SHARES
GENERAL INFORMATION. Investors may purchase shares of a Fund from the Fund's
transfer agent or from other selected securities brokers or dealers. A buyer
whose purchase order is received by the transfer agent before the close of
trading on the New York Stock Exchange, currently 4:00 p.m. Eastern time, will
acquire shares at the net asset value set as of that day. A buyer whose purchase
order is received by the transfer agent after the close of trading on the New
York Stock Exchange will acquire shares at the net asset value set as of the
next trading day on the New York Stock Exchange. A broker may charge a
transaction fee for the purchase. The Distributor may, from time to time,
provide promotional incentives to certain brokers or dealers whose
representatives have sold or are expected to sell significant amounts of the
Funds' shares. The Funds reserve the right to reject any purchase order.
- 22 -
<PAGE>
Share of the Funds are available for purchase by any retirement plan, including
401(K) plans, profit sharing plans, 403(b) plans and individual retirement
accounts.
OPENING AN ACCOUNT -- INVESTMENT MINIMUMS. The minimum initial investment in
each Fund is $5,000 or $2,000 for investments through tax-qualified retirement
plans. The Funds may further reduce or waive the minimum for certain retirement
and other employee benefit plans; for the Adviser's employees, clients and their
affiliates; for advisers or financial institutions offering investors a program
of services; or any other person or organization deemed appropriate by the
Funds.
ADDITIONAL INVESTMENTS -- MINIMUM SUBSEQUENT INVESTMENT. The minimum
"subsequent" investment is $250 for regular accounts as well as tax-qualified
retirement plans. The amount of the minimum subsequent investment, like the
minimum "initial" investment, may be reduced or waived by the Funds. See waiver
discussion under "Opening an Account-Investment Minimums." Cash investments may
be made either by check or by wire.
PURCHASING BY MAIL. State Street Bank and Trust Company (the "Transfer Agent")
acts as transfer and shareholder service agent for the Funds. An investor may
purchase shares by sending a check payable to Guinness Flight Investment Funds,
together with an Application Form, to the Transfer Agent at the following
address:
Guinness Flight Investment Funds, Inc.
P.O. Box 9288
Boston, MA 02205-8559
Overnight courier deliveries should be sent to:
Boston Financial Data Services
ATTN: Guinness Flight Investment Funds, Inc.
Two Heritage Drive
3rd Floor
North Quincy, MA 02171
If the purchase is a subsequent investment, the shareholder should either
include the stub from a confirmation form previously sent by the Transfer Agent
or include a letter giving the shareholder's name and account number.
Third party checks will not be accepted to purchase shares of the Funds, unless:
(i) the investor has previously purchased shares of the Fund; (ii) the investor
is a natural person; and (iii) the third party check is payable to the title of
the investor's account.
PURCHASING BY WIRE. For an initial purchase of shares of a Fund by wire,
shareholders should first telephone the Transfer Agent at (800) 915-6566 between
the hours of 8:00 a.m. and 4:00
- 23 -
<PAGE>
p.m. (Eastern time) on a day when the New York Stock Exchange is open for normal
trading to receive an account number. The following information will be
requested: your name, address, tax identification number, dividend distribution
election, amount being wired and wiring bank. In addition, a buyer will be
required to provide the Transfer Agent a signature application within 10
business days of an initial purchase. You should then give instructions to your
bank to transfer funds by wire to the Transfer Agent at the following address:
State Street Bank and Trust Company
ABA # 0011 000 028
ATTN: (Fund Name)
(Fund Account Number)
In making a subsequent purchase order by wire, you should wire funds to the
Transfer Agent in the manner described above, making sure that the wire
specifies the name of the Fund, your name and the account number. However, it is
not necessary to call the Transfer Agent to make subsequent purchase orders
using federal funds.
If you arrange for receipt by the Transfer Agent of federal funds prior to the
close of trading (currently 4:00 p.m., Eastern time) of the New York Stock
Exchange on a day the Exchange is open for normal trading, you may purchase
shares of a Fund as of that day. Your bank may charge a fee for wiring money on
your behalf.
HOW TO REDEEM SHARES
GENERAL INFORMATION. Investors may redeem shares of a Fund through the Transfer
Agent or from other selected securities brokers or dealers. A shareholder whose
redemption order is received by the Transfer Agent before the close of trading
on the New York Stock Exchange, currently 4:00 p.m. Eastern time, will redeem
shares at the net asset value set as of that day. A shareholder whose redemption
order is received by the Transfer Agent after the close of trading on the New
York Stock Exchange will redeem shares at the net asset value set as of the next
trading day on the New York Stock Exchange. A broker may charge a transaction
fee for the redemption.
REDEMPTIONS BY MAIL. Shareholders may redeem shares of any Fund by writing to
the Transfer Agent at the following address:
Guinness Flight Investment Funds, Inc.
P.O. Box 9288
Boston, MA 02205-8559
Overnight courier deliveries should be sent to:
- 24 -
<PAGE>
Boston Financial Data Services
ATTN: Guinness Flight Investment Funds, Inc.
Two Heritage Drive
3rd Floor
North Quincy, MA 02171
Please specify the name of the Fund, the number of shares or dollar amount to be
redeemed, and your name and account number. You should also enclose any
certificated shares that you wish to redeem.
The signature on a redemption request must be exactly as the names appear on a
Fund's account records, and the request must be signed by the minimum number of
persons designated on the account application that are required to effect a
redemption. Requests by participants of qualified retirement plans must include
all other signatures required by the plan and applicable federal law.
SIGNATURE GUARANTEE. If a redemption is requested by a corporation, partnership,
trust or fiduciary, written evidence of authority acceptable to the Transfer
Agent must be submitted before such request will be accepted. If the proceeds of
the redemption exceed $50,000, or are to be paid to a person other than the
record owner, or are to be sent to an address other than the address on the
Transfer Agent's records, or are to be paid to a corporation, partnership, trust
or fiduciary, the signature(s) on the redemption request and on the
certificates, if any, or stock powers must be guaranteed by an "eligible
guarantor," which includes certain banks, brokers, dealers, credit unions,
securities exchanges, clearing agencies and savings associations. A signature
guarantee is not the same as notarization and an acknowledgment by a notary
public is not acceptable as a substitute for a signature guarantee.
REDEMPTIONS BY TELEPHONE. Shareholders may establish telephone redemption
privileges if so elected on the account application. Shares of a Fund may then
be redeemed by telephoning the Transfer Agent at (800) 915-6566, between the
hours of 8:00 a.m. and 4:00 p.m. (Eastern time) on a day when the New York Stock
Exchange is open for normal trading.
SPECIAL FACTORS REGARDING TELEPHONE REDEMPTIONS. In order to protect itself and
shareholders from liability for unauthorized or fraudulent telephone
transactions, the Guinness Funds will use reasonable procedures in an attempt to
verify the identity of a person making a telephone redemption request. The
Guinness Funds reserve the right to refuse a telephone redemption request if it
believes that the person making the request is not the record owner of the
shares being redeemed, or is not authorized by the shareholder to request the
redemption. Shareholders will be promptly notified of any refused request for a
telephone redemption. As long as these normal identification procedures are
followed, neither the Guinness Funds nor its agents will be liable for any loss,
liability or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
- 25 -
<PAGE>
REDEMPTIONS BY WIRE. Redemption proceeds are generally paid to shareholders by
check. However, redemptions proceeds of $500 or more may be wired by the
Transfer Agent to a shareholder's bank account. Requests for redemption by wire
should include the name, location and ABA or bank routing number (if known) of
the designated bank and account number. Payment will be made within three days
after receipt by the Transfer Agent of the written or telephone redemption
request and any share certificates, except as indicated below. Such payment may
be postponed, or the right of redemption suspended at times when (a) the New
York Stock Exchange is closed for other than customary weekends and holidays;
(b) trading on such exchange is restricted; (c) an emergency exists, the result
of which disposal of Fund securities or determination of the value of a Fund's
net assets are not reasonably practicable; or (d) during any other period when
the Securities and Exchange Commission, by order, so permits. The Transfer Agent
will deduct a fee equal to $10.00 from the amount wired.
REDEMPTION OF SMALL ACCOUNTS. In order to reduce expenses, the Funds may redeem
shares in any account, other than retirement plan or Uniform Gift to Minors Act
accounts, if at any time, due to redemptions, the total value of a shareholder's
account does not equal at least $500. Shareholders will be given 30 days prior
written notice in which to purchase sufficient additional shares to avoid such a
redemption.
REDEMPTION FEE. On redemptions of shares purchased less than 30 days prior to
redemption, a redemption fee, equal to 1% of the value of the shares being
redeemed, shall be charged to any shareholder who redeems his interest in the
China Fund, Asia Blue Chip Fund, or Asia Small Cap Fund, such proceeds to be
payable to the Fund. Such redemption fee will not be charged on shares purchased
30 or more days prior to redemption or acquired through the reinvestment of
distributions of investment income and capital gains. Redemptions will be
assumed to have been made through the liquidation of shares in a shareholder's
account on a first-in, first-out basis.
Any redemption fee payable to the China Fund, Asia Blue Chip Fund, or Asia Small
Cap Fund will be waived if such fee is equal to or less than .10% of the total
value of the shares, including shares purchased more than 30 days prior to
redemption and shares acquired through the reinvestment of distributions of
investment income and capital gains, being redeemed.
ADDITIONAL REDEMPTION INFORMATION. Payment for redemption of recently purchased
shares will be delayed until the Transfer Agent has been advised that the
purchase check has been honored, up to 12 calendar days from the time of receipt
of the purchase check by the Transfer Agent. If the purchase check does not
clear, the investor, and not the Funds, will be responsible for any resulting
loss. Such delay may be avoided by purchasing shares by wire or by certified or
official bank checks.
- 26 -
<PAGE>
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE. You may exchange shares of a Fund for shares of the other
Funds by mailing or delivering written instructions to the Transfer Agent at the
following address:
Guinness Flight Investment Funds, Inc.
P.O. Box 9288
Boston, MA 02205-8559
or by sending instructions by fax transmission to (617) 774-2796. Please specify
the name of the applicable Fund, the number of shares or dollar amount to be
exchanged and your name and account number. If you intend to exchange shares by
fax transmission, you must call the Transfer Agent to insure receipt by the
Transfer Agent. You may also exchange shares by telephoning the Transfer Agent
at (800) 915-6566 between the hours of 8:00 a.m. and 4:00 p.m. (Eastern time) on
a day when the New York Stock Exchange is open for normal trading.
In periods of severe market or economic conditions, telephone exchanges may be
difficult to implement, in which case you should mail or send by overnight
delivery a written exchange request to the Transfer Agent. Overnight deliveries
should be sent to the Transfer Agent at the address given above.
All exchanges will be made on the basis of the relative net asset values of the
Funds next determined after a completed request is received. Requests for
telephone exchanges received before 4:00 p.m. (Eastern time) on a day when the
New York Stock Exchange is open for normal trading will be processed that day.
Otherwise, processing will occur on the next business day.
You may also exchange shares of either Fund for shares of the Seven Seas Series
Money Market Fund, a money market mutual fund advised by State Street Bank &
Trust Co., 225 Franklin Street, Boston, MA 02110 and not affiliated with the
Guinness Funds or Guinness Flight, if such shares are offered in your state of
residence. Prior to making such an exchange, you should obtain and carefully
read the prospectus for the Seven Seas Series Money Market Fund. The exchange
privilege does not constitute an offering or recommendation on the part of the
Funds or Guinness Flight of an investment in the Seven Seas Series Money Market
Fund.
EXCHANGE PRIVILEGE ANNUAL LIMITS. The Funds reserve the right to limit the
number of exchanges a shareholder may make in any year to four (4) to avoid
excessive Fund expenses.
PRE-AUTHORIZED INVESTMENT PLAN. You may establish a pre-authorized investment
plan whereby your personal bank account is automatically debited and your Fund
account is automatically credited with additional full and fractional shares.
Through the pre-authorized investment plan,
- 27 -
<PAGE>
the minimum initial investment is $100 and the subsequent minimum monthly
investments is $100 per an investment.
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have regular monthly or quarterly
payments in any fixed amount in excess of $100 made to you, your personal bank
account, or a properly designated third party, as long as your Fund account has
a value at the current price of at least $1,000. During the withdrawal period,
you may purchase additional shares for deposit to your account if the additional
purchases are equal to at least one year's scheduled withdrawals. The number of
full and fractional shares equal in value to the amount of the payment made will
be redeemed at net asset value as determined on the day of withdrawal. As shares
of a Fund are redeemed, you may recognize a capital gain or loss to be reported
for income tax purposes.
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of the Funds is determined as of
4:15 p.m. Eastern Time on each business day. The net asset value per share is
calculated by subtracting a Fund's liabilities from its assets and dividing the
result by the total number of Fund shares outstanding. The determination of a
Fund's net asset value per share is made in accordance with generally accepted
accounting principles. Among other items, a Fund's liabilities include accrued
expenses and dividends payable, and its total assets include portfolio
securities valued at their market value, as well as income accrued but not yet
received. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision of
the Fund's officers and in accordance with methods which are specifically
authorized by its governing Board of Directors. Short-term obligations with
maturities of 60 days or less are valued at amortized cost as reflecting fair
value.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS. Income dividends of the China Fund, Asia Blue Chip
Fund and Asia Small Cap Fund are declared and paid semiannually, normally in
June and December. The Global Government Fund declares and pays dividends
monthly. The Funds distribute all or substantially all of their net investment
income and net capital gains (if any) to shareholders each year. Any net capital
gains earned by a Fund normally are distributed in June and December to the
extent necessary to avoid federal income and excise taxes.
In determining the amount of capital gains, if any, available for distribution,
net capital gains are offset against available net capital losses, if any,
carried forward from previous fiscal periods.
All dividends and distributions of a Fund are automatically reinvested on the
ex-dividend date in full and fractional shares of such Fund, unless the
shareholder has made an alternate election as to the method of payment.
Dividends and distributions will be reinvested at the net asset value
- 28 -
<PAGE>
per share determined on the ex-dividend date. Shareholders may elect, by written
notice to the Transfer Agent, to receive such distributions, or the dividend
portion thereof, in cash, or to invest such dividends and distributions in
additional shares, including, subject to certain conditions, in shares of a Fund
other than the Fund making the distribution. Investors who have not previously
selected such a reinvestment option on the account application form may contact
the Transfer Agent at any time to obtain a form to authorize such reinvestments
in a Fund other than the Fund making the distribution. Such reinvestments into a
Fund are automatically credited to the account of the shareholder.
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to the Transfer Agent and are effective as to
any subsequent payment if such notice is received by the Transfer Agent prior to
the record date of such payment. Any dividend and distribution election remains
in effect until the Transfer Agent receives a revised written election by the
shareholder.
Any dividend or distribution paid by a Fund has the effect of reducing the net
asset value per share on the ex-dividend date by the amount of the dividend or
distribution. Therefore, a dividend or distribution declared shortly after a
purchase of shares by an investor would represent, in substance, a return of
capital to the shareholder with respect to such shares even though it would be
subject to income taxes, as discussed below.
TAX MATTERS. Each Fund intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), including the requirements with respect to
diversification of assets, distribution of income and sources of income. It is
the Funds' policy to distribute to shareholders all of its investment income
(net of expenses) and any capital gains (net of capital losses) in accordance
with the timing requirements imposed by the Code, so that each Fund will satisfy
the distribution requirement of Subchapter M and not be subject to Federal
income taxes or the 4% excise tax.
If a Fund fails to satisfy any of the Code requirements for qualification as a
regulated investment company, it will be taxed at regular corporate tax rates on
all its taxable income (including capital gains) without any deduction for
distributions to shareholders, and distributions to shareholders will be taxable
as ordinary dividends (even if derived from the Fund's net long-term capital
gains) to the extent of the Fund's current and accumulated earnings and profits.
Distributions by a Fund of its net investment income (including foreign currency
gains and losses) and the excess, if any, of its net short-term capital gain
over its net long-term capital loss are taxable to shareholders as ordinary
income. Distributions by a Fund of the excess, if any, of its net long-term
capital gain over its net short-term capital loss are designated as capital gain
dividends and are taxable to shareholders as long-term capital gains, regardless
of the length of time shareholders have held their shares.
- 29 -
<PAGE>
Distributions by a Fund which are taxable to shareholders as ordinary income are
treated as dividends for Federal income tax purposes, but in any year only a
portion thereof (which cannot exceed the aggregate amount of qualifying
dividends from domestic corporations received by the Fund during the year) may
qualify for the 70% dividends-received deduction for corporate shareholders.
Because the China Fund's investment income will consist primarily of dividends
from foreign corporations and the Fund may have interest income and short-term
capital gains, it is not expected that a significant portion of the ordinary
income dividends paid by the China Fund may qualify for the dividends-received
deduction. Because the Global Government Bond Fund's investment income will
consist of interest from debt, ordinary income dividends paid by the Fund will
not qualify for the dividends-received deduction. Portions of each Fund's
investment income may be subject to foreign income taxes withheld at the source.
If a Fund meets certain requirements, it may elect to "pass-through" to
shareholders any such foreign taxes, which may enable shareholders to claim a
foreign tax credit or a deduction with respect to their share thereof.
Distributions to shareholders will be treated in the same manner for Federal
income tax purposes whether shareholders elect to receive them in cash or
reinvest them in additional shares. In general, shareholders take distributions
into account in the year in which they are made. However, shareholders are
required to treat certain distributions made during January as having been paid
by the Fund and received by shareholders on December 31 of the preceding year. A
statement setting forth the Federal income tax status of all distributions made
(or deemed made) during the year, and any foreign taxes "passed-through" to
shareholders, will be sent to shareholders promptly after the end of each year.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the record date of any ordinary income dividend or capital
gain dividend. Those investors purchasing shares just prior to an ordinary
income or capital gain dividend will be taxed on the entire amount of the
dividend received, even though the net asset value per share on the date of such
purchase reflected the amount of such dividend.
A shareholder will recognize gain or loss upon the sale or redemption of shares
of the Funds in an amount equal to the difference between the proceeds of the
sale or redemption and the shareholder's adjusted tax basis in the shares. Any
loss realized upon a taxable disposition of shares within six months from the
date of their purchase will be treated as a long-term capital loss to the extent
of any capital gain dividends received on such shares. All or a portion of any
loss realized upon a taxable disposition of shares of the Funds may be
disallowed if other shares of the "redeemed" Fund are purchased within 30 days
before or after such disposition.
If a shareholder is a non-resident alien or foreign entity shareholder, ordinary
income dividends paid to such shareholder generally will be subject to United
States withholding tax at a rate of 30% (or lower rate under an applicable
treaty). We urge non-United States shareholders to consult their own tax adviser
concerning the applicability of the United States withholding tax.
- 30 -
<PAGE>
Under the back-up withholding rules of the Code, shareholders may be subject to
31% withholding of Federal income tax on ordinary income dividends, capital gain
dividends and redemption payments made by the Funds. In order to avoid this
back-up withholding, shareholders must provide the Fund with a correct taxpayer
identification number (which for an individual is usually his Social Security
number) and certify that the shareholder is a corporation or otherwise exempt
from or not subject to back-up withholding.
The foregoing discussion of Federal income tax consequences is based on tax laws
and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, shareholders should also review the more detailed
discussion of Federal income tax considerations relevant to the Fund that is
contained in the Statement of Additional Information. In addition, shareholders
should consult with their own tax adviser as to the tax consequences of
investments in a Fund, including the application of state and local taxes which
may differ from the Federal income tax consequences described above.
ABOUT THE FUNDS
Each Fund is a separate series of shares of the Guinness Funds, a Maryland
Corporation incorporated on January 7, 1994 and registered under the 1940 Act,
as an open-end management investment company. Each Fund has its own investment
objective and policies designed to meet specific investment goals, operates as
an open-end management investment company and expects to be treated as a
regulated investment company for Federal income tax purposes. The China Fund and
Global Government Fund are non-diversified, and the Asia Blue Chip Fund and Asia
Small Cap Fund are diversified.
Each Fund invests in securities of different issuers and industry
classifications in an attempt to spread and reduce the risks inherent in all
investing. The Funds continuously offer new shares for sale to the public, and
stand ready to redeem their outstanding shares for cash at their net asset
value. Guinness Flight, the investment adviser for the Funds, continuously
reviews and, from time to time, changes the portfolio holdings of the Funds in
pursuit of each Fund's investment objective.
Shares of each Fund entitle the holders to one vote per share. The shares have
no preemptive or conversion rights. When issued, shares are fully paid and
nonassessable. The shareholders have certain rights, as set forth in the
By-laws, to call a meeting for any purpose. See "Description of the Funds --
Voting Rights" in the Statement of Additional Information.
GENERAL INFORMATION
INVESTMENT ADVISER. Guinness Flight Investment Management Limited, 201 South
Lake Avenue, Suite 510, Pasadena, California 91101, serves as Investment Adviser
for the Funds.
- 31 -
<PAGE>
ADMINISTRATOR. Investment Company Administration Corporation, 4455 East
Camelback Road, Suite 261E, Phoenix, Arizona 85018, serves as Administrator of
the Funds.
CUSTODIAN. Investors Bank and Trust Company, 89 South Street, P.O. Box 1537,
Boston, Massachusetts 02205, serves as the custodian of the Funds. Generally,
the Custodian holds the securities, cash and other assets of the Funds.
TRANSFER AGENT. State Street Bank and Trust Company, P.O. Box 1912, Boston,
Massachusetts 02105, serves as Transfer Agent of the Funds. Generally the
Transfer Agent provides recordkeeping services for the Funds and their
shareholders.
LEGAL COUNSEL. Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third
Avenue, New York, New York 10022 serves as counsel to the Guinness Funds.
INDEPENDENT ACCOUNTANTS. Ernst & Young LLP, 515 South Flower Street, Los
Angeles, CA 90071. Generally, the Independent Accountants will audit the
financial statement and the financial highlights of the Funds, as well as
provide reports to the Directors.
DISTRIBUTOR. First Fund Distributors, Inc., 4455 East Camelback Road, Suite
261E, Phoenix, Arizona 85018, serves as Distributor for the Funds.
OTHER INFORMATION. This prospectus sets forth basic information that investors
should know about the Funds prior to investing. A Statement of Additional
Information has been filed with the Securities and Exchange Commission and is
available upon request and without charge, by writing or calling the Funds at
1-800-915-6565. This prospectus omits certain information contained in the
registration statement filed with the Securities and Exchange Commission. Copies
of the registration statement, including items omitted from this prospectus, may
be obtained from the Securities and Exchange Commission by paying the charges
prescribed under its rules and regulations.
- 32 -
<PAGE>
PART B.
STATEMENT OF ADDITIONAL INFORMATION
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
201 South Lake Avenue, Suite 510
Pasadena, California 91101
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
This Statement is not a prospectus but should be read in conjunction with the
current prospectus dated April 29, 1996 (the "Prospectus"), pursuant to which
the Guinness Flight China & Hong Kong Fund (the "China Fund"), Guinness Flight
Asia Blue Chip Fund ("Asia Blue Chip Fund"), Guinness Flight Asia Small Cap Fund
("Asia Small Cap Fund"), and Guinness Flight Global Government Bond Fund (the
"Global Government Fund") (collectively, the "Funds") are offered. Please retain
this document for future reference.
For a free copy of the Prospectus, please call the Funds at 1-800-915-6565
GENERAL INFORMATION AND HISTORY................................... 2
INVESTMENT OBJECTIVE AND POLICIES................................. 2
INVESTMENT STRATEGIES AND RISKS................................... 5
OTHER RISK FACTORS AND SPECIAL CONSIDERATIONS..................... 14
INVESTMENT RESTRICTIONS AND POLICIES.............................. 14
PORTFOLIO TRANSACTIONS............................................ 16
COMPUTATION OF NET ASSET VALUE.................................... 17
PERFORMANCE INFORMATION........................................... 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................... 19
TAX MATTERS....................................................... 19
MANAGEMENT OF THE FUNDS........................................... 24
THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS.................... 25
DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN...................... 27
DESCRIPTION OF THE FUNDS.......................................... 28
SHAREHOLDER REPORTS............................................... 28
FINANCIAL STATEMENTS.............................................. 28
APPENDIX A........................................................ 1
<PAGE>
Dated: April 29, 1996
-2-
<PAGE>
GENERAL INFORMATION AND HISTORY
As described in the Funds' Prospectus, Guinness Flight
Investment Funds, Inc. ("Guinness Funds") is a Maryland corporation organized as
an open-end, series, management investment company. Currently, Guinness Funds
offers four separate series portfolios: the China Fund, the Asia Blue Chip Fund,
the Asia Small Cap Fund, and the Global Government Fund, each of which has
unique investment objectives and strategies.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL INFORMATION ABOUT THE FUNDS.
The China Fund seeks to provide investors with long term capital
growth by generally investing in equity securities, that should benefit from the
growth in the Chinese economy, traded in the markets of China and Hong Kong. The
Asia Blue Chip Fund's investment objective is long-term capital appreciation
through investments in equity securities of well established and sizable
companies located in the Asian continent. The Asia Small Cap Fund's investment
objective is long-term capital appreciation through investments in equity
securities of smaller capitalization issuers located in the Asian continent. The
Global Government Fund intends to provide investors with both current income and
capital appreciation from a debt portfolio of government securities issued
throughout the world. The objective of each Fund is a fundamental policy and may
not be changed except by a majority vote of shareholders.
The Fund's do not intend to employ leveraging techniques.
Accordingly, a Fund will not purchase new securities if amounts borrowed exceed
5% of its total assets at the time the loan is made.
When the Funds determine that adverse market conditions exist,
the Funds may adopt a temporary defensive posture and invest their entire
portfolio in Money Market Instruments. In addition, the Funds may invest in
Money Market Instruments in anticipation of investing cash positions. "Money
Market Instruments" means short-term (less than twelve months to maturity)
investments in (a) obligations of the United States or foreign governments,
their respective agencies or instrumentalities; (b) bank deposits and bank
obligations (including certificates of deposit, time deposits and bankers'
acceptances) of United States or foreign banks denominated in any currency; (c)
floating rate securities and other instruments denominated in any currency
issued by international development agencies; (d) finance company and corporate
commercial paper and other short-term corporate debt obligations of United
States and foreign corporations meeting the credit quality standards set by
Guinness Funds' Board of Directors; and (e) repurchase agreements with banks and
broker-dealers with respect to such securities. While the Funds do not intend to
limit the amount of their assets invested in Money Market Instruments, except to
the extent believed necessary to achieve their investment objective, the Funds
do not expect under normal market conditions to have a substantial portion of
their assets invested in Money Market Instruments. To the extent the Funds are
invested in Money Market Instruments for defensive purposes or in anticipation
of investing cash positions, the Funds' investment objective may not be
achieved.
The following information concerning the Funds augments the
disclosure provided in the prospectus under the heading "Investment Objectives,
Programs and Limitations":
THE CHINA FUND, ASIA BLUE CHIP FUND, AND ASIA SMALL CAP FUND (THE "EQUITY
FUNDS").
Guinness Flight does not intend to invest in any security in a
country where the currency is not freely convertible to United States dollars,
unless it has obtained the necessary governmental licensing to convert such
currency or other appropriately licensed or sanctioned contractual guarantee to
protect such investment against loss of that currency's external value, or
Guinness Flight has a reasonable expectation at the time the investment is made
that such governmental licensing or other appropriately licensed or sanctioned
guarantee would be obtained or that the currency in which the security is quoted
would be freely convertible at the time of any proposed sale of the security by
an Equity Fund.
-3-
<PAGE>
An Equity Fund may invest indirectly in issuers through
sponsored or unsponsored American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs"), Global
Depository Shares ("GDSs") and other types of Depository Receipts (which,
together with ADRs, EDRs, GDRs, and GDSs, are hereinafter referred to as
"Depository Receipts"). Depository Receipts may not necessarily be denominated
in the same currency as the underlying securities into which they may be
converted. In addition, the issuers of the stock of unsponsored Depository
Receipts are not obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such information and the
market value of the Depository Receipts. ADRs are Depository Receipts typically
issued by a United States bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. GDRs and other types of
Depository Receipts are typically issued by foreign banks or trust companies,
although they also may be issued by either a foreign or a United States
corporation. Generally, Depository Receipts in registered form are designed for
use in the United States securities markets and Depository Receipts in bearer
form are designed for use in securities markets outside the United States. For
purposes of the Equity Funds' investment policies, investments in ADRs, GDRs and
other types of Depository Receipts will be deemed to be investments in the
underlying securities. Depository Receipts other than those denominated in
United States dollars will be subject to foreign currency exchange rate risk.
Certain Depository Receipts may not be listed on an exchange and therefore may
be illiquid securities.
Securities in which an Equity Fund may invest include those that
are neither listed on a stock exchange nor traded over-the-counter. As a result
of the absence of a public trading market for these securities, they may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Equity Fund or less than what may be
considered the fair value of such securities. Further, companies whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements which may be applicable if their
securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Equity Fund may be required to bear the expenses of registration. To
the extent that such securities are illiquid by virtue of the absence of a
readily available market, or legal or contractual restrictions on resale, they
will be subject to such Equity Fund's investment restriction on illiquid
securities, discussed below.
An Equity Fund, together with any of its "affiliated persons,"
as defined in the Investment Company Act of 1940 (the "1940 Act"), may only
purchase up to 3% of the total outstanding securities of any underlying
investment company. Accordingly, when the Equity Fund or such "affiliated
persons" hold shares of any of the underlying investment companies, such Fund's
ability to invest fully in shares of those investment companies is restricted,
and Guinness Flight must then, in some instances, select alternative investments
that would not have been its first preference.
There can be no assurance that appropriate investment companies
will be available for investment. The Equity Funds do not intend to invest in
such investment companies unless, in the judgment of Guinness Flight, the
potential benefits of such investment justify the payment of any applicable
premium or sales charge.
GLOBAL GOVERNMENT FUND
Global Government Fund assets invested in foreign government
securities will be invested in debt obligations and other fixed income
securities, in each case denominated in U.S. currencies, non-U.S.
currencies or composite currencies including:
(1) debt obligations issued or guaranteed by foreign
national, provincial, state, municipal or other
governments with taxing authority or by their agencies
or instrumentalities;
(2) debt obligations of supranational entities (described below); and
(3) debt obligations of the United States Government issued in non-dollar
securities.
-4-
<PAGE>
In making international fixed income securities investments,
Guinness Flight may consider, among other things, the relative growth and
inflation rates of different countries. Guinness Flight may also consider
expected changes in foreign currency exchange rates, including the prospects for
central bank intervention, in determining the anticipated returns of securities
denominated in foreign currencies. Guinness Flight may further evaluate, among
other things, foreign yield curves and regulatory and political factors,
including the fiscal and monetary policies of such countries.
The obligations of foreign governmental entities, including
supranational issuers, have various kinds of government support. Obligations of
foreign governmental entities include obligations issued or guaranteed by
national, provincial, state or other governments with taxing power or by their
agencies. These obligations may or may not be supported by the full faith and
credit of a foreign government.
Supranational entities include international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Examples include the International Bank for Reconstruction
and Development (the World Bank), the European Steel and Coal Community, the
Asian Development Bank and the Inter-American Development Bank. The governmental
agencies, or "stockholders," usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional capital
contributions if the supranational entity is unable to repay its borrowings.
Each supranational entity's lending activities are limited to a percentage of
its total capital (including "callable capital" contributed by members at the
entity's call), reserves and net income.
The Global Government Fund may invest in United States
Government Securities and in options, futures contracts and repurchase
transactions with respect to such securities. The term "United States Government
Securities" refers to debt securities denominated in United States dollars,
issued or guaranteed by the United States Government, by various of its
agencies, or by various instrumentalities established or sponsored by the United
States Government. Certain of these obligations, including: (1) United States
Treasury bills, notes, and bonds; (2) mortgage participation certificates
guaranteed by the Government National Mortgage Association ("GNMA"); and (3)
Federal Housing Administration debentures, are supported by the full faith and
credit of the United States. Other United States Government Securities issued or
guaranteed by Federal agencies or government sponsored enterprises are not
supported by the full faith and credit of the United States. These securities
include obligations supported by the right of the issuer to borrow from the
United States Treasury, such as obligations of Federal Home Loan Banks, and
obligations supported only by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds.
When purchasing United States Government Securities, Guinness
Flight may take full advantage of the entire range of maturities of such
securities and may adjust the average maturity of the investments held in the
portfolio from time to time, depending upon its assessment of relative yields of
securities of different maturities and its expectations of future changes in
interest rates. To the extent that the Global Government Fund invests in the
mortgage market, Guinness Flight usually will evaluate, among other things,
relevant economic data, environmental and security specific variables such as
housing starts, coupon and age trends. To determine relative value among
markets, Guinness Flight may use tools such as yield/duration curves, break-even
prepayment rate analysis and holding-period-return scenario testing.
The Global Government Fund may seek to increase its current
income by writing covered call options with respect to some or all of the United
States Government Securities held in its portfolio. In addition, the Global
Government Fund may at times, through the purchase of options on United States
Government Securities, and the purchase and sale of futures contracts and
related options with respect to United States Government Securities, seek to
reduce fluctuations in net asset value by hedging against a decline in the value
of the United States Government Securities owned by the Global Government Fund
or an increase in the price of such securities which the Global Government Fund
plans to purchase, although it is not the general practice to do so. Significant
option writing opportunities generally exist only with respect to longer term
United States Government Securities. Options on United States Government
Securities and futures and related options are not considered United States
Government Securities; accordingly, they have a different set of risks and
features.
-5-
<PAGE>
INVESTMENT STRATEGIES AND RISKS
OPTIONS AND FUTURES STRATEGIES
Through the writing of call options and the purchase of options
and the purchase and sale of stock index futures contracts, interest rate
futures contracts, foreign currency futures contracts and related options on
such futures contracts, Guinness Flight may at times seek to hedge against a
decline in the value of securities included in a Fund's portfolio or an increase
in the price of securities which it plans to purchase for a Fund or to reduce
risk or volatility while seeking to enhance investment performance. Expenses and
losses incurred as a result of such hedging strategies will reduce a Fund's
current return.
The ability of a Fund to engage in the options and futures
strategies described below will depend on the availability of liquid markets in
such instruments. Although the Funds will not enter into an option or futures
position unless a liquid secondary market for such option or futures contract is
believed by Guinness Flight to exist, there is no assurance that a Fund will be
able to effect closing transactions at any particular time or at an acceptable
price. Reasons for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an Exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an Exchange; (v) the facilities of an Exchange or
the Options Clearing Corporation ("OCC") may not at all times be adequate to
handle current trading volume; or (vi) one or more Exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market thereon would cease to exist, although outstanding options
on that Exchange that had been issued by the OCC as a result of trades on that
Exchange would continue to be exercisable in accordance with their terms.
Low initial margin deposits made upon the opening of a futures
position and the writing of an option involve substantial leverage. As a result,
relatively small movements in the price of the contract can result in
substantial unrealized gains or losses. However, to the extent a Fund purchases
or sells futures contracts and options on futures contracts and purchases and
writes options on securities and securities indexes for hedging purposes, any
losses incurred in connection therewith should, if the hedging strategy is
successful, be offset, in whole or in part, by increases in the value of
securities held by the Fund or decreases in the prices of securities the Fund
intends to acquire. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments effectively
for the purposes stated below. Furthermore, a Fund's ability to engage in
options and futures transactions may be limited by tax considerations. Although
the Funds will only engage in options and futures transactions for limited
purposes, it will involve certain risks. The Funds will not engage in options
and futures transactions for leveraging purposes.
Upon purchasing futures contracts of the type described above,
the Funds will maintain in a segregated account with their Custodian cash or
liquid high grade debt obligations with a value, marked-tomarket daily, at least
equal to the dollar amount of the Funds' purchase obligation, reduced by any
amount maintained as margin. Similarly, upon writing a call option, the Funds
will maintain in a segregated account with their Custodian, liquid or high grade
debt instruments with a value, marked-to-market daily, at least equal to the
market value of the underlying contract (but not less than the strike price of
the call option) reduced by any amounts maintained as margin.
WRITING COVERED CALL OPTIONS ON SECURITIES
A Fund may write covered call options on optionable securities
(stocks, bonds, foreign exchange related futures, options and options on
futures) of the types in which it is permitted to invest in seeking to attain
its objective. Call options written by a Fund give the holder the right to buy
the underlying securities from the Fund at a stated exercise price. As the
writer of the call option, the Fund is obligated to own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges).
-6-
<PAGE>
The Funds will receive a premium from writing a call option,
which increases the writer's return in the event the option expires unexercised
or is closed out at a profit. The amount of the premium will reflect, among
other things, the relationship of the market price of the underlying security to
the exercise price of the option, the term of the option and the volatility of
the market price of the underlying security. By writing a call option, a Fund
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option.
A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. The Funds will realize a
profit or loss from such transaction if the cost of such transaction is less or
more, respectively, than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by a Fund.
Options written by the Funds will normally have expiration dates
not more than one year from the date written. The exercise price of the options
may be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current market price of the underlying securities at
the times the options are written. A Fund may engage in buy-and-write
transactions in which the Fund simultaneously purchases a security and writes a
call option thereon. Where a call option is written against a security
subsequent to the purchase of that security, the resulting combined position is
also referred to as buy-and-write. Buy-and-write transactions using in-the-money
call options may be utilized when it is expected that the price of the
underlying security will remain flat or decline moderately during the option
period. In such a transaction, a Fund's maximum gain will be the premium
received from writing the option reduced by any excess of the price paid by the
Fund for the underlying security over the exercise price. Buy-and-write
transactions using at-the-money call options may be utilized when it is expected
that the price of the underlying security will remain flat or advance moderately
during the option period. In such a transaction, a Fund's gain will be limited
to the premiums received from writing the option. Buy-and-write transactions
using out-of-the-money call options may be utilized when it is expected that the
premiums received from writing the call option plus the appreciation in market
price of the underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone. In any of the
foregoing situations, if the market price of the underlying security declines,
the amount of such decline will be offset wholly or in part by the premium
received and a Fund may or may not realize a loss.
To the extent that a secondary market is available on the
Exchanges, the covered call option writer may liquidate his position prior to
the assignment of an exercise notice by entering a closing purchase transaction
for an option of the same series as the option previously written. The cost of
such a closing purchase, plus transaction costs, may be greater than the premium
received upon writing the original option, in which event the writer will have
incurred a loss in the transaction.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES
A Fund may purchase put options to protect its portfolio
holdings in an underlying security against a decline in market value. Such hedge
protection is provided during the life of the put option since the Fund, as
holder of the put option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying security's market
price. In order for a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the
Funds will reduce any profit they might otherwise have realized in the
underlying security by the premium paid for the put option and by transaction
costs.
A Fund may also purchase call options to hedge against an
increase in prices of securities that it wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Fund, as
holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. By using call options in this manner, the Funds
will reduce any profit they might have realized had they bought
-7-
Tuesday, February 13, 1996 2:27PM
KL2:128011.1
<PAGE>
the underlying security at the time they purchased the call option by the
premium paid for the call option and by transaction costs.
PURCHASE AND SALE OF OPTIONS AND FUTURES ON STOCK INDICES
The Equity Funds may purchase and sell options on stock indices
and stock index futures as a hedge against movements in the equity markets.
Options on stock indices are similar to options on specific
securities except that, rather than the right to take or make delivery of the
specific security at a specific price, an option on a stock index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of that stock index is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. This amount
of cash is equal to such difference between the closing price of the index and
the exercise price of the option expressed in dollars multiplied by a specified
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike options on specific
securities, all settlements of options on stock indices are in cash and gain or
loss depends on general movements in the stocks included in the index rather
than on price movements in particular stocks. Currently, index options traded
include the S&P 100 Index, the S&P 500 Index, the NYSE Composite Index, the AMEX
Market Value Index, the National Over-the-Counter Index and other standard
broadly based stock market indices.
A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
dollar amount multiplied by the difference between the value of a specific stock
index at the close of the last trading day of the contract and the price at
which the agreement is made. For example, the China Fund may invest in Hang-Seng
Index Futures. No physical delivery of securities is made.
If Guinness Flight expects general stock market prices to rise,
it might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
they want ultimately to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of the Equity
Fund's index option or futures contract resulting from the increase in the
index. If, on the other hand, Guinness Flight expects general stock market
prices to decline, it might purchase a put option or sell a futures contract on
the index. If that index does in fact decline, the value of some or all of the
equity securities in the Equity Fund's portfolio may also be expected to
decline, but that decrease would be offset in part by the increase in the value
of the China Fund's position in such put option or futures contract.
PURCHASE AND SALE OF INTEREST RATE FUTURES
A Fund may purchase and sell U.S. dollar interest rate futures
contracts on U.S. Treasury bills, notes and bonds and non-U.S. dollar interest
rate futures contracts on foreign bonds for the purpose of hedging fixed income
and interest sensitive securities against the adverse effects of anticipated
movements in interest rates.
A Fund may purchase futures contracts in anticipation of a
decline in interest rates when it is not fully invested in a particular market
in which it intends to make investments to gain market exposure that may in part
or entirely offset an increase in the cost of securities it intends to purchase.
The Funds do not consider purchases of futures contracts to be a speculative
practice under these circumstances. In a substantial majority of these
transactions, the Funds will purchase securities upon termination of the futures
contract.
A Fund may sell U.S. dollar and non-U.S. dollar interest rate
futures contracts in anticipation of an increase in the general level of
interest rates. Generally, as interest rates rise, the market value of the fixed
income securities held by the Funds will fall, thus reducing the net asset value
of the holder. This interest rate risk can be reduced without employing futures
as a hedge by selling long-term fixed income securities and either reinvesting
the proceeds in securities with shorter maturities or by holding assets in cash.
This strategy, however, entails increased transaction costs to the Funds in the
form of dealer spreads and brokerage commissions.
-8-
<PAGE>
The sale of U.S. dollar and non-U.S. dollar interest rate
futures contracts provides an alternative means of hedging against rising
interest rates. As rates increase, the value of a Fund's short position in the
futures contracts will also tend to increase, thus offsetting all or a portion
of the depreciation in the market value of the Fund's investments which are
being hedged. While the Funds will incur commission expenses in entering and
closing out futures positions (which is done by taking an opposite position from
the one originally entered into, which operates to terminate the position in the
futures contract), commissions on futures transactions are lower than
transaction costs incurred in the purchase and sale of portfolio securities.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS AND INTEREST RATE FUTURES CONTRACTS
A Fund may write call options and purchase call and put options
on stock index and interest rate futures contracts. The Funds may use such
options on futures contracts in connection with their hedging strategies in lieu
of purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options on stock index or interest rate futures,
rather than purchasing such futures, to hedge against possible increases in the
price of equity securities or debt securities, respectively, which the Fund
intends to purchase.
PURCHASE AND SALE OF CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS
In order to hedge its portfolio and to protect it against
possible variations in foreign exchange rates pending the settlement of
securities transactions, a Fund may buy or sell foreign currencies or may deal
in forward currency contracts. A Fund may also invest in currency futures
contracts and related options. If a fall in exchange rates for a particular
currency is anticipated, a Fund may sell a currency futures contract or a call
option thereon or purchase a put option on such futures contract as a hedge. If
it is anticipated that exchange rates will rise, a Fund may purchase a currency
futures contract or a call option thereon or sell (write) a put option to
protect against an increase in the price of securities denominated in a
particular currency the Fund intends to purchase. These futures contracts and
related options thereon will be used only as a hedge against anticipated
currency rate changes, and all options on currency futures written by the Funds
will be covered.
A currency futures contract sale creates an obligation by a
Fund, as seller, to deliver the amount of currency called for in the contract at
a specified future time for a specified price. A currency futures contract
purchase creates an obligation by a Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of a currency futures
contract is effected by entering into an offsetting purchase or sale
transaction. Unlike a currency futures contract, which requires the parties to
buy and sell currency on a set date, an option on a currency futures contract
entitles its holder to decide on or before a future date whether to enter into
such a contract or let the option expire.
The Funds will write (sell) only covered call options on
currency futures. This means that the Funds will provide for their obligations
upon exercise of the option by segregating sufficient cash or short-term
obligations or by holding an offsetting position in the option or underlying
currency future, or a combination of the foregoing. The Funds will, so long as
they are obligated as the writer of a call option on currency futures, own on a
contract-for-contract basis an equal long position in currency futures with the
same delivery date or a call option on stock index futures with the difference,
if any, between the market value of the call written and the market value of the
call or long currency futures purchased maintained by the Funds in cash,
Treasury bills, or other high-grade short-term obligations in a segregated
account with its custodian. If at the close of business on any day the market
value of the call purchased by a Fund falls below 100% of the market value of
the call written by the Fund, the Fund will so segregate an amount of cash,
Treasury bills or other high-grade short-term obligations equal in value to the
difference. Alternatively, a Fund may cover the call option through segregating
with the custodian an amount of the particular foreign currency equal to the
amount of foreign currency per futures contract option times the number of
options written by the Fund.
-9-
<PAGE>
If other methods of providing appropriate cover are developed,
the Funds reserve the right to employ them to the extent consistent with
applicable regulatory and exchange requirements.
In connection with transactions in stock index options, stock
index futures, interest rate futures, foreign currency futures and related
options on such futures, the Funds will be required to deposit as "initial
margin" an amount of cash and short-term U.S. Government securities generally
equal to from 5% to 10% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract.
OPTIONS ON FOREIGN CURRENCIES
A Fund may write call options and purchase call and put options
on foreign currencies to enhance investment performance and for hedging purposes
in a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized as described above. For example, a decline
in the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their value
in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, a Fund may purchase put
options on the foreign currency. If the value of the currency does decline, the
Funds will have the right to sell such currency for a fixed amount in dollars
and will thereby offset, in whole or in part, the adverse effect on its
portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in
which securities to be acquired are denominated is projected, thereby increasing
the cost of such securities, a Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to a Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, a Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
Also, where a Fund anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the diminution in value of portfolio securities will be
offset by the amount of the premium received. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to sell the underlying currency at a loss which may not
be offset by the amount of the premium. Through the writing of options on
foreign currencies, a Fund also may be required to forego all or a portion of
the benefits which might otherwise have been obtained from favorable movements
in exchange rates.
The Funds intend to write covered only call options on foreign
currencies. A call option written on a foreign currency by a Fund is "covered"
if the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian, which acts as the Fund's custodian, or by a designated
sub-custodian) upon conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if the Fund has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
or the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash, U.S. Government
Securities and other high-grade liquid debt securities in a segregated account
with its custodian or with a designated sub-custodian.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
-10-
<PAGE>
A Fund may purchase or sell forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the Fund from
variations in foreign exchange rates. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date which
is individually negotiated and privately traded by currency traders and their
customers. A Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Additionally, for example, when a Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency, or when a Fund believes that the U.S.
dollar may suffer a substantial decline against foreign currency, it may enter
into a forward purchase contract to buy that foreign currency for a fixed dollar
amount ("position hedge"). In this situation, the Fund may, in the alternative,
enter into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where it believes that the U.S. dollar value of the currency
to be sold pursuant to the forward contract will fall whenever there is a
decline in the U.S. dollar value of the currency in which portfolio securities
of the sector are denominated ("cross-hedge"). If a Fund enters into a position
hedging transaction, cash not available for investment or U.S. Government
Securities or other high quality debt securities will be placed in a segregated
account in an amount sufficient to cover the Fund's net liability under such
hedging transactions. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account so
that the value of the account will equal the amount of the Fund's commitment
with respect to its position hedging transactions. As an alternative to
maintaining all or part of the separate account, a Fund may purchase a call
option permitting it to purchase the amount of foreign currency being hedged by
a forward sale contract at a price no higher than the forward contract price or
a Fund may purchase a put option permitting it to sell the amount of foreign
currency subject to a forward purchase contract at a price as high or higher
than the forward contract price. Unanticipated changes in currency prices would
result in lower overall performance for a Fund than if it had not entered into
such contracts.
Generally, the Funds will not enter into a forward foreign
currency exchange contract with a term of greater than one year. At the maturity
of the contract, a Fund may either sell the portfolio security and make delivery
of the foreign currency, or may retain the security and terminate the obligation
to deliver the foreign currency by purchasing an "offsetting" forward contract
with the same currency trader obligating the Fund to purchase, on the same
maturity date, the same amount of foreign currency.
It is impossible to forecast with absolute precision the market
value of portfolio securities at the expiration of the contract. Accordingly, it
may be necessary for a Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Fund is obligated to
deliver.
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Funds will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
a Fund engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices decline
during the period between entering into a forward contract for the sale of a
foreign currency and the date the Fund enters into an offsetting contract for
the purchase of the foreign currency, the Fund will realize a gain to the extent
the price of the currency the Fund has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Fund
will suffer a loss to the extent the price of the currency the Fund has agreed
to purchase exceeds the price of the currency the Fund has agreed to sell.
The Funds' dealing in forward foreign currency exchange
contracts will be limited to the transactions described above. Of course, a Fund
is not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
Guinness Flight. It also should be realized that this method of protecting the
value of a Fund's portfolio securities against the decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which one can achieve at
some future point in time. Additionally,
-11-
<PAGE>
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such currency increase.
ADDITIONAL RISKS OF FUTURES CONTRACTS AND RELATED OPTIONS, FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
The market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
securities and futures markets. Second, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
In addition, futures contracts in which a Fund may invest may be
subject to commodity exchange imposed limitations on fluctuations in futures
contract prices during a single day. Such regulations are referred to as "daily
price fluctuation limits" or "daily limits." During a single trading day no
trades may be executed at prices beyond the daily limit. Once the price of a
futures contract has increased or decreased by an amount equal to the daily
limit, positions in those futures cannot be taken or liquidated unless both a
buyer and seller are willing to effect trades at or within the limit. Daily
limits, or regulatory intervention in the commodity markets, could prevent a
Fund from promptly liquidating unfavorable positions and adversely affect
operations and profitability.
Options on foreign currencies and forward foreign currency
exchange contracts ("forward contracts") are not traded on contract markets
regulated by the Commodity Futures Trading Commission ("CFTC") and are not
regulated by the SEC. Rather, forward currency contracts are traded through
financial institutions acting as market-makers. Foreign currency options are
traded on certain national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In
the forward currency market, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Moreover, a trader of forward contracts could lose amounts
substantially in excess of its initial investments, due to the collateral
requirements associated with such positions.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other securities traded
on such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby reducing the
risk of counterparty default. Further, a liquid secondary market in options
traded on a national securities exchange may exist, potentially permitting a
Fund to liquidate open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency
options, however, are subject to the risks of the availability of a liquid
secondary market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effects of
other political and economic events. In addition, exercise and settlement of
such options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental restrictions or
taxes would prevent the orderly settlement of foreign currency option exercises,
or would result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, futures contracts and related options and forward
contracts and options on foreign currencies may be traded on foreign exchanges,
to the extent permitted by the CFTC. Such transactions are subject to the risk
of governmental actions affecting trading in or the prices of foreign currencies
or securities.
-12-
<PAGE>
The value of such positions also could be adversely affected by (a) other
complex foreign political and economic factors, (b) lesser availability than in
the United States of data on which to make trading decisions, (c) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States and the United Kingdom, (d) the
imposition of different exercise and settlement terms and procedures and margin
requirements than in the United States, and (e) lesser trading volume.
REGULATORY MATTERS
In connection with its proposed futures and options
transactions, each Fund will file with the CFTC a notice of eligibility for
exemption from the definition of (and therefore from CFTC regulation as) a
"commodity pool operator" under the Commodity Exchange Act.
The Staff of the SEC has taken the position that the purchase
and sale of futures contracts and the writing of related options may involve
senior securities for the purposes of the restrictions contained in Section 18
of the 1940 Act on investment companies issuing senior securities. However, the
Staff has issued letters declaring that it will not recommend enforcement action
under Section 18 if an investment company:
(i) sells futures contracts on an index of
securities that correlate with its portfolio
securities to offset expected declines in the
value of its portfolio securities;
(ii) writes call options on futures contracts,
stock indexes or other securities, provided
that such options are covered by the
investment company's holding of a
corresponding long futures position, by its
ownership of portfolio securities which
correlate with the underlying stock index, or
otherwise;
(iii) purchases futures contracts, provided the
investment company establishes a segregated
account ("cash segregated account") consisting
of cash or cash equivalents in an amount equal
to the total market value of such futures
contracts less the initial margin deposited
therefor; and
(iv) writes put options on futures contracts, stock
indices or other securities, provided that
such options are covered by the investment
company's holding of a corresponding short
futures position, by establishing a cash
segregated account in an amount equal to the
value of its obligation under the option, or
otherwise.
In addition, the Funds are eligible for, and are claiming,
exclusion from the definition of the term Commodity Pool Operator in connection
with the operations of the Funds, in accordance with subparagraph (1) of
paragraph (a) of CFTC Rule 4.5, because the Funds operate in a manner such that:
(i) the Funds use commodity futures or commodity
options contracts solely for bona fide hedging purposes within
the meaning and intent of CFTC Rule 1.3(z)(1); provided,
however, that in the alternative, with respect to each long
position in a commodity future or commodity option contract
which is used as part of a portfolio management strategy and
which is incidental to a Fund's activities in the underlying
cash market but would not come within the meaning and intent
of Rule 1.3(z)(1), as a substitute for compliance with this
paragraph (i), the underlying commodity value of such contract
at all times does not exceed the sum of:
(A) Cash set aside in an identifiable manner, or
short-term United States debt obligations or other United
States dollar-denominated high quality short-term money market
instruments so set aside, plus any funds deposited as margin
on such contract;
(B) Cash proceeds from existing investments due in 30
days; and
(C) Accrued profits on such contract held at the
futures commission merchant.
-13-
<PAGE>
(ii) the Funds do not enter into commodity futures
and commodity options contracts for which the aggregate
initial margin and premiums exceed five (5) percent of the
fair market value of a Fund's assets, after taking into
account unrealized profits and unrealized losses on any such
contracts it has entered into; provided, however, that in the
case of an option that is in-the-money at the time of
purchase, the in-the-money amount as defined in CFTC Rule
190.01(x) may be excluded in computing such five (5) percent;
The Funds will conduct their purchases and sales of futures
contracts and writing of related options transactions in accordance with the
foregoing.
REPURCHASE AGREEMENTS
A Fund may enter into repurchase agreements. Under a
repurchase agreement, a Fund acquires a debt instrument for a relatively short
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the Fund to resell such debt instrument at a fixed price. The
resale price is in excess of the purchase price in that it reflects an
agreed-upon market interest rate effective for the period of time during which
the Fund's money is invested. A Fund's risk is limited to the ability of the
seller to pay the agreed-upon sum upon the delivery date. When a Fund enters
into a repurchase agreement, it obtains collateral having a value at least equal
to the amount of the purchase price. Repurchase agreements can be considered
loans as defined by the 1940 Act, collateralized by the underlying securities.
The return on the collateral may be more or less than that from the repurchase
agreement. The securities underlying a repurchase agreement will be marked to
market every business day so that the value of the collateral is at least equal
to the value of the loan, including the accrued interest earned. In evaluating
whether to enter into a repurchase agreement, Guinness Flight will carefully
consider the creditworthiness of the seller. If the seller defaults and the
value of the collateral securing the repurchase agreement declines, the Fund may
incur a loss.
ILLIQUID AND RESTRICTED SECURITIES
The Funds have adopted the following investment policy, which
may be changed by the vote of the Board of Directors. The Funds will not invest
in illiquid securities if immediately after such investment more than 15% of a
Fund's net assets (taken at market value) would be invested in such securities.
For this purpose, illiquid securities include (a) securities that are illiquid
by virtue of the absence of a readily available market or legal or contractual
restrictions on resale, (b) participation interests in loans that are not
subject to puts, (c) covered call options on portfolio securities written by a
Fund over-the-counter and the cover for such options and (d) repurchase
agreements not terminable within seven days.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered for sale to the public, securities that are otherwise not
readily marketable and repurchase agreements having a maturity of longer than
seven days. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
The Commission has adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restriction on
resale to the general public. Rule 144A establishes a "safe
-14-
<PAGE>
harbor" from the registration requirements of the Securities Act applicable to
resales of certain securities to qualified institutional buyers. Guinness Flight
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this new
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc. (the "NASD").
Guinness Flight will monitor the liquidity of restricted
securities in the Funds' portfolios under the supervision of the Funds' Board of
Directors. In reaching liquidity decision, Guinness Flight will consider, among
other things, the following factors: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell security and
the number of other potential purchasers; (3) dealer undertakings to make a
market in the security and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
OTHER RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should recognize that investing in securities of
companies in emerging countries, involves certain special considerations and
risk factors which are not typically associated with investing in securities of
U.S. companies. The following disclosure augments the information provided in
the prospectus under the heading "Other Risk Considerations."
ADDITIONAL FOREIGN CURRENCY CONSIDERATIONS
The Funds' assets will be invested principally in securities
of entities in foreign markets and substantially all of the income received by
the Funds will be in foreign currencies. If the value of the foreign currencies
in which a Fund receives its income falls relative to the U.S. dollar between
the earning of the income and the time at which the Fund converts the foreign
currencies to U.S. dollars, the Fund will be required to liquidate securities in
order to make distributions if the Fund has insufficient cash in U.S. dollars to
meet distribution requirements. The liquidation of investments, if required, may
have an adverse impact on a Fund's performance.
Changes in foreign currency exchange rates also will affect
the value of securities in the Funds' portfolios and the unrealized appreciation
or depreciation of investments. Further, a Fund may incur costs in connection
with conversions between various currencies. Foreign exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to a Fund at one rate, while offering a lesser rate of exchange should
the Fund desire immediately to resell that currency to the dealer. The Funds
will conduct their foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward, futures or options contracts to
purchase or sell foreign currencies.
A Fund may enter into forward currency exchange contracts and
currency futures contracts and options on such futures contracts, as well as
purchase put or call options on currencies, in U.S. or foreign markets to
protect the value of some portion or all of its portfolio holdings against
currency risks by engaging in hedging transactions. There can be no guarantee
that instruments suitable for hedging currency or market shifts will be
available at the time when a Fund wishes to use them. Moreover, investors should
be aware that in most emerging countries, such as China, the markets for certain
of these hedging instruments are not highly developed and that in many emerging
countries no such markets currently exist.
INVESTMENT RESTRICTIONS AND POLICIES
Investment restrictions are fundamental policies and cannot be
changed without approval of the holders of a majority (as defined in the 1940
Act) of the outstanding shares of a Fund. As used in the Prospectus and the
Statement of Additional Information, the term "majority of the outstanding
shares" of a Fund means, respectively, the vote of the lesser of (i) 67% or more
of the shares of the Fund present at a meeting, if
-15-
<PAGE>
the holders of more than 50% of the outstanding shares of the Fund are present
or represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund. The following are the Funds' investment restrictions set forth in their
entirety. Investment policies are not fundamental and may be changed by the
Board of Directors without shareholder approval.
INVESTMENT RESTRICTIONS
Each Fund may not:
1. Issue senior securities, except that a Fund may borrow up
to 33 1/3% of the value of its total assets from a bank (i) to increase its
holdings of portfolio securities, (ii) to meet redemption requests, or (iii) for
such short-term credits as may be necessary for the clearance or settlement of
the transactions. A Fund may pledge its assets to secure such borrowings.
2. Invest 25% or more of the total value of its assets in a
particular industry, except that this restriction shall not apply to U.S.
Government Securities.
3. Buy or sell commodities or commodity contracts or real
estate or interests in real estate (including real estate limited partnerships),
except that it may purchase and sell futures contracts on stock indices,
interest rate instruments and foreign currencies, securities which are secured
by real estate or commodities, and securities of companies which invest or deal
in real estate or commodities.
4. Make loans, except through repurchase agreements to the
extent permitted under applicable law.
5. Act as an underwriter except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to be
an underwriter under applicable securities laws.
INVESTMENT POLICIES
Each Fund may not:
1. Purchase securities on margin, except such short-term
credits as may be necessary for clearance of transactions and the maintenance of
margin with respect to futures contracts.
2. Make short sales of securities or maintain a short position
(except that the Fund may maintain short positions in foreign currency
contracts, options and futures contracts).
3. Purchase or otherwise acquire the securities of any
open-end investment company (except in connection with a merger, consolidation,
acquisition of substantially all of the assets or reorganization of another
investment company) if, as a result, the Fund and all of its affiliates would
own more than 3% of the total outstanding stock of that company.
4. Purchase or retain securities of any issuer (other than the
shares of the Fund) if to the Fund's knowledge, those officers and Directors of
the Fund and the officers and directors of Guinness Flight, who individually own
beneficially more than 1/2 of 1% of the outstanding securities of such issuer,
together own beneficially more than 5% of such outstanding securities.
5. Invest directly in oil, gas or other mineral exploration or
development programs or leases; provided, however, that if consistent with the
objective of the Fund, the Fund may purchase securities of issuers whose
principal business activities fall within such areas.
In order to permit the sale of shares of a Fund in certain
states, a Fund may make commitments more restrictive than the restrictions
described above. Should a Fund determine that any such commitment is no longer
in the best interests of the Fund and its shareholders it will revoke the
commitment by terminating sales of its shares in the state(s) involved.
-16-
<PAGE>
Percentage restrictions apply at the time of acquisition and
any subsequent change in percentages due to changes in market value of portfolio
securities or other changes in total assets will not be considered a violation
of such restrictions.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities
are placed on behalf of the Funds by Guinness Flight subject to the supervision
of the Guinness Funds and the Board of Directors and pursuant to authority
contained in the Management Agreements between the Funds and Guinness Flight. In
selecting such brokers or dealers, Guinness Flight will consider various
relevant factors, including, but not limited to the best net price available,
the size and type of the transaction, the nature and character of the markets
for the security to be purchased or sold, the execution efficiency, settlement
capability, financial condition of the broker-dealer firm, the broker-dealer's
execution services rendered on a continuing basis and the reasonableness of any
commissions.
In addition to meeting the primary requirements of execution
and price, brokers or dealers may be selected who provide research services, or
statistical material or other services to a Fund or to Guinness Flight for the
Fund's use, which in the opinion of the Board of Directors, are reasonable and
necessary to the Fund's normal operations. Those services may include economic
studies, industry studies, security analysis or reports, sales literature and
statistical services furnished either directly to a Fund or to Guinness Flight.
Such allocation shall be in such amounts as Guinness Funds shall determine and
Guinness Flight shall report regularly to Guinness Funds who will in turn report
to the Board of Directors on the allocation of brokerage for such services.
The receipt of research from broker-dealers may be useful to
Guinness Flight in rendering investment management services to its other
clients, and conversely, such information provided by brokers or dealers who
have executed orders on behalf of Guinness Flight's other clients may be useful
to Guinness Flight in carrying out its obligations to the Funds. The receipt of
such research may not reduce Guinness Flight's normal independent research
activities.
Guinness Flight is authorized, subject to best price and
execution, to place portfolio transactions with brokerage firms that have
provided assistance in the distribution of shares of the Funds and is authorized
to use the Distributor on an agency basis, to effect a substantial amount of the
portfolio transactions which are executed on the New York or American Stock
Exchanges, Regional Exchanges and Foreign Exchanges where relevant, or which are
traded in the Over-the-Counter market.
Brokers or dealers who execute portfolio transactions on
behalf of a Fund may receive commissions which are in excess of the amount of
commissions which other brokers or dealers would have charged for effecting such
transactions; provided, Guinness Funds determines in good faith that such
commissions are reasonable in relation to the value of the brokerage and/or
research services provided by such executing brokers or dealers viewed in terms
of a particular transaction or Guinness Fund's overall responsibilities to a
Fund.
It may happen that the same security will be held by other
clients of Guinness Flight. When the other clients are simultaneously engaged in
the purchase or sale of the same security, the prices and amounts will be
allocated in accordance with a formula considered by Guinness Flight to be
equitable to each, taking into consideration such factors as size of account,
concentration of holdings, investment objectives, tax status, cash availability,
purchase cost, holding period and other pertinent factors relative to each
account. In some cases this system could have a detrimental effect on the price
or volume of the security as far as a Fund is concerned. In other cases,
however, the ability of a Fund to participate in volume transactions will
produce better executions for the Fund.
For the period commencing June 30, 1994 to December 31, 1994
and the period from December 31, 1994 to December 31, 1995, the China Fund paid
brokerage commissions equal to $13,875 and $258,319, respectively and the Global
Government Fund paid $0 and $0, respectively.
-17-
<PAGE>
COMPUTATION OF NET ASSET VALUE
The net asset value of the Funds is determined at 4:15 p.m.
New York time, on each day that the New York Exchange is open for business and
on such other days as there is sufficient trading in a Fund's securities to
affect materially the net asset value per share of the Fund. The Funds will be
closed on New Years Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The Funds will invest in foreign securities, and as a result,
the calculation of the Funds' net asset value may not take place
contemporaneously with the determination of the prices of certain of the
portfolio securities used in the calculation. Occasionally, events which affect
the values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock Exchange
and will therefore not be reflected in the computation of a Fund's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Board of Directors. Portfolio securities of a Fund which are
traded both on an exchange and in the over-the-counter market, will be valued
according to the broadest and most representative market. All assets and
liabilities initially expressed in foreign currency values will be converted
into U.S. Dollar values at the mean between the bid and offered quotations of
the currencies against U.S. Dollars as last quoted by any recognized dealer.
When portfolio securities are traded, the valuation will be the last reported
sale price on the day of valuation. (For securities traded on the New York Stock
Exchange, the valuation will be the last reported sales price as of the close of
the Exchange's regular trading session, currently 4:00 p.m. New York Time.) If
there is no such reported sale or the valuation is based on the Over-the-Counter
market, the securities will be valued at the last available bid price or at the
mean between the bid and asked prices, as determined by the Board of Directors.
As of the date of this Statement of Additional Information, such securities will
be valued by the latter method. Securities for which reliable quotations are not
readily available and all other assets will be valued at their respective fair
market value as determined in good faith by, or under procedures established by,
the Board of Directors of the Funds.
Money market instruments with less than sixty days remaining
to maturity when acquired by the Funds will be valued on an amortized cost basis
by the Funds, excluding unrealized gains or losses thereon from the valuation.
This is accomplished by valuing the security at cost and then assuming a
constant amortization to maturity of any premium or discount. If a Fund acquires
a money market instrument with more than sixty days remaining to its maturity,
it will be valued at current market value until the 60th day prior to maturity,
and will then be valued on an amortized cost basis based upon the value on such
date unless the Board of Directors determines during such 60-day period that
this amortized cost value does not represent fair market value.
All liabilities incurred or accrued are deducted from a Fund's
total assets. The resulting net assets are divided by the number of shares of
the Fund outstanding at the time of the valuation and the result (adjusted to
the nearest cent) is the net asset value per share.
PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of a
Fund to that of other mutual funds and to stock or other relevant indices in
advertisements or in reports to Shareholders, performance will be stated both in
terms of total return and in terms of yield. The total return basis combines
principal and dividend income changes for the periods shown. Principal changes
are based on the difference between the beginning and closing net asset values
for the period and assume reinvestment of dividends and distributions paid by
the Fund. Dividends and distributions are comprised of net investment income and
net realized capital gains. Under the
-18-
<PAGE>
rules of the Commission, funds advertising performance must include total return
quotes calculated according to the following formula:
P(1 + T)^n = ERV
Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year periods or at the end of the
1, 5 or 10 year periods (or fractional
portion thereof)
In calculating the ending redeemable value, all dividends and
distributions by the Fund are assumed to have been reinvested at net asset value
as described in the prospectus on the reinvestment dates during the period.
Total return, or "T" in the formula above, is computed by finding the average
annual compounded rates of return over the 1, 5 and 10 year periods (or
fractional portion thereof) that would equate the initial amount invested to the
ending redeemable value.
A Fund may also from time to time include in such advertising a
total return figure that is not calculated according to the formula set forth
above in order to compare more accurately the Fund's performance with other
measures of investment return. For example, in comparing a Fund's total return
with data published by Lipper Analytical Services, Inc. or similar independent
services or financial publications, the Fund calculates its aggregate total
return for the specified periods of time by assuming the reinvestment of each
dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial net asset value
of the investment from the ending net asset value and by dividing the remainder
by the beginning net asset value. Such alternative total return information will
be given no greater prominence in such advertising than the information
prescribed under the Commission's rules.
In addition to the total return quotations discussed above, a
Fund may advertise its yield based on a 30-day (or one month) period ended on
the date of the most recent balance sheet included in the Fund's Post-Effective
Amendment to its Registration Statement, computed by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period, according to the following formula:
a-b
YIELD = 2[( ----- +1)^6-1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.
Under this formula, interest earned on debt obligations for
purposes of "all above, is calculated by (1) computing the yield to maturity of
each obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last day of
each month, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest), (2) dividing that figure by 360
and multiplying the quotient by the market value of the obligation (including
actual accrued interest as referred to above) to determine the interest income
on the obligation for each day of the subsequent month that the obligation is in
the Fund's portfolio (assuming a month of 30 days) and (3) computing the total
of the interest earned on all debt obligations and all dividends accrued on all
equity securities during the 30-day or one month period. In computing dividends
accrued, dividend income is recognized by accruing 1/360 of the stated dividend
rate of a security each day that the security is in the Fund's portfolio. For
purposes of "b" above, Rule 12b-1 expenses are included among the expenses
accrued for the period. Undeclared earned
-19-
<PAGE>
income, computed in accordance with generally accepted accounting principles,
may be subtracted from the maximum offering price calculation required pursuant
to "d" above.
Any quotation of performance stated in terms of yield will be
given no greater prominence than the information prescribed under the SEC's
rules. In addition, all advertisements containing performance data of any kind
will include a legend disclosing that such performance data represents past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
The annual compounded rate of total return for the one-year
period ended December 31, 1995 and the average annual compounded rate of total
return from June 30, 1994 (inception) to December 31, 1995 for the China Fund
was 20.45% and 7.26%, respectively, and the Global Government Fund was 14.49%
and 7.71%, respectively. For the 30-day period ended on the date of the most
recent balance sheet included in this registration statement, the Global
Government Fund's yield was 5.28%.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Funds have elected to be governed by Rule 18f-1 of the 1940
Act, under which a Fund is obligated to redeem the shares of any shareholder
solely in cash up to the lesser of 1% of the net asset value of the Fund or
$250,000 during any 90-day period. Should any shareholder's redemption exceed
this limitation, a Fund can, at its sole option, redeem the excess in cash or in
readily marketable portfolio securities. Such securities would be selected
solely by the Fund and valued as in computing net asset value. In these
circumstances a shareholder selling such securities would probably incur a
brokerage charge and there can be no assurance that the price realized by a
shareholder upon the sale of such securities will not be less than the value
used in computing net asset value for the purpose of such redemption.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting each Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, a Fund is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by a Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a
regulated investment company must: (1) derive at least 90% of its gross income
from dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies (the "Income Requirement"); and (2)
derive less than 30% of its gross income (exclusive of certain gains on
designated hedging transactions that are offset by realized or unrealized losses
on offsetting positions) from the sale or
-20-
<PAGE>
other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the regulated
investment company's investments in stock or securities (or options or futures
thereon). Because of the Short-Short Gain Test, a Fund may have to limit the
sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded for this purpose. Interest
(including original issue discount) received by a Fund at maturity or upon the
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of the Short-Short Gain Test. However, income that is attributable
to realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
In general, gain or loss recognized by a Fund on the disposition
of an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code Section 1256 (unless a Fund
elects otherwise), will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or
loss recognized by a Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, or (2) the asset is otherwise held by the Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and Fund
grants a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (3) the asset is stock and Fund
grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (1) above. In
addition, Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or
loss recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by a Fund will commence on the date it is written and end on the date it lapses
or the date a closing transaction is entered into. Accordingly, a Fund may be
limited in its ability to write options which expire within three months and to
enter into closing transactions at a gain within three months of the writing of
options.
Transactions that may be engaged in by a Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. A Fund, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts. The IRS has held in several private rulings (and
Treasury Regulations now provide) that gains arising from Section 1256 contracts
will be treated for purposes of the Short-Short Gain Test
-21-
<PAGE>
as being derived from securities held for not less than three months if the
gains arise as a result of a constructive sale under Code Section 1256.
Each Fund may purchase securities of certain foreign investment
funds or trusts which constitute passive foreign investment companies ("PFICs")
for federal income tax purposes. If a Fund invests in a PFIC, it may elect to
treat the PFIC as a qualifying electing fund (a "QEF") in which event the Fund
will each year have ordinary income equal to its pro rata share of the PFIC's
ordinary earnings for the year and long-term capital gain equal to its pro rata
share of the PFIC's net capital gain for the year, regardless of whether the
Fund receives distributions of any such ordinary earning or capital gain from
the PFIC. If the Fund does not (because it is unable to, chooses not to or
otherwise) elect to treat the PFIC as a QEF, then in general (1) any gain
recognized by the Fund upon sale or other disposition of its interest in the
PFIC or any excess distribution received by the Fund from the PFIC will be
allocated ratably over the Fund's holding period of its interest in the PFIC,
(2) the portion of such gain or excess distribution so allocated to the year in
which the gain is recognized or the excess distribution is received shall be
included in the Fund's gross income for such year as ordinary income (and the
distribution of such portion by the Fund to shareholders will be taxable as an
ordinary income dividend, but such portion will not be subject to tax at the
Fund level), (3) the Fund shall be liable for tax on the portions of such gain
or excess distribution so allocated to prior years in an amount equal to, for
each such prior year, (i) the amount of gain or excess distribution allocated to
such prior year multiplied by the highest tax rate (individual or corporate) in
effect for such prior year plus (ii) interest on the amount determined under
clause (i) for the period from the due date for filing a return for such prior
year until the date for filing a return for the year in which the gain is
recognized or the excess distribution is received at the rates and methods
applicable to underpayments of tax for such period, and (4) the distribution by
the Fund to shareholders of the portions of such gain or excess distribution so
allocated to prior years (net of the tax payable by the Fund thereon) will again
be taxable to the shareholders as an ordinary income dividend.
Under recently proposed Treasury Regulations a Fund can elect to
recognize as gain the excess, as of the last day of its taxable year, of the
fair market value of each share of PFIC stock over the Fund's adjusted tax basis
in that share ("mark to market gain"). Such mark to market gain will be included
by a Fund as ordinary income, such gain will not be subject to the Short-Short
Gain Test, and the Fund's holding period with respect to such PFIC stock
commences on the first day of the next taxable year. If a Fund makes such
election in the first taxable year it holds PFIC stock, the Fund will include
ordinary income from any mark to market gain, if any, and will not incur the tax
described in the previous paragraph.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, a
Fund must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each quarter of a
Fund's taxable year, at least 50% of the value of the Fund's assets must consist
of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and as to which the Fund does not hold more than 10%
of the outstanding voting securities of such issuer), and no more than 25% of
the value of its total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses. Generally, an
option (call or put) with respect to a security is treated as issued by the
issuer of the security not the issuer of the option.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
-22-
<PAGE>
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated
investment company that fails to distribute in each calendar year an amount
equal to 98% of ordinary taxable income for the calendar year and 98% of capital
gain net income for the one-year period ended on October 31 of such calendar
year (or, at the election of a regulated investment company having a taxable
year ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company
shall: (1) reduce its capital gain net income (but not below its net capital
gain) by the amount of any net ordinary loss for the calendar year; and (2)
exclude foreign currency gains and losses incurred after October 31 of any year
(or after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
Fund Distributions
Each Fund anticipates distributing substantially all of its
investment company taxable income for each taxable year. Such distributions will
be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they generally should not qualify for the 70%
dividends-received deduction for corporate shareholders.
A Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. Each Fund currently intends to distribute
any such amounts. If net capital gain is distributed and designated as a capital
gain dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by a Fund prior to the date on which the shareholder
acquired his shares.
Conversely, if a Fund elects to retain its net capital gain, the
Fund will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Investment income that may be received by a Fund from sources
within foreign countries may be subject to foreign taxes withheld at the source.
The United States has entered into tax treaties with many foreign countries
which entitle a Fund to a reduced rate of, or exemption from, taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of each Fund's assets to be invested in various
countries is not known. If more than 50% of the value of a Fund's total assets
at the close of its taxable year consist of the stock or securities of foreign
corporations, a Fund may elect to "pass through" to the Fund's shareholders the
amount of foreign taxes paid by the Fund. If a Fund so elects, each shareholder
would be required to include in gross income, even though not actually received,
his pro rata share of the foreign taxes paid by the Fund, but would be treated
as having paid his pro rata share of such foreign taxes and would therefore be
allowed to either deduct such amount in computing taxable income or use such
amount (subject to various Code limitations) as a foreign tax credit against
federal income tax (but not both). For purposes of the foreign tax credit
limitation rules of the Code, each shareholder would treat as foreign source
income his pro rata share of such foreign taxes plus the portion of dividends
received from a Fund representing
-23-
<PAGE>
income derived from foreign sources. No deduction for foreign taxes could be
claimed by an individual shareholder who does not itemize deductions. Each
shareholder should consult his own tax adviser regarding the potential
application of foreign tax credits.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described
above regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by a
Fund into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by a Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Fund will be required in certain cases to withhold and
remit to the U.S. Treasury 31% of ordinary income dividends and capital gain
dividends, and the proceeds of redemption of shares, paid to any shareholder (1)
who has provided either an incorrect tax identification number or no number at
all, (2) who is subject to backup withholding by the IRS for failure to report
the receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or
redemption of shares of a Fund in an amount equal to the difference between the
proceeds of the sale or redemption and the shareholder's adjusted tax basis in
the shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of a Fund within 30 days before or after the
sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of a Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. However, any capital loss arising from the
sale or redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
received on such shares. For this purpose, the special holding period rules of
Code Section 246(c)(3) and (4) generally will apply in determining the holding
period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 11.6% lower than the maximum rate applicable
to ordinary income. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a
U.S. trade or business carried on by a foreign shareholder, ordinary income
dividends paid to a foreign shareholder will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the dividend.
Furthermore,
-24-
<PAGE>
such a foreign shareholder may be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate) on the gross income resulting from a Fund's election
to treat any foreign taxes paid by it as paid by its shareholders, but may not
be allowed a deduction against this gross income or a credit against this U.S.
withholding tax for the foreign shareholder's pro rata share of such foreign
taxes which it is treated as having paid. Such a foreign shareholder would
generally be exempt from U.S. federal income tax on gains realized on the sale
of shares of a Fund, capital gain dividends and amounts retained by the Fund
that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S.
trade or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends, and any gains realized upon the sale of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim
the benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued thereunder
as in effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends
and capital gain dividends from regulated investment companies often differ from
the rules for U.S. federal income taxation described above. Shareholders are
urged to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting investment in a Fund.
MANAGEMENT OF THE FUNDS
The Board of Directors and executive officers of the Funds and
their principal occupations for the past five years are listed below. The
address of each Director is 201 South Lake Avenue, Suite 510, Pasadena,
California, 91101.
James I. Fordwood* -- Director. Mr. Fordwood is President of Balmacara
Production Inc., an investment holding and
management services company that he founded in 1987.
Currently, Balmacara generally is responsible for
the general accounts and banking functions for
United States companies specializing in oil and gas
operations.
Dr. Gunter Dufey* -- Director. Dr. Dufey has been a member of the faculty
of the Graduate School of Business Administration at
the University of Michigan since 1969. His academic
interests center on International Money and Capital
Markets as well as on Financial Policy of
Multinational Corporations. Outside of academia, he
has been a member of the Board of Directors of GMAC
Auto Receivables Corporation since 1992.
- --------
* Not an "interested person," as that term is defined by the 1940 Act.
-25-
<PAGE>
Dr. Bret A. Herscher* - Director. Dr. Herscher is President of Pacific
Consultants, a technical and technology management
consulting company serving the Electronic industry
and venture capital community, which he co-founded
in 1988. Additionally, Dr. Herscher has been a
Director of Strawberry Tree Incorporated, a
manufacturer of computer based Data Acquisition and
Control products for factory and laboratory use,
since 1989.
J. Brooks Reece, Jr.* -- Director. Mr. Reece has been a Vice-President of
Adcole Corporation, a manufacturer of precision
measuring machines and sun angle sensors for space
satellites, since 1993. Prior to becoming a
Vice-President, he was the Manager of sales and
marketing. In addition, Mr. Reece is the
Vice-President and Director of Adcole Far East,
Ltd., a subsidiary that manages Adcole sales and
service throughout Asia. He has held this position
since 1986.
Robert H. Wadsworth -- President/Assistant Treasurer. 4455 East Camelback
Road, Suite 261E, Phoenix, Arizona 85018. President,
Robert H. Wadsworth and Associates, Inc.
(consultants) and Investment Company Administration
Corporation. President and Treasurer, First Fund
Distributors, Inc.
Eric M. Banhazl -- Treasurer. 2025 East Financial Way, Suite 101,
Glendora, California 91741. Senior Vice President,
Robert H. Wadsworth & Associates, Inc. (consultants)
and Investment Company Administration Corporation since
March 1990; Formerly Vice President, Huntington
Advisors, Inc. (investment advisor).
Steven J. Paggioli -- Secretary. 479 West 22nd Street, New York, New York
10011. Executive Vice President, Robert H. Wadsworth
& Associates, Inc. (consultant) and Investment
Company Administration Corporation. Vice President
and Secretary, First Fund Distributors, Inc.
Rita Dam -- Assistant Treasurer. 2025 East Financial Way, Suite
101, Glendora, California 91741. Vice President,
Investment Company Administration Corporation since
1994. Member of the Financial Services Audit Group at
Coopers & Lybrand, LLP from 1989-1994.
Robin Berger -- Assistant Secretary. 479 West 22nd Street, New York,
New York, 10011. Vice President, Robert H. Wadsworth
and Associates, Inc. since June 1993; Formerly
Regulatory and compliance Coordinator, Equitable
Capital Management, Inc. (1991-93), and Legal
Product Manager, Mitchell Hutchins Asset Management
(1988-91).
Each Director who is not an "interested person" of the Fund
receives an annual fee of $5,000 allocated equally among all the Funds, plus
expenses incurred by the Directors in connection with attendance at meetings of
the Board of Directors and their Committees. For the period commencing December
31, 1994 to December 31, 1995, each Fund paid $15,958 in fees to the Directors.
As of the date of this Statement of Additional Information, to the best of the
knowledge of the Guinness Funds the Board of Directors and officers of the
Funds, as a group, owned of record less than 1% of the Funds' outstanding
shares.
THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS
Guinness Flight furnishes investment advisory services to the
Funds. Under the Investment Advisory Agreements (the "Agreements"), Guinness
Flight directs the investments of the Funds in accordance with the investment
objectives, policies, and limitations provided in the Funds' Prospectus or other
governing instruments, the 1940 Act, and rules thereunder, and such other
limitations as the Funds may impose by notice in writing to Guinness Flight.
Guinness Flight also furnishes all necessary office facilities, equipment and
personnel for servicing the investments of the Funds; pays the salaries and fees
of all officers of Guinness Funds other than those whose salaries and fees are
paid by Guinness Funds' administrator or distributor; and pays the salaries and
fees of all Directors of Guinness Funds who are "interested persons" of Guinness
Funds or of Guinness Flight and of all personnel of Guinness Funds or of
Guinness Flight performing services relating to
-26-
<PAGE>
research, statistical and investment activities. Guinness Flight is authorized,
in its discretion and without prior consultation with the Funds, to buy, sell,
lend and otherwise trade, consistent with the Fund's then current investment
objective, policies and restrictions in any bonds and other securities and
investment instruments on behalf of the Funds. The investment policies and all
other actions of the Funds are at all times subject to the control and direction
of Guinness Funds' Board of Directors.
Guinness Flight performs (or arranges for the performance of)
the following management and administrative services necessary for the operation
of Guinness Funds: (i) with respect to the Funds, supervising relations with,
and monitoring the performance of, custodians, depositories, transfer and
pricing agents, accountants, attorneys, underwriters, brokers and dealers,
insurers and other persons in any capacity deemed to be necessary or desirable;
(ii) investigating the development of and developing and implementing, if
appropriate, management and shareholder services designed to enhance the value
or convenience of the Funds as an investment vehicle; and (iii) providing
administrative services other than those provided by Guinness Funds'
administrator.
Guinness Flight also furnishes such reports, evaluations,
information or analyses to Guinness Funds as Guinness Funds' Board of Directors
may request from time to time or as Guinness Flight may deem to be desirable.
Guinness Flight makes recommendations to Guinness Funds' Board of Directors with
respect to Guinness Funds' policies, and carries out such policies as are
adopted by the Directors. Guinness Flight, subject to review by the Board of
Directors, furnishes such other services as it determines to be necessary or
useful to perform its obligations under the Agreements.
All other costs and expenses not expressly assumed by the
Adviser under the Agreements or by the Administrator under the administration
agreement between it and the Funds on behalf of the Funds shall be paid by the
Funds from the assets of the Funds, including, but not limited to fees paid to
the Adviser and the Administrator, interest and taxes, brokerage commissions,
insurance premiums, compensation and expenses of the Directors other than those
affiliated with the adviser or the administrator, legal, accounting and audit
expenses, fees and expenses of any transfer agent, distributor, registrar,
dividend disbursing agent or shareholder servicing agent of the Funds, expenses,
including clerical expenses, incident to the issuance, redemption or repurchase
of shares of the Funds, including issuance on the payment of, or reinvestment
of, dividends, fees and expenses incident to the registration under Federal or
state securities laws of the Funds or its shares, expenses of preparing, setting
in type, printing and mailing prospectuses, statements of additional
information, reports and notices and proxy material to shareholders of the
Funds, all other expenses incidental to holding meetings of the Funds'
shareholders, expenses connected with the execution, recording and settlement of
portfolio securities transactions, fees and expenses of the Funds' custodian for
all services to the Funds, including safekeeping of funds and securities and
maintaining required books and accounts, expenses of calculating net asset value
of the shares of the Funds, industry membership fees allocable to the Funds, and
such extraordinary expenses as may arise, including litigation affecting the
Funds and the legal obligations which the Funds may have to indemnify the
officers and Directors with respect thereto.
Expenses which are attributable to the Funds are charged
against the income of the Funds in determining net income for dividend purposes.
Pursuant to the Agreement, Guinness Flight has agreed to
reduce its fee (but only to the extent of such fee) so that the amount of the
ordinary expenses of the Funds (excluding brokerage commissions, distribution
fees, interest, taxes and extraordinary expenses and certain other excludable
expenses) paid or incurred by the Funds do not exceed the expense limitations
applicable to the Funds imposed by the securities laws or regulations of those
states or jurisdictions in which the Funds' shares are registered or qualified
for sale. Currently, the most restrictive of such expense limitations would
require Guinness Flight to reduce its fees (to the extent of such fees) so that
ordinary expenses for a Fund (excluding interest, taxes, brokerage commissions,
distribution fees, certain other excludable expenses, and extraordinary
expenses) for any fiscal year do not exceed 2.5% of the first $30 million of the
Fund's average net assets, plus 2.0% of the next $70 million, plus 1.5% of the
Fund's average net assets in excess of $100 million. Guinness Flight also, from
time to time, may voluntarily waive all or a portion of its fees payable under
the Agreement.
-27-
<PAGE>
The Agreements were approved by the Board of Directors on May
6, 1994. The Agreements will remain in effect until May 6, 1996 and shall
continue from year to year thereafter if it is specifically approved at least
annually by the Board of Directors and the affirmative vote of a majority of the
Directors who are not parties to the Agreement or "interested persons" of any
such party by votes cast in person at a meeting called for such purpose. The
Directors or Guinness Flight may terminate the Agreement on 60 days' written
notice without penalty. The Agreement terminates automatically in the event of
its "assignment", as defined in the 1940 Act.
As compensation for all services rendered under the Agreement,
Guinness Flight will receive an annual fee, payable monthly, of 1.00% of the
China Fund's, Asia Blue Chip Fund's and Asia Small Cap Fund's average daily net
assets and .75% of the Global Government Bond Fund's average daily net assets.
For the period commencing June 30, 1994 to December 31, 1994 and the period from
December 31, 1994 to December 31, 1995, the China Fund paid Guinness Flight
$6,134 and $197,173, respectively, and the Global Government Fund paid Guinness
Flight $2,141 and $7,425, respectively.
DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN
Guinness Funds has entered into separate Administration and
Distribution Agreements with respect to the Funds with Investment Company
Administration Corporation ("Administrator") and First Fund Distributors, Inc.
("Distributor"), respectively. Under the Distribution Agreement, the Distributor
uses all reasonable efforts, consistent with its other business, to secure
purchases for the Funds' shares and pays the expenses of printing and
distributing any prospectuses, reports and other literature used by the
Distributor, advertising, and other promotional activities in connection with
the offering of shares of the Funds for sale to the public. It is understood
that the Administrator may reimburse the Distributor for these expenses from any
source available to it, including the administration fee paid to the
Administrator by the Funds.
The Funds will not make separate payments as a result of the
Distribution Plan to Guinness Flight, the Administrator, Distributor or any
other party, it being recognized that the Funds presently pay, and will continue
to pay, an investment advisory fee to the Guinness Flight and an administration
fee to the Administrator. To the extent that any payments made by the Funds to
Guinness Flight or the Administrator, including payment of fees under the
Investment Advisory Agreements or the Administration Agreement, respectively,
should be deemed to be indirect financing of any activity primarily intended to
result in the sale of shares of the Funds within the context of rule 12b-1 under
the 1940 Act, then such payments shall be deemed to be authorized by this Plan.
The Plan and related agreements were approved on May 6, 1994
by the Board of Directors including all of the "Qualified Directors" (Directors
who are not "interested" persons of the Funds, as defined in the 1940 Act, and
who have no direct or indirect financial interest in the Plan or any related
agreement). In approving the Plan, in accordance with the requirements of Rule
12b-1 under the 1940 Act, the Board of Directors (including the Qualified
Directors) considered various factors and determined that there is a reasonable
likelihood that the Plan will benefit the Funds and their shareholders. The Plan
may not be amended to increase materially the amount to be spent by the Funds
under the Plan without shareholder approval, and all material amendments to the
provisions of the Plan must be approved by a vote of the Board of Directors and
of the Qualified Directors, cast in person at a meeting called for the purpose
of such vote. During the continuance of the Plan, Guinness Flight will report in
writing to the Board of Directors quarterly the amounts and purposes of such
payments for services rendered to shareholders pursuant to the Plan. Further,
during the term of the Plan, the selection and nomination of those Directors who
are not "interested" persons of the Funds must be committed to the discretion of
the Qualified Directors. The Plan will continue in effect from year to year
provided that such continuance is specifically approved annually (a) by the vote
of a majority of the Funds' outstanding voting shares or by the Funds' Directors
and (b) by the vote of a majority of the Qualified Directors.
-28-
<PAGE>
DESCRIPTION OF THE FUNDS
Shareholder and Directors Liability. The Funds are each a
series of Guinness Funds, a Maryland Corporation. Under Maryland law,
shareholders of such a corporation are not held personally liable for the
obligations of the corporation.
The Funds' Articles of Incorporation provides that to the
fullest extent that limitations on the liability of directors and officers are
permitted by the Maryland General Corporation Law, no director or officer of the
corporation will have any liability to the corporation or its stockholders for
damages. The corporation will indemnify and advance expenses to its directors or
officers to the fullest extent that indemnification is permitted by Maryland
General Corporation Law.
The Articles of Incorporation do not waive a director's or
officer's duty to comply with the Securities Act of 1933 or the 1940 Act, or any
rule, regulation, or order thereunder. Further, the Articles of Incorporation do
not protect the officers and directors against any liability to the corporation
or its stockholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Voting Rights. Shares of each Fund entitle the holders to one
vote per share. The shares have no preemptive or conversion rights. The dividend
rights and the right of redemption are described in the Prospectus. When issued,
shares are fully paid and nonassessable. The shareholders have certain rights,
as set forth in the Bylaws, to call a meeting for any purpose, including the
purpose of voting on removal of one or more Directors.
A Fund may be terminated upon the sale of its assets to
another open-end management company if approved by greater than 50% of the
shareholders of the Fund. A Fund may also be terminated upon liquidation and
distribution of its assets, if approved by greater than 50% of the shareholder
vote of the Fund. Shareholders of a Fund shall be entitled to receive
distributions as a class of the assets belonging to the Fund. The assets of a
Fund received for the issue or sale of the shares of the Fund and all income
earnings and the proceeds thereof, subject only to the rights of creditors, are
specially allocated to the Fund, and constitute the underlying assets of the
Fund.
SHAREHOLDER REPORTS
Shareholders will receive reports semi-annually showing the
investments of the Funds and other information. In addition, shareholders will
receive annual financial statements audited by the Funds' independent
accountants.
Principal Holders. As of February 9, 1996, Charles Schwab &
Co. Inc. (101 Montgomery St., San Francisco 94104-4122) owned o% of the
outstanding shares of the China Fund for the exclusive benefit of its accounts.
As of February 9, 1996, Guinness Flight Fund Managers (PO Box 250 St. Peter,
Port Guernsy, Channel Islands GY1-3QH) owned o%, Charles Schwab & Co. Inc. for
the exclusive benefit of its accounts owned o%, Klein Securities Partnership (PO
Box 894, Harrison, NY 10528-0849) owned 13.04%, and an individual's profit
sharing plan (PO Box 443, Makawao HI 96768-0443) owned o%, of the outstanding
shares of the Global Government Fund.
FINANCIAL STATEMENTS
The Financial Statements for the China Fund and Global
Government Fund for the year ended December 31, 1995 are incorporated by
reference from the Annual Reports to Shareholders dated o.
-29-
<PAGE>
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
BOND RATINGS:
Investment grade debt securities are those rating categories indicated by an
asterisk (*).
*AAA: Bonds which are rated Aaa are judged to be the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edge". Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
*AA: Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
*A: Bond which are rated A possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
*BAA: Bonds which are rated Baa are considered as
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3
in each generic rating classification from Aa through B in its bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category, the modifier 2 indicates a mid-range ranking, and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the
ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months.
Issuers rated PRIME-1 or P-1 (or related supporting
institutions) have a superior capacity for repayment of short-term promissory
obligations. Prime-1 or P-1 repayment capacity will normally be evidenced by the
following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
A-1
<PAGE>
Issuers rated PRIME-2 or P-2 (or related supporting
institutions) have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S
BOND RATINGS:
Investment grade debt securities are those rating categories indicated by an
asterisk (*).
*AAA: Debt rated AAA have the highest rating assigned
by S&P to a debt obligation. capacity to pay interest and repay principal is
extremely strong.
*AA: Debt rated AA have a very strong capacity to pay
interest; and repay principal and differ from the higher rated issues only in
small degree.
*A: Debt rated A have a strong capacity to pay
interest and repay principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
*BBB: Debt rated BBB are regarded as having an
adequate capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may
be modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
NR: Bonds may lack a S&P rating because no public
rating has been requested, because there is insufficient information on which to
base a rating, or because S&P does not rate a particular type of obligation as a
matter of policy.
DESCRIPTION OF S&P'S COMMERCIAL PAPER RATINGS:
S&P's commercial paper ratings are current
assessments of the likelihood of timely payment of debts having an original
maturity of no more than 365 days.
A: Issues assigned this highest rating are regarded
as having the greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
A-1: This designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-2
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements.
In Part A:
None
In Part B:
None.
In Part C:
Audited Statements of Assets and Liabilities as of December 31,
1995
(b) Exhibits
EX-99.B1. Amended Articles of Incorporation of Registrant and
Certificate of Correction were filed in Pre-Effective
Amendment No. 2 on June 20, 1994.
EX-99.B2. Amended and Restated By-laws of Registrant is filed herewith
EX-99.B3. None.
EX-99.B4. Copies of each Security issued by Registrant were filed in
Post-Effective Amendment No. 1 on January 31, 1995.
EX-99.B5.(a)(i) Investment Advisory Agreement between Registrant and
Guinness Flight Investment Management Limited for
China Fund series was filed in Post-Effective
Amendment No. 2 on February 27, 1995.
(a)(ii) Investment Advisory Agreement between Registrant and
Guinness Flight Investment Management Limited for
Global Government Bond Fund series was filed in
Post-Effective Amendment No. 2 on February 27, 1995.
(a)(iii) Investment Advisory Agreement between Registrant and
Guinness Flight Investment Management Limited for
Asia Blue Chip Fund series is filed herewith.
(a)(iv) Investment Advisory Agreement between Registrant and
Guinness Flight Investment Management Limited for
Asia Small Cap Fund series is filed herewith.
EX-99.B6.(a)(i) Distribution Agreement between Registrant and First
Fund Distributors, Inc. for China Fund series was
filed in Post-Effective Amendment No. 1 on January
31, 1995.
(a)(ii) Distribution Agreement between Registrant and First
Fund Distributors, Inc. for Global Government Bond
Fund series was filed in Post- Effective Amendment
No. 1 on January 31, 1995.
(a)(iii) Distribution Agreement between Registrant and First
Fund Distributors, Inc. for Asia Blue Chip Fund
series is filed herewith.
(a)(iv) Distribution Agreement between Registrant and First
Fund Distributors, Inc. for Asia Small Cap Fund
series is filed herewith.
C-1
<PAGE>
EX-99.B7. None.
EX-99.B8. Custodian Agreement between Registrant and Investors Bank &
Trust Company was filed in Post-Effective Amendment No. 1 on
January 31, 1995.
EX-99.B9.(a) Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust Company
was filed in Post-Effective Amendment No. 1 on
January 31, 1995.
(b) Administration Agreement between Registrant and
Investment Company Administration Corporation was
filed in Post-Effective Amendment No. 1 on January
31, 1995.
(c) Form of Letter of Arrangement between Registrant and
Coopers & Lybrand was filed in Pre-Effective
Amendment No. 2 on June 20, 1994.
EX-99.B10. Opinion and Consent of Counsel as to Legality of
Securities Being Registered was filed in
Pre-Effective Amendment No. 2 on June 20, 1994.
EX-99.B11.(a) Consent of Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel, Counsel for the Registrant is filed
herewith.
(b) Consent of Coopers & Lybrand, L.L.P., Independent
Accountants for the Registrant is filed herewith.
(c) Consent of Ernst & Young LLP, Independent Auditors
for the Registrant is filed herewith.
EX-99.B12. The China Fund and Global Government Fund
audited financial statements for the period ended
December 31, 1995 is filed herewith.
EX-99.B13. Sole Shareholder Agreements between Registrant and
GFGAM Executive Pension Scheme was filed in
Post-Effective Amendment No. 1 on January 31, 1995.
EX-99.B14. None.
EX-99.B15.(a)(i) Rule 12b-1 Distribution Plan for China Fund series
was filed in Post- Effective Amendment No. 1 on
January 31, 1995.
(a)(ii) Rule 12b-1 Distribution Plan for Global Government
Bond Fund series was filed in Post-Effective
Amendment No. 1 on January 31, 1995.
(a)(iii)Rule 12b-1 Distribution for Asia Blue Chip Fund
series is filed herewith.
(a)(iv) Rule 12b-1 Distribution for Asia Small Cap Fund
series is filed herewith.
EX-99.B16. Schedule for Computation of each Performance
Quotation is filed herewith.
EX-27.B17.(a) Financial Data Schedule - China Fund
EX-27.B17.(b) Financial Data Schedule - Global Government Fund
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
C-2
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class; Shares Number of Record Holders
($0.001 par value) as of December 31, 1995
-------------------------
China & Hong Kong Fund series 3,904
Global Government Bond Fund series 72
ITEM 27. INDEMNIFICATION
(1) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, no
director or officer of the corporation shall have any liability to the
corporation or its Stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
(2) The corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The corporation shall indemnify and advance expenses to its officers to the
same extent as its directors and to such further extent as is consistent with
law. The Board of Directors may, through a by-law, resolution or agreement, make
further provisions for indemnification of directors, officers, employees and
agents to the fullest extent permitted by the Maryland General Corporation Law.
(3) No provision of this Article shall be effective (i) to require a
waiver of compliance with any provision of the Securities Act of 1933, or of the
Investment Company Act of 1940, or of any valid rule, regulation or order of the
Securities and Exchange Commission thereunder or (ii) to protect or purport to
protect any director or officer of the corporation against any liability to the
corporation or its stockholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
(4) References to the Maryland General Corporation Law in this Article
are to the law as from time to time amended. No amendment to the Articles of
Incorporation of the corporation shall affect any right of any person under this
Article based on any event, omission or proceeding prior to such amendment.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Guinness Flight Investment Management Limited provides management
services to the Registrant and its series. To the best of the Registrant's
knowledge, the directors and officers have not held at any time during the past
two fiscal years or been engaged for his own account or in the capacity of
director, officer, employee, partner or trustee in any other business,
profession, vocation or employment of a substantial nature.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) First Fund Distributors, Inc., the Registrant's principal
underwriter, also acts as the principal underwriter for the following investment
companies: (1) Megy Fund, Inc; (2) PIC Investment Trust; (3) RNC Liquid Assets
Fund, Inc.; (4) Olympic Trust; (5) Professionally Managed Portfolios; and (6)
Rainier Investment Management Mutual Funds.
(b) The following information is furnished with respect to the officers
and directors of First Fund Distributors, Inc., Registrant's principal
underwriter:
C-3
<PAGE>
Name and Principal Position and Offices with Position and Offices
Business Address Principal Underwriter with Registrant
- ----------------- ------------------------- ---------------------
Robert H. Wadsworth President/Treasurer President/Asst.
4455 East Camelback Road Treasurer
Suite 261E
Phoenix, AZ 85014
Steven J. Paggioli Vice President/Secretary Secretary
479 West 22nd Street
New York, NY 10011
Eric M. Banhazl Vice President Treasurer
2025 East Financial Way
Suite 101
Glendora, CA 91741
Kevin B. Page Treasurer None
560 Hudson Street
Hackensack, NJ 07601
(c) not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are
maintained by Investment Company Administration Corporation, 2025 East Financial
Way, Suite 101, Glendora, CA 91741, except for those maintained by the Funds'
Custodian.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(1) Registrant undertakes to furnish each person to whom a prospectus
relating to its China & Hong Kong Fund series and/or its Global Government Bond
Fund series is delivered, a copy of the Fund's latest annual report to
shareholders which will include the information required by Item 5A, upon
request and without charge.
(2) Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a trustee or trustees if
requested to do so by the holders of at least 10% of the Registrant's
outstanding voting securities, and to assist in communications with other
shareholders as required by Section 16(c) of the 1940 Act.
(3) Registrant, with regard to its Asia Blue Chip Fund and Asia Smaller
Cap Growth Fund, undertakes to file a post-effective amendment, using financial
statements which need not be certified, within four to six months from the
effective date of registrant's 1933 Act registration statement .
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant pursuant to Rule 485(a) under the
Securities Act of 1933 has duly caused this Post-Effective Amendment to its
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and the State
of New York on this 13th day of February, 1996.
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
By: /s/ Robert H. Wadsworth
----------------------------
Robert H. Wadsworth
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Eric M. Banhazl Treasurer February 13, 1996
---------------------------
Eric M. Banhazl
/s/ Dr. Gunter Dufey Director February 13, 1996
------------------------------
Dr. Gunter Dufey
/s/ J. I. Fordwood Director February 13, 1996
-------------------------------
J. I. Fordwood
/s/ Bret A. Herscher Director February 13, 1996
-------------------------------
Bret A. Herscher
/s/ J. Brooks Reece, Jr. Director February 13, 1996
-------------------------------
J. Brooks Reece, Jr.
*By:
--------------------------
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
-------------
EX-99.B2 Amended and Restated By-Laws
EX-99.B5(a)(iii) Investment Advisory Agreement for Guinness
Flight Asia Blue Chip Fund
EX-99.B5(a)(iv) Investment Advisory Agreement for Guinness
Flight Asia Small Cap Fund
EX-99.B6(a)(iii) Distribution Agreement for Guinness Flight
Asia Blue Chip Fund
EX-99.B6(a)(iv) Distribution Agreement for Guinness Flight
Asia Small Cap Fund
EX-99.B11(a) Consent of Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel, Counsel for the Registrant
EX-99.B11(b) Consent of Coopers & Lybrand LLP,
Independent Accountants for the Registrant
EX-99.B11(c) Consent of Ernst & Young L.L.P., Independent
Auditors for the Registrant
EX-99.B12 Financial Statements
EX-99.B15(a)(iii) Rule 12b-1 Distribution Plan for Guinness
Flight Asia Blue Chip Fund
EX-99.B15(a)(iv) Rule 12b-1 Distribution Plan for Guinness
Flight Asia Small Cap Fund
EX-99.B16 Schedule for Computation of Each Performance
Quotation
EX-27.B17.(a) Financial Data Schedule - China & Hong Kong Fund
EX-27.B17.(b) Financial Data Schedule - Global Government Bond Fund
EX-99.B2
AMENDED AND RESTATED BY-LAWS
<PAGE>
EX-99.B2
AMENDED AND RESTATED BY-LAWS
OF
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
(A MARYLAND CORPORATION)
----------------------------------
ARTICLE I
STOCKHOLDERS
1. Certificates Representing Stock. Certificates representing shares of
stock shall set forth thereon the statements prescribed by Section 2-211 of the
Maryland General Corporation Law ("General Corporation Law") and by any other
applicable provision of law and shall be signed by the Chairman of the Board or
the President or a Vice President and countersigned by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and may be sealed
with the corporate seal. The signatures of any such officers may be either
manual or facsimile signatures and the corporate seal may be either facsimile or
any other form of seal. In case any such officer who has signed manually or by
facsimile any such certificate ceases to be such officer before the certificate
is issued, it nevertheless may be issued by the corporation with the same effect
as if the officer had not ceased to be such officer as of the date of its issue.
No certificate representing shares of stock shall be issued for any
share of stock until such share is fully paid, except as otherwise authorized in
Section 2-206 of the General Corporation Law.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require, in its discretion, the owner
of any such certificate or his legal representative to give bond, with
sufficient surety, to the corporation to indemnify it against any loss or claim
that may arise by reason of the issuance of a new certificate.
2. Share Transfers. Upon compliance with provisions restricting the
transferability of shares of stock, if any, transfers of shares of stock of the
corporation shall be made only on the stock transfer books of the corporation by
the record holder thereof or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation or with a
transfer agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares of stock properly endorsed and the payment of all
taxes due thereon.
<PAGE>
3. Record Date for Stockholders. The Board of Directors may fix, in
advance, a date as the record date for the purpose of determining stockholders
entitled to notice of, or to vote at, any meeting of stockholders, or
stockholders entitled to receive payment of any dividend or the allotment of any
rights or in order to make a determination of stockholders for any other proper
purpose. Such date, in any case, shall be not more than 90 days, and in case of
a meeting of stockholders not less than 10 days, prior to the date on which the
meeting or particular action requiring such determination of stockholders is to
be held or taken. In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not to exceed 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of, or to vote at, a meeting of
stockholders, such books shall be closed for at least 10 days immediately
preceding such meeting. If no record date is fixed and the stock transfer books
are not closed for the determination of stockholders: (1) The record date for
the determination of stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on the day on which
the notice of meeting is mailed or the day 30 days before the meeting, whichever
is the closer date to the meeting; and (2) The record date for the determination
of stockholders entitled to receive payment of a dividend or an allotment of any
rights shall be at the close of business on the day on which the resolution of
the Board of Directors declaring the dividend or allotment of rights is adopted,
provided that the payment or allotment date shall not be more than 60 days after
the date on which the resolution is adopted.
4. Stockholder Meetings.
Annual Meetings. If a meeting of the stockholders of the corporation is
required by the Investment Company Act of 1940, as amended, to elect the
directors, then there shall be submitted to the stockholders at such meeting the
question of the election of directors, and a meeting called for that purpose
shall be designated the annual meeting of stockholders for that year. In other
years in which no action by stockholders is required for the aforesaid election
of directors, no annual meeting need be held.
Special Meetings. Special stockholder meetings for any purpose may be
called by the Chairman of the Board of Directors, if any, the Board of Directors
or the President and shall be called by the Secretary for the purpose of
removing a Director and for all other purposes whenever the holders of shares
entitled to at least ten percent of all the votes entitled to be cast at such
meeting shall make a duly authorized request that such meeting be called. Such
request shall state the purpose of such meeting and the matters proposed to be
acted on thereat, and no other business shall be transacted at any such special
meeting. Notwithstanding the foregoing, unless requested by stockholders
entitled to cast a majority of the votes entitled to be cast at the meeting, a
special meeting of the stockholders need not be called at the request of
stockholders to consider any matter that is substantially the same as a matter
voted on at any special meeting of the stockholders held during the preceding
twelve (12) months.
-2-
<PAGE>
Place and Time. Stockholder meetings shall be held at such place,
either within the State of Maryland or at such other place within the United
States, and at such date or dates as the directors from time to time may fix.
Quorum. At any meeting of stockholders the presence in person or by
proxy of stockholders entitled to cast a one-third of the votes thereat shall
constitute a quorum. In the absence of a quorum, the stockholders present in
person or by proxy, by majority vote and without notice other than by
announcement, may adjourn the meeting from time to time, but not for a period
exceeding 120 days after the original record date until a quorum shall attend.
Adjourned Meetings. A meeting of stockholders convened on the date for
which it was called (including one adjourned to achieve a quorum as above
provided) may be adjourned from time to time without further notice to a date
not more than 120 days after the original record date, and any business may be
transacted at any adjourned meeting which could have been transacted at the
meeting as originally called.
Notice or Actual or Constructive Waiver of Notice. Written or printed
notice of all meetings shall be given by the Secretary and shall state the time
and place of the meeting. The notice of a special meeting shall state in all
instances the purpose or purposes for which the meeting is called. Written or
printed notice of any meeting shall be given to each stockholder either by mail
or by presenting it to him personally or by leaving it at his residence or usual
place of business not less than ten days and not more than ninety days before
the date of the meeting, unless any provisions of the General Corporation Law
shall prescribe a different elapsed period of time, to each stockholder at his
address appearing on the books of the corporation or the address supplied by him
for the purpose of notice. If mailed, notice shall be deemed to be given when
deposited in the United States mail addressed to the stockholder at his post
office address as it appears on the records of the corporation with postage
thereon prepaid. Whenever any notice of the time, place or purpose of any
meeting of stockholders is required to be given under the provisions of these
by-laws or of the General Corporation Law, a waiver thereof in writing, signed
by the stockholder and filed with the records of the meeting, whether before or
after the holding thereof, or actual attendance or representation at the meeting
shall be deemed equivalent to the giving of such notice to such stockholder. The
foregoing requirements of notice also shall apply, whenever the corporation
shall have any class of stock which is not entitled to vote, to holders of stock
who are not entitled to vote at the meeting, but who are entitled to notice
thereof and to dissent from any action taken thereat.
Statement of Affairs. The President of the corporation or, if the Board
of Directors shall determine otherwise, some other executive officer thereof,
shall prepare or cause to be prepared annually a full and correct statement of
the affairs of the corporation, including a balance sheet and a financial
statement of operations for the preceding fiscal year, which shall be filed at
the principal office of the corporation in the State of Maryland within 120 days
after the end of the fiscal year.
-3-
<PAGE>
Conduct of Meeting. Meetings of the stockholders shall be presided over
by one of the following officers in the order of seniority and if present and
acting: the Chairman of the Board, the President, a Vice President or, if none
of the foregoing is in office and present and acting, by a chairman to be chosen
by the stockholders. The Secretary of the corporation or, in his absence, an
Assistant Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present the chairman of the meeting
shall appoint a secretary of the meeting.
Proxy Representation. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether for the purposes of determining his presence at
a meeting, or whether by waiving notice of any meeting, voting or participating
at a meeting, expressing consent or dissent without a meeting or otherwise.
Every proxy shall be executed in writing by the stockholder or by his duly
authorized attorney-in-fact and filed with the Secretary of the corporation. No
unrevoked proxy shall be valid after eleven months from the date of its
execution, unless a longer time is expressly provided therein.
Inspectors of Election. The directors, in advance of any meeting, may,
but need not, appoint one or more inspectors to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath to execute faithfully the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum and the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or them and
execute a certificate of any fact found by him or them.
Voting. Each share of stock shall entitle the holder thereof to one
vote with respect to each matter on which he is entitled to vote under the
Articles of Incorporation, except in the election of directors, at which each
said vote may be cast for as many persons as there are directors to be elected.
Except for election of directors, a majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to take or authorize action upon any matter which may come before a meeting,
unless more than a majority of votes cast is required by the corporation's
Articles of Incorporation or bylaw. A plurality of all the votes cast at a
meeting at which a quorum is present shall be sufficient to elect a director.
-4-
<PAGE>
5. Informal Action. Any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting if a consent in writing,
setting forth such action, is signed by all the stockholders entitled to vote on
the subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action and such consent and
waiver are filed with the records of the corporation.
ARTICLE II
BOARD OF DIRECTORS
1. Functions and Definition. The business and affairs of the
corporation shall be managed under the direction of a Board of Directors.
2. Qualifications and Number. Each director shall be a natural person
being at least eighteen years of age. A director need not be a stockholder, a
citizen of the United States or a resident of the State of Maryland. The initial
Board of Directors shall consist of four persons. Thereafter, the number of
directors constituting the entire board shall never be less than three or the
number of stockholders, whichever is less. At any regular meeting or at any
special meeting called for that purpose, a majority of the entire Board of
Directors may increase or decrease the number of directors, provided that the
number thereof shall never be less than three or the number of stockholders,
whichever is less, nor more than twenty and further provided that the tenure of
office of a director shall not be affected by any decrease in the number of
directors.
3. Election and Term. The first Board of Directors shall consist of the
directors named in the Articles of Incorporation and shall hold office until the
first meeting of stockholders or until their successors have been elected and
qualified. Thereafter, directors who are elected at a meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until their successors have been elected and
qualified. Newly created directorships and any vacancies in the Board of
Directors, other than vacancies resulting from the removal of directors by the
stockholders, may be filled by the Board of Directors, subject to the provisions
of the Investment Company Act of 1940. Newly created directorships filled by the
Board of Directors shall be by action of a majority of the entire Board of
Directors then in office. All vacancies to be filled by the Board of Directors
may be filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum thereof.
4. Meetings.
Time. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors conveniently may assemble.
-5-
<PAGE>
Place. Meetings shall be held at such place within or without the State
of Maryland as shall be fixed by the Board.
Call. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the direction
of the President or of a majority of the directors in office.
Notice or Actual or Constructive Waiver. Whenever any notice of the
time, place or purpose of any meeting of directors or any committee thereof is
required to be given under the provisions of the General Corporation Law or of
these by-laws, a waiver thereof in writing, signed by the director or committee
member entitled to such notice and filed with the records of the meeting,
whether before or after the holding thereof, or actual attendance at the meeting
shall be deemed equivalent to the giving of such notice to such director or such
committee member.
Quorum and Action. One third of the Directors then in office (but in no
event less than two Directors unless there is only one director) shall
constitute a quorum. A majority of the directors present, whether or not a
quorum is present, may adjourn a meeting to another time and place. Except as
otherwise specifically provided by the Articles of Incorporation, the General
Corporation Law or these by-laws, the action of a majority of the directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors.
Chairman of the Meeting. The Chairman of the Board, if any and if
present and acting, or the President or any other director chosen by the Board,
shall preside at all meetings.
5. Removal of Directors. Any or all of the directors may be removed for
cause or without cause by the stockholders, who may elect a successor or
successors to fill any resulting vacancy or vacancies for the unexpired term of
the removed director or directors.
6. Committees. The Board of Directors may appoint from among its
members an Executive Committee and other committees composed of two or more
directors and may delegate to such committee or committees, in the intervals
between meetings of the Board of Directors, any or all of the powers of the
Board of Directors in the management of the business and affairs of the
corporation to the extent permitted by law. In the absence of any member of any
such committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
7. Informal Action. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if a written consent to such action is signed by all members
of the Board of Directors or any such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of the Board or any
such committee.
-6-
<PAGE>
8. Telephone Meeting. Members of the Board of Directors or any
committee designated thereby may participate in a meeting of such Board or
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time. Participation by such means shall constitute presence in
person at a meeting.
ARTICLE III
OFFICERS
The corporation may have a Chairman of the Board and shall have a
President, a Secretary and a Treasurer, who shall be elected by the Board of
Directors, and may have such other officers, assistant officers and agents as
the Board of Directors shall authorize from time to time. Any two or more
offices, except those of President and Vice President, may be held by the same
person, but no person shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law to be executed,
acknowledged or verified by two or more officers.
Any officer or agent may be removed by the Board of Directors whenever,
in its judgment, the best interests of the corporation will be served thereby.
ARTICLE IV
PRINCIPAL OFFICE - RESIDENT AGENT - STOCK LEDGER
The address of the principal office of the corporation in the State of
Maryland is 11 East Chase Street, Suite 9E, Baltimore, Maryland, 21202. The name
and address of the resident agent in the State of Maryland prescribed by the
General Corporation Law is: CSCLawyers Incorporating Service Company at the
above address.
The corporation shall maintain, at its principal office in the State of
Maryland prescribed by the General Corporation Law or at the business office or
an agency of the corporation, an original or duplicate stock ledger containing
the names and addresses of all stockholders and the number of shares of each
class held by each stockholder. Such stock ledger may be in written form or any
other form capable of being converted into written form within a reasonable time
for visual inspection.
The corporation shall keep at said principal office in the State of
Maryland the original or a certified copy of the by-laws, including all
amendments thereto, and shall duly file thereat the annual statement of affairs
of the corporation prescribed by Section 2-313 of the General Corporation Law.
-7-
<PAGE>
ARTICLE V
CORPORATE SEAL
The Board of Directors may provide a suitable corporate seal. The
corporate seal shall have inscribed thereon the name of the corporation and
shall be in such form and contain such other words and/or figures as the Board
of Directors shall determine or the law require.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BY-LAWS
The power to make, alter, amend and repeal the by-laws is vested in the
Board of Directors of the corporation.
ARTICLE VIII
INDEMNIFICATION
1. Indemnification of Directors and Officers. The corporation shall
indemnify its directors to the fullest extent that indemnification of directors
is permitted by the law. The corporation shall indemnify its officers to the
same extent as its directors and to such further extent as is consistent with
law. The corporation shall indemnify its directors and officers who while
serving as directors or officers also serve at the request of the corporation as
a director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan to the same extent as its directors and, in the case of officers,
to such further extent as is consistent with law. The indemnification and other
rights provided by this Article shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to the corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful
-8-
<PAGE>
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct").
2. Advances. Any current or former director or officer of the
corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
General Corporation Law. The person seeking indemnification shall provide to the
corporation a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the corporation has been met and a
written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
corporation for his undertaking; (b) the corporation is insured against losses
arising by reason of the advance; or (c) a majority of a quorum of directors of
the corporation who are neither "interested persons" as defined in Section
2(a)(19) of the Investment Company Act of 1940, as amended, nor parties to the
proceeding ("disinterested non-party directors"), or independent legal counsel,
in a written opinion, shall have determined, based on a review of facts readily
available to the corporation at the time the advance is proposed to be made,
that there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
3. Procedure. At the request of any person claiming indemnification
under this Article, the Board of Directors shall determine, or cause to be
determined, in a manner consistent with the General Corporation Law, whether the
standards required by this Article have been met. Indemnification shall be made
only following: (a) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (b) in the absence of such a decision,
a reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct by (i) the vote of
a majority of a quorum of disinterested non-party directors or (ii) an
independent legal counsel in a written opinion.
4. Indemnification of Employees and Agents. Employees and agents who
are not officers or directors of the corporation may be indemnified, and
reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940, as amended.
5. Other Rights. The Board of Directors may make further provision
consistent with law for indemnification and advance of expenses to directors,
officers, employees and agents by resolution, agreement or otherwise. The
indemnification provided by this Article shall not be deemed exclusive of any
other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested non-party directors or otherwise.
-9-
<PAGE>
6. Amendments. References in this Article are to the General
Corporation Law and to the Investment Company Act of 1940 as from time to time
amended. No amendment of the by-laws shall affect any right of any person under
this Article based on any event, omission or proceeding prior to the amendment.
Dated: May 5, 1995
-10-
EX-99.B5(a)(iii)
INVESTMENT ADVISORY AGREEMENT FOR
GUINNESS FLIGHT ASIA BLUE CHIP FUND
<PAGE>
EX-99.B5(a)(iii)
FORM OF
INVESTMENT ADVISORY AGREEMENT
between
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
(WITH RESPECT TO ITS GUINNESS FLIGHT ASIA BLUE CHIP FUND)
and
GUINESS FLIGHT INVESTMENT MANAGEMENT LIMITED
INVESTMENT ADVISORY AGREEMENT, dated as of April 29, 1996, by and
between GUINNESS FLIGHT INVESTMENT FUNDS, INC., a Maryland Corporation (the
"Guinness Funds"), and GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED (the
"Adviser").
W I T N E S S E T H
WHEREAS, Guinness Funds is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940
(collectively with the rules and regulations promulgated thereunder, the "Act");
and
WHEREAS, the Adviser is an investment adviser under the Investment
Advisers Act of 1940, as amended, and engages in the business of acting as an
investment adviser; and
WHEREAS, the Adviser is a member of the Investment Management
Regulatory Organization Limited ("IMRO") of the United Kingdom and is thereby
regulated by IMRO in the conduct of its investment business for United Kingdom
investors and engages in the business of acting as an investment adviser; and
WHEREAS, Guinness Funds wishes to engage the Adviser to provide certain
investment advisory services for the series of Guinness Funds designated as the
Guinness Flight Asia Blue Chip Fund (the "Fund"), and the Adviser is willing to
provide such investment advisory services for the Fund on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is hereby agreed by and between the parties hereto as
follows:
<PAGE>
1. Appointment.
The Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Fund with respect to the investment of its assets and
to supervise and arrange the purchase of securities for and the sale of
securities held in the portfolio of the Fund.
2. Duties and Obligations of the Adviser With Respect to the Invest-
ment of Assets of the Fund.
(a) Subject to the succeeding provisions of this section and subject to
the direction and control of the Board of Directors of Guinness Funds, the
Adviser shall:
(i) supervise continuously the investment program of the Fund
and the composition of its portfolio;
(ii) determine what securities be purchased or sold by the Fund;
and
(iii) arrange for the purchase and the sale of securities held in
the portfolio of the Fund; and
(b) Any investment program furnished by the Adviser under this section
shall at all times conform to, and be in accordance with, any requirements
imposed by:
(i) the provisions of the Act and of any rules or regulations
in force thereunder;
(ii) any other applicable provisions of state and Federal law;
(iii) the provisions of Guinness Funds' Articles of Incorporation
and By- Laws, as amended from time to time;
(iv) any policies and determinations of the Board of Directors
of Guinness Funds; and
(v) the fundamental policies of the Fund, as reflected in its
Registration Statement under the Act, as amended from time
to time.
(c) The Adviser shall give the Fund the benefit of its best judgment
and effort in rendering services hereunder, and in connection therewith the
Adviser shall not be liable to the Fund or its security holders for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in the execution of portfolio transactions for the Fund,
except for wilful misfeasance, bad faith or gross negligence in the performance
of its
-2-
<PAGE>
duties, or by reason of reckless disregard of its obligations and duties
hereunder. As used in this subsection (c), the term "Adviser" shall include
board members, officers and employees of the Adviser as well as the entity
referred to as the 'Adviser' itself.
(d) Nothing in this Agreement shall prevent the Adviser or any
affiliated person (as defined in the Act) of the Adviser from acting as
investment adviser or manager for any other person, firm or corporation
(including other investment companies) and shall not in any way limit or
restrict the Adviser or any such affiliated person from buying, selling or
trading any securities for its or their own accounts or for the accounts of
others for whom it or they may be acting; provided, however, that the Adviser
expressly represents that it will undertake no activities which, in its
judgment, will adversely affect the performance of its obligations to the Fund
under this Agreement. The Adviser agrees that it will not deal with itself, or
with the Directors of Guinness Funds or the Fund's principal underwriter or
distributor, as principals in making purchases or sales of securities or other
property for the account of the Fund, except as permitted by the Act, and will
comply with all other provisions of Guinness Funds' Articles of Incorporation
and ByLaws and the then-current prospectus and statement of additional
information applicable to the Fund relative to the Adviser and its board members
and officers.
(e) The Fund will supply the Adviser with certified copies of the
following documents: (i) Guinness Funds' Articles of Incorporation and By-Laws,
as amended; (ii) resolutions of Guinness Funds' Board of Directors and
shareholders authorizing the appointment of the Adviser and approving this
Agreement; (iii) the Fund's Registration Statement, as filed with the Securities
and Exchange Commission; and (iv) the Fund's most recent prospectus and
statement of additional information. The Fund will furnish the Adviser from time
to time with copies of all amendments or supplements to the foregoing, if any,
and all documents, notices and reports filed with the Securities and Exchange
Commission.
(f) The Fund will supply, or cause its custodian bank to supply, to the
Adviser such financial information as is necessary or desirable for the
functions of the Adviser hereunder.
3. Broker-Dealer Relationships.
The Adviser is responsible for decisions to buy and sell securities for
the Fund, broker-dealer selection and negotiation of its brokerage commission
rates. The Adviser's primary consideration in effecting a security transaction
will be execution at the most favorable price. The Fund understands that many of
the Fund's portfolio transactions will be transacted with primary market makers
acting as principal on a net basis, with no brokerage commissions being paid by
the Fund. Such principal transactions may, however, result in a profit to the
market makers. In certain instances, the Adviser may make purchases of
underwritten issues at prices which include underwriting fees. In selecting a
broker or dealer to execute each particular transaction, the Adviser will take
the following into consideration: the best price available; the reliability,
integrity and financial condition of the broker or dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker or dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any
-3-
<PAGE>
transaction may be less favorable than that available from another broker or
dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered. Subject to such policies as the Board of
Directors may determine, the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer that
provides brokerage and research services to the Adviser an amount of commission
for effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect to
the Fund. The Adviser is further authorized to allocate the orders placed by it
on behalf of the Fund to an affiliated broker-dealer, if any, or to such brokers
and dealers who also provide research or statistical material, or other services
to the Fund (which material or services may also assist the Adviser in rendering
services to other clients). Such allocation shall be in such amounts and
proportions as the Adviser shall determine and the Adviser will report on said
allocations regularly to the Board of Directors of the Fund indicating the
brokers to whom such allocations have been made and the basis therefor.
4. Allocation of Expenses.
The Adviser agrees that it will furnish the Fund, at its expense, all
office space and facilities, equipment and clerical personnel necessary for
carrying out its duties under this Agreement. The Adviser agrees that it will
supply to any administrator (the "Administrator") of the Fund all necessary
financial information in connection with the Administrator's duties under any
agreement between the Administrator and the Fund on behalf of the Fund. All
costs and expenses associated with any administrative functions delegated by the
Adviser to the Administrator that are not pursuant to any agreement between the
Administrator and the Fund or the Adviser and the Fund will be paid by the
Adviser. All other costs and expenses not expressly assumed by the Adviser under
this Agreement or by the Administrator under the administration agreement
between it and the Fund on behalf of the Fund shall be paid by the Fund from the
assets of the Fund, including, but not limited to (i) fees paid to the Adviser
and the Administrator; (ii) interest and taxes; (iii) brokerage commissions;
(iv) insurance premiums; (v) compensation and expenses of the directors other
than those affiliated with the adviser or the administrator; (vi) legal,
accounting and audit expenses; (vii) fees and expenses of any transfer agent,
distributor, registrar, dividend disbursing agent or shareholder servicing agent
of the Fund; (viii) expenses, including clerical expenses, incident to the
issuance, redemption or repurchase of shares of the Fund, including issuance on
the payment of, or reinvestment of, dividends; (ix) fees and expenses incident
to the registration under Federal or state securities laws of the Fund or its
shares; (x) expenses of preparing, setting in type, printing and mailing
prospectuses, statements of additional information, reports and notices and
proxy material to shareholders of the Fund; (xi) all other expenses incidental
to holding meetings of the Fund's shareholders; (xii) expenses connected with
the execution, recording and settlement of portfolio securities transactions;
(xiii) fees and expenses of the Fund's custodian for all services to the Fund,
including safekeeping of funds and securities and maintaining required books and
accounts; (xiv) expenses of calculating net asset value of the
-4-
<PAGE>
shares of the Fund; (xv) industry membership fees allocable to the Fund; and
(xvi) such extraordinary expenses as may arise, including litigation affecting
the Fund and the legal obligations which the Fund may have to indemnify the
officers and directors with respect thereto.
5. Compensation of the Adviser.
(a) For the services to be rendered, the Fund shall pay to the Adviser
from the assets of the Fund an investment advisory fee paid monthly at an annual
rate equal to .75% of the Fund's average daily net assets for the Fund's
then-current fiscal year. Except as hereinafter set forth, compensation under
this Agreement shall be calculated and accrued daily and the amounts of the
daily accruals shall be paid monthly. If the Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day of
a month, compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Subject to the provisions of subsection (b) hereof, payment of the
Adviser's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by subsection (b)
hereof.
(b) In the event the operating expenses of the Fund including all
investment advisory and administration fees, for any fiscal year ending on a
date on which this Agreement is in effect exceed the expense limitations
applicable to the Fund imposed by the securities laws or regulations thereunder
of any state in which the Fund's shares are qualified for sale, as such
limitations may be raised or lowered from time to time, the Adviser shall reduce
its investment advisory fee, but not below zero, to the extent of its share of
such excess expenses; provided, however, there shall be excluded from such
expenses the amount of any interest, taxes, brokerage commissions and
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto) paid
or payable by the Fund on behalf of the Fund. Such reduction, if any, shall be
computed and accrued daily, shall be settled on a monthly basis and shall be
based upon the expense limitation applicable to the Fund as at the end of the
last business day of the month. Should two or more such expense limitations be
applicable as at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the Adviser's fee shall be
applicable. For the purposes of this paragraph, the Adviser's share of any
excess expenses shall be computed by multiplying such excess expenses by a
fraction, the numerator of which is the amount of the investment advisory fee
which would otherwise be payable to the Adviser for such fiscal year were it not
for this subsection 5(b) and the denominator of which is the sum of all
investment advisory and administrative fees which would otherwise be payable by
the Fund were it not for the expense limitation provisions of any investment
advisory or administrative agreement to which the Fund, on behalf of the Fund,
is a party.
6. Duration Amendment and Termination.
(a) This Agreement shall go into effect as to the Fund on the date set
forth above (the "Effective Date") and shall, unless terminated as hereinafter
provided, continue in effect for two years from the Effective Date and shall
continue from year to year thereafter, but only so
-5-
<PAGE>
long as such continuance is specifically approved at least annually by the Board
of Directors of the Fund, including the vote of a majority of the directors who
are not parties to this Agreement or "interested persons" (as defined in the
Act) of any such party cast in person at a meeting called for the purpose of
voting on such approval, or by the vote of the holders of a "majority" (as so
defined) of the outstanding voting securities of the Fund and by such a vote of
the directors.
(b) This Agreement may be amended only if such amendment is approved by
the vote of the holders of a "majority" (as defined in the Act) of the
outstanding voting securities of the Fund.
(c) This Agreement may be terminated as to the Fund by the Adviser at
any time without penalty upon giving the Fund sixty (60) days' written notice
(which notice may be waived by the Fund) and may be terminated by the Fund at
any time without penalty upon giving the Adviser sixty (60) days' written notice
(which notice may be waived by the Adviser), provided that such termination by
the Fund shall be approved by the vote of a majority of all the directors in
office at the time or by the vote of the holders of a "majority' (as defined in
the Act) of the voting securities of the Fund at the time outstanding and
entitled to vote. This Agreement shall automatically terminate in the event of
its "assignment" (as defined in the Act).
7. Board of Directors' Meeting.
The Fund agrees that notice of each meeting of the Board of Directors
of the Fund will be sent to the Adviser and that the Fund will make appropriate
arrangements for the attendance (as persons present by invitation) of such
person or persons as the Adviser may designate.
8. Use of the Name "Guinness Flight".
The Fund acknowledges that it is adopting its name through permission
of the Adviser, and agrees that the Adviser reserves to itself and any successor
to its business the right to withdraw the right to use the name "Guinness
Flight" from the Fund if the Adviser no longer advises the Fund. The Adviser
also reserves the right to grant the nonexclusive right to use the name
"Guinness Flight" or any similar name to any other corporation or entity,
including, but not limited to, any investment company. In the event this
Agreement is terminated, the Fund shall immediately delete "Guinness Flight"
from its name and the name of its series and may not use the name "Guinness
Flight" in any manner thereafter.
9. Notices.
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice.
-6-
<PAGE>
10. Questions of Interpretation.
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Act, as amended, shall be resolved by reference to such term or provision
of the Act and to interpretations thereof, if any, by the United States Courts
or in the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued pursuant
to said Act. In addition, where the effect of a requirement of the Act,
reflected in any provision of this Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names on their names on their behalf by the
undersigned, thereunto duly authorized, all as of the day and year first above
written.
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
By
--------------------------------------------
Title:
GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED
By
--------------------------------------------
Title:
-7-
EX-99.B5(a)(iv)
INVESTMENT ADVISORY AGREEMENT FOR
GUINNESS FLIGHT ASIA SMALL CAP FUND
<PAGE>
EX-99.B5(a)(iv)
FORM OF
INVESTMENT ADVISORY AGREEMENT
BETWEEN
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
(WITH RESPECT TO ITS GUINNESS FLIGHT ASIA SMALLER CAP GROWTH FUND)
AND
GUINESS FLIGHT INVESTMENT MANAGEMENT LIMITED
INVESTMENT ADVISORY AGREEMENT, dated as of April 29, 1996, by and
between GUINNESS FLIGHT INVESTMENT FUNDS, INC., a Maryland Corporation (the
"Guinness Funds"), and GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED (the
"Adviser").
W I T N E S S E T H
WHEREAS, Guinness Funds is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940
(collectively with the rules and regulations promulgated thereunder, the "Act");
and
WHEREAS, the Adviser is an investment adviser under the Investment
Advisers Act of 1940, as amended, and engages in the business of acting as an
investment adviser; and
WHEREAS, the Adviser is a member of the Investment Management
Regulatory Organization Limited ("IMRO") of the United Kingdom and is thereby
regulated by IMRO in the conduct of its investment business for United Kingdom
investors and engages in the business of acting as an investment adviser; and
WHEREAS, Guinness Funds wishes to engage the Adviser to provide certain
investment advisory services for the series of Guinness Funds designated as the
Guinness Flight Asia Smaller Cap Growth Fund Fund (the "Fund"), and the Adviser
is willing to provide such investment advisory services for the Fund on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is hereby agreed by and between the parties hereto as
follows:
<PAGE>
1. Appointment.
The Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Fund with respect to the investment of its assets and
to supervise and arrange the purchase of securities for and the sale of
securities held in the portfolio of the Fund.
2. Duties and Obligations of the Adviser With Respect to the Invest-
ment of Assets of the Fund.
(a) Subject to the succeeding provisions of this section and subject to
the direction and control of the Board of Directors of Guinness Funds, the
Adviser shall:
(i) supervise continuously the investment program of the Fund
and the composition of its portfolio;
(ii) determine what securities be purchased or sold by the Fund;
and
(iii) arrange for the purchase and the sale of securities held in
the portfolio of the Fund; and
(b) Any investment program furnished by the Adviser under this section
shall at all times conform to, and be in accordance with, any requirements
imposed by:
(i) the provisions of the Act and of any rules or regulations
in force thereunder;
(ii) any other applicable provisions of state and Federal law;
(iii) the provisions of Guinness Funds' Articles of Incorporation
and By-Laws, as amended from time to time;
(iv) any policies and determinations of the Board of Directors
of Guinness Funds; and
(v) the fundamental policies of the Fund, as reflected in its
Registration Statement under the Act, as amended from time
to time.
(c) The Adviser shall give the Fund the benefit of its best judgment
and effort in rendering services hereunder, and in connection therewith the
Adviser shall not be liable to the Fund or its security holders for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in the execution of portfolio transactions for the Fund,
except for wilful misfeasance, bad faith or gross negligence in the performance
of its
-2-
<PAGE>
duties, or by reason of reckless disregard of its obligations and duties
hereunder. As used in this subsection (c), the term "Adviser" shall include
board members, officers and employees of the Adviser as well as the entity
referred to as the 'Adviser' itself.
(d) Nothing in this Agreement shall prevent the Adviser or any
affiliated person (as defined in the Act) of the Adviser from acting as
investment adviser or manager for any other person, firm or corporation
(including other investment companies) and shall not in any way limit or
restrict the Adviser or any such affiliated person from buying, selling or
trading any securities for its or their own accounts or for the accounts of
others for whom it or they may be acting; provided, however, that the Adviser
expressly represents that it will undertake no activities which, in its
judgment, will adversely affect the performance of its obligations to the Fund
under this Agreement. The Adviser agrees that it will not deal with itself, or
with the Directors of Guinness Funds or the Fund's principal underwriter or
distributor, as principals in making purchases or sales of securities or other
property for the account of the Fund, except as permitted by the Act, and will
comply with all other provisions of Guinness Funds' Articles of Incorporation
and ByLaws and the then-current prospectus and statement of additional
information applicable to the Fund relative to the Adviser and its board members
and officers.
(e) The Fund will supply the Adviser with certified copies of the
following documents: (i) Guinness Funds' Articles of Incorporation and By-Laws,
as amended; (ii) resolutions of Guinness Funds' Board of Directors and
shareholders authorizing the appointment of the Adviser and approving this
Agreement; (iii) the Fund's Registration Statement, as filed with the Securities
and Exchange Commission; and (iv) the Fund's most recent prospectus and
statement of additional information. The Fund will furnish the Adviser from time
to time with copies of all amendments or supplements to the foregoing, if any,
and all documents, notices and reports filed with the Securities and Exchange
Commission.
(f) The Fund will supply, or cause its custodian bank to supply, to the
Adviser such financial information as is necessary or desirable for the
functions of the Adviser hereunder.
3. Broker-Dealer Relationships.
The Adviser is responsible for decisions to buy and sell securities for
the Fund, broker-dealer selection and negotiation of its brokerage commission
rates. The Adviser's primary consideration in effecting a security transaction
will be execution at the most favorable price. The Fund understands that many of
the Fund's portfolio transactions will be transacted with primary market makers
acting as principal on a net basis, with no brokerage commissions being paid by
the Fund. Such principal transactions may, however, result in a profit to the
market makers. In certain instances, the Adviser may make purchases of
underwritten issues at prices which include underwriting fees. In selecting a
broker or dealer to execute each particular transaction, the Adviser will take
the following into consideration: the best price available; the reliability,
integrity and financial condition of the broker or dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker or dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any
-3-
<PAGE>
transaction may be less favorable than that available from another broker or
dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered. Subject to such policies as the Board of
Directors may determine, the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer that
provides brokerage and research services to the Adviser an amount of commission
for effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect to
the Fund. The Adviser is further authorized to allocate the orders placed by it
on behalf of the Fund to an affiliated broker-dealer, if any, or to such brokers
and dealers who also provide research or statistical material, or other services
to the Fund (which material or services may also assist the Adviser in rendering
services to other clients). Such allocation shall be in such amounts and
proportions as the Adviser shall determine and the Adviser will report on said
allocations regularly to the Board of Directors of the Fund indicating the
brokers to whom such allocations have been made and the basis therefor.
4. Allocation of Expenses.
The Adviser agrees that it will furnish the Fund, at its expense, all
office space and facilities, equipment and clerical personnel necessary for
carrying out its duties under this Agreement. The Adviser agrees that it will
supply to any administrator (the "Administrator") of the Fund all necessary
financial information in connection with the Administrator's duties under any
agreement between the Administrator and the Fund on behalf of the Fund. All
costs and expenses associated with any administrative functions delegated by the
Adviser to the Administrator that are not pursuant to any agreement between the
Administrator and the Fund or the Adviser and the Fund will be paid by the
Adviser. All other costs and expenses not expressly assumed by the Adviser under
this Agreement or by the Administrator under the administration agreement
between it and the Fund on behalf of the Fund shall be paid by the Fund from the
assets of the Fund, including, but not limited to (i) fees paid to the Adviser
and the Administrator; (ii) interest and taxes; (iii) brokerage commissions;
(iv) insurance premiums; (v) compensation and expenses of the directors other
than those affiliated with the adviser or the administrator; (vi) legal,
accounting and audit expenses; (vii) fees and expenses of any transfer agent,
distributor, registrar, dividend disbursing agent or shareholder servicing agent
of the Fund; (viii) expenses, including clerical expenses, incident to the
issuance, redemption or repurchase of shares of the Fund, including issuance on
the payment of, or reinvestment of, dividends; (ix) fees and expenses incident
to the registration under Federal or state securities laws of the Fund or its
shares; (x) expenses of preparing, setting in type, printing and mailing
prospectuses, statements of additional information, reports and notices and
proxy material to shareholders of the Fund; (xi) all other expenses incidental
to holding meetings of the Fund's shareholders; (xii) expenses connected with
the execution, recording and settlement of portfolio securities transactions;
(xiii) fees and expenses of the Fund's custodian for all services to the Fund,
including safekeeping of funds and securities and maintaining required books and
accounts; (xiv) expenses of calculating net asset value of the
-4-
<PAGE>
shares of the Fund; (xv) industry membership fees allocable to the Fund; and
(xvi) such extraordinary expenses as may arise, including litigation affecting
the Fund and the legal obligations which the Fund may have to indemnify the
officers and directors with respect thereto.
5. Compensation of the Adviser.
(a) For the services to be rendered, the Fund shall pay to the Adviser
from the assets of the Fund an investment advisory fee paid monthly at an annual
rate equal to .75% of the Fund's average daily net assets for the Fund's
then-current fiscal year. Except as hereinafter set forth, compensation under
this Agreement shall be calculated and accrued daily and the amounts of the
daily accruals shall be paid monthly. If the Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day of
a month, compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Subject to the provisions of subsection (b) hereof, payment of the
Adviser's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by subsection (b)
hereof.
(b) In the event the operating expenses of the Fund including all
investment advisory and administration fees, for any fiscal year ending on a
date on which this Agreement is in effect exceed the expense limitations
applicable to the Fund imposed by the securities laws or regulations thereunder
of any state in which the Fund's shares are qualified for sale, as such
limitations may be raised or lowered from time to time, the Adviser shall reduce
its investment advisory fee, but not below zero, to the extent of its share of
such excess expenses; provided, however, there shall be excluded from such
expenses the amount of any interest, taxes, brokerage commissions and
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto) paid
or payable by the Fund on behalf of the Fund. Such reduction, if any, shall be
computed and accrued daily, shall be settled on a monthly basis and shall be
based upon the expense limitation applicable to the Fund as at the end of the
last business day of the month. Should two or more such expense limitations be
applicable as at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the Adviser's fee shall be
applicable. For the purposes of this paragraph, the Adviser's share of any
excess expenses shall be computed by multiplying such excess expenses by a
fraction, the numerator of which is the amount of the investment advisory fee
which would otherwise be payable to the Adviser for such fiscal year were it not
for this subsection 5(b) and the denominator of which is the sum of all
investment advisory and administrative fees which would otherwise be payable by
the Fund were it not for the expense limitation provisions of any investment
advisory or administrative agreement to which the Fund, on behalf of the Fund,
is a party.
6. Duration Amendment and Termination.
(a) This Agreement shall go into effect as to the Fund on the date set
forth above (the "Effective Date") and shall, unless terminated as hereinafter
provided, continue in effect for two years from the Effective Date and shall
continue from year to year thereafter, but only so
-5-
<PAGE>
long as such continuance is specifically approved at least annually by the Board
of Directors of the Fund, including the vote of a majority of the directors who
are not parties to this Agreement or "interested persons" (as defined in the
Act) of any such party cast in person at a meeting called for the purpose of
voting on such approval, or by the vote of the holders of a "majority" (as so
defined) of the outstanding voting securities of the Fund and by such a vote of
the directors.
(b) This Agreement may be amended only if such amendment is approved by
the vote of the holders of a "majority" (as defined in the Act) of the
outstanding voting securities of the Fund.
(c) This Agreement may be terminated as to the Fund by the Adviser at
any time without penalty upon giving the Fund sixty (60) days' written notice
(which notice may be waived by the Fund) and may be terminated by the Fund at
any time without penalty upon giving the Adviser sixty (60) days' written notice
(which notice may be waived by the Adviser), provided that such termination by
the Fund shall be approved by the vote of a majority of all the directors in
office at the time or by the vote of the holders of a "majority' (as defined in
the Act) of the voting securities of the Fund at the time outstanding and
entitled to vote. This Agreement shall automatically terminate in the event of
its "assignment" (as defined in the Act).
7. Board of Directors' Meeting.
The Fund agrees that notice of each meeting of the Board of Directors
of the Fund will be sent to the Adviser and that the Fund will make appropriate
arrangements for the attendance (as persons present by invitation) of such
person or persons as the Adviser may designate.
8. Use of the Name "Guinness Flight".
The Fund acknowledges that it is adopting its name through permission
of the Adviser, and agrees that the Adviser reserves to itself and any successor
to its business the right to withdraw the right to use the name "Guinness
Flight" from the Fund if the Adviser no longer advises the Fund. The Adviser
also reserves the right to grant the nonexclusive right to use the name
"Guinness Flight" or any similar name to any other corporation or entity,
including, but not limited to, any investment company. In the event this
Agreement is terminated, the Fund shall immediately delete "Guinness Flight"
from its name and the name of its series and may not use the name "Guinness
Flight" in any manner thereafter.
9. Notices.
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice.
-6-
<PAGE>
10. Questions of Interpretation.
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Act, as amended, shall be resolved by reference to such term or provision
of the Act and to interpretations thereof, if any, by the United States Courts
or in the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued pursuant
to said Act. In addition, where the effect of a requirement of the Act,
reflected in any provision of this Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names on their names on their behalf by the
undersigned, thereunto duly authorized, all as of the day and year first above
written.
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
By
-------------------------------------
Title:
GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED
By
-------------------------------------
Title:
-7-
EX-99.B6(a)(iii)
DISTRIBUTION AGREEMENT FOR
GUINNESS FLIGHT ASIA BLUE CHIP FUND
<PAGE>
EX-99.B6(a)(iii)
FORM OF
GENERAL DISTRIBUTION AGREEMENT
AGREEMENT made April 29, 1996 by and between the Guinness Flight
Investment Funds, Inc., a Maryland corporation which may issue one or more
series of shares (the "Guinness Funds"), with respect to shares of the Guinness
Flight Asia Blue Chip Fund, a series of the Guinness Funds (the "Fund"), and
First Fund Distributors, Inc., a Delaware corporation having its principal place
of business at 479 West 22nd Street, New York, New York (the "Distributor").
WHEREAS, the Guinness Funds wishes to employ the services of the
Distributor in connection with the promotion and distribution of the Guinness
Funds' shares representing the Fund (the "Shares");
NOW, THEREFORE, in consideration of the mutual promises and
undertakings herein contained, the parties agree as follows:
1. Documents. The Guinness Funds has furnished the Distributor with
copies of the Guinness Funds' Articles of Incorporation, By Laws, Investment
Advisory Agreement, Custodian Agreement, current Prospectus and Statement of
Additional Information, and all forms relating to any plan, program or service
offered by the Guinness Funds. The Guinness Funds shall furnish promptly to the
Distributor a copy of any amendment or supplement to any of the above mentioned
documents. The Guinness Funds shall furnish promptly to the Distributor any
additional documents necessary or advisable to perform its functions hereunder.
2. Sale of Shares. The Guinness Funds grants to the Distributor the
right to sell shares as agent on behalf of the Guinness Funds (the "Shares"),
during the term of this Agreement, subject to the registration requirements of
the Securities Act of 1933, as amended ("1933 Act"), and of the laws governing
the sale of securities in the various states ("Blue Sky Laws"), under the terms
and conditions set forth in this agreement. The Distributor (i) shall have the
right to sell, as agent on behalf of the Guinness Funds, shares authorized for
issue and registered under the 1933 Act, and (ii) may sell shares under offers
of exchange, if available, between and among other funds or portfolios advised
by Guinness Flight Investment Management Limited ("Guinness Flight").
3. Sale of Shares by the Guinness Funds. The rights granted to the
Distributor shall be nonexclusive in that the Guinness Funds reserves the right
to sell the Shares to investors on applications received and accepted by the
Guinness Funds. Further, the Guinness Funds reserves the right to issue Shares
in connection with the merger, consolidation or other combination by
<PAGE>
the Guinness Funds through purchase or otherwise, with any other entity.
4. Public Offering Price. Except as otherwise noted in the Guinness
Funds' current Prospectus and/or Statement of Additional Information, all Shares
sold to investors by the Distributor or the Guinness Funds will be sold at the
public offering price. The public offering price for all accepted subscriptions
will be the net asset value per share, as determined in the manner described in
the Guinness Funds' current Prospectus and/or Statement of Additional
Information, plus a sales charge (if any) described in the Guinness Funds'
current Prospectus and/or Statement of Additional Information. The Guinness
Funds shall in all cases receive the net asset value per share on all sales. If
a sales charge is in effect, the Distributor shall have the right, subject to
such rules or regulations of the Securities and Exchange Commission as may then
be in effect pursuant to Section 22 of the Investment Company Act of 1940, to
pay a portion of the sales charge to dealers who have sold shares of the
Guinness Funds. If a fee in connection with shareholder redemptions is in
effect, the Guinness Funds shall collect the fee on behalf of the Distributor
and, unless otherwise agreed upon by the Guinness Funds and the Distributor, the
Distributor shall be entitled to receive all of such fees.
5. Suspension of Sales. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further orders
for Shares shall be processed by the Distributor except such unconditional
orders as may have been placed with the Distributor before it had knowledge of
the suspension. In addition, the Guinness Funds reserves the right to suspend
sales and the Distributor's authority to process orders for Shares on behalf of
the Guinness Funds if, in the judgment of the Guinness Funds, it is in the best
interests of the Guinness Funds to do so. Suspension will continue for such
period as may be determined by the Guinness Funds.
6. Solicitation of Sales. In consideration of these rights granted to
the Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for Shares of the
Guinness Funds. This shall not prevent the Distributor from entering into like
arrangements (including, arrangements involving the payment of underwriting
commissions) with other issuers. While the Distributor is registered as a broker
or dealer under the Blue Sky Laws of certain United States jurisdictions, it
shall not be required to maintain its registration in any jurisdiction in which
it is now registered. If a sales charge is in effect, the Distributor shall have
the right to enter into sales agreements with dealers of its choice for the sale
of shares of the Guinness Funds to the public at the public offering price only
and fix in such agreements the portion of the sales charge which may be retained
by dealers, provided that the Guinness Funds shall approve the form of the
dealer agreement and the dealer discounts set forth therein and
- 2 -
<PAGE>
shall evidence such approval by filing said form of dealer agreement and
amendments thereto as an exhibit to its currently effective Registration
Statement under the 1933 Act.
7. Authorized Representations. The Distributor is not authorized by the
Guinness Funds to give any information or to make any representations other than
those contained in the appropriate registration statements or Prospectuses and
Statements of Additional Information filed with the Securities and Exchange
Commission under the 1933 Act (as these registrations statements, Prospectuses
and Statements of Additional Information may be amended from time to time), or
contained in shareholder reports or other material that may be prepared by or on
behalf of the Guinness Funds for the Distributor's use. Consistent with the
foregoing, the Distributor may prepare and distribute sales literature or other
material as it may deem appropriate, provided such sales literature complies
with applicable law and regulation.
8. Registration of Shares. The Guinness Funds agrees that it will take
all action necessary to register Shares under the 1933 Act (subject to the
necessary approval of its shareholders) so that there will be available for sale
the number of Shares the Distributor may reasonably be expected to sell. The
Guinness Funds shall make available to the Distributor such number of copies of
its currently effective Prospectus and Statement of Additional Information as
the Distributor may reasonably request at the Distributor's expense. The
Guinness Funds, at its expense, shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of shares of the
Guinness Funds.
9. Distribution Expenses. The Distributor shall bear all expenses in
connection with the performance of its services hereunder, including, but not
limited to, (a) printing and distributing any Prospectuses and Statements of
Additional Information or reports prepared for its use in connection with the
offering of shares for sale to the public other than to existing shareholders of
the Guinness Funds determined at the time of mailing any such Prospectuses and
Statements of Additional Information or reports, (b) any other literature used
by the Distributor in connection with such offering, and (c) advertising and
promotional activities in connection with such Offering.
10. Guinness Funds Expenses. The Guinness Funds shall pay all fees and
expenses (a) in connection with the preparation, setting in type and filing of
any registration statement, Prospectus and Statement of Additional Information
under the 1933 Act and amendments for the issue of its shares, (b) in connection
with the registration and qualification of shares for sale in the various states
in which the Board of Directors of the Guinness Funds shall determine it
advisable to qualify such shares for sale (including registering the Guinness
Funds as a broker or
- 3 -
<PAGE>
dealer or any officer of the Guinness Funds as agent or salesman in any state),
(c) of preparing, setting in type, printing and mailing any report or other
communication to shareholders of the Guinness Funds in their capacity as such,
and (d) of preparing, setting in type, printing and mailing Prospectuses,
Statements of Additional Information and any supplements thereto sent to
existing shareholders.
The Distributor shall bear all expenses in connection with the
performance of its services hereunder and shall have no obligation to pay or to
reimburse the Guinness Funds for any other expenses incurred by or on behalf of
the Fund, including, any expenses which may be in excess of expense limitations
imposed by any state.
11. Use of the Distributor's Name. The Guinness Funds shall not use the
name of the Distributor, or any of its affiliates, in any Prospectus or
Statement of Additional Information, sales literature, and other material
relating to the Guinness Funds in any manner without the prior written consent
of the Distributor (which shall not be unreasonably withheld); provided,
however, that the Distributor hereby approves all lawful uses of the names of
the Distributor and its affiliates in the Prospectus and Statement of Additional
Information of the Guinness Funds and in all other materials which merely refer
in accurate terms to their appointments hereunder or which are required by the
Securities and Exchange Commission or any state securities authority.
12. Use of the Guinness Funds' Name. Neither the Distributor nor any of
its affiliates shall use the name of the Guinness Funds in any Prospectuses or
Statements of Additional Information, sales literature, or other material
relating to the Guinness Funds on any forms for other than internal use in any
manner without the prior consent of the Guinness Funds (which shall not be
unreasonably withheld); provided, however, that the Guinness Funds hereby
approves all uses of its name in the Prospectus and Statement of Additional
Information of the Guinness Funds and in sales literature and all other
materials which are required by the Distributor in the discharge of its duties
hereunder which merely refer in accurate terms to the appointment of the
Distributor hereunder, or which are required by the Securities and Exchange
Commission or any state securities authority.
13. Insurance. The Distributor agrees to maintain fidelity bond and
liability insurance coverages which are, in scope and amount, consistent with
coverages customary for distribution activities. The Distributor shall notify
the Guinness Funds upon receipt of any notice of material, adverse change in the
terms or provisions of its insurance coverage. Such notification shall include
the date of change and the reason or reasons therefor. The Distributor shall
notify the Guinness Funds of any material claim against it, whether or not
covered by
- 4 -
<PAGE>
insurance, and shall notify the Guinness Funds, from time to time as may be
appropriate, of the total outstanding claims made by it under its insurance
coverage.
14. Indemnification. The Guinness Funds agrees to indemnify and hold
harmless the Distributor and each of its directors and officers and each person,
if any, who controls the Distributor within the meaning of Section 15 of the
1933 Act against any loss, liability, claim, damages or expense (including, the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damages or expense and reasonable counsel fees incurred in connection
therewith) arising by reason of any person acquiring any shares, based upon the
ground that the registration statement Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made public by
the Guinness Funds (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading under the 1933 Act, or
any other statute or the common law. However, the Guinness Funds does not agree
to indemnify the Distributor or hold it harmless to the extent that the
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Guinness Funds by or on behalf of the Distributor.
In no case (i) is the indemnity of the Guinness Funds in favor of the
Distributor or any person indemnified to be deemed to protect the Distributor or
any person against any liability to the Guinness Funds or its security holders
to which the Distributor or such person would otherwise be subjected by reason
of willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this Agreement, or (ii) is the Guinness Funds to be liable under its
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
person, as the case may be, shall have notified the Guinness Funds in writing of
the claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or any such person (or after the Distributor or such
person shall have received notice of service on any designated agent). However,
failure to notify the Guinness Funds of any claim shall not relieve the Guinness
Funds from any liability which it may have to the Distributor or any person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Guinness Funds shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any claims, but if the Guinness Funds
elects to assume the defense, the defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or person or persons, defendant or
defendants in the suit. In the event the Guinness Funds elects to assume the
defense of any suit and retain counsel, the Distributor, officers
- 5 -
<PAGE>
or directors or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them. If the Guinness Funds does not elect to assume the defense of any suit, it
will reimburse the Distributor, officers or directors or controlling, person or
persons, defendant or defendants in the suit for the reasonable fees and
expenses of any counsel retained by them. The Guinness Funds agrees to notify
the Distributor promptly of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issuance
or sale of any of the shares.
The Distributor also covenants and agrees that it will indemnify and
hold harmless the Guinness Funds and each of its Board members and officers and
each person, if any, who controls the Guinness Funds within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith) arising by reason of any person acquiring any Shares,
based upon the 1933 Act or any other statute or common law, alleging any
wrongful act of the Distributor or any of its employees or alleging that the
registration statement, Prospectus, Statement of Additional Information,
shareholder reports or other information field or made public by the Guinness
Funds (as from time to time amended) included an untrue statement of a material
fact or omitted to state a material fact required to be stated or necessary in
order to make the statements not misleading, insofar as the statement or
omission was made in reliance upon, and in conformity with information furnished
to the Guinness Funds by or on behalf of the Distributor. In no case (i) is the
indemnity of the Distributor in favor of the Guinness Funds or any person
indemnified to be deemed to protect the Guinness Funds or any person against any
liability to which the Guinness Funds or such person would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Distributor to be
liable under its indemnity agreement contained in this paragraph with respect to
any claim made against the Guinness Funds or any person indemnified unless the
Guinness Funds or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon the Guinness Funds or any such person (or
after the Guinness Funds or such person shall have received notice of service on
any designated agent). However, failure to notify the Distributor of any claim
shall not relieve the Distributor from any liability which it may have to the
Guinness Funds or any person against whom such action is brought otherwise than
on account of its indemnity agreement contained in this paragraph. In the case
of any notice to the Distributor, it shall be entitled to participate, at its
own expense, in the
- 6 -
<PAGE>
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by it and satisfactory to the
Guinness Funds, to its officers and Board and to any controlling person or
persons, defendant or defendants in the suit. In the event the Distributor
elects to assume the defense of any suit and retain counsel, the Guinness Funds
or controlling persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them. If the Distributor does
not elect to assume the defense of any suit, it will reimburse the Guinness
Funds, officers and Board or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Distributor agrees to notify the Guinness Funds promptly
of the commencement of any litigation or proceedings against it in connection
with the issue and sale of any of the shares.
15. Liability of the Distributor. The Distributor shall,not be liable
for any damages or loss suffered by the Guinness Funds in connection with the
matters to which this Agreement relates, except for damages or loss resulting
from willful misfeasance, reckless disregard, bad faith or gross negligence on
the Distributor's part in the performance of its duties under this Agreement.
Any person, even though also an officer, partner, employee or agent of the
Distributor, or any of its affiliates, who may be or become an officer of the
Guinness Funds, shall be deemed, when rendering services to or acting on any
business of the Guinness Funds in any such capacity (other than services or
business in connection with the Distributor's duties under this Agreement), to
be rendering such services to or acting solely for the Guinness Funds and not as
an officer, partner, employee or agent or one under the control or direction of
the Distributor or any of its affiliates, even if paid by the Distributor or an
affiliate thereof.
16. Acts of God, Etc. The Distributor shall not be liable for delays or
errors occurring by reason of circumstances not reasonably foreseeable and
beyond its control, including, but not limited to, acts of civil or military
authority, national emergencies, work stoppages, fire, flood, catastrophe, acts
of God, insurrection, war, riot or failure of communication or power supply. In
addition, in the event of equipment breakdowns which are (i) beyond the
reasonable control of the Distributor and (ii) not primarily attributable to the
failure of the Distributor to reasonably maintain or provide for the maintenance
of such equipment, the Distributor shall, at no additional expense to the
Guinness Funds, take reasonable steps in good faith to minimize service
interruptions but shall have no liability with respect thereto.
17. Supplemental Information. The Distributor and the Guinness Funds
shall regularly consult with each other regarding the Distributor's performance
of its obligations under this
- 7 -
<PAGE>
Agreement. In connection therewith, the Guinness Funds shall submit to the
Distributor at a reasonable time in advance of filing with the Securities and
Exchange Commission copies of any amended or supplemented registration
statements (including exhibits) under the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, and, at a reasonable time in
advance of their proposed use, copies of any amended or supplemented forms
relating to any plan, program or service offered by the Guinness Funds. Any
change in such material which would require any change in the Distributor's
obligations under the foregoing provisions shall be subject to the Distributor's
approval, which shall not be unreasonably withheld.
18. Term. This Agreement shall become effective on April 29, 1996 or
such later date as may be agreed upon by the parties hereto, and shall continue
through April 28, 1998, and thereafter shall continue automatically for
successive annual periods, provided such continuance is specifically approved at
least annually (i) by the Fund's Board of Directors or (ii) by a vote of a
majority of the outstanding Shares of the Fund (as defined in the Investment
Company Act of 1940), provided that in either event the continuance is also
approved by the majority of the Fund's Directors who are not parties to the
Agreement or Interested persons (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable without penalty on not
less than sixty days' notice by the Fund's Board of Directors, by vote of a
majority of the outstanding Shares of the Fund (as defined by the 1940 Act) or
by the Distributor. Any termination shall not affect the rights and obligations
of the parties under Sections 9, 14, 15, and 16, hereof.
Upon termination of this Agreement in whole, at the Guinness Funds'
expense and direction, the Distributor shall transfer to such successor as the
Guinness Funds shall specify all relevant books, records and other data
established or maintained by the Distributor under this Agreement.
19. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by (i) telex, (ii)
telecopier, or (iii) registered or certified mail, postage prepaid, addressed by
the party giving notice to the other party at the last address furnished by the
other party to the party giving notice: if to the Guinness Funds, at Guinness
Flight Investment Funds Inc., Attention James Atkinson, 201 South Lake Avenue,
Suite 510, Pasadena, CA 91101, Telecopy No. (818) 795-0593; and if to the
Distributor, First Fund Distributors, Attention Robert Wadsworth, 4455 E.
Camelback Road, Suite 261E, Phoenix, AZ 85018, Telecopy No. (602) 952-8520, or
such other telecopy number or address as may be furnished by one party to the
other.
- 8 -
<PAGE>
20. Confidential Information. The Distributor will treat confidentially
and as proprietary information of the Guinness Funds all records and other
information relative to the Guinness Funds and to prior or present shareholders
or to those persons or entities who respond to the Distributor's inquiries
concerning investment in the Guinness Funds, and will not use such records and
information for any purposes other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Guinness Funds, which approval shall not be unreasonably withheld and may
not be withheld if the Distributor might, in its sole judgment exercised in good
faith, be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Guinness Funds.
21. Limitation of Liability. The Distributor is expressly put on notice
of the limitation of shareholder liability as set forth in the Articles of
Incorporation of the Guinness Funds and agrees that the obligations assumed by
the Guinness Funds under this contract shall be limited in all cases to the
Guinness Funds and its assets. The Distributor shall not seek satisfaction of
any such obligation from the shareholders or any shareholder of the Guinness
Funds. Nor shall the Distributor seek satisfaction of any such obligation from
the Directors or any individual Director of the Guinness Funds. The Distributor
understands that the rights and obligations of each series of shares of the
Guinness Funds under the Guinness Funds' Articles of Incorporation are separate
and distinct from those of any and all other series.
22. Miscellaneous. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts to the extent federal
law does not govern. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. Except as otherwise provided
herein or under the Investment Company Act of 1940, this Agreement may not be
changed, waived, discharged or amended except by written instrument which shall
make specific reference to this Agreement and which shall be signed by the party
against which enforcement of such change, waiver, discharge or amendment is
sought. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the Guinness Funds has executed this instrument in
its name and behalf, and its seal affixed, by one of its officers duly
authorized, and the Distributor has executed this instrument in its name and
behalf, and its corporate seal affixed, by one of its officers duly authorized,
as of the day and year first above written.
Guinness Flight Investment Funds,
Inc. with respect to the Guinness
Flight Global Government Bond Fund
Attest:
By:
-------------------------------
President
FIRST FUND DISTRIBUTORS, INC.
Attest:
By:
-------------------------------
Vice President and Secretary
- 10 -
EX-99.B6(a)(iv)
DISTRIBUTION AGREEMENT FOR
GUINNESS FLIGHT ASIA SMALL CAP FUND
<PAGE>
EX-99.B6(a)(iv)
FORM OF
GENERAL DISTRIBUTION AGREEMENT
AGREEMENT made April 29, 1996 by and between the Guinness Flight
Investment Funds, Inc., a Maryland corporation which may issue one or more
series of shares (the "Guinness Funds"), with respect to shares of the Guinness
Flight Asia Smaller Cap Growth Fund, a series of the Guinness Funds (the
"Fund"), and First Fund Distributors, Inc., a Delaware corporation having its
principal place of business at 479 West 22nd Street, New York, New York (the
"Distributor").
WHEREAS, the Guinness Funds wishes to employ the services of the
Distributor in connection with the promotion and distribution of the Guinness
Funds' shares representing the Fund (the "Shares");
NOW, THEREFORE, in consideration of the mutual promises and
undertakings herein contained, the parties agree as follows:
1. Documents. The Guinness Funds has furnished the Distributor with
copies of the Guinness Funds' Articles of Incorporation, By Laws, Investment
Advisory Agreement, Custodian Agreement, current Prospectus and Statement of
Additional Information, and all forms relating to any plan, program or service
offered by the Guinness Funds. The Guinness Funds shall furnish promptly to the
Distributor a copy of any amendment or supplement to any of the above mentioned
documents. The Guinness Funds shall furnish promptly to the Distributor any
additional documents necessary or advisable to perform its functions hereunder.
2. Sale of Shares. The Guinness Funds grants to the Distributor the
right to sell shares as agent on behalf of the Guinness Funds (the "Shares"),
during the term of this Agreement, subject to the registration requirements of
the Securities Act of 1933, as amended ("1933 Act"), and of the laws governing
the sale of securities in the various states ("Blue Sky Laws"), under the terms
and conditions set forth in this agreement. The Distributor (i) shall have the
right to sell, as agent on behalf of the Guinness Funds, shares authorized for
issue and registered under the 1933 Act, and (ii) may sell shares under offers
of exchange, if available, between and among other funds or portfolios advised
by Guinness Flight Investment Management Limited ("Guinness Flight").
3. Sale of Shares by the Guinness Funds. The rights granted to the
Distributor shall be nonexclusive in that the Guinness Funds reserves the right
to sell the Shares to investors on applications received and accepted by the
Guinness Funds. Further, the Guinness Funds reserves the right to issue Shares
in connection with the merger, consolidation or other combination by
<PAGE>
the Guinness Funds through purchase or otherwise, with any other
entity.
4. Public Offering Price. Except as otherwise noted in the Guinness
Funds' current Prospectus and/or Statement of Additional Information, all Shares
sold to investors by the Distributor or the Guinness Funds will be sold at the
public offering price. The public offering price for all accepted subscriptions
will be the net asset value per share, as determined in the manner described in
the Guinness Funds' current Prospectus and/or Statement of Additional
Information, plus a sales charge (if any) described in the Guinness Funds'
current Prospectus and/or Statement of Additional Information. The Guinness
Funds shall in all cases receive the net asset value per share on all sales. If
a sales charge is in effect, the Distributor shall have the right, subject to
such rules or regulations of the Securities and Exchange Commission as may then
be in effect pursuant to Section 22 of the Investment Company Act of 1940, to
pay a portion of the sales charge to dealers who have sold shares of the
Guinness Funds. If a fee in connection with shareholder redemptions is in
effect, the Guinness Funds shall collect the fee on behalf of the Distributor
and, unless otherwise agreed upon by the Guinness Funds and the Distributor, the
Distributor shall be entitled to receive all of such fees.
5. Suspension of Sales. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further orders
for Shares shall be processed by the Distributor except such unconditional
orders as may have been placed with the Distributor before it had knowledge of
the suspension. In addition, the Guinness Funds reserves the right to suspend
sales and the Distributor's authority to process orders for Shares on behalf of
the Guinness Funds if, in the judgment of the Guinness Funds, it is in the best
interests of the Guinness Funds to do so. Suspension will continue for such
period as may be determined by the Guinness Funds.
6. Solicitation of Sales. In consideration of these rights granted to
the Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for Shares of the
Guinness Funds. This shall not prevent the Distributor from entering into like
arrangements (including, arrangements involving the payment of underwriting
commissions) with other issuers. While the Distributor is registered as a broker
or dealer under the Blue Sky Laws of certain United States jurisdictions, it
shall not be required to maintain its registration in any jurisdiction in which
it is now registered. If a sales charge is in effect, the Distributor shall have
the right to enter into sales agreements with dealers of its choice for the sale
of shares of the Guinness Funds to the public at the public offering price only
and fix in such agreements the portion of the sales charge which may be retained
by dealers, provided that the Guinness Funds shall approve the form of the
dealer agreement and the dealer discounts set forth therein and
- 2 -
<PAGE>
shall evidence such approval by filing said form of dealer agreement and
amendments thereto as an exhibit to its currently effective Registration
Statement under the 1933 Act.
7. Authorized Representations. The Distributor is not authorized by the
Guinness Funds to give any information or to make any representations other than
those contained in the appropriate registration statements or Prospectuses and
Statements of Additional Information filed with the Securities and Exchange
Commission under the 1933 Act (as these registrations statements, Prospectuses
and Statements of Additional Information may be amended from time to time), or
contained in shareholder reports or other material that may be prepared by or on
behalf of the Guinness Funds for the Distributor's use. Consistent with the
foregoing, the Distributor may prepare and distribute sales literature or other
material as it may deem appropriate, provided such sales literature complies
with applicable law and regulation.
8. Registration of Shares. The Guinness Funds agrees that it will take
all action necessary to register Shares under the 1933 Act (subject to the
necessary approval of its shareholders) so that there will be available for sale
the number of Shares the Distributor may reasonably be expected to sell. The
Guinness Funds shall make available to the Distributor such number of copies of
its currently effective Prospectus and Statement of Additional Information as
the Distributor may reasonably request at the Distributor's expense. The
Guinness Funds, at its expense, shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of shares of the
Guinness Funds.
9. Distribution Expenses. The Distributor shall bear all expenses in
connection with the performance of its services hereunder, including, but not
limited to, (a) printing and distributing any Prospectuses and Statements of
Additional Information or reports prepared for its use in connection with the
offering of shares for sale to the public other than to existing shareholders of
the Guinness Funds determined at the time of mailing any such Prospectuses and
Statements of Additional Information or reports, (b) any other literature used
by the Distributor in connection with such offering, and (c) advertising and
promotional activities in connection with such Offering.
10. Guinness Funds Expenses. The Guinness Funds shall pay all fees and
expenses (a) in connection with the preparation, setting in type and filing of
any registration statement, Prospectus and Statement of Additional Information
under the 1933 Act and amendments for the issue of its shares, (b) in connection
with the registration and qualification of shares for sale in the various states
in which the Board of Directors of the Guinness Funds shall determine it
advisable to qualify such shares for sale (including registering the Guinness
Funds as a broker or
- 3 -
<PAGE>
dealer or any officer of the Guinness Funds as agent or salesman in any state),
(c) of preparing, setting in type, printing and mailing any report or other
communication to shareholders of the Guinness Funds in their capacity as such,
and (d) of preparing, setting in type, printing and mailing Prospectuses,
Statements of Additional Information and any supplements thereto sent to
existing shareholders.
The Distributor shall bear all expenses in connection with the
performance of its services hereunder and shall have no obligation to pay or to
reimburse the Guinness Funds for any other expenses incurred by or on behalf of
the Fund, including, any expenses which may be in excess of expense limitations
imposed by any state.
11. Use of the Distributor's Name. The Guinness Funds shall not use the
name of the Distributor, or any of its affiliates, in any Prospectus or
Statement of Additional Information, sales literature, and other material
relating to the Guinness Funds in any manner without the prior written consent
of the Distributor (which shall not be unreasonably withheld); provided,
however, that the Distributor hereby approves all lawful uses of the names of
the Distributor and its affiliates in the Prospectus and Statement of Additional
Information of the Guinness Funds and in all other materials which merely refer
in accurate terms to their appointments hereunder or which are required by the
Securities and Exchange Commission or any state securities authority.
12. Use of the Guinness Funds' Name. Neither the Distributor nor any of
its affiliates shall use the name of the Guinness Funds in any Prospectuses or
Statements of Additional Information, sales literature, or other material
relating to the Guinness Funds on any forms for other than internal use in any
manner without the prior consent of the Guinness Funds (which shall not be
unreasonably withheld); provided, however, that the Guinness Funds hereby
approves all uses of its name in the Prospectus and Statement of Additional
Information of the Guinness Funds and in sales literature and all other
materials which are required by the Distributor in the discharge of its duties
hereunder which merely refer in accurate terms to the appointment of the
Distributor hereunder, or which are required by the Securities and Exchange
Commission or any state securities authority.
13. Insurance. The Distributor agrees to maintain fidelity bond and
liability insurance coverages which are, in scope and amount, consistent with
coverages customary for distribution activities. The Distributor shall notify
the Guinness Funds upon receipt of any notice of material, adverse change in the
terms or provisions of its insurance coverage. Such notification shall include
the date of change and the reason or reasons therefor. The Distributor shall
notify the Guinness Funds of any material claim against it, whether or not
covered by
- 4 -
<PAGE>
insurance, and shall notify the Guinness Funds, from time to time as may be
appropriate, of the total outstanding claims made by it under its insurance
coverage.
14. Indemnification. The Guinness Funds agrees to indemnify and hold
harmless the Distributor and each of its directors and officers and each person,
if any, who controls the Distributor within the meaning of Section 15 of the
1933 Act against any loss, liability, claim, damages or expense (including, the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damages or expense and reasonable counsel fees incurred in connection
therewith) arising by reason of any person acquiring any shares, based upon the
ground that the registration statement Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made public by
the Guinness Funds (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading under the 1933 Act, or
any other statute or the common law. However, the Guinness Funds does not agree
to indemnify the Distributor or hold it harmless to the extent that the
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Guinness Funds by or on behalf of the Distributor.
In no case (i) is the indemnity of the Guinness Funds in favor of the
Distributor or any person indemnified to be deemed to protect the Distributor or
any person against any liability to the Guinness Funds or its security holders
to which the Distributor or such person would otherwise be subjected by reason
of willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this Agreement, or (ii) is the Guinness Funds to be liable under its
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
person, as the case may be, shall have notified the Guinness Funds in writing of
the claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or any such person (or after the Distributor or such
person shall have received notice of service on any designated agent). However,
failure to notify the Guinness Funds of any claim shall not relieve the Guinness
Funds from any liability which it may have to the Distributor or any person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Guinness Funds shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any claims, but if the Guinness Funds
elects to assume the defense, the defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or person or persons, defendant or
defendants in the suit. In the event the Guinness Funds elects to assume the
defense of any suit and retain counsel, the Distributor, officers
- 5 -
<PAGE>
or directors or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them. If the Guinness Funds does not elect to assume the defense of any suit, it
will reimburse the Distributor, officers or directors or controlling, person or
persons, defendant or defendants in the suit for the reasonable fees and
expenses of any counsel retained by them. The Guinness Funds agrees to notify
the Distributor promptly of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issuance
or sale of any of the shares.
The Distributor also covenants and agrees that it will indemnify and
hold harmless the Guinness Funds and each of its Board members and officers and
each person, if any, who controls the Guinness Funds within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith) arising by reason of any person acquiring any Shares,
based upon the 1933 Act or any other statute or common law, alleging any
wrongful act of the Distributor or any of its employees or alleging that the
registration statement, Prospectus, Statement of Additional Information,
shareholder reports or other information field or made public by the Guinness
Funds (as from time to time amended) included an untrue statement of a material
fact or omitted to state a material fact required to be stated or necessary in
order to make the statements not misleading, insofar as the statement or
omission was made in reliance upon, and in conformity with information furnished
to the Guinness Funds by or on behalf of the Distributor. In no case (i) is the
indemnity of the Distributor in favor of the Guinness Funds or any person
indemnified to be deemed to protect the Guinness Funds or any person against any
liability to which the Guinness Funds or such person would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Distributor to be
liable under its indemnity agreement contained in this paragraph with respect to
any claim made against the Guinness Funds or any person indemnified unless the
Guinness Funds or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon the Guinness Funds or any such person (or
after the Guinness Funds or such person shall have received notice of service on
any designated agent). However, failure to notify the Distributor of any claim
shall not relieve the Distributor from any liability which it may have to the
Guinness Funds or any person against whom such action is brought otherwise than
on account of its indemnity agreement contained in this paragraph. In the case
of any notice to the Distributor, it shall be entitled to participate, at its
own expense, in the
- 6 -
<PAGE>
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by it and satisfactory to the
Guinness Funds, to its officers and Board and to any controlling person or
persons, defendant or defendants in the suit. In the event the Distributor
elects to assume the defense of any suit and retain counsel, the Guinness Funds
or controlling persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them. If the Distributor does
not elect to assume the defense of any suit, it will reimburse the Guinness
Funds, officers and Board or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Distributor agrees to notify the Guinness Funds promptly
of the commencement of any litigation or proceedings against it in connection
with the issue and sale of any of the shares.
15. Liability of the Distributor. The Distributor shall,not be liable
for any damages or loss suffered by the Guinness Funds in connection with the
matters to which this Agreement relates, except for damages or loss resulting
from willful misfeasance, reckless disregard, bad faith or gross negligence on
the Distributor's part in the performance of its duties under this Agreement.
Any person, even though also an officer, partner, employee or agent of the
Distributor, or any of its affiliates, who may be or become an officer of the
Guinness Funds, shall be deemed, when rendering services to or acting on any
business of the Guinness Funds in any such capacity (other than services or
business in connection with the Distributor's duties under this Agreement), to
be rendering such services to or acting solely for the Guinness Funds and not as
an officer, partner, employee or agent or one under the control or direction of
the Distributor or any of its affiliates, even if paid by the Distributor or an
affiliate thereof.
16. Acts of God, Etc. The Distributor shall not be liable for delays or
errors occurring by reason of circumstances not reasonably foreseeable and
beyond its control, including, but not limited to, acts of civil or military
authority, national emergencies, work stoppages, fire, flood, catastrophe, acts
of God, insurrection, war, riot or failure of communication or power supply. In
addition, in the event of equipment breakdowns which are (i) beyond the
reasonable control of the Distributor and (ii) not primarily attributable to the
failure of the Distributor to reasonably maintain or provide for the maintenance
of such equipment, the Distributor shall, at no additional expense to the
Guinness Funds, take reasonable steps in good faith to minimize service
interruptions but shall have no liability with respect thereto.
17. Supplemental Information. The Distributor and the Guinness Funds
shall regularly consult with each other regarding the Distributor's performance
of its obligations under this
- 7 -
<PAGE>
Agreement. In connection therewith, the Guinness Funds shall submit to the
Distributor at a reasonable time in advance of filing with the Securities and
Exchange Commission copies of any amended or supplemented registration
statements (including exhibits) under the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, and, at a reasonable time in
advance of their proposed use, copies of any amended or supplemented forms
relating to any plan, program or service offered by the Guinness Funds. Any
change in such material which would require any change in the Distributor's
obligations under the foregoing provisions shall be subject to the Distributor's
approval, which shall not be unreasonably withheld.
18. Term. This Agreement shall become effective on April 29, 1996 or
such later date as may be agreed upon by the parties hereto, and shall continue
through April 28, 1998, and thereafter shall continue automatically for
successive annual periods, provided such continuance is specifically approved at
least annually (i) by the Fund's Board of Directors or (ii) by a vote of a
majority of the outstanding Shares of the Fund (as defined in the Investment
Company Act of 1940), provided that in either event the continuance is also
approved by the majority of the Fund's Directors who are not parties to the
Agreement or Interested persons (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable without penalty on not
less than sixty days' notice by the Fund's Board of Directors, by vote of a
majority of the outstanding Shares of the Fund (as defined by the 1940 Act) or
by the Distributor. Any termination shall not affect the rights and obligations
of the parties under Sections 9, 14, 15, and 16, hereof.
Upon termination of this Agreement in whole, at the Guinness Funds'
expense and direction, the Distributor shall transfer to such successor as the
Guinness Funds shall specify all relevant books, records and other data
established or maintained by the Distributor under this Agreement.
19. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by (i) telex, (ii)
telecopier, or (iii) registered or certified mail, postage prepaid, addressed by
the party giving notice to the other party at the last address furnished by the
other party to the party giving notice: if to the Guinness Funds, at Guinness
Flight Investment Funds Inc., Attention James Atkinson, 201 South Lake Avenue,
Suite 510, Pasadena, CA 91101, Telecopy No. (818) 795-0593; and if to the
Distributor, First Fund Distributors, Attention Robert Wadsworth, 4455 E.
Camelback Road, Suite 261E, Phoenix, AZ 85018, Telecopy No. (602) 952-8520, or
such other telecopy number or address as may be furnished by one party to the
other.
- 8 -
<PAGE>
20. Confidential Information. The Distributor will treat confidentially
and as proprietary information of the Guinness Funds all records and other
information relative to the Guinness Funds and to prior or present shareholders
or to those persons or entities who respond to the Distributor's inquiries
concerning investment in the Guinness Funds, and will not use such records and
information for any purposes other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Guinness Funds, which approval shall not be unreasonably withheld and may
not be withheld if the Distributor might, in its sole judgment exercised in good
faith, be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Guinness Funds.
21. Limitation of Liability. The Distributor is expressly put on notice
of the limitation of shareholder liability as set forth in the Articles of
Incorporation of the Guinness Funds and agrees that the obligations assumed by
the Guinness Funds under this contract shall be limited in all cases to the
Guinness Funds and its assets. The Distributor shall not seek satisfaction of
any such obligation from the shareholders or any shareholder of the Guinness
Funds. Nor shall the Distributor seek satisfaction of any such obligation from
the Directors or any individual Director of the Guinness Funds. The Distributor
understands that the rights and obligations of each series of shares of the
Guinness Funds under the Guinness Funds' Articles of Incorporation are separate
and distinct from those of any and all other series.
22. Miscellaneous. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts to the extent federal
law does not govern. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. Except as otherwise provided
herein or under the Investment Company Act of 1940, this Agreement may not be
changed, waived, discharged or amended except by written instrument which shall
make specific reference to this Agreement and which shall be signed by the party
against which enforcement of such change, waiver, discharge or amendment is
sought. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the Guinness Funds has executed this instrument in
its name and behalf, and its seal affixed, by one of its officers duly
authorized, and the Distributor has executed this instrument in its name and
behalf, and its corporate seal affixed, by one of its officers duly authorized,
as of the day and year first above written.
Guinness Flight Investment Funds,
Inc. with respect to the Guinness
Flight Global Government Bond Fund
Attest:
By:
-------------------------------------
President
FIRST FUND DISTRIBUTORS, INC.
Attest:
By:
-------------------------------------
Vice President and Secretary
- 10 -
EX-99.B11(a)
CONSENT OF KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL,
COUNSEL FOR THE REGISTRANT
<PAGE>
KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
FAX
(212) 715-8000
- ------
WRITER'S DIRECT NUMBER
(212) 715-9100
New York, New York
February 14, 1996
Guinness Flight Investment Funds, Inc.
201 South Lake Avenue
Suite 510
Pasadena, California 91101
Re: Guinness Flight Investment Funds, Inc.
Registration Statement on Form N-1A
(ICA No. 811-8360; File No. 33-75340)
Gentlemen:
We hereby consent to the reference of our firm as Counsel in
this Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel
EX-99.B11(b)
CONSENT OF COOPERS & LYBRAND L.L.P.,
INDEPENDENT ACCOUNTANTS FOR THE REGISTRANT
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
of Guinness Flight Investment Funds, Inc.:
We consent to the incorporation by reference in Post-Effective
Amendment #5 to the Registration Statement on Form N-1A of Guinness Flight
Investment Funds, Inc. (File No. 33-75340) of our report dated February 8, 1995
on our audit of the financial statements and financial highlights of the
Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government
Bond Fund, two series of the Guinness Flight Investment Funds, Inc., which
report is included in the Annual Report to Shareholders for the year ended
December 31, 1994 which is incorporated by reference in the Registration
Statement.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 13, 1996
EX-99.B11(c)
CONSENT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS FOR THE REGISTRANT
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 24, 1996 for the
financial statements of Guinness Flight China & Hong Kong Fund and Guinness
Flight Global Government Bond Fund, and to the reference to our firm under the
captions "Financial Highlights" and "Independent Accounts" in this
Post-Effective Amendment No. 5 (File No. 33-75340) under the Securities Act of
1933.
ERNST & YOUNG LLP
Los Angeles, California
February 14, 1996
EX-99.B12
FINANCIAL STATEMENTS
<PAGE>
February 13, 1996
Dear Guinness Flight Fund Shareholder:
We are pleased to provide you with the 1995 annual report for the Guinness
Flight Investment Funds, Inc. covering both the Guinness Flight China & Hong
Kong Fund and the Guinness Flight Global Government Bond Fund. We are especially
pleased to report that both Funds posted favorable performance results for the
year; the China & Hong Kong Fund up 20.45% and the Global Government Bond Fund
up 14.50%. In addition, since our last report which covered the first half of
1995, the Guinness Flight Investment Funds have experienced significant growth
in size. The China & Hong Kong Fund increased from $12.8 million in net assets
as of June 30, 1995 to $55.0 million at year-end. As of the date of this letter
the China & Hong Kong Fund stands at over $133 million in assets. We welcome our
newest shareholders and thank all of you for your continued support.
Guinness Flight China & Hong Kong Fund
The China & Hong Kong Fund produced a total return of 20.45% for the year ending
December 31, 1995. The Hang Seng Index over the same period was up 23.06%. The
total return for the China & Hong Kong Fund for the six-month period ending
December 31, 1995 was 10.68% as compared to the Hang Seng Index return of 9.49%.
In the previous two reports to shareholders we expressed optimism that 1995
would represent a good, albeit volatile, year for the Hong Kong and China equity
markets. That forecast turned out to be correct on both counts. The Hong Kong
stock market gathered momentum last year largely in response to declining US
interest rates from midyear and the view that the property market had bottomed.
The recovery of the Hang Sang Index in 1995 indicates to us that the Hong Kong
market has recovered from the bear market of 1994.
Outlook
We continue to believe that China will remain one of the world's fastest growing
economies, and our bullish outlook for the Hong Kong and China markets remain
intact. A number of factors will continue to bolster Hong Kong equities: buoyant
global liquidity conditions, low long term interest rates in the US, the rising
likelihood of an end to real estate deflation in Hong Kong, and, an upturn in
the business cycle in China. Chinese economic indicators continue to improve
with inflation measured by the Retail Price Index at 14.8% for 1995, down from
21% in 1994. Despite our bullishness we continue to caution investors to expect
volatility in these markets.
<PAGE>
Guinness Flight Global Government Bond Fund
During 1995 world bond yields fell from the oversold levels of late 1994. A
weaker than anticipated US Dollar, falling to unsustainable levels against other
major currencies during the first quarter, began to appreciate as the year
progressed, improving the Fund's relative performance and narrowing the gap
between the Fund and the Salomon Brothers World Government Bond Index. The
Guinness Flight Global Government Bond Fund produced a total return of 14.50%
for the year ending December 31, 1995, as compared with the Salomon Brothers
World Government Bond Index which returned 19.04% for the same period. This
under performance was largely a result of the Fund's overweight position in US
dollars during the first half of the year; a period in which the US dollar was
surprisingly weak. This overweight position in the US dollar benefitted the Fund
over the second half of the year as the Global Government Bond Fund returned
5.12% versus the index return of 1.87% for the six months ended December 31,
1995.
Outlook
The sharp fall in short-term interest rates and real bond yields around the
world which occurred during 1995 will eventually lead to a global economic
recovery. The best prospects for further bond price appreciation exist in
Europe. Inflation is low and growth weak, a friendly environment for bonds.
Turning to currencies, the Yen and, to a lesser extent, the core currencies of
Europe remain significantly overvalued, whereas the US Dollar and the Italian
Lira stand out as being relatively inexpensive. It is expected that depressed
economic activity in the developed world, for the time being, will continue to
keep downward pressure on world interest rates.
Summary
As China and the other growing economies of Asia continue their historic
expansion in coming decades, the primary source of global economic growth will
be from this exciting region. In our previous report, we cited our view that
this growth is causing a transfer of productive capacity from the developed
western economies to the developing economies of Asia. This transfer is
simultaneously causing an economic boom in Asia and deflationary pressures in
the west. We continue to believe that this shift is a positive change for both
the bond markets of developed economies and for the equity markets of Asia.
-2-
<PAGE>
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
Index to Financial Statements
Guinness Flight China & Hong Kong Fund
Portfolio of Investments............................... 5
Statement of Assets and Liabilities.................... 9
Statement of Operations................................ 10
Statement of Changes in Net Assets..................... 11
Financial Highlights................................... 12
Guinness Flight Global Government Bond Fund
Portfolio of Investments............................... 13
Statement of Assets and Liabilities.................... 16
Statement of Operations................................ 17
Statement of Changes in Net Assets..................... 18
Financial Highlights................................... 19
Notes to Financial Statements................................... 20
Report of Independent Auditors.................................. 24
-3-
<PAGE>
Guinness Flight China & Hong Kong Fund
PORTFOLIO OF INVESTMENTS at December 31, 1995
- --------------------------------------------------------------------------------
Currency Shares COMMON STOCKS: 98.04% Market Value US$
- --------------------------------------------------------------------------------
AIR TRANSPORT, SCHED, & AIR COURIER
SERVICES: 2.21%
HKD 806,000 Cathay Pacific Airways, Ltd............... $1,229,977
----------
AUTOMOTIVE DEALERS: 0.53%
HKD 1,006,000 Qingling Motors Company, Ltd.............. 292,726
-----------
BANKING: 21.25%
HKD 197,000 Dao Heng Bank Group, Ltd.................. 708,257
HKD 428,000 Hang Seung Bank........................... 3,833,042
HKD 408,000 HSBC Holdings, PLC........................ 6,173,424
HKD 604,000 Liu Chong Hing Investment, Ltd............ 585,839
HKD 240,000 Union Bank of Hong Kong................... 226,576
HKD 100,000 Wing Hang Bank Limited*................... 315,551
-------------
11,842,689
BUILDING MATERIALS & CONSTRUCTION: 0.12%
HKD 250,000 Luoyang Glass Company, Ltd................ 64,339
-----------
CHEMICALS: 0.33%
HKD 816,000 Yizheng Chemical Fibre Co................. 183,620
----------
DIVERSIFIED: 7.18%
HKD 550,000 Citic Pacific, Ltd........................ 1,881,345
HKD 900,000 First Pacific ............................ 1,000,970
HKD 1,200,000 Guangdong Investment, Ltd................. 721,629
US$ 16,000 Jardine Matheson Holdings................. 109,600
HKD 151,733 New World Infrastructure*................. 290,417
-----------
4,003,961
ELECTRICAL EQUIPMENT: 0.96%
HKD 310,000 Florens International Group, Ltd.*........ 202,457
US$ 9,000 Shanghai Shangling Electrical Appliance - B 5,508
HKD 175,000 Varitronix International, Ltd............. 324,766
-----------
532,731
ELECTRIC SERVICES: 1.62%
HKD 275,500 Hong Kong Electric........................ 903,191
-----------
-4-
<PAGE>
Guinness Flight China & Hong Kong Fund
PORTFOLIO OF INVESTMENTS at December 31, 1995, Continued
- --------------------------------------------------------------------------------
Currency Shares Market Value US$
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES: 3.87%
HKD 377,500 China Light & Power Co..................... $ 1,737,989
HKD 850,000 Gold Peak Industrial....................... 420,466
------------
2,158,455
FINANCIAL SERVICES: 1.81%
HKD 900,000 National Mutual, Ltd. ..................... 814,743
HKD 150,000 Peregrine Investment Holdings.............. 193,986
------------
1,008,729
FOOD & BEVERAGE: 0.33%
HKD 600,000 Four Seas Mercantile Holdings.............. 184,287
------------
GAS PRODUCTION & DISTRIBUTION: 2.45%
HKD 850,000 Hong Kong & China Gas...................... 1,368,574
-----------
HOTELS/MOTELS: 1.23%
HKD 350,000 Assoc. International Hotels................ 199,159
HKD 400,000 Shangri-La Asia, Ltd....................... 488,846
------------
688,005
INDUSTRIAL: 5.93%
HKD 1,200,000 Sinocan Holdings Limited................... 426,770
HKD 291,000 Swire Pacific, Ltd. - A.................... 2,258,002
HKD 1,500,000 World Houseware Holdings, Ltd.............. 225,024
HKD 1,500,000 Yue Yuen Industrial Holdings*.............. 397,672
------------
3,307,468
LODGING & RESTAURANTS: 0.54%
HKD 600,000 CDL Hotel Internationas.................... 302,619
------------
MOTORCYCLES, BICYCLES, & PARTS: 0.00%
HKD 1,200 Shenzhen China Bicycles Co. - B ........... 197
------------
OPTICAL & OPHTHALMIC GOODS,
PHOTO EQUIPMENT: 0.71%
HKD 700,000 China - HK Photo Product Holdings, Ltd..... 396,056
------------
-5-
<PAGE>
Guinness Flight China & Hong Kong Fund
PORTFOLIO OF INVESTMENTS at December 31, 1995, Continued
- --------------------------------------------------------------------------------
Currency Shares Market Value US$
- --------------------------------------------------------------------------------
PETROLEUM REFINING: 0.66%
HKD 748,000 Shanghai Petrochemical....................... $ 215,234
HKD 800,000 Zhenhai Refining & Chemical Co............... 150,016
----------
365,250
REAL ESTATE - AGENTS, BROKERS &
MANAGERS: 0.65%
HKD 704,000 China Resources Enterprises.................. 364,177
----------
Real Estate - Operations & Lessors: 19.06%
HKD 545,000 Amoy Properties Ltd. Ord..................... 542,709
HKD 579,000 Cheung Kong.................................. 3,526,790
US$ 125,000 Hong Kong Land Holdings, Ltd................. 231,250
HKD 596,000 Sun Hung Kai Properties, Ltd................. 4,875,136
HKD 436,000 Wharf Holdings, Ltd.......................... 1,451,924
------------
10,627,809
REAL ESTATE - SUBDIVIDERS, DEVELOPERS &
OPERATIVE BUILDERS: 8.45%
HKD 282,000 Henderson Land Company....................... 1,699,476
HKD 253,000 Hysan Development Company.................... 669,104
HKD 200,000 New Asia Realty & Trust Company.............. 382,800
HKD 450,000 New World Development........................ 1,961,203
-----------
4,712,583
RETAILER: 1.12%
HKD 600,000 Esprit Asia Holdings, Ltd.................... 205,626
HKD 257,000 Gold Lion Holdings, Ltd. 187,785
HKD 992,000 Joyce Boutique............................... 230,921
-----------
624,332
TELECOMMUNICATIONS: 6.28%
HKD 300,000 Chengdu Telecom Cable Company................ 51,212
HKD 1,933,600 Hong Kong Telecommunications................. 3,450,848
-----------
3,502,060
WHOLESALE - APPAREL, PIECE GOODS,
NOTIONS: 0.36%
HKD 232,000 Giordano Holdings, Ltd....................... 198,021
----------
WHOLESALE - GROCERIES & RELATED
PRODUCTS: 0.54%
HKD 700,000 Vitasoy International Holdings, Ltd.......... 298,739
----------
-6-
<PAGE>
PORTFOLIO OF INVESTMENTS at December 31, 1995, Continued
- --------------------------------------------------------------------------------
Currency Shares Market Value US$
- --------------------------------------------------------------------------------
WHOLESALE TRADE - MISC. WHOLESALERS: 9.85%
HKD 845,000 Hutchison Whampoa............................ $ 5,147,039
HKD 384,000 Li & Fung, Ltd............................... 342,659
------------
5,489,698
Total Common Stocks
(cost $51,044,927+): 98.04%............. 54,650,293
Other Asset Less Liabilities: 1.96%......... 1,089,947
-------------
Total Net Assets: 100.00%................... $55,740,240
===========
*Indicates non-income producing security.
+Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation......... $ 4,380,224
Gross unrealized depreciation......... (774,858)
Net unrealized appreciation:....... $ 3,605,366
===========
Currency Legend:
HKD Hong Kong dollar
US$ United States dollar
See accompanying notes to financial statements.
-7-
<PAGE>
Guinness Flight China & Hong Kong Fund
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $51,044,927).... $54,650,293
Cash...................................................... 1,610,692
Receivables:..............................................
Fund shares sold................................. 232,185
Dividends and interests.......................... 117,971
Prepaid expenses.......................................... 34,265
Deferred organizational costs, net........................ 41,177
---------------
Total assets..................................... 56,686,583
------------
LIABILITIES
Payables:
Due to Affiliate (Note 3)........................ 28,814
Securities purchased............................. 823,025
Dividends to shareholders........................ 20,122
Fund shares repurchased.......................... 21,799
Accrued expenses.......................................... 52,583
-------------
Total liabilities................................ 946,343
------------
NET ASSETS................................................ $55,740,240
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($55,740,240, 4,086,099 shares outstanding;
unlimited number of shares
authorized without par value)....................... $13.64
======
SOURCE OF NET ASSETS
Paid-in capital .................................... $52,234,416
Overdistribution of net investment income........... (729)
Overdistribution of net realized gain on investments (98,843)
Net unrealized appreciation on:
Investments................................ 3,605,366
Foreign currency........................... 30
--------------
Net assets............................ $55,740,240
===========
See accompanying notes to financial statements.
-8-
<PAGE>
Guinness Flight China & Hong Kong Fund
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year
ended
December 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends.................................................. $ 656,972
Interests.................................................. 33,783
----------
Total investment income........................... 690,755
EXPENSES
Advisory fees (Note 3)..................................... 197,173
Administration fee (Note 3)................................ 49,293
Custodian.................................................. 74,889
Accounting................................................. 44,387
Transfer agent fees........................................ 88,488
Auditing fees.............................................. 18,869
Legal fees................................................. 59,689
Directors' fees............................................ 15,958
Registration fees.......................................... 18,378
Reports to shareholders.................................... 8,976
Deferred organization costs amortization................... 11,717
Miscellaneous.............................................. 12,046
----------
Total expenses.................................... 599,863
Less: Expenses paid indirectly (Note 2).......... (5,162)
Expenses reimbursed (Note 3).............. (204,298)
----------
Net expenses...................................... 390,403
----------
NET INVESTMENT INCOME..................... 300,352
----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from investments......................... 28,920
Net realized loss from foreign currency.................... (6,121)
Net unrealized appreciation on investments................. 3,847,844
----------
Net realized and unrealized gain on investments......... 3,870,643
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $4,170,995
==========
See accompanying notes to financial statements.
-9-
<PAGE>
Guinness Flight China & Hong Kong Fund
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year June 30, 1994*
ended through
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income........................... $ 300,352 $ 4,814
Net realized gain from investments.............. 28,920 10,016
Net realized loss on foreign currency........... (6,121) -0-
Net unrealized appreciation (depreciation)
on investments................................ 3,847,844 (242,448)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............ 4,170,995 (227,618)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income....... (301,331) (4,564)
Distributions from realized gains............... (123,918) (7,740)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS.... (425,249) (12,304)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold....................... 57,621,477 4,610,830
Net asset value of shares issued on
reinvestment of distributions................. 395,581 11,396
Cost of shares redeemed......................... (8,309,577) (2,145,291)
----------- -----------
Net increase from capital share transactions.... 49,707,481 2,476,935
----------- -----------
TOTAL INCREASE IN NET ASSETS........... 53,453,227 2,237,013
NET ASSETS
Beginning of period............................. 2,287,013 50,000
----------- -----------
End of period (including (overdistributed)
undistributed net investment income of
$(729) and $250, respectively)................ $55,740,240 $ 2,287,013
=========== ===========
CHANGES IN SHARES
Shares sold..................................... 4,513,348 363,879
Shares issued from dividend distributions....... 29,558 994
Shares redeemed................................. (656,232) (169,448)
----------- -----------
Net Increase.................................... 3,886,674 195,425
=========== ===========
*Commencement of operations.
See accompanying notes to financial statements.
-10-
<PAGE>
Guinness Flight China & Hong Kong Fund
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
For the Year June 30, 1994*
Ended through
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------
Net asset value, beginning of period.......... $11.47 $12.50
Income from investment operations:
Net investment income...................... .14 .04
Net realized and unrealized gain (loss)
on investments........................... 2.20 (.96)
------ ------
Total from investment operations.............. 13.81 (.92)
------ ------
Less distributions:
Dividends from net investment income....... (.14) (.04)
Distributions from taxable
net capital gains........................ (.03) (.07)
----- ------
Total distributions........................... (.17) (.11)
------ ------
Net asset value, end of period................ $13.64 $11.47
====== ======
Total return.................................. 20.45% (7.74%)
Ratios/supplemental data:
Net assets, end of period (thousands)......... $55,740 $ 2,287
Ratio of expenses to average net assets:
Before expense reimbursement............... 3.02%++ 19.92%+
After expense reimbursement................ 1.98% 2.00%
Ratio of net investment income
to average net assets:
Before expense reimbursement............... 0.49% (17.15)%+
After expense reimbursement................ 1.52% 0.78%+
Portfolio turnover rate....................... 10.89% 27.25%
*Commencement of operations.
+Annualized.
++Includes indirectly paid expenses. Excluding indirectly paid expenses for the
year ended December 31, 1995, the "ratio of expenses to average net assets
before expense reimbursement" would have been 3.04%.
See accompanying notes to financial statements.
-11-
<PAGE>
Guiness Flight Global Government Bond Fund
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Principal
Amount GOVERNMENT BONDS: 93.11% Market Value US$
- --------------------------------------------------------------------------------
BRITISH POUND: 13.02%
40,000 Italy, 10.500%, due 4/28/2014..................... $ 70,841
45,000 United Kingdom Treasury, 9.750%, due 8/27/2002.... 79,330
--------
150,171
CANADIAN DOLLAR: 6.59%
100,000 Canada, 7.500%, due 9/1/2000...................... 76,044
--------
DANISH DRONER: 4.86%
280,000 Denmark, 9.000%, due 11/15/2000................... 56,025
--------
EUROPEAN CURRENCY UNIT: 6.48%
40,000 France O.A.T., 6.000%, due 4/25/2004.............. 48,244
20,000 France O.A.T., 7.500%, due 4/25/2005.............. 26,437
--------
74,681
FRENCH FRANC: 12.54%
230,000 France O.A.T., 7.750%, due 10/25/2005............. 50,504
330,000 France O.A.T., 6.000%, due 10/25/2025............. 55,768
180,000 France O.A.T., 7.000%, due 10/12/2000............. 38,387
-------
144,659
GERMAN MARKS: 11.53%
145,000 Germany, 6.875%, due 5/12/2005.................... 106,977
40,000 Germany, 6.250%, due 1/4/2024..................... 25,972
-------
132,949
ITALIAN LIRA: 2.99%
55,000,000 Italy BTPS, 10.500%, due 4/1/2005................. 34,483
--------
NORWEGIAN KRONER: 2.52%
75,000 Norway, 9.500%, due 10/21/2002.................... 14,011
100,000 Norway, 5.750%, due 11/30/2004.................... 15,014
-------
29,115
SPANISH PESETA: 4.70%
3,500,000 Spain, 11.450%, due 8/30/1998..................... 30,231
2,650,000 Spain, 12.250%, due 3/25/2000..................... 23,926
-------
54,157
-12-
<PAGE>
Guinness Flight Global Government Bond Fund
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Principal Amount Market Value US$
- --------------------------------------------------------------------------------
UNITED STATES DOLLAR: 27.88%
100,000 U.S. Treasury Note, 6.750%, due 4/30/2000....... $ 105,281
75,000 U.S. Treasury Note, 6.125%, due 7/31/2000....... 77,250
120,000 U.S. Treasury Note, 7.875%, due 11/15/2004...... 139,013
---------
321,544
Total Government Bonds
(cost $1,037,281):93.11%...................... 1,073,828
---------
- --------------------------------------------------------------------------------
FORWARD CONTRACT: (0.26)% Unrealized Gain/Loss
- --------------------------------------------------------------------------------
Purchase Sell Settlement Date
U.S. $ 67,239 Italian Lira 109,888,005 1/11/96 $ 1,874
U.S. $ 57,325 Danish Krone 327,153 1/11/96 (1,562)
U.S. $ 60,285 Swedish Krona 426,880 1/11/96 3,990
U.S. $149,233 British Pound Sterling 95,018 1/11/96 452
U.S. $217,064 French Franc 1,077,945 1/11/96 2,484
U.S. $ 76,770 New Zealand Dollar 117,781 1/11/96 (301)
U.S. $155,911 European Currency Unit 122,198 1/11/96 (1,130)
U.S. $ 50,548 Canadian Dollar 68,037 1/11/96 681
U.S. $ 97,000 Japanese Yen 9,601,060 1/11/96 3,879
U.S. $122,838 German Deutschemark 180,266 1/11/96 2,840
U.S. $130,495 Netherlands Guilder 205,008 1/11/96 (2,772)
U.S. $ 53,867 Swiss Franc 61,022 1/11/96 (886)
U.S. $128,139 Netherlands Guilder 202,177 4/18/96 1,491
U.S. $118,729 Swedish Krona 809,326 4/18/96 (2,856)
U.S. $200,278 European Currency Unit 154,591 4/18/96 (693)
U.S. $ 61,277 Norwegian Krone 389,200 4/18/96 33
U.S. $105,467 New Zealand Dollar 161,747 4/18/96 367
U.S. $346,044 Japanese Yen 33,816,161 4/18/96 (5,949)
U.S. $ 50,000 Swiss Franc 58,015 4/18/96 (881)
U.S. $578,718 German Deutschemark 813,701 4/18/96 (3,455)
U.S. $245,646 Australian Dollar 329,325 4/18/96 313
U.S. $360,855 Canadian Dollar 491,620 4/18/96 (41)
U.S. $130,921 Danish Krone 712,912 4/18/96 323
U.S. $ 80,135 British Pound Sterling 51,321 4/18/96 (177)
U.S. $202,677 Italian Lira 331,957,297 4/18/96 (1,766)
U.S. $121,392 Spanish Peseta 15,024,831 4/18/96 (340)
U.S. $268,674 French Franc 1,329,839 4/18/96 1,087
-------
Total Forward Contracts (2,995)
-------
-13-
<PAGE>
Guinness Flight Global Governmental Bond Fund
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Market Value US$
- --------------------------------------------------------------------------------
Total Investments: (cost $1,037,281+) 92.85%........... $1,070,833
Other Assets Less Liabilities: 7.15%.................. 81,517
----------
Total Net Assets: 100.00%............................... $1,153,350
==========
+ Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation......................... $ 56,459
Gross unrealized depreciation......................... (22,907)
----------
Net unrealized appreciation........................ $ 33,552
==========
See accompanying notes to financial statements.
-14-
<PAGE>
Guinness Flight Global Government Bond Fund
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $1,037,281)...... $1,073,828
Cash....................................................... 83,698
Interest receivable........................................ 30,149
Prepaid expenses........................................... 1,333
Deferred organizational costs, net......................... 41,177
----------
Total assets............................................ 1,230,185
----------
LIABILITIES
Dividends payable to shareholders.......................... 25,177
Due to Affiliate (Note 3).................................. 12,698
Accrued expenses........................................... 38,960
---------
Total liabilities..................................... 76,835
---------
NET ASSETS................................................. $1,153,350
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($1,153,350/90,339 shares outstanding; unlimited
number of shares authorized without par value)......... $12.77
======
SOURCE OF NET ASSETS
Paid-in capital............................................ $1,121,245
Undistributed net investment income (including
equalization credits of $2,413).......................... 8,667
Overdistribution of net realized gain on investments....... (10,086)
Net unrealized appreciation on:
Investments............................................. 33,552
Foreign currency........................................ (28)
----------
Net assets............................................ $ 1,153,350
===========
See accompanying notes to financial statements
-15-
<PAGE>
Guinness Flight Global Government Bond Fund
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year
Ended
December 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Interest.......................................................... $ 72,291
--------
EXPENSES
Advisory fees (Note 3)............................................ 7,425
Administration fee (Note 3)....................................... 40,000
Custodian......................................................... 5,406
Accounting........................................................ 43,087
Transfer agent fees............................................... 35,885
Auditing fees..................................................... 15,958
Legal fees........................................................ 11,944
Directors' fees................................................... 15,958
Registration fees................................................. 18,378
Reports to shareholders........................................... 4,976
Deferred organization costs amortization.......................... 11,717
Miscellaneous..................................................... 5,094
--------
Total expenses........................................... 215,828
Less: Expenses paid indirectly (Note 2)............... (1,499)
Expenses reimbursed (Note 3).................... (197,114)
--------
Net expenses............................................. 17,215
--------
NET INVESTMENT INCOME........................... 55,076
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investments................................ 33,385
Net realized loss from foreign currency........................... (12,113)
Net unrealized appreciation on investments........................ 52,690
Net unrealized loss on foreign currency........................... (28)
--------
Net realized and unrealized gain on investments.......... 73,934
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $129,010
========
See accompanying notes to financial statements.
-16-
<PAGE>
Guinness Flight Global Government Bond Fund
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year June 30, 1994*
ended through
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income............................ $ 55,076 $ 13,218
Net realized gain from investments............... 33,385 (6,181)
Net realized loss on foreign currency............ (12,113) -0-
Net unrealized appreciation (depreciation)
on investments................................. 52,690 (19,138)
Net unrealized depreciation on foreign
currency..................................... (28) -0-
---------- ----------
Net increase (decrease) in net assets
resulting from operations.................. 129,010 (12,101)
---------- ----------
NET EQUALIZATION CREDITS......................... 1,667 746
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income........ (51,665) (10,375)
Distributions from net capital gains............. (25,177) -0-
---------- ----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS.. (76,842) (10,375)
---------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold........................ 1,144,047 819,678
Net asset value of shares issued on
reinvestment of distributions.................. 44,505 8,348
Cost of shares redeemed.......................... (840,420) (104,913)
---------- ----------
Net increase from capital share transactions..... 348,132 723,113
---------- ----------
TOTAL INCREASE IN NET ASSETS......... 401,967 701,383
NET ASSETS
Beginning of period.............................. 751,383 50,000
---------- ----------
END OF PERIOD (including undistributed net
investment income of $8,667 and
$3,589, respectively)........................ $1,153,350 $ 751,383
========== ==========
CHANGES IN SHARES
Shares sold...................................... 90,886 66,556
Shares issued from dividend distributions........ 3,547 689
Shares redeemed.................................. (66,716) (8,624)
---------- ----------
Net Increase..................................... 27,717 58,621
========== ==========
*Commencement of operations.
See accompanying notes to financial statements.
-17-
<PAGE>
Guinness Flight Global Government Bond Fund
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
For the Year June 30, 1994*
Ended through
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------
Net asset value, beginning of period.............. $12.00 $12.50
Income from investment operations:
Net investment income.................... .69 .29
Net realized and unrealized gain (loss)
on investments......................... 1.01 (.58)
------ ------
Total from investment operations.................. 1.70 (.29)
------ ------
Less distributions:
Dividends from net investment income..... (.65) (.21)
Distributions from net capital gains..... (.28) -0-
------ ------
Total distributions............................... (.93) (.21)
------ ------
Net asset value, end of period.................... $12.77 $12.00
====== ======
Total return...................................... 14.49% (2.33)%
Ratios/supplemental data:
Net assets, end of period (thousands)............. $1,153 $751
Ratio of expenses to average net assets:
Before expense reimbursement............. 21.52%++ 40.78%+
After expense reimbursement.............. 1.73% 1.75%+
Ratio of net investment income to
average net assets:
Before expense reimbursement............. (14.26)% (34.18)%+
After expense reimbursemen............... 5.53% 4.86%+
Portfolio turnover rate........................... 202.54% 46.15%
*Commencement of operations.
+Annualized.
++Includes indirectly paid expenses. Excluding indirectly paid expenses for the
year ended December 31, 1995, the "ratio of expenses to average net assets
before expense reimbursement" would have been 21.68%.
See accompanying notes to financial statements
-18-
<PAGE>
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The Guinness Flight Investment Funds, Inc. (the "Guinness Funds") is a Maryland
Corporation incorporated on January 7, 1994 and registered under the Investment
Company Act of 1940 (the "1940 Act") as a non-diversified, open-end management
investment company. Currently, the Guinness Funds offer two separate series
portfolios: Guinness Flight China & Hong Kong Fund (the "China Fund"), and
Guinness Flight Global Government Bond Fund (the "Global Government Fund")
(collectively, the "Funds"). The China Fund seeks to provide investors with
long-term capital growth. The Global Government Fund intends to provide
investors with current income while seeking opportunities for capital
appreciation. The Funds began operations on June 30, 1994.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a primary
exchange are valued at the last reported sale price at the close of regular
trading on the last business day of the period; securities traded on an exchange
for which there has been no sale are valued at the last reported bid price.
Securities for which quotations are not readily available are valued at their
respective fair values as determined in good faith by the Board of Trustees.
Short-term investments are stated at cost, which when combined with accrued
interest, approximates market value.
U.S. Government securities with less than 60 days remaining to maturity
when acquired by the Fund are valued on an amortized cost basis. U.S. Government
securities with more than 60 days remaining to maturity are valued at the
current market value (using the mean between the bid and asked price) until the
60th day prior to maturity, and are then valued at amortized cost based upon the
value on such date unless the Board determines during such 60 day period that
this amortized cost basis does not represent fair value.
Foreign securities are recorded in the financial statements after
translation to U.S. dollars based on the applicable exchange rate at the end of
the period. The Funds do not isolate that portion of the results of operations
arising as a result of changes in the currency exchange rate from the
fluctuations arising as a result of changes in the market prices of investments
during the period. Fluctuations in foreign exchange rates on investments are
thus included with net realized and unrealized gain (loss) on investments.
Dividend and interest income are translated at the exchange rates which
existed at the dates the income was accrued. Exchange gains and losses related
to dividend and interest income and other foreign-currency denominated payables
and receivables are included in realized and unrealized gain (loss) on foreign
currency on the accompanying Statements of Operations.
B. Forward Foreign Currency Exchange Contracts. The Funds may utilize
forward foreign currency exchange contracts ("forward contracts") under which it
is obligated to exchange currencies at specific future dates and at specified
rates, and is subject to the risks of foreign exchange fluctuations.
Counterparties to these forward contracts are major U.S. financial institutions.
The Global Government Fund held forward foreign currency exchange
contracts with face value of $174,542, at December 31, 1995. The monthly average
fair values during 1995 and net trading loss for the year ended December 31,
1995 were $168,013 and $19,199, respectively. The China Fund did not utilize any
forward contracts during 1995.
C. Security Transactions, Dividends and Distributions. As is common in
the industry, security transactions
-19-
<PAGE>
are accounted for on the trade date. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
D. Federal Income Taxes. The Funds intend to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of their taxable income to its shareholders.
Therefore, no federal income tax provision is required.
E. Equalization. The Global Government Fund follows the accounting
practice known as equalization, by which a portion of the proceeds from sales
and costs of redemptions of capital shares, equivalent on a per share basis to
the amount of undistributed net investment income on the date of the
transaction, is credited or charged to undistributed net investment income. As a
result, undistributed net investment income per share is unaffected by sales or
redemptions of the Fund's shares.
F. Deferred Organization Costs. The Funds have each incurred expenses
of $58,785 in connection with their organization. These costs have been deferred
and are being amortized on a straight line basis over a period of sixty months
from the date the Funds commenced investment operations. In the event that any
of the initial shares of either Fund are redeemed by the holder during the
period of amortization of the Funds' organization costs, the redemption proceeds
will be reduced by any such unamortized organization costs in the same
proportion as the number of initial shares being redeemed bears to the number of
those shares outstanding at the time of redemption.
G. Expenses Paid Indirectly. Under terms of the Custodian Agreement,
the Funds earn credits, based on custody cash balances, to be applied to
custodian fees. Such credits earned by the China Fund and Global Government Fund
for the year ended December 31, 1995 were $5,162 and $1,499, respectively.
H. Concentration of Risk. The China Fund invests substantially all of
its assets in securities that are traded in China or Hong Kong or that are
issued by companies that do a substantial part of their business in China. The
consequences of political, social or economic changes in China may affect the
market prices of the China Fund's investments and any income generated, as well
as the Fund's ability to repatriate such amounts. The Global Government Fund
invests substantially in bonds issued by various European governments, and is
subject to the risks of foreign exchange fluctuations and local political
situations.
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Guinness Funds, on behalf of the Funds, entered into an Investment Advisory
Agreement with Guinness Flight Investment Management Limited (the "Advisor"), to
provide the Funds with investment management services. The Advisor furnishes all
investment advice, office space and certain administrative services, and
provides certain personnel needed by the Funds. As compensation for its
services, the Advisor was entitled to a monthly fee at the annual rate of 1.00%
and 0.75%, for the China Fund and Global Government Fund, respectively, based
upon the average daily net assets of the Funds. In order to maintain the Funds'
operating expenses at 1.98% and 1.73% of average daily net assets of the China
Fund and Global Government Fund, respectively, the Advisor has reimbursed the
China Fund and Global Government Fund, $149,856 and $126,986, respectively, for
the year ended December 31, 1995.
The Funds are responsible for their own operating expenses. The Advisor and
Administrator have agreed to limit the Funds' aggregate annual operating
expenses to the most stringent limits prescribed by any state in which the
Funds' shares are offered for sale. Currently, the most stringent limits
prescribed are 2.50% of the first $30 million of net assets and reduced amounts
thereafter. Investment Company Administration Corporation (the "Administrator")
acts as the Funds' Administrator under an Administration Agreement. The
Administrator prepares various federal and state regulatory filings, prepares
reports and materials to be supplied to the Directors; monitors the activities
of the Funds' custodian, transfer agent and accountants; coordinates the
preparation and payment of Fund expenses and reviews the Funds' expense
accruals. For its services, the Administrator receives an annual fee equal to
the greater of 0.25 of 1% of the Funds' average daily net assets or $40,000 for
each of the Funds. In order to maintain the Funds' operating expenses at 1.98%
and 1.73% of average daily net assets of the China Fund and Global Government
Fund, respectively, the Administrator has reimbursed the China Fund and Global
Government
-20-
<PAGE>
Fund, $54,442 and $70,128, respectively, during the year ended December 31,
1995.
The Funds will reimburse the Advisor and Administrator in subsequent years when
operating expenses (before reimbursements) are less than the applicable
percentage limitation in effect at that time for each of the Fund. First Fund
Distributors, Inc. (the "Distributor") acts as the Funds' principal underwriter
in a continuous public offering of the Funds' shares. The Distributor is an
affiliate of the Administrator.
Certain officers and Directors of the Guinness Funds are also officers and/or
Directors of the Administrator and Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1995, the cost of purchases and the proceeds
from sales of securities, excluding U.S. Government obligations and short-term
securities, were $50,798,794 and $2,142,340, respectively, for the China Fund
and $1,626,350 and $1,237,303, respectively, for the Global Government Fund.
Purchases and sales of U.S. Government obligations by the Global Government Fund
were $356,065 and $453,598, respectively.
NOTE 5 - LINE OF CREDIT
The Funds have a $1,250,000 unsecured line of credit with a bank that expires on
October 11, 1996. The interest rate on the line of credit is the bank's base
rate, as revised from time to time. At December 31, 1995, the Funds had no
outstanding borrowings under the line of credit.
-21-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of the
Guinness Flight China & Hong Kong Fund
and Guinness Flight Global Government Bond Fund
We have audited the accompanying statements of assets and liabilities of the
Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government
Bond Fund (collectively, the "Funds"), series of Guinness Flight Investment
Funds, Inc. including the portfolios of investments, as of December 31, 1995,
and the related statements of operations, changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The statements of changes in net
assets and the financial highlights for the period from June 30, 1994
(commencement of operations) through December 31, 1994, were audited by other
auditors whose report dated February 8, 1995 expressed an unqualified opinion on
those statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government
Bond Fund as of December 31, 1995, the results of their operations, the changes
in their net assets and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
January 24, 1996
-22-
EX-99.B15(a)(iii)
RULE 12b-1 DISTRIBUTION PLAN FOR
GUINNESS FLIGHT ASIA BLUE CHIP FUND
<PAGE>
EX-99.B15(a)(iii)
FORM OF
DISTRIBUTION AND SERVICE PLAN
1. This Distribution and Services Plan (the "Plan") when effective in
accordance with its terms, shall be the written plan contemplated by Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act") of Guinness Flight
Asia Blue Chip Fund, a duly established series of shares (the "Portfolio") of
Guinness Flight Investment Funds, Inc., a Maryland corporation, registered as an
open-end investment company under the 1940 Act (the "Guinness Funds").
2. Guinness Funds has entered into separate Administration
("Administration") and General Distribution ("Distribution") Agreements with
Investment Company Administration Corporation (the "Administrator") and First
Fund Distributors Inc. (the "Distributor"), respectively, with respect to the
Portfolio under which the Distributor uses all reasonable efforts, consistent
with its other business, to secure purchasers for the Portfolio's shares. Under
the Distribution Agreement, the Distributor pays the expenses of printing and
distributing any prospectuses, reports and other literature used by the
Distributor, advertising, and other promotional activities in connection with
the offering of shares of the Portfolio for sale to the public. Guinness Funds
has entered into an Investment Advisory Agreement with Guinness Flight
Investment Management Limited (the "Investment Adviser"). It is understood that
the Administrator may reimburse the Distributor for these expenses from any
source available to it, including the administration fee paid to the
Administrator by the Portfolio.
3. The Investment Adviser may, subject to the approval of the Directors,
make payments to third parties who render shareholder support services,
including but not limited to, answering routine inquiries regarding the
Portfolio, processing shareholder transactions and providing such other
shareholder and administrative services as Guinness Funds may reasonably
request.
4. The Portfolio will not make separate payments as a result of this Plan
to the Investment Adviser, Administrator, Distributor or any other party, it
being recognized that the Portfolio presently pays, and will continue to pay, an
investment advisory fee to the Investment Adviser and an administration fee to
the Administrator. To the extent that any payments made by the Portfolio to the
Investment Adviser or Administrator, including payment of fees under the
Investment Advisory Agreement or the Administration Agreement, respectively,
should be deemed to be indirect financing of any activity primarily intended to
result in the sale of shares of the Portfolio within the context of Rule 12b-1
under the 1940 Act, then such payments shall be deemed to be authorized by this
Plan.
<PAGE>
5. This Plan shall become effective upon the first business day of the
month following approval by a vote of at least a "majority of the outstanding
voting securities of the Portfolio" (as defined in the 1940 Act), the Plan
having been approved by a vote of a majority of the Directors of Guinness Funds,
including a majority of Directors who are not interested persons of Guinness
Funds (as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of this Plan or in any agreements related to this Plan
(the "Independent Directors"), cast in person at a meeting called for the
purpose of voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain in
effect from the date specified above through April 28, 1997, and from year to
year thereafter, provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Directors of Guinness Funds, including a
majority of the Independent Directors, cast in person at a meeting called for
the purpose of voting on this Plan. This Plan may be amended at any time by the
Board of Directors, provided that (a) any amendment to authorize direct payments
by the Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, to increase materially the amount spent by the
Portfolio for distribution, or any amendment of the Investment Advisory
Agreement or the Administration Agreement to increase the amount to be paid by
the Portfolio thereunder shall be effective only upon approval by a vote of a
majority of the outstanding voting securities of the Portfolio, and (b) any
material amendments of this Plan shall be effective only upon approval in the
manner provided in the first sentence in this paragraph.
7. This Plan may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Independent Directors or by a vote of a
majority of the outstanding voting securities of the Portfolio.
8. During the existence of this Plan, Guinness Funds shall require the
Investment Advisor and/or Distributor to provide Guinness Funds, for review by
Guinness Funds' Board of Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended in connection with financing
any activity primarily intended to result in the sale of share of the Portfolio
(making estimates of such costs where necessary or desirable) and the purposes
for which such expenditures were made.
9. This Plan does not require the Investment Adviser or Distributor to
perform any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result in the
sale of shares of the Portfolio.
2
<PAGE>
10. Consistent with the limitation of shareholder and Director liability as
set forth in the Guinness Funds' Articles of Incorporation, any obligations
assumed by the Portfolio pursuant to this Plan and any agreements related to
this Plan shall be limited in all cases to the Portfolio and its assets, and
shall not constitute obligations of any shareholder or other series of shares of
Guinness Funds or of any Director.
11. If a provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
3
EX-99.B15(a)(iv)
RULE 12b-1 DISTRIBUTION PLAN FOR
GUINNESS FLIGHT ASIA SMALL CAP FUND
<PAGE>
EX-99.B15(a)(iv)
FORM OF
DISTRIBUTION AND SERVICE PLAN
1. This Distribution and Services Plan (the "Plan") when effective in
accordance with its terms, shall be the written plan contemplated by Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act") of Guinness Flight
Asia Smaller Cap Growth Fund, a duly established series of shares (the
"Portfolio") of Guinness Flight Investment Funds, Inc., a Maryland corporation,
registered as an open-end investment company under the 1940 Act (the "Guinness
Funds").
2. Guinness Funds has entered into separate Administration
("Administration") and General Distribution ("Distribution") Agreements with
Investment Company Administration Corporation (the "Administrator") and First
Fund Distributors Inc. (the "Distributor"), respectively, with respect to the
Portfolio under which the Distributor uses all reasonable efforts, consistent
with its other business, to secure purchasers for the Portfolio's shares. Under
the Distribution Agreement, the Distributor pays the expenses of printing and
distributing any prospectuses, reports and other literature used by the
Distributor, advertising, and other promotional activities in connection with
the offering of shares of the Portfolio for sale to the public. Guinness Funds
has entered into an Investment Advisory Agreement with Guinness Flight
Investment Management Limited (the "Investment Adviser"). It is understood that
the Administrator may reimburse the Distributor for these expenses from any
source available to it, including the administration fee paid to the
Administrator by the Portfolio.
3. The Investment Adviser may, subject to the approval of the Directors,
make payments to third parties who render shareholder support services,
including but not limited to, answering routine inquiries regarding the
Portfolio, processing shareholder transactions and providing such other
shareholder and administrative services as Guinness Funds may reasonably
request.
4. The Portfolio will not make separate payments as a result of this Plan
to the Investment Adviser, Administrator, Distributor or any other party, it
being recognized that the Portfolio presently pays, and will continue to pay, an
investment advisory fee to the Investment Adviser and an administration fee to
the Administrator. To the extent that any payments made by the Portfolio to the
Investment Adviser or Administrator, including payment of fees under the
Investment Advisory Agreement or the Administration Agreement, respectively,
should be deemed to be indirect financing of any activity primarily intended to
result in the sale of shares of the Portfolio within the context of Rule 12b-1
under the 1940 Act, then such payments shall be deemed to be authorized by this
Plan.
<PAGE>
5. This Plan shall become effective upon the first business day of the
month following approval by a vote of at least a "majority of the outstanding
voting securities of the Portfolio" (as defined in the 1940 Act), the Plan
having been approved by a vote of a majority of the Directors of Guinness Funds,
including a majority of Directors who are not interested persons of Guinness
Funds (as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of this Plan or in any agreements related to this Plan
(the "Independent Directors"), cast in person at a meeting called for the
purpose of voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain in
effect from the date specified above through April 28, 1997, and from year to
year thereafter, provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Directors of Guinness Funds, including a
majority of the Independent Directors, cast in person at a meeting called for
the purpose of voting on this Plan. This Plan may be amended at any time by the
Board of Directors, provided that (a) any amendment to authorize direct payments
by the Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, to increase materially the amount spent by the
Portfolio for distribution, or any amendment of the Investment Advisory
Agreement or the Administration Agreement to increase the amount to be paid by
the Portfolio thereunder shall be effective only upon approval by a vote of a
majority of the outstanding voting securities of the Portfolio, and (b) any
material amendments of this Plan shall be effective only upon approval in the
manner provided in the first sentence in this paragraph.
7. This Plan may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Independent Directors or by a vote of a
majority of the outstanding voting securities of the Portfolio.
8. During the existence of this Plan, Guinness Funds shall require the
Investment Advisor and/or Distributor to provide Guinness Funds, for review by
Guinness Funds' Board of Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended in connection with financing
any activity primarily intended to result in the sale of share of the Portfolio
(making estimates of such costs where necessary or desirable) and the purposes
for which such expenditures were made.
9. This Plan does not require the Investment Adviser or Distributor to
perform any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result in the
sale of shares of the Portfolio.
2
<PAGE>
10. Consistent with the limitation of shareholder and Director liability as
set forth in the Guinness Funds' Articles of Incorporation, any obligations
assumed by the Portfolio pursuant to this Plan and any agreements related to
this Plan shall be limited in all cases to the Portfolio and its assets, and
shall not constitute obligations of any shareholder or other series of shares of
Guinness Funds or of any Director.
11. If a provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
3
EX-99.B16
SCHEDULE FOR COMPUTATION OF EACH PERFORMANCE QUOTATION
<PAGE>
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS OF THE
GUINNESS FLIGHT CHINA & HONG KONG FUND
TOTAL RETURN FORMULA
P(1+T)^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year periods at the end of each
such period (or fractional portion thereof)
For the 1 year period ended December 31, 1995:
$1,000(1+T)^1 = $1,204.52 or an annual compounded
rate of 20.45%
For the period from June 30, 1994 (inception) to December 31, 1995:
$1,000(1+T)^1.5 = $1,111.24 or an average annual compounded
rate of 7.26%
<PAGE>
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS OF THE
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
TOTAL RETURN FORMULA
P(1+T)^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1 or 5 year periods at the end of each such
period (or fractional portion thereof)
For the 1 year period ended December 31, 1995:
$1,000(1+T)^1 = $1,144.95 or an annual compounded
rate of 14.49%
For the period from June 30, 1994 (inception) to December 31, 1995:
$1,000(1+T)^1.5 = $1,118.25 or an average annual compounded
rate of 7.71%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 919160
<NAME> Guiness Fight
<SERIES>
<NUMBER> 1
<NAME> China & Hong Kong Fund
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1.00
<INVESTMENTS-AT-COST> 51,044,927
<INVESTMENTS-AT-VALUE> 54,650,293
<RECEIVABLES> 350,156
<ASSETS-OTHER> 1,686,134
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56,686,583
<PAYABLE-FOR-SECURITIES> 823,025
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 123,318
<TOTAL-LIABILITIES> 946,343
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,234,416
<SHARES-COMMON-STOCK> 4,086,099
<SHARES-COMMON-PRIOR> 199,425
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 729
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 98,843
<ACCUM-APPREC-OR-DEPREC> 3,605,396
<NET-ASSETS> 55,740,240
<DIVIDEND-INCOME> 656,972
<INTEREST-INCOME> 33,783
<OTHER-INCOME> 0
<EXPENSES-NET> 390,403
<NET-INVESTMENT-INCOME> 300,352
<REALIZED-GAINS-CURRENT> 22,799
<APPREC-INCREASE-CURRENT> 3,847,844
<NET-CHANGE-FROM-OPS> 4,170,995
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 301,331
<DISTRIBUTIONS-OF-GAINS> 123,918
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,513,348
<NUMBER-OF-SHARES-REDEEMED> 656,232
<SHARES-REINVESTED> 29,558
<NET-CHANGE-IN-ASSETS> 3,886,674
<ACCUMULATED-NII-PRIOR> 250
<ACCUMULATED-GAINS-PRIOR> 2,276
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 197,173
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 599,863
<AVERAGE-NET-ASSETS> 19,717,353
<PER-SHARE-NAV-BEGIN> 11.47
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 2.20
<PER-SHARE-DIVIDEND> 0.14
<PER-SHARE-DISTRIBUTIONS> 0.03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.64
<EXPENSE-RATIO> 1.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 919160
<NAME> Guiness Flight
<SERIES>
<NUMBER> 2
<NAME> Global Government Bond
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 1,037,281
<INVESTMENTS-AT-VALUE> 1,073,828
<RECEIVABLES> 30,149
<ASSETS-OTHER> 126,208
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,230,185
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76,835
<TOTAL-LIABILITIES> 76,835
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,121,245
<SHARES-COMMON-STOCK> 90,339
<SHARES-COMMON-PRIOR> 62,621
<ACCUMULATED-NII-CURRENT> 8,667
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 10,086
<ACCUM-APPREC-OR-DEPREC> 33,524
<NET-ASSETS> 1,153,350
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 72,291
<OTHER-INCOME> 0
<EXPENSES-NET> 17,215
<NET-INVESTMENT-INCOME> 55,076
<REALIZED-GAINS-CURRENT> 21,272
<APPREC-INCREASE-CURRENT> 52,662
<NET-CHANGE-FROM-OPS> 129,010
<EQUALIZATION> 1,667
<DISTRIBUTIONS-OF-INCOME> 51,665
<DISTRIBUTIONS-OF-GAINS> 25,177
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 90,886
<NUMBER-OF-SHARES-REDEEMED> 66,716
<SHARES-REINVESTED> 3,547
<NET-CHANGE-IN-ASSETS> 27,717
<ACCUMULATED-NII-PRIOR> 3,589
<ACCUMULATED-GAINS-PRIOR> (19,138)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,425
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 215,828
<AVERAGE-NET-ASSETS> 995,409
<PER-SHARE-NAV-BEGIN> 12
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 1.01
<PER-SHARE-DIVIDEND> 0.65
<PER-SHARE-DISTRIBUTIONS> 0.28
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.77
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
