Reg. ICA No. 811-8360
File No. 33-75340
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1997
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. 7
[X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 7
GUINNESS FLIGHT INVESTMENT FUNDS
(Exact Name of Registrant as Specified in Charter)
225 South Lake Avenue, Suite 777
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 & 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
225 South Lake Avenue, Suite 777
Pasadena, California 91101
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
[_] Immediately upon filing pursuant to [_] On ( ) pursuant
paragraph (b) to paragraph (b)
[_] 60 days after filing pursuant to [x] On April 28, 1997 pursuant
paragraph (a)(1) to paragraph (a)(1)
[_] 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, 1995 FISCAL YEAR END WAS FILED ON
FEBRUARY 28, 1997.
<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
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS 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 *
(b) Not Applicable *
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<PAGE>
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
--------- ------------------ -------------------
(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
(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
(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
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS 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
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<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
BY THIS AMENDMENT TO THE REGISTRATION STATEMENT (No. 811-8360) 0N FORM N-1A OF
GUINNESS FLIGHT, THE BOARD OF TRUSTEES OF GUINNESS FLIGHT INVESTMENT FUNDS, A
DELAWARE BUSINESS TRUST, ADOPTS THE REGISTRATION STATEMENT OF GUINNESS FLIGHT
INVESTMENT FUNDS, INC. UNDER THE SECURITIES ACT OF 1933 AND THE NOTIFICATION OF
REGISTRATION AND REGISTRATION STATEMENT OF GUINNESS FLIGHT INVESTMENT FUNDS,
INC. UNDER THE INVESTMENT COMPANY ACT OF 1940.
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>
Please read this prospectus before investing. It is designed to provide you with
information and to help you decide if the goals of the Guinness Flight Asia Blue
Chip Fund, Guinness Flight Asia Small Cap Fund, Guinness Flight China & Hong
Kong Fund, or the Guinness Flight Global Government Bond Fund match your own. It
should be retained for future reference. A Statement of Additional Information,
dated April 28, 1997, 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 , NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PROSPECTUS PAGE 1
<PAGE>
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 portfolio of "blue chip" companies traded primarily on the markets
of the Asian continent. For the purposes of this Fund, the Investment Adviser
has defined a "blue chip" company to be a company that has a market
capitalization of at least $1 billion and a reputation for quality and wide
acceptance of its products or services, as well as a strong history of
profitability. 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 Philippines, and Vietnam 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.An investment in this Fund may be more volatile than an investment in
a fund which invests only in U.S. "blue chip" companies. (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
portfolio of equity securities of companies traded primarily 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 Philippines, and Vietnam 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.)
Summary 2
Summary of The
Funds' Expenses 4
Financial Highlights 6
Investment Objectives,
Programs and Limitations 10
Investment Strategies,
Policies and Risks 14
Other Risk Considerations 16
Performance 20
The Funds' Management 20
How to Purchase Shares 24
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<PAGE>
How to Redeem Shares 26
Shareholder Services 28
Determination of
Net Asset Value 29
Dividends, Distributions
and Tax Matters 30
About the Funds 33
General Information 34
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 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
The Funds. Guinness Flight Investment Funds (the "Guinness Funds") is a Delaware
business trust organized as an open-end, series, management investment company.
Currently, the Guinness Funds offer four separate series portfolios: Guinness
Flight Asia Blue Chip Fund ("Asia Blue Chip Fund"), Guinness Flight Asia Small
Cap Fund ("Asia Small Cap Fund"), Guinness Flight China & Hong Kong Fund (the
"China Fund"), and Guinness Flight Global Government Bond Fund (the "Global
Government Fund")(collectively, the "Funds"), each of which pursues unique
investment strategies.
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. Each Fund's net asset value per
share can be expected to fluctuate. Accordingly, investors should consider an
investment in a Fund as a supplement to an overall investment program and should
invest only if they are willing to undertake the risks involved. See "Investment
Strategies, Policies and Risks" and "Other Risk Considerations."
The Investment Adviser. Guinness Flight Investment Management Limited ("Guinness
Flight") serves as the Funds' investment adviser pursuant to an investment
advisory agreement (the "Advisory Agreement"). Under the terms of the Advisory
Agreement, Guinness Flight supervises all aspects of the Funds' operations and
provides investment advisory
- 3 -
<PAGE>
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 $2,500 or $1,000 for
investments through tax-qualified retirement plans. Current shareholders of any
Fund may make an initial purchase of shares of another Fund in the family for a
minimum of $1,000. The minimum investment in the Funds for gift accounts is
$250. 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 SSgA 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 Asia Blue Chip Fund, Asia Small
Cap Fund or China Fund who redeems shares purchased less than 30 days prior to
redemption. See "How to Redeem Shares" and "Redemption Fee."
Distributions. The Asia Blue Chip Fund, Asia Small Cap Fund and China 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."
Summary of The Funds' Expenses
A. Shareholder Transaction Expenses
<TABLE>
<CAPTION>
Asia Asia
Blue Small Global
Chip Cap China Gov't
---- --- ----- -----
<S> <C> <C> <C> <C>
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
</TABLE>
+ 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)
<TABLE>
<CAPTION>
Asia Asia
Blue Small Global
Chip Cap China Gov't
---- --- ----- -----
<S> <C> <C> <C> <C>
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% .00%
---- ---- ---- ----
Total Fund Operating Expenses
(after expense reimbursement) 1.98% 1.98% 1.98% .75% ++
</TABLE>
++ Guinness Flight has undertaken to cap Total Fund Operating Expenses at .75%
for the Global Government Fund by reimbursing the Fund for all "Other Expenses."
The Global Government Fund will notify its shareholders in writing at least 30
days prior to any adjustments to the cap on its Total Fund Operating Expenses.
- 4 -
<PAGE>
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 $8
Three Year $62 $62 $62 $24
Five Year $107 $107 $107 $42
Ten Year $231 $231 $231 $93
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 the expense ratio of the Asia Blue Chip Fund, Asia Small Cap Fund, China Fund
or the Global Government Fund would exceed 1.98%, 1.98%, 1.98% and 0.75%,
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 some of the expenses of the Asia Blue Chip Fund and
Asia Small Cap Fund. Absent such expense reimbursements, "total fund operating
expenses" for the Asia Blue Chip and Asia Small Cap Fund are estimated to equal
approximately 3.00% and 3.00%, respectively. See "The Funds' Management."
- 5 -
<PAGE>
C. Example of Expenses. The hypothetical example illustrates the expenses
associated with a $1,000 investment in a Fund over periods of one, three, five
and ten 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 tables below set forth certain financial information with respect to a share
outstanding for each of the Funds for the periods indicated. The following
information for the China Fund and Global Government Fund for the fiscal period
from June 30, 1994 (commencement of operations) to December 31, 1994 has been
audited by Coopers & Lybrand L.L.P., and the information for the fiscal year
ended December 31, 1995 by Ernst & Young LLP, independent accountants to the
Funds. Information for the fiscal period ended June 30, 1996 is unaudited. The
unqualified report of Ernst & Young LLP, covering the fiscal period ending
_________ is included in the Statement of Additional Information, which may be
obtained by calling the telephone number on the Prospectus cover page. The
unqualified opinion of Coopers & Lybrand L.L.P. for the financial highlights of
the China Fund and the Global Government Fund appears in the annual report for
the fiscal period ended December 31, 1994. The financial highlights should be
read in conjunction with each Fund's audited financial statements for the
periods indicated.
Guinness Flight Asia Blue Chip Fund
Financial Highlights
for a capital share outstanding throughout the period (Unaudited)
April 29, 1996*
through
June 30, 1996
Net asset value, beginning of period $12.50
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized loss on investments (0.11)
Total from investment operations (0.12)
------
Net asset value, end of period $12.38
======
Total return (0.96)%
Ratios/supplemental data:
Net assets, end of period (thousands) $1,018
Ratio of expenses to average net assets:+
Before expense reimbursement 24.55%
After expense reimbursement 1.98%
Ratio of net investment loss to average net assets:+
Before expense reimbursement (23.07)%
After expense reimbursement (0.50)%
Portfolio turnover rate 0.00%
Average Commission Rate Paid++ $0.0190
* Commencement of operations.
+ Annualized.
++ A fund is required to disclose its average commission rate per share for
security trades on which commissions are charged. This amount may vary from
period to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures may
differ.
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<PAGE>
Guinness Flight Asia Small Cap Fund
Financial Highlights
for a capital share outstanding throughout the period (Unaudited)
April 29, 1996*
through
June 30, 1996
Net asset value, beginning of period $12.50
------
Income from investment operations:
Net investment income 0.03
Net realized and unrealized gain on investments 0.55
Total from investment operations 0.58
----
Less distributions from net investment income (0.02)
------
Net asset value, end of period $13.06
======
Total return 4.61%
Ratios/supplemental data:
Net assets, end of period (thousands) $1,790
Ratio of expenses to average net
assets:
Before expense reimbursement 17.60%
After expense reimbursement 1.98%
Ratio of net investment income to average net assets:
Before expense reimbursement (13.56)%
After expense reimbursement 2.06%
Portfolio turnover rate 2.91%
Average Commission Rate Paid $0.0029
* Commencement of operations.
+ Annualized.
++ A fund is required to disclose its average commission rate per share
for security trades on which commissions are charged. This amount may vary
from period to period and fund to fund depending on the mix of trades executed
in various markets where trading practices and commission rate structures may
differ.
-7-
<PAGE>
Guinness Flight China & Hong Kong Fund
Financial Highlights
for a capital share outstanding throughout the period
<TABLE>
<CAPTION>
For the Six Months
Ended For the Year June 30, 1994*
June 30, 1996 Ended through
(Unaudited) December 31, 1995 December 31, 1994
<S> <C> <C> <C>
Net asset value, beginning of period $13.64 $11.47 $12.50
Income from investment operations:
Net investment income .14 .14 .04
Net realized and un ealized gain
(loss) on investments 1.26 2.20 (.96)
---- ---- -----
Total from investment operations 1.40 2.34 (.92)
---- ---- -----
Less distributions:
Dividends from net investment income (.14) (.14) (.04)
Distributions from net capital gains (.20) (.03) (.07)
----- ----- -----
Total distributions (.34) (.17) (.11)
----- ----- -----
Net asset value, end of period $14.70 $13.64 $11.47
====== ====== ======
Total return 10.27% 20.45% (7.74)%
Ratios/supplemental data:
Net assets, end of period (thousands) 165,601 $55,740 $2,287
Ratio of expenses to average net assets:
Before expense reimbursement 1.70% 3.02% 19.92%+
After expense reimbursement 1.98% 1.98% 2.00%+
Ratio of net investment income to average net assets:
Before expense reimbursement 2.44% 0.49% (17.15)%+
After expense reimbursement 2.17% 1.52% 0.78% +
Portfolio turnover rate 17.90% 10.89% 27.25%
Average commission rate+++ $0.0080 -- --
BANK LOANS
Amount outstanding at end of period $(000) -- -- --
Average amount of loans outstanding during
the period (monthly average) (000) $1,413 -- --
Average number of shares outstanding
during the period (monthly average) (000) 10,128 -- --
Average amount of debt per share
during the period $0.14 -- --
</TABLE>
* 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%. +++ For the fiscal years
beginning on or after September 1, 1995, a fund is required to disclose its
average commission rate per share for security trades on which commissions are
charged. This amount may vary from period to period and fund to fund depending
on the mix of trades executed in various markets where trading practices and
commission rate structures may differ.
-8-
<PAGE>
Guinness Flight Global Government Bond Fund
Financial Highlights
(for a capital share outstanding throughout the period)
<TABLE>
<CAPTION>
For the Six Months
Ended For the Year June 30, 1994*
June 30, 1996 Ended through
(Unaudited) December 31, 1995 December 31, 1994
<S> <C> <C> <C>
Net asset value, beginning of period $12.77 $12.00 $12.50
Income from investment operations:
Net investment income .31 .69 .29
Net realized and unrealized gain
(loss) on investments .01 1.01 (.58)
--- ---- -----
Total from investment operations .32 1.70 (.29)
--- ---- -----
Less distributions:
Dividends from net investment income (.05) (.65) (.21)
Distributions from net capital gains (.10) (.28) -0-
----- ----- ---
Total distributions (.15) (.93) (.21)
----- ----- -----
Net asset value, end of period $12.95 $12.77 $12.00
====== ====== ======
Total return .13% 14.49% (2.33)%
Ratios/supplemental data:
Net assets, end of period (thousands) $1,565 $1,153 $751
Ratio of expenses to average net assets:
Before expense reimbursement 14.75% 21.52% 40.78%
After expense reimbursement 1.73% 1.73% 1.75%
Ratio of net investment income to average net assets:
Before expense reimbursement (8.09)% (14.26)% (34.18)%
After expense reimbursement 5.04% 5.53% 4.86%
Portfolio turnover rate 127.15% 202.54% 46.15%
</TABLE>
* 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.
- 9 -
<PAGE>
Investment Objectives, Programs and Limitations
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 portfolio of "blue chip" companies traded primarily on
the markets of the Asian continent. For purposes of this Fund, the Investment
Adviser has defined a "blue chip" company to be a company that has a market
capitalization of at least $1 billion and a reputation for quality and wide
acceptance of its products or services, as well as a strong history of
profitability. An investment in this Fund, however, may be more volatile than an
investment in a fund which invests only in U.S "blue chip" companies.
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 Philippines, and Vietnam 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.
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 portfolio of equity securities of companies traded
primarily 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
Philippines, and Vietnam 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 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
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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 Global Government Fund. The Global Government Fund intends to provide
investors with current income while seeking opportunities for capital
appreciation.
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
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characteristics as well. Debt instruments that are deemed to be below investment
grade entail greater risks of untimely interest and principal 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 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 contracts may be
considered to be "derivative securities." See "Investment Strategies and Risks"
in the Statement of Additional Information.
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.
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The Funds will not write any put options. Covered call options may be considered
to be "derivative securities." See "Investment Strategies and Risks" in the
Statement of Additional Information.
Purchase and Sale of Options and Futures on Stock Indices. The Asia Blue Chip
Fund, Asia Small Cap Fund and China 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 ultimately want to buy. If in fact the stock index does rise,
the prices 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 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. Options and futures on stock indices may
be considered to be "derivative securities." See "Investment Strategies and
Risks" in the Statement of Additional Information.
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 Trustees. 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 Asia Blue Chip Fund,
100% for the Asia Small Cap Fund, and the China 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
The Asia Blue Chip Fund, Asia Small Cap Fund and 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.
Economic reforms in China are transforming its economy into a market system that
has stimulated significant economic growth. As a result of such reform, living
standards of the 800 million rural workers has improved. 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
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<PAGE>
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 June 30, 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:
(1) that the transition to a successor to Deng Xiaoping 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;
(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 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.
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<PAGE>
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.
Small Capitalization Issuers. 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.
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. See "Tax Matters" in the Statement of Additional Information for an
additional discussion concerning such investment funds. 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.
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.
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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.
The Funds' Management
The overall management of the business and affairs of the Funds is vested in the
Guinness Funds' Board of Trustees. The Board of Trustees 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 Trustees. Information
concerning the Board of Trustees 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, has a U.S. office
at 225 South Lake Avenue, Suite 777, Pasadena, California 91101 and an office at
Upper Ground Floor, Far East Center, 16 Harcourt Road, Admiralty, Hong Kong.
Guinness Flight serves as the investment adviser to each of the Funds pursuant
to an Advisory Agreement dated as of _____________, 1997. Under the terms of the
Advisory Agreement, 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. Mr. Daley serves as Co-Manager of the Global
Government Fund.
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
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Strategy Fund's Japan Fund, Japan & Pacific Fund, and Japan Smaller
Companies Fund. These funds are currently available only to overseas
investors. As the head of Guinness Flight's Asia Equity Desk, Mr.
Farrell has strategic input on all of Guinness Flight's Asia Equity
Funds. In addition, Mr. Farrell serves as the Manager of the Asia Blue
Chip Fund.
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 as Investment Director.
Until its dissolution, he was a member of H.M. Treasury Tax
Consultative Committee. In 1997, he became Deputy Chairman of Guinness
Flight Hambro Asset Management Limited.
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. In 1997, he
became Chief Executive of Guinness Flight Hambro Asset Management
Limited.
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. Ms. Johnstone is primarily responsible for the
day-to-day management of the China Fund.
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 offered only to offshore investors. Ms. Lee
serves as the Manager of the Asia Small Cap Fund.
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. Mr. Stopford serves as the Co-Manager of
the Global Government Fund.
Guinness Flight's legal counsel believes that Guinness Flight may provide
services described in its Investment Advisory Agreement to the Funds without
violating the federal banking law 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 Hambro 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
Reserve 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.
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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 Trustees of Guinness Funds promptly would seek to obtain
the services of another qualified adviser, as necessary. The Trustees 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 Trustees,
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 Agreement, Guinness Flight is paid a
monthly fee from the Asia Blue Chip Fund, Asia Small Cap Fund and China 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 Trustees 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
Asia Blue Chip Fund's, Asia Small Cap Fund's and China Fund's expense ratio
exceeding 1.98%, or if it would result in the Global Government Fund's expense
ratio exceeding .75%.
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 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 a monthly fee equal to, on an annual basis, the greater of $40,000
or .25% of average daily net assets on the China Fund and $20,000 or 0.25% of
average daily net assets on each of the Asia Blue Chip Fund, Asia Small Cap Fund
and the Global Government Fund.
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.
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<PAGE>
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.
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 $2,500 or $1,000 for investments through tax-qualified retirement
plans. Current shareholders of any Fund may make an initial purchase of shares
of another Fund in the family for $1,000. The minimum investment in the Funds
for gift accounts is $250. 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 Account Application form, to the Transfer Agent at the
following address:
Guinness Flight Investment Funds
P.O. Box 9288
Boston, MA 02205-8559
Overnight courier deliveries should be sent to:
Boston Financial Data Services
ATTN: Guinness Flight Investment Funds
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.
All purchases made by check should be in U.S. dollars and made payable to
"Guinness Flight Investment Funds" or in the case of a retirement account, the
custodian or trustee. Third party checks will not be accepted. When purchases
are made by check or periodic account investment, redemptions will not be
allowed until the investment being redeemed has been in the account for 15
calendar days.
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 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
Shareholder and Custody Services
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<PAGE>
DDA # 99050171
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. Under certain circumstances, the Funds may temporarily
borrow cash pursuant to a credit agreement with Deutsche Bank AG to satisfy
redemption requests.
Redemptions by Mail. Shareholders may redeem shares of any Fund by writing to
the Transfer Agent at the following address:
Guinness Flight Investment Funds
P.O. Box 9288
Boston, MA 02205-8559
Overnight courier deliveries should be sent to:
Boston Financial Data Services
ATTN: Guinness Flight Investment Funds
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.
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<PAGE>
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 reasonable procedures are followed,
neither the Guinness Funds nor their 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.
However, if the Guinness Funds or their agents fail to follow such reasonable
procedures, then the Guinness Funds or their agents may be liable for any losses
due to unauthorized or fraudulent instructions.
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 Asia Blue Chip Fund, Asia Small Cap Fund, or
China 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.
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
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<PAGE>
P.O. Box 9288
Boston, MA 02205-8559
Please specify the name of the applicable Fund, the number of shares or dollar
amount to be exchanged and your name and account number. 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 on Page 24.
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 SSgA 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 SSgA 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 SSgA 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, 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 Trustees. Short-term obligations with
maturities of 60 days or less are valued at amortized cost as reflecting fair
value.
Dividends, Distributions and Tax Matters
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<PAGE>
Dividends and Distributions. Income dividends of the Asia Blue Chip Fund, Asia
Small Cap Fund and China 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 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.
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 investment income of the Asia Blue Chip Fund, Asia Small Cap Fund
and China Fund 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
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<PAGE>
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.
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, which is
registered under the 1940 Act, as an open-end management investment company.
Guinness Funds was formed as a Maryland corporation on January 7, 1994 and
converted to a Delaware business trust on _________, 1997. 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 Asia Blue
Chip Fund, Asia Small Cap Fund, China Fund and Global Government Fund are
non-diversified. The investment objective of the Asia Blue Chip Fund and Asia
Small Cap Fund is fundamental.
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.
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<PAGE>
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.
- 25 -
<PAGE>
General Information
Investment Adviser. Guinness Flight Investment Management Limited, 225 South
Lake Avenue, Suite 777, Pasadena, California 91101, serves as Investment Adviser
for the Funds.
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 & 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 Trustees.
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.
[GRAPHIC]
[GRAPHIC]
GUINNESS FLIGHT
PROSPECTUS APRIL 28, 1997
ASIA BLUE CHIP FUND
ASIA SMALL CAP FUND
CHINA & HONG KONG FUND
GLOBAL GOVERNMENT BOND FUND
- 26 -
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GUINNESS FLIGHT INVESTMENT FUNDS
225 South Lake Avenue, Suite 777
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 28, 1997 (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....................................... 15
PORTFOLIO TRANSACTIONS..................................................... 16
COMPUTATION OF NET ASSET VALUE............................................. 17
PERFORMANCE INFORMATION.................................................... 18
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 19
TAX MATTERS................................................................ 19
MANAGEMENT OF THE FUNDS.................................................... 25
THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS............................. 26
DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN............................... 28
DESCRIPTION OF THE FUNDS................................................... 28
SHAREHOLDER REPORTS........................................................ 29
FINANCIAL STATEMENTS....................................................... 29
APPENDIX A.................................................................A-1
Dated: April 28, 1997
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GENERAL INFORMATION AND HISTORY
As described in the Funds' Prospectus, Guinness Flight Investment Funds
("Guinness Funds") is a Delaware business trust 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 Trustees; 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.
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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.
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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.
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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
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securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges).
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
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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 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
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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.
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
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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.
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
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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
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.
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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, 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
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<PAGE>
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. 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:
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(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.
(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 Trustees. 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.
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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 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 Trustees. 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
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<PAGE>
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 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 Trustees 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 Trustees of the Fund
and the officers and directors of Guinness Flight,
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<PAGE>
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.
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 Trustees 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 Trustees, 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 Trustees 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.
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<PAGE>
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
periods from January 1, 1995 to December 31, 1995 and January 1, 1996 to
December 31, 1996, the China Fund paid brokerage commissions equal to $13,875 ,
$258,319 and $ , respectively and the Global Government Fund paid $0 , $0, and
$_______, respectively. For the period commencing April 29, 1996 to December 31,
1996, the Asia Blue Chip Fund paid brokerage commissions equal to $ and the Asia
Small Cap Fund paid $ .
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
Trustees. 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 Trustees. 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 Trustees 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 Trustees determines during such 60-day period that this
amortized cost value does not represent fair market value.
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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 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.
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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 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, 1996 and the average annual compounded rate of total return
from June 30, 1994 (inception) to December 31, 1996 for the China Fund was ___%
and ___%, respectively, and the Global Government Fund was ___% and ___%,
respectively. The annual corporated rate of total return for the period from
April 29, 1996 (inception) to December 31, 1996 for the Asia Blue Chip Fund was
___% and the Asia Small Cap Fund was %. 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 ___%.
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
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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 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.
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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 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
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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.
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
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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 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
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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, 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.
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MANAGEMENT OF THE FUNDS
The Board of Trustees and executive officers of the Funds and their
principal occupations for the past five years are listed below. The address of
each Trustee is 225 South Lake Avenue, Suite 777, Pasadena, California, 91101.
James I. Fordwood* -- Trustee. 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*-- Trustee. 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.
Dr. Bret A. Herscher* -- Trustee. 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.* -- Trustee. 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.
- --------
* Not an "interested person," as that term is defined by the 1940 Act.
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<PAGE>
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).
The table below illustrates the compensation paid to each Trustee for
the Guinness Funds' most recently completed fiscal year:
<TABLE>
<CAPTION>
Aggregate Pension or Total
Compensation Retirement Benefits Estimated Annual Compensation from
Name of Person, from Guinness Accrued as Part of Benefits Upon Guinness Funds
Position Funds Fund Expenses Retirement Paid to Trustees
- -------- ----- ------------- ---------- -----------------
<S> <C> <C> <C> <C>
Dr. Gunter Dufey $20,000 $0 $0 $20,000
James I. Fordwood $20,000 $0 $0 $20,000
Dr. Bret Herscher $20,000 $0 $0 $20,000
J. Brooks Reece, Jr. $20,000 $0 $0 $20,000
</TABLE>
Each Trustee who is not an "interested person" of the Funds receives an
annual fee of $5,000 allocated equally among all the Funds, plus expenses
incurred by the Trustees in connection with attendance at meetings of the Board
of Trustees and their Committees. As of the date of this Statement of Additional
Information, to the best of the knowledge of the Guinness Funds the Board of
Trustees 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 Agreement (the "Agreement"), 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 Trustees 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 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 Trustees.
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
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<PAGE>
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 Trustees may request
from time to time or as Guinness Flight may deem to be desirable. Guinness
Flight makes recommendations to Guinness Funds' Board of Trustees with respect
to Guinness Funds' policies, and carries out such policies as are adopted by the
Trustees. Guinness Flight, subject to review by the Board of Trustees, 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 Trustees 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 Trustees 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. Guinness
Flight, from time to time, may voluntarily waive all or a portion of its fees
payable under the Agreement.
The Agreement was approved by the Board of Trustees on March 9, 1997
and by the shareholders of the Funds on April 25, 1997 at a shareholder meeting
called for that purpose. The Agreement will remain in effect for two years from
the date of execution and shall continue from year to year thereafter if it is
specifically approved at least annually by the Board of Trustees and the
affirmative vote of a majority of the Trustees 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 Trustees 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 periods from
January 1, 1995 to December 31, 1995 and January 1, 1996 to December 31, 1996,
the China Fund paid Guinness Flight $6,134, $197,173 and $___________,
respectively, and the Global Government Fund paid Guinness Flight $2,141 ,
$7,425 and $_________, respectively. For the period commencing April 29, 1996 to
December 31, 1996, the Asia Blue Chip Fund and Asia Small Cap Fund paid Guiness
Flight ______ $ and $_________, 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
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<PAGE>
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 with respect to the China
Fund and Global Government Fund on May 6, 1994 and with respect to the Asia Blue
Chip Fund and Asia Small Cap Fund on April 12, 1996 by the Board of Trustees
including all of the "Qualified Trustees" (Trustees 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 Trustees (including the Qualified Trustees) 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 Trustees and of the Qualified
Trustees, 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 Trustees 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 Trustees who are not
"interested" persons of the Funds must be committed to the discretion of the
Qualified Trustees. 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' Trustees and
(b) by the vote of a majority of the Qualified Trustees.
DESCRIPTION OF THE FUNDS
Shareholder and Trustees Liability. The Funds are each a series of
Guinness Funds, a Delaware business trust.
The Delaware Trust Instrument provides that the Trustees shall not be
liable for any act or omission as Trustee, but nothing protects a Trustee
against liability to Guinness Funds or to its shareholders to which he or she
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
or her office. Furthermore, a Trustee is entitled to indemnification against
liability and to all reasonable expenses, under certain conditions, to be paid
from the assets of Guinness Funds; provided that no indemnification shall be
provided to any Trustee who has been adjudicated by a court to be liable to
Guinness Funds or the shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office or not to have acted in good faith in the reasonable belief that his
action was in the best interest of Guinness Funds. Guinness Funds may advance
money for expenses, provided that the Trustee undertakes to repay Guinness Funds
if his or her conduct is later determined to preclude indemnification, and one
of the following conditions are met: (i) the Trustee provides security for the
undertaking; (ii) Guinness Funds is insured against losses stemming from any
such advance; or (iii) there is a determination by a majority of the Guinness
Funds' independent non-party Trustees, or by independent legal counsel, that
there is reason to believe that the Trustee ultimately will be entitled to
indemnification.
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<PAGE>
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 Trustees.
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 _________, 1997, Charles Schwab & Co. Inc.
(101 Montgomery St., San Francisco 94104-4122) owned __________ ( %) of the
outstanding shares of the China Fund for the exclusive benefit of its accounts.
As of ___________, 1997, Charles Schwab & Co. Inc. (101 Montgomery St., San
Francisco 94104-4122) owned __________________ ( %) of the outstanding shares of
the Global Government Fund for the exclusive benefit of its accounts. As of
___________, 1997, Charles Schwab & Co. Inc. (101 Montgomery St., San Francisco
94104-4122) owned ___________ ( %) of the outstanding shares of the Asia Small
Cap Fund for the exclusive benefit of its accounts. As of __________, 1997,
Charles Schwab & Co. Inc. (101 Montgomery St., San Francisco 94104-4122) owned
________________ ( %) of the outstanding shares of the Asia Blue Chip Fund for
the exclusive benefit of its accounts.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities and report thereon for
the China Fund , Global Government Fund, Asia Blue Chip Fund and Asia Small Cap
Fund for the year ended _________________ are incorporated by reference. The
opinion of Ernst & Young LLP, independent accountants, with respect to the
_________________ financial statements, is incorporated herein in its entirety
in reliance upon such report of Ernst & Young LLP and on the authority of such
firm as experts in auditing and accounting. Shareholders will receive a copy of
the audited and unaudited financial statements at no additional charge when
requesting a copy of the Statement of Additional Information.
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<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.
A-1
<PAGE>
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
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:
None
(b) Exhibits
EX-99.B1(a) Certificate of Trust is filed herewith.
EX-99.B1(b) Trust Instrument as filed herewith.
EX-99.B2 By-laws are filed herewith.
EX-99.B3 None.
EX-99.B4 None.
EX-99.B5 Form of Investment Advisory Agreement between
Registrant and Guinness Flight Investment Management
Limited 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) Form of Distribution Agreement between Registrant
and First Fund Distributors, Inc. for Asia Blue
Chip Fund series was filed in Post- Effective
Amendment No. 5 on February 14, 1996.
(a)(iv) Form of Distribution Agreement between Registrant
and First Fund Distributors, Inc. for Asia Small
Cap Fund series was filed in Post-Effective
Amendment No. 5 on February 14, 1996.
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.
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<PAGE>
(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 L.L.P. was filed in
Pre-Effective Amendment No. 2 on June 20, 1994.
EX-99.B10 (a) Opinion of Kramer, Levin, Naftalis & Frankel
as to Legality of Securities Being Registered
is to be filed by amendment.
EX-99.B10 (b) Opinion of Morris, Nichols, Arsht &
Tunnell is to be filed by amendment.
EX-99.B11 (a) Consent of Kramer, Levin, Naftalis &
Frankel, Counsel for the Registrant is filed
herewith.
(b) Consent of Coopers & Lybrand L.L.P., independent
accountants, is filed herewith.
(c) Consent of Ernst & Young LLP, Independent Auditors
for the Registrant is filed herewith.
EX-99.B12 None.
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) Form of Rule 12b-1 Distribution for Asia Blue Chip
Fund series was filed in Post-Effective Amendment
No. 5 on February 14, 1996.
(a)(iv) Form of Rule 12b-1 Distribution for Asia Small Cap
Fund series was filed in Post-Effective Amendment
No. 5 on February 14, 1996.
EX-99.B16 Schedule for Computation of each Performance
Quotation was filed in Post-Effective Amendment
No. 5 on February 14, 1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
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<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class; Shares Number of Record Holders
($0.001 par value) as of March 10, 1997
China & Hong Kong Fund 13,818
Global Government Bond Fund 210
Asia Blue Chip Fund 963
Asia Small Cap Fund 9,279
ITEM 27. INDEMNIFICATION
Article X, Section 10.02 of the Registrant's Delaware Trust
Instrument, incorporated herein as Exhibit 2 hereto, provides for the
indemnification of Registrant's Trustees and officers, as follows:
"Section 10.02 Indemnification.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be indemnified
by the Trust to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes involved as a
party or otherwise by virtue of his being or having been a Trustee or
officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter,
and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office
or (B) not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither Interested Persons of the Trust nor are parties
to the matter based upon a review of readily available facts (as opposed
to a full trial-type inquiry); or (C) by written opinion of independent
legal counsel based upon a review of readily available facts (as opposed
to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may
now or hereafter be entitled, shall continue as to a person who has ceased
to be a Covered Person and shall inure to the benefit of the heirs,
executors and administrators of such a person. Nothing contained herein
shall affect any rights to indemnification to which Trust personnel, other
than Covered Persons, and other persons may be entitled by contract or
otherwise under law.
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<PAGE>
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in Subsection (a) of this Section 10.02 may be paid by the Trust
or Series from time to time prior to final disposition thereof upon
receipt of an undertaking by or on behalf of such Covered Person that such
amount will be paid over by him to the Trust or Series if it is ultimately
determined that he is not entitled to indemnification under this Section
10.02; provided, however, that either (i) such Covered Person shall have
provided appropriate security for such undertaking, (ii) the Trust is
insured against losses arising out of any such advance payments or (iii)
either a majority of the Trustees who are neither Interested Persons of
the Trust nor parties to the matter, or independent legal counsel in a
written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person
will be found entitled to indemnification under this Section 10.02."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons or
Registrant pursuant to the foregoing provisions, or otherwise, Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Investment Company Act of 1940, as amended, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
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) Jurika & Voyles Fund Group;
(2) RNC Mutual Fund Group, Inc.;
(3) PIC Investment Trust;
(4) Hotchkis & Wiley Funds;
(5) Masters' Select Equity Fund
(6) O'Shoughnessy Funds
(7) Professionally Managed Portfolios;
- Avondale Total Return Fund
- Perkins Opportunity Fund
- Octerners Fund
- Pro Conscience Women's Equity Mutual Fund
- Academy Value Fund
- Trent Equity Fund
- Leonetti Balanced Fund
- Lighthouse Growth Fund
- U.S. Global Leaders Growth Fund
- Boston Managed Growth Fund
- Horris Baetas & Sullivan & Smith Growth Fund
- Insightful Investor Growth Fund
- Penza Growth Fund
- Titan Investment Trust
(8) Rainier Investment Management Mutual Funds.
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<PAGE>
(b) The following information is furnished with respect to the officers
and directors of First Fund Distributors, Inc., Registrant's principal
underwriter:
Name and Principal Position and Offices with Position and Offices
Business Address Principal Underwriter ith 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
(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
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.
C-5
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(a) under the Securities Act of 1933 and 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 14th day of March, 1997.
GUINNESS FLIGHT INVESTMENT FUNDS
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
------------------------ March 14, 1997
Eric M. Banhazl
/s/ Dr. Gunter Dufey Trustee
------------------------ March 14, 1997
Dr. Gunter Dufey
/s/ J. I. Fordwood Trustee
------------------------ March 14, 1997
J. I. Fordwood
/s/ Bret A. Herscher Trustee
------------------------ March 14, 1997
Bret A. Herscher
/s/ J. Brooks Reece, Jr. Trustee
------------------------ March 14, 1997
J. Brooks Reece, Jr.
*By:-----------------------
Attorney-in-Fact
C-6
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EXHIBIT INDEX
EX-99.B1(a) Certificate of Trust
f
EX-99.B1(b) Trust Instrument
EX-99.B2 By-Laws
EX-99.B5 Form of Investment Advisory Agreement
EX-99.B11(a) Consent of Kramer, Levin, Naftalis & Frankel,
Counsel for the Registrant
EX-99.B11(b) Consent of Coopers & Lybrand L.L.P.
EX-99.B11(c) Consent of Ernst & Young LLP, Independent
Auditors for the Registrant
CERTIFICATE OF TRUST
OF
GUINNESS FLIGHT INVESTMENT FUNDS
This Certificate of Trust is being executed as of March
6, 1997 for the purpose of organizing a business trust pursuant to
the Delaware Business Trust Act, 12 Del. C. ss.ss. 3801 et seq.
The undersigned hereby certifies as follows:
1. Name. The name of the business trust is Guinness Flight Investment
Funds ("Trust").
2. Registered Investment Company. The Trust is or will become a
registered investment company under the Investment Company Act of 1940, as
amended.
3. Registered Office and Registered Agent. The registered office of the
Trust in the State of Delaware is located at 1201 North Market Street, P.O. Box
1347, Wilmington, Delaware 19899-1347. The name of the registered agent of the
Trust for service of process at such location is Delaware Corporation
Organizers, Inc.
4. Notice of Limitation of Liabilities of Series. Notice is hereby
given that the Trust is or may hereafter be constituted a series trust. The
debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to any particular series shall be enforceable
against the
<PAGE>
assets of such series only, and not against the assets of the Trust
generally.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has duly executed this Certificate of Trust as of the day and year first
above written.
Trustee
/s/Joanne Doldo
- ---------------
Joanne Doldo
- 2 -
GUINNESS FLIGHT INVESTMENT FUNDS
TRUST INSTRUMENT
DATED MARCH 6, 1997
<PAGE>
GUINNESS FLIGHT INVESTMENT FUNDS
TABLE OF CONTENTS
Page
----
ARTICLE I - NAME AND DEFINITION......................................... 1
Section 1.01 Name............................................. 1
Section 1.02 Definitions...................................... 1
ARTICLE II - BENEFICIAL INTEREST........................................ 2
Section 2.01 Shares of Beneficial Interest.................... 2
Section 2.02 Issuance of Shares............................... 2
Section 2.03 Register of Shares and Share Certificates........ 3
Section 2.04 Transfer of Shares............................... 3
Section 2.05 Treasury Shares.................................. 3
Section 2.06 Establishment of Series.......................... 3
Section 2.07 Investment in the Trust.......................... 4
Section 2.08 Assets and Liabilities of Series................. 4
Section 2.09 No Preemptive Rights............................. 5
Section 2.10 No Personal Liability of Shareholder............. 5
Section 2.11 Assent to Trust Instrument....................... 5
ARTICLE III - THE TRUSTEES.............................................. 6
Section 3.01 Management of the Trust.......................... 6
Section 3.02 Initial Trustee.................................. 6
Section 3.03 Term of Office................................... 6
Section 3.04 Vacancies and Appointments....................... 7
Section 3.05 Temporary Absence................................ 7
Section 3.06 Number of Trustees............................... 7
Section 3.07 Effect of Ending of a Trustee's Service.......... 7
Section 3.08 Ownership of Assets of the Trust................. 7
ARTICLE IV - POWERS OF THE TRUSTEES..................................... 8
Section 4.01 Powers........................................... 8
Section 4.02 Issuance and Repurchase of Shares................ 11
Section 4.03 Trustees and Officers as Shareholders............ 11
Section 4.04 Action by the Trustees........................... 11
Section 4.05 Chairman of the Trustees......................... 11
Section 4.06 Principal Transactions........................... 11
ARTICLE V - EXPENSES OF THE TRUST....................................... 12
ARTICLE VI - INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT............................... 12
Section 6.01 Investment Adviser............................... 12
Section 6.02 Principal Underwriter............................ 13
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Section 6.03 Administration................................... 13
Section 6.04 Transfer Agent................................... 13
Section 6.05 Parties to Contract.............................. 13
Section 6.06 Provisions and Amendments........................ 14
ARTICLE VII - SHAREHOLDERS' VOTING POWERS AND MEETINGS................... 14
Section 7.01 Voting Powers..................................... 14
Section 7.02 Meetings.......................................... 15
Section 7.03 Quorum and Required Vote.......................... 15
ARTICLE VIII - CUSTODIAN................................................. 16
Section 8.01 Appointment and Duties............................ 16
Section 8.02 Central Certificate System........................ 16
ARTICLE IX - DISTRIBUTIONS AND REDEMPTIONS............................... 17
Section 9.01 Distributions..................................... 17
Section 9.02 Redemptions....................................... 17
Section 9.03 Determination of Net Asset Value and
Valuation of Portfolio Assets.................................. 17
Section 9.04 Suspension of the Right of Redemption............. 18
Section 9.05 Redemption of Shares in Order
to Qualify as Regulated Investment Company...... 18
Section 9.06 Redemption of Small Accounts...................... 19
ARTICLE X - LIMITATION OF LIABILITY AND INDEMNIFICATION.................. 19
Section 10.01 Limitation of Liability.......................... 19
Section 10.02 Indemnification.................................. 19
Section 10.03 Shareholders..................................... 20
ARTICLE XI - MISCELLANEOUS............................................... 21
Section 11.01 Trust Not A Partnership.......................... 21
Section 11.02 Trustee's Good Faith Action, Expert Advice,
No Bond or Surety..................................... 21
Section 11.03 Establishment of Record Dates.................... 21
Section 11.04 Termination of Trust............................. 22
Section 11.05 Reorganization................................... 23
Section 11.06 Filing of Copies, References, Headings........... 23
Section 11.07 Applicable Law................................... 24
Section 11.08 Amendments....................................... 24
Section 11.09 Fiscal Year...................................... 24
Section 11.10 Name Reservation................................. 24
Section 11.11 Provisions in Conflict With Law.................. 25
ii
<PAGE>
GUINNESS FLIGHT INVESTMENT FUNDS
March 6, 1997
TRUST INSTRUMENT, made by Joanne Doldo (the "Trustee").
WHEREAS, the Trustee desires to establish a business trust for the
investment and reinvestment of funds contributed thereto;
NOW THEREFORE, the Trustee declares that all money and property
contributed to the trust hereunder shall be held and managed in trust under this
Trust Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITION
SECTION 1.01 NAME. The name of the trust created hereby is "Guinness
Flight Investment Funds."
SECTION 1.02 DEFINITIONS. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time. Whenever reference is made hereunder to the 1940 Act, such
references shall be interpreted as including any applicable order or orders of
the Commission or any rules or regulations adopted by the Commission thereunder
or interpretive releases of the Commission staff;
(b) "Bylaws" means the Bylaws of the Trust as adopted by the Trustees,
as amended from time to time;
(c) "Commission" has the meaning given it in the 1940 Act. In addition,
"Affiliated Person," "Interested Person" and "Principal Underwriter" shall have
the respective meanings given them in the 1940 Act;
(d) "Delaware Act" means the Delaware Business Trust Act, to Chapter 38
of Title 12 of the Delaware Code, as amended from time to time;
(e) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article IX, Section 9.03 hereof;
(f) "Outstanding Shares" means those Shares shown from time to time in
the books of the Trust or its transfer agent as then issued and outstanding, but
shall not include Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the treasury of the Trust;
1
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(g) "Series" means a series of Shares of the Trust established in
accordance with the provisions of Article II, Section 2.06 hereof;
(h) "Shareholder" means a record owner of Outstanding Shares of the
Trust;
(i) "Shares" means the equal proportionate transferable units of
beneficial interest into which the beneficial interest of each Series of the
Trust or class thereof shall be divided and may include fractions of Shares as
well as whole Shares;
(j) The "Trust" means Guinness Flight Investment Funds, a Delaware
business trust, and reference to the Trust when applicable to one or more Series
of the Trust, shall refer to any such Series;
(k) The "Trustees" means the person or persons who has or have signed
this Trust Instrument so long as he or they shall continue in office in
accordance with the terms hereof and all other persons who may from time to time
be duly qualified and serving as Trustees in accordance with the provisions of
Article III hereof, and reference herein to a Trustee or to the Trustees shall
refer to the individual Trustees in their respective capacity as Trustees
hereunder;
(l) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or any Series, or the Trustees on behalf of the Trust or any Series.
ARTICLE II
BENEFICIAL INTEREST
SECTION 2.01 SHARES OF BENEFICIAL INTEREST. The beneficial interest in
the Trust shall be divided into such Shares of one or more separate and distinct
Series or classes of a Series as set forth in Section 2.06 or as the Trustees
shall otherwise from time to time create and establish as provided in Section
2.06. The number of Shares of each Series and class thereof authorized hereunder
is unlimited. Except as otherwise determined by the Trustees, each Share shall
have no par value. All Shares issued hereunder, including without limitation
Shares issued in connection with a dividend paid in Shares or a split or reverse
split of Shares, shall be fully paid and nonassessable.
SECTION 2.02 ISSUANCE OF SHARES. The Trustees in their discretion may,
from time to time, without a vote of the Shareholders, issue Shares, in addition
to the then issued and outstanding Shares and Shares held in the treasury, to
such party or parties and for such amount and type of consideration, subject to
applicable law, including cash or securities, at such time or times and on such
terms as the Trustees may deem appropriate, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with,
the assumption of liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees may from time to time divide or combine the Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be
2
<PAGE>
accepted for, and Shares shall be redeemed as, whole Shares and/or 1/1000th of a
Share or integral multiples thereof. The Trustees or any person the Trustees may
authorize for the purpose may, in their discretion, reject any application for
the issuance of shares.
SECTION 2.03 REGISTER OF SHARES AND SHARE CERTIFICATES. A register
shall be kept at the principal office of the Trust or an office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series, the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all transfers thereof. No
share certificates shall be issued by the Trust except as the Trustees may
otherwise authorize, and the persons indicated as shareholders in such register
shall be entitled to receive dividends or other distributions or otherwise to
exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled
to receive payment of any dividend or other distribution, nor to have notice
given to him as herein or in the Bylaws provided, until he has given his address
to the transfer agent or such officer or other agent of the Trustees as shall
keep the said register for entry thereon.
SECTION 2.04 TRANSFER OF SHARES. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer and such evidence of the genuineness of such execution
and authorization and of such other matters as may be required by the Trustees.
Upon such delivery the transfer shall be recorded on the register of the Trust.
Until such record is made, the Shareholder of record shall be deemed to be the
holder of such Shares for all purposes hereunder and neither the Trustees nor
the Trust, nor any transfer agent or registrar nor any officer, employee or
agent of the Trust shall be affected by any notice of the proposed transfer.
SECTION 2.05 TREASURY SHARES. Shares held in the treasury shall, until
reissued pursuant to Section 2.02 hereof, not confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
SECTION 2.06 ESTABLISHMENT OF SERIES AND CLASSES. The Trust created
hereby shall consist initially of four Series which are specified by name on
Schedule A attached hereto, and such Series shall initially consist of such
classes of Shares as are designated on Schedule A. Such initial Series (or class
thereof, as applicable) shall have the investment objectives, purposes and
policies, and such relative rights, powers, duties and other attributes, as are
specified in the Registration Statement and related prospectus and statement of
additional information approved by the Trustees in connection with the
registration and offer of Shares of such Series (or class thereof). Distinct
records shall be maintained by the Trust for each Series and the assets and
liabilities associated with the Series shall be held and accounted for
separately from the assets and liabilities of the Trust or any other Series. The
Trustees shall have full power and authority, in their sole discretion and
without obtaining any prior authorization or vote of the Shareholders of any
Series, to establish and designate and to change in any manner any Series or any
classes of initial or additional Series and to fix such preferences, voting
powers, rights and privileges of such Series or classes thereof as the Trustees
may from time to time determine, to divide or combine the Shares or any Series
or classes thereof into a greater or lesser number, to classify or reclassify
any issued Shares or any Series or classes thereof into one or more Series or
classes
3
<PAGE>
of Shares, and to take such other action with respect to the Shares as the
Trustees may deem desirable. The establishment and designation of any Series
(other than those established pursuant to the first sentence of this Section
2.06) shall be effective upon the adoption of a resolution by a majority of the
Trustees setting forth such establishment and designation and the relative
rights and preferences of the Shares of such Series. A Series may issue any
number of Shares, but need not issue Shares. At any time that there are no
Shares outstanding of any particular Series previously established and
designated, the Trustees may by a majority vote abolish that Series and the
establishment and designation thereof.
All references to Shares in this Trust Instrument shall be deemed to be
Shares of any or all Series, or classes thereof as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his proportionate share of all distributions made
with respect to such Series, based upon the number of full and fractional Shares
of the Series held. Upon redemption of his Shares, such Shareholder shall be
paid solely out of the funds and property of such Series of the Trust.
SECTION 2.07 INVESTMENT IN THE TRUST. The Trustees shall accept
investments in any Series from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which the
affected Series is authorized to invest, valued as provided in Article IX
Section 9.03 hereof. Investments in a Series shall be credited to each
Shareholder's account in the form of full and fractional Shares at the net asset
value per Share next determined after the investment is received or accepted as
may be determined by the Trustees; provided, however, that the Trustees may, in
their sole discretion, (a) fix minimum amounts for initial and subsequent
investments or (b) impose a sales charge upon investments in such manner and at
such time determined by the Trustees.
SECTION 2.08 ASSETS AND LIABILITIES OF SERIES. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall be held and accounted for separately from the other assets of
the Trust and of every other Series and may be referred to herein as "assets
belonging to" that Series. The assets belonging to a particular Series shall
belong to that Series for all purposes, and to no other Series, and shall be
subject only to the rights of creditors of that Series. In addition, any assets,
income, earnings, profits or funds, or payments and proceeds with respect
thereto, which are not readily identifiable as belonging to any particular
Series shall be allocated by the Trustees between and among one or more of the
Series in such manner as the Trustees, in their sole discretion, deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes, and such assets, income, earnings,
profits or funds, or payments and proceeds with respect thereto shall be assets
belonging to that Series.
4
<PAGE>
The assets belonging to a particular Series shall be so recorded upon the books
of the Trust, and shall be held by the Trustees in trust for the benefit of the
holders of Shares of that Series. The assets belonging to each particular Series
shall be charged with the liabilities of that Series and all expenses, costs,
charges and reserves attributable to that Series. Any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees between or among any one or more of the Series in such
manner as the Trustees in their sole discretion deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series for all purposes. Without limitation of the foregoing provisions of this
Section 2.08, but subject to the right of the Trustees in their discretion to
allocate general liabilities, expenses, costs, changes or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against the assets of such Series only, and not against the assets
of the Trust generally. Notice of this contractual limitation on inter-Series
liabilities may, in the Trustee's sole discretion, be set forth in the
certificate of trust of the Trust (whether originally or by amendment) as filed
or to be filed in the Office of the Secretary of State of the State of Delaware
pursuant to the Delaware Act, and upon the giving of such notice in the
certificate of trust, the statutory provisions of Section 3804 of the Delaware
Act relating to limitations on inter-Series liabilities (and the statutory
effect under Section 3804 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each Series. Any person
extending credit to, contracting with or having any claim against any Series may
look only to the assets of that Series to satisfy or enforce any debt, with
respect to that Series. No Shareholder or former Shareholder of any Series shall
have a claim on or any right to any assets allocated or belonging to any other
Series.
SECTION 2.09 NO PREEMPTIVE RIGHTS. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees, whether of the same or other
Series.
SECTION 2.10 NO PERSONAL LIABILITY OF SHAREHOLDER. No Shareholder shall
be personally liable for the debts, liabilities, obligation and expenses
incurred by, contracted for, or otherwise existing with respect to, the Trust or
by or on behalf of any Series. The Trustees shall have no power to bind any
Shareholder personally or to call upon any Shareholder for the payment of any
sum of money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay by way of subscription for any Shares or
otherwise. Every note, bond, contract or other understanding issued by or on
behalf of the Trust or the Trustees relating to the Trust or to a Series shall
include a recitation limiting the obligation represented thereby to the Trust or
to one or more Series and its or their assets (but the omission of such a
recitation shall not operate to bind any Shareholder or Trustee of the Trust).
SECTION 2.11 ASSENT TO TRUST INSTRUMENT. Every Shareholder, by virtue
of having purchased a Share shall become a Shareholder and shall be held to have
expressly assented and agreed to be bound by the terms hereof.
5
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ARTICLE III
THE TRUSTEES
SECTION 3.01 MANAGEMENT OF THE TRUST. The Trustees shall have exclusive
and absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the State of Delaware, in any and
all states of the United States of America, in the District of Columbia, in any
and all commonwealths, territories, dependencies, colonies, or possessions of
the United States of America, and in any foreign jurisdiction and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Trust Instrument, the presumption shall be
in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid power. The powers of the Trustees may
be exercised without order of or resort to any court.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 3.04 of this Article III and except as otherwise provided in
Section 3.02 of this Article III, the Trustees shall be elected by the
Shareholders owning of record a plurality of the Shares voting at a meeting of
Shareholders. Any Shareholder meeting held for such purpose shall be held on a
date fixed by the Trustees. In the event that less than a majority of the
Trustees holding office have been elected by Shareholders, the Trustees then in
office will call a Shareholders' meeting for the election of Trustees in
accordance with the provisions of the 1940 Act.
SECTION 3.02 INITIAL TRUSTEES. The initial Trustees shall be the
persons named herein. The initial Trustees shall appoint additional or
substitute Trustees at an organizational meeting of Trustees. Thereafter,
Trustees shall be appointed or elected as provided in Sections 3.01 and 3.04 of
this Article III.
SECTION 3.03 TERM OF OFFICE. The Trustees shall hold office during the
lifetime of this Trust, and until its termination as herein provided; except (a)
that any Trustee may resign his trust by written instrument signed by him and
delivered to the other Trustees, which shall take effect upon such delivery or
upon such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has died, become physically or mentally incapacitated by reason
of illness or otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) that a Trustee may be removed at any meeting of
the Shareholders of
6
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the Trust by a vote of Shareholders owning at least two-thirds of the
Outstanding Shares of the Trust.
SECTION 3.04 VACANCIES AND APPOINTMENTS. In case of a Trustee's
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of illness, disease or otherwise, or if a Trustee is
otherwise unable to serve, or if there is an increase in the number of Trustees,
a vacancy shall occur. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled, the other Trustees shall have all the powers
hereunder and the certificate of the other Trustees of such vacancy shall be
conclusive. In the case of a vacancy, the remaining Trustees shall fill such
vacancy by appointing such other person as they in their discretion see fit, to
the extent consistent with the limitations provided under the 1940 Act. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office or by resolution of the Trustees, duly adopted, which
shall be recorded in the minutes of a meeting of the Trustees, whereupon the
appointment shall take effect.
An appointment of a Trustee may be made by the Trustees then in office
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any person
appointed as a Trustee pursuant to this Section 3.04 shall have accepted this
Trust, the trust estate shall vest in the new Trustee or Trustees, together with
the continuing Trustees, without any further act or conveyance, and such person
shall be deemed a Trustee.
SECTION 3.05 TEMPORARY ABSENCE. Any Trustee may, by power of attorney,
delegate his power for a period not exceeding six months at any time to any
other Trustee or Trustees, provided that in no case shall fewer than two
Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
SECTION 3.06 NUMBER OF TRUSTEES. From and after the date of appointment
of Trustees by the initial Trustees named herein, the number of Trustees shall
be at least three (3), and thereafter shall be such number as shall be fixed
from time to time by a majority of the Trustees, provided, however, that the
number of Trustees shall in no event be more than twelve (12).
SECTION 3.07 EFFECT OF ENDING OF A TRUSTEE'S SERVICE. The declination
to serve, death, resignation, retirement, removal, incapacity, or inability of
the Trustees, or any one of them, shall not operate to terminate the Trust or to
revoke any existing agency created pursuant to the terms of this Trust
Instrument.
SECTION 3.08 OWNERSHIP OF ASSETS OF THE TRUST. The assets of the Trust
and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. Legal title in all of the assets of the Trust and the
right to conduct any business shall at all times be considered as vested in the
Trustees on behalf of the Trust, except that the Trustees may cause legal title
to any Trust Property to be held by, or in the name of, the Trust or in the name
of any person as nominee. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or of any Series or any right of
partition or possession thereof but each Shareholder
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shall have, except as otherwise provided for herein, a proportionate undivided
beneficial interest in the Trust or Series based upon the number of Shares
owned. The Shares shall be personal property giving only the rights specifically
set forth in this Trust Instrument.
ARTICLE IV
POWERS OF THE TRUSTEES
SECTION 4.01 POWERS. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall not in any way be bound or limited by present or future laws or
customs in regard to trust investments, but shall have full authority and power
to make any and all investments which they, in their sole discretion, shall deem
proper to accomplish the purpose of this Trust without recourse to any court or
other authority. Subject to any applicable limitation in this Trust Instrument
or the Bylaws of the Trust, the Trustees shall have the power and authority:
(a) To invest and reinvest cash and other property (including
investment, notwithstanding any other provision hereof, of all of the assets of
any Series in a single open-end investment company, including investment by
means of transfer of such assets in exchange for an interest or interests in
such investment company), and to hold cash or other property of the Trust
uninvested, without in any event being bound or limited by any present or future
law or custom in regard to investments by trustees, and to sell, exchange, lend,
pledge, mortgage, hypothecate, write options on and lease any or all of the
assets of the Trust:
(b) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations;
(c) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation or engagement of any other Person and
to lend Trust Property;
(d) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by the
Trust itself, or both, or otherwise pursuant to a plan of distribution of any
kind;
(e) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders; such
Bylaws shall be deemed incorporated and included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
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(g) To employ one or more banks, trust companies or companies that are
members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Trust Instrument or in the Bylaws;
(h) To retain one or more transfer agents and shareholder servicing
agents, or both;
(i) To set record dates in the manner provided herein or in the Bylaws;
(j) To delegate such authority as they consider desirable (with power
of subdelegation) to any officers or employees of the Trust and to any
investment adviser, manager, custodian, underwriter or other agent or
independent contractor;
(k) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article XI, subsection 11.04(b) hereof;
(l) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(m) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(n) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form; or
either in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;
(o) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series or
to apportion the same between or among two or more Series, provided that any
liabilities or expenses incurred by a particular Series shall be payable solely
out of the assets belonging to that Series as provided for in Article II hereof;
(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust;
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(r) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner provided herein;
(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholder;
(u) To establish one or more committees, to delegate any of the powers
of the Trustees to said committees and to adopt a committee charter providing
for such responsibilities, membership (including Trustees, officers or other
agents of the Trust therein) and any other characteristics of said committees as
the Trustees may deem proper. Notwithstanding the provisions of this Article IV,
and in addition to such provisions or any other provision of this Trust
Instrument or of the Bylaws, the Trustees may by resolution appoint a committee
consisting of less than the whole number of Trustees then in office, which
committee may be empowered to act for and bind the Trustees and the Trust, as if
the acts of such committee were the acts of all the Trustees then in office,
with respect to the institution, prosecution, dismissal, settlement, review or
investigation of any action, suit or proceeding which shall be pending or
threatened to be brought before any court, administrative agency or other
adjudicatory body;
(v) To interpret the investment policies, practices or limitations of
any Series;
(w) To establish a registered office and have a registered agent in the
state of Delaware; and
(x) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed as objects and powers, and the
foregoing enumeration of specific powers shall not be held to limit or restrict
in any manner the general powers of the Trustees. Any action by one or more of
the Trustees in their capacity as such hereunder shall be deemed an action on
behalf of the Trust or the applicable Series, and not an action in an individual
capacity.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see the application
of any payments made or property transferred to the Trustees or upon their
order.
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SECTION 4.02 ISSUANCE AND REPURCHASE OF SHARES. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares and, subject to the
provisions set forth in Article II and Article IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares any
funds or property of the Trust, or the particular Series of the Trust, with
respect to which such Shares are issued.
SECTION 4.03 TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee,
officer or other agent of the Trust may acquire, own and dispose of Shares to
the same extent as if he were not a Trustee, officer or agent; and the Trustees
may issue and sell or cause to be issued and sold Shares to and buy such Shares
from any such person or any firm or company in which he is interested, subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
Bylaws.
SECTION 4.04 ACTION BY THE TRUSTEES. In any action taken by the
Trustees hereunder, unless otherwise specified, the Trustees shall act by
majority vote at a meeting duly called or by unanimous written consent without a
meeting or by telephone meeting provided a quorum of Trustees participate in any
such telephone meeting, unless the 1940 Act requires that a particular action be
taken only at a meeting at which the Trustees are present in person. At any
meeting of the Trustees, a majority of the Trustees shall constitute a quorum.
Meetings of the Trustees may be called orally or in writing by the Chairman of
the Board of Trustees or by any two other Trustees. Notice of the time, date and
place of all meetings of the Trustees shall be given by the person calling the
meeting to each Trustee by telephone, facsimile or other electronic mechanism
sent to his home or business address at least twenty-four hours in advance of
the meeting or by written notice mailed to his home or business address at least
seventy-two hours in advance of the meeting. Notice need not be given to any
Trustee who attends the meeting without objecting to the lack of notice or who
executes a written waiver of notice with respect to the meeting. Any meeting
conducted by telephone shall be deemed to take place at the principal office of
the Trust, as determined by the Bylaws or by the Trustees. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to any
one or more of their number their authority to approve particular matters or
take particular actions on behalf of the Trust. Written consents or waivers of
the Trustees may be executed in one or more counterparts. Execution of a written
consent or waiver and delivery thereof to the Trust may be accomplished by
facsimile or other similar electronic mechanism.
SECTION 4.05 CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint one
of their number to be Chairman of the Board of Trustees. The Chairman shall
preside at all meetings of the Trustees, shall be responsible for the execution
of policies established by the Trustees and the administration of the Trust, and
may be (but is not required to be) the chief executive, financial and/or
accounting officer of the Trust.
SECTION 4.06 PRINCIPAL TRANSACTIONS. Except to the extent prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust to, any Trustee
or officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with any investment
adviser, administrator, distributor or transfer agent for the Trust or with any
Interested Person of
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such person; and the Trust may employ any such person, or firm or company in
which such person is an Interested Person, as broker, legal counsel, registrar,
investment adviser, administrator, distributor, transfer agent, dividend
disbursing agent, custodian or in any other capacity upon customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Subject to the provisions of Article II, Section 2.08 hereof, the
Trustees are authorized to pay or cause to be paid from the Trust estate or the
assets belonging to the appropriate Series, expenses and disbursements,
including, without limitation, interest charges, taxes, brokerage fees and
commissions; expenses of issue, repurchase and redemption of Shares; certain
insurance premiums; applicable fees, interest charges and expenses of third
parties, including the Trust's investment advisers, managers, administrators,
distributors, custodian, transfer agent and fund accountant; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; telecommunications expenses; funds transmission expenses;
auditing, legal and compliance expenses; costs of forming the Trust and
maintaining its existence; costs of preparing and printing the Trust's
prospectuses, statements of additional information and shareholder reports and
delivering them to existing Shareholders; expenses of meetings of Shareholders
and proxy solicitations therefor; costs of maintaining books and accounts; costs
of reproduction, stationery and supplies; fees and expenses of the Trust's
trustees; compensation of the Trust's officers and employees and costs of other
personnel performing services for the Trust; costs of Trustee meetings;
Commission registration fees and related expenses; state or foreign securities
laws registration fees and related expenses and for such non-recurring items as
may arise, including litigation to which the Trust (or a Trustee acting as such)
is a party, and for all losses and liabilities by them incurred in administering
the Trust, and for the payment of such expenses, disbursements, losses and
liabilities the Trustees shall have a lien on the assets belonging to the
appropriate Series, or in the case of an expense allocable to more than one
Series, on the assets of each such Series, prior to any rights or interests of
the Shareholders thereto. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.
ARTICLE VI
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT
SECTION 6.01 INVESTMENT ADVISER. (a) The Trustees may in their
discretion, from time to time, enter into an investment advisory contract or
contracts with respect to the Trust or any Series whereby the other party or
parties to such contract or contracts shall undertake to furnish the Trustees
with such investment advisory, statistical and research facilities and services
and such other facilities and services, if any, all upon such terms and
conditions (including any Shareholder vote) that may be required under the 1940
Act, as may be prescribed in the Bylaws, or as the Trustees may in their
discretion determine (such terms and conditions not to be inconsistent with the
provisions of this Trust Instrument or of the Bylaws). Notwithstanding any other
provision
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of this Trust Instrument, the Trustees may authorize any investment adviser
(subject to such general or specific instructions as the Trustees may from time
to time adopt) to effect purchases, sales or exchanges of portfolio securities,
other investment instruments of the Trust, or other Trust Property on behalf of
the Trustees, or may authorize any officer, agent, or Trustee to effect such
purchases, sales or exchanges pursuant to recommendations of the investment
adviser (and all without further action by the Trustees). Any such purchases,
sales and exchanges shall be deemed to have been authorized by all of the
Trustees.
(b) The Trustees may authorize the investment adviser to employ, from
time to time, one or more sub-advisers to perform such of the acts and services
of the investment adviser, and upon such terms and conditions, as may be agreed
upon between the investment adviser and sub-adviser (such terms and conditions
not to be inconsistent with the provisions of this Trust Instrument or of the
Bylaws). Any reference in this Trust Instrument to the investment adviser shall
be deemed to include such sub-advisers, unless the context otherwise requires;
provided that no Shareholder approval shall be required with respect to any
sub-adviser unless required under the 1940 Act or other law, contract or order
applicable to the Trust.
SECTION 6.02 PRINCIPAL UNDERWRITER. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
underwriting contract or contracts providing for the sale of Shares, whereby the
Trust may either agree to sell Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws); and such contract may also provide for the repurchase or sale
of Shares by such other party as principal or as agent of the Trust.
SECTION 6.03 ADMINISTRATION. The Trustees may in their discretion from
time to time enter into one or more management or administrative contracts
whereby the other party or parties shall undertake to furnish the Trustees with
management or administrative services. The contract or contracts shall be on
such terms and conditions as may be prescribed in the Bylaws and as the Trustees
may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws).
SECTION 6.04 TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into one or more transfer agency and shareholder service
contracts whereby the other party or parties shall undertake to furnish the
Trustees with transfer agency and shareholder services. The contract or
contracts shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws).
SECTION 6.05 PARTIES TO CONTRACT. Any contract of the character
described in Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or any
contract of the character described in Article VIII hereof may be entered into
with any corporation, firm, partnership, trust or association, although one or
more of the Trustees or officers of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract, and no such
contract shall be invalidated or rendered void or voidable by reason of the
existence of any relationship, nor shall
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any person holding such relationship be disqualified from voting on or executing
the same in his capacity as Shareholder and/or Trustee, nor shall any person
holding such relationship be liable merely by reason of such relationship for
any loss or expense to the Trust under or by reason of said contract or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract when entered into was not inconsistent with the provisions of
this Article VI or Article VIII hereof or of the Bylaws. The same person
(including a corporation, firm, partnership, trust, or association) may be the
other party to contracts entered into pursuant to Sections 6.01, 6.02, 6.03 and
6.04 of this Article VI or pursuant to Article VIII hereof and any individual
may be financially interested or otherwise affiliated with persons who are
parties to any or all of the contracts mentioned in this Section 6.05.
SECTION 6.06 PROVISIONS AND AMENDMENTS. Any contract entered into
pursuant to Section 6.01 or 6.02 of this Article VI shall be consistent with and
subject to the requirements of Section 15 of the 1940 Act, if applicable, or
other applicable Act of Congress hereafter enacted with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal thereof, and no amendment to any contract
entered into pursuant to Section 6.01 of this Article VI shall be effective
unless assented to in a manner consistent with the requirements of said Section
15, as modified by any applicable rule, regulation or order of the Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.01 VOTING POWERS. (a) The Shareholders shall have power to
vote only (a) for the election of Trustees to the extent provided in Article
III, Section 3.01 hereof, (b) for the removal of Trustees to the extent provided
in Article III, Section 3.03(d) hereof, (c) with respect to any investment
advisory contract to the extent provided in Article VI, Section 6.01 hereof, (d)
with respect to an amendment of this Trust Instrument, to the extent provided in
Article XI, Section 11.08, and (e) with respect to such additional matters
relating to the Trust as may be required by law, by this Trust Instrument, or
any registration of the Trust with the Commission or any State, or as the
Trustees may consider desirable.
(b) Notwithstanding paragraph (a) of this Section 7.01 or any other
provision of this Trust Instrument (including the Bylaws) which would by its
terms provide for or require a vote of Shareholders, the Trustees may take
action without a Shareholder vote if (i) the Trustees shall have obtained an
opinion of counsel that a vote or approval of such action by Shareholders is not
required under (A) the 1940 Act or any other applicable laws, or (B) any
registrations, undertakings or agreements of the Trust known to such counsel,
and the Trustees determine in good faith that the taking of such action without
a Shareholder vote would be consistent with the best interests of the
Shareholders.
(c) On any matter submitted to a vote of the Shareholders, all Shares
shall be voted separately by individual Series, and whenever the Trustees
determine that the matter affects only certain Series, may be submitted for a
vote by only such Series, except (i) when required by the 1940 Act, Shares shall
be voted in the aggregate and not by individual Series; and (ii) when the
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Trustees have determined that the matter affects the interests of more than one
Series and that voting by shareholders of all Series would be consistent with
the 1940 Act, then the Shareholders of all such Series shall be entitled to vote
thereon (either by individual Series or by Shares voted in the aggregate, as the
Trustees in their discretion may determine). The Trustees may also determine
that a matter affects only the interests of one or more classes of a Series, in
which case (or if required under the 1940 Act) such matter shall be voted on by
such class or classes. Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by proxy or in any
manner provided for in the Bylaws. A proxy may be given in writing. The Bylaws
may provide that proxies may also, or may instead, be given by any electronic or
telecommunications device or in any other manner. Notwithstanding anything else
herein or in the Bylaws, in the event a proposal by anyone other than the
officers or Trustees of the Trust is submitted to a vote of the Shareholders, or
in the event of any proxy contest or proxy solicitation or proposal in
opposition to any proposal by the officers or Trustees of the Trust, Shares may
be voted only in person or by written proxy. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required or permitted by law, this Trust Instrument or any of the Bylaws of the
Trust to be taken by Shareholders.
SECTION 7.02 MEETINGS. Meetings of Shareholders may be held within or
without the State of Delaware. Special meetings of the Shareholders of any
Series for the purpose of voting upon the removal of a Trustee or Trustees may
be called by the Trustees and shall be called by the Trustees upon the written
request of Shareholders owning at least one tenth of the Outstanding Shares of
the Trust entitled to vote. Whenever ten or more Shareholders meeting the
qualifications set forth in Section 16(c) of the 1940 Act, as the same may be
amended from time to time, seek the opportunity of furnishing materials to the
other Shareholders with a view to obtaining signatures on such a request for a
meeting, the Trustees shall comply with the provisions of said Section 16(c)
with respect to providing such Shareholders access to the list of the
Shareholders of record of the Trust or the mailing of such materials to such
Shareholders of record, subject to any rights provided to the Trust or any
Trustees provided by said Section 16(c). Notice shall be sent, by First Class
Mail or such other means determined by the Trustees, at least 10 days prior to
any such meeting. Notwithstanding anything to the contrary in this Section 7.02,
the Trustees shall not be required to call a special meeting of the Shareholders
of any Series or to provide Shareholders seeking the opportunity of furnishing
the materials to other Shareholders with a view to obtaining signatures on a
request for a meeting except to the extent required under the 1940 Act.
SECTION 7.03 QUORUM AND REQUIRED VOTE. One-third of Shares outstanding
and entitled to vote in person or by proxy as of the record date for a
Shareholders' meeting shall be a quorum for the transaction of business at such
Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requires that holders of any Series shall vote as a Series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
Series (or that class). Any meeting of Shareholders may be adjourned from time
to time by a majority of the votes properly cast upon the question of adjourning
a meeting to another date and time, whether or not a quorum is present. Any
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adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by law or by any provision of this Trust
Instrument or the Bylaws, a majority of the Shares voted in person or by proxy
at a meeting at which a quorum is present shall decide any questions and a
plurality shall elect a Trustee, provided that where any provision of law or of
this Trust Instrument permits or requires that the holders of any Series shall
vote as a Series (or that the holders of any class shall vote as a class), then
a majority of the Shares voted in person or by proxy at a meeting of that Series
(or class), at which a quorum is present shall decide that matter insofar as
that Series (or class) is concerned. Shareholders may act by unanimous written
consent, to the extent not inconsistent with the 1940 Act, and any such actions
taken by a Series (or class) may be consented to unanimously in writing by
Shareholders of that Series (or class).
ARTICLE VIII
CUSTODIAN
SECTION 8.01 APPOINTMENT AND DUTIES. The Trustees shall employ a bank,
a company that is a member of a national securities exchange, or a trust
company, that in each case shall have capital, surplus and undivided profits of
at least twenty million dollars ($20,000,000) and that is a member of the
Depository Trust Company (or such other person or entity as may be permitted to
act as custodian of the Trust's assets under the 1940 Act) as custodian with
authority as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Bylaws of the Trust: (a) to
hold the securities owned by the Trust and deliver the same upon written order
or oral order confirmed in writing; (b) to receive and receipt for any moneys
due to the Trust and deposit the same in its own banking department or elsewhere
as the Trustees may direct; and (c) to disburse such funds upon orders or
vouchers.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank, a company that is a member of a
national securities exchange, or a trust company organized under the laws of the
United States or one of the states thereof and having capital, surplus and
undivided profits of at least twenty million dollars ($20,000,000) and that is a
member of the Depository Trust Company or such other person or entity as may be
permitted by the Commission or is otherwise able to act as custodian of the
Trust's assets in accordance with the 1940 Act.
SECTION 8.02 CENTRAL CERTIFICATE SYSTEM. Subject to the 1940 Act and
such other rules, regulations and orders as the Commission may adopt, the
Trustees may direct the custodian to deposit all or any part of the securities
owned by the Trust in a system for the central handling of securities
established by a national securities exchange or a national securities
association registered with the Commission under the Securities Exchange Act of
1934, as amended, or such other person as may be permitted by the Commission, or
otherwise in accordance with the 1940 Act, pursuant to which system all
securities of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of such securities, provided that all such
deposits
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shall be subject to withdrawal only upon the order of the Trust or its
custodians, sub-custodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
SECTION 9.01 DISTRIBUTIONS.
(a) The Trustees may from time to time declare and pay dividends or
other distributions with respect to any Series and/or class of a Series. The
amount of such dividends or distributions and the payment of them and whether
they are in cash or any other Trust Property shall be wholly in the discretion
of the Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary notwithstanding,
the Trustees may at any time declare and distribute a share dividend to the
Shareholders of a particular Series, or class thereof, as of the record date of
that Series fixed as provided in Subsection 9.01(b) hereof.
SECTION 9.02 REDEMPTIONS. In case any holder of record of Shares of a
particular Series desires to dispose of his Shares or any portion thereof he may
deposit at the office of the transfer agent or other authorized agent of that
Series a written request or such other form of request as the Trustees may from
time to time authorize, requesting that the Series purchase the Shares in
accordance with this Section 9.02; and, subject to Section 9.04 hereof, the
Shareholder so requesting shall be entitled to require the Series to purchase,
and the Series or the principal underwriter of the Series shall purchase his
said Shares, but only at the Net Asset Value thereof (as described in Section
9.03 of this Article IX). The Series shall make payment for any such Shares to
be redeemed, as aforesaid, in cash or property from the assets of that Series
and, subject to Section 9.04 hereof, payment for such Shares shall be made by
the Series or the principal underwriter of the Series to the Shareholder of
record within seven (7) days after the date upon which the request is effective.
Upon redemption and unless otherwise determined by the Trustees shares shall
become Treasury shares and may be re-issued from time to time.
SECTION 9.03 DETERMINATION OF NET ASSET VALUE AND VALUATION OF
PORTFOLIO ASSETS. The term "Net Asset Value" of any Series shall mean that
amount by which the assets of that Series exceed its liabilities, all as
determined by or under the direction of the Trustees. The Trustees may delegate
any of their powers and duties under this Section 9.03 with respect to valuation
of assets and liabilities. Such value shall be determined separately for each
Series and shall be determined on such days and at such times as the Trustees
may determine. Such determination
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shall be made with respect to securities for which market quotations are readily
available, at the market value of such securities; and with respect to other
securities and assets, at the fair value as determined in good faith by the
Trustees; provided, however, that the Trustees, without Shareholder approval,
may alter the method of valuing portfolio securities insofar as permitted under
the 1940 Act. The resulting amount, which shall represent the total Net Asset
Value of the particular Series, shall be divided by the total number of shares
of that Series outstanding at the time and the quotient so obtained shall be the
Net Asset Value per Share of that Series. At any time the Trustees may cause the
Net Asset Value per Share last determined to be determined again in similar
manner and may fix the time when such redetermined value shall become effective.
The Trustees shall not be required to adopt, but may at any time adopt,
discontinue or amend a practice of seeking to maintain the Net Asset Value per
Share of the Series at a constant amount. If, for any reason, the net income of
any Series, determined at any time, is a negative amount, the Trustees shall
have the power with respect to that Series (a) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholder, (b) to reduce the number of Outstanding Shares of such Series by
reducing the number of Shares in the account of each Shareholder by a pro rata
portion of that number of full and fractional Shares which represents the amount
of such excess negative net income, (c) to cause to be recorded on the books of
such Series an asset account in the amount of such negative net income (provided
that the same shall thereupon become the property of such Series with respect to
such Series and shall not be paid to any Shareholder), which account may be
reduced by the amount of dividends declared thereafter upon the Outstanding
Shares of such Series on the day such negative net income is experienced, until
such asset account is reduced to zero; (d) to combine the methods described in
clauses (a) and (b) and (c) of this sentence; or (e) to take any other action
they deem appropriate, in order to cause (or in order to assist in causing) the
Net Asset Value per Share of such Series to remain at a constant amount per
Outstanding Share immediately after each such determination and declaration. The
Trustees shall also have the power not to declare a dividend out of net income
for the purpose of causing the Net Asset Value per Share to be increased.
In the event that any Series is divided into classes, the provisions of
this Section 9.03, to the extent applicable as determined in the discretion of
the Trustees and consistent with the 1940 Act and other applicable law, may be
equally applied to each such class.
SECTION 9.04 SUSPENSION OF THE RIGHT OF REDEMPTION. The Trustees may
declare a suspension of the right of redemption or postpone the date of payment
if permitted under the 1940 Act. Such suspension shall take effect at such time
as the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share next determined after the termination of
the suspension.
SECTION 9.05 REDEMPTION OF SHARES IN ORDER TO QUALIFY AS REGULATED
INVESTMENT COMPANY. If the Trustees shall, at any time and in good faith, be of
the opinion that direct or indirect ownership of Shares of any Series has or may
become concentrated in any Person to an
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extent which would disqualify any Series as a regulated investment company under
the Internal Revenue Code, then the Trustees shall have the power (but not the
obligation) by lot or other means deemed equitable by them (a) to call for
redemption by any such person of a number, or principal amount, of Shares
sufficient to maintain or bring the direct or indirect ownership of Shares into
conformity with the requirements for such qualification and (b) to refuse to
transfer or issue Shares to any person whose acquisition of Shares in question
would result in such disqualification. The redemption shall be effected at the
redemption price and in the manner provided in this Article IX.
The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the requirements of any taxing
authority or this Section 9.05.
SECTION 9.06 REDEMPTION OF SMALL ACCOUNTS. Subject to the requirements
of the 1940 Act, the Trustees may cause the Trust to redeem, at the price and in
the manner provided in this Article IX, Shares of any Series or class of a
Series held by any Shareholder (i) if such Shareholder is no longer qualified to
hold such Shares in accordance with such qualifications as may be established by
the Trustees, (ii) if the net asset value of such Shares is below $500 or such
other amount as determined by the Trustees or (iii) if otherwise deemed by the
Trustees to be in the best interest of the Trust or that particular Series (or
class) as a whole.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 10.01 LIMITATION OF LIABILITY. Neither a Trustee nor an officer
of the Trust, when acting in such capacity, shall be personally liable to any
person other than the Trust or the Shareholders for any act, omission or
obligation of the Trust, any Trustee or any officer of the Trust. Neither a
Trustee nor an officer of the Trust shall be liable for any act or omission or
any conduct whatsoever in his capacity as Trustee or as an officer of the Trust,
provided that nothing contained herein or in the Delaware Act shall protect any
Trustee or any officer of the Trust against any liability to the Trust or to
Shareholders 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 the office of Trustee or officer of the Trust
hereunder.
SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof;
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(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or
other body approving the settlement; (B) by at least a majority of
those Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion
of independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
Subsection (a) of this Section 10.02 may be paid by the Trust or Series from
time to time prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over by him
to the Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that either (i)
such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 10.02.
SECTION 10.03 SHAREHOLDERS. In case any Shareholder of any Series shall
be held to be personally liable solely by reason of his being or having been a
Shareholder of such Series and
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not because of his acts or omissions or for some other reason, the Shareholder
or former Shareholder (or his heirs, executors, administrators or other legal
representatives, or, in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets belonging to the
applicable Series to be held harmless from and indemnified against all loss and
expense arising from such liability. The Trust, on behalf of the affected
Series, shall, upon request by the Shareholder, assume the defense of any claim
made against the Shareholder for any act or obligation of the Series and satisfy
any judgment thereon from the assets of the Series.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 TRUST NOT A PARTNERSHIP. It is hereby expressly declared
that a trust and not a partnership is created hereby. No Trustee hereunder shall
have any power to bind personally either the Trust officers or any Shareholder.
All persons extending credit to, contracting with or having any claim against
the Trust or the Trustees shall look only to the assets of the appropriate
Series or (if the Trustees shall have yet to have established Series) of the
Trust for payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of their agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Trust Instrument
shall protect a Trustee against any liability to the Trust or a Shareholder to
which the Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee hereunder.
SECTION 11.02 TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees or the officers of the Trust of their
powers and discretion hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested. Subject
to the provisions of Article X hereof and to Section 11.01 of this Article XI,
the Trustees and the officers of the Trust shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees and the officers of the Trust
may take advice of counsel or other experts with respect to the meaning and
operation of this Trust Instrument, and subject to the provisions of Article X
hereof and Section 11.01 of this Article XI, shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice. The Trustees and the officers of the Trust shall not be required to give
any bond as such, nor any surety if a bond is obtained.
SECTION 11.03 ESTABLISHMENT OF RECORD DATES. The Trustees may close the
Share transfer books of the Trust for a period not exceeding sixty (60) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or other distributions, or the date for the allotment of
rights, or the date when any change or conversion or exchange of Shares shall go
into effect; or in lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding sixty (60) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
other distribution, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or other distribution,
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or to any such allotment of rights, or to exercise the rights in respect of any
such change, conversion or exchange of Shares, and in such case such
Shareholders and only such Shareholders as shall be Shareholders of record on
the date so fixed shall be entitled to such notice of, and to vote at, such
meeting, or to receive payment of such dividend or other distribution, or to
receive such allotment or rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any Shares on the books of the Trust after
any such record date fixed as aforesaid.
SECTION 11.04 TERMINATION OF TRUST.
(a) This Trust shall continue without limitation of time but subject to
the provisions of Subsection 11.04(b).
(b) The Trustees may, subject to any necessary Shareholder, Trustee,
and regulatory approvals:
(i) sell and convey all or substantially all of the assets of the
Trust or any affected Series to another trust, partnership,
association or corporation, or to a separate series of shares thereof,
organized under the laws of any state which trust, partnership,
association or corporation is an open-end management investment
company as defined in the 1940 Act, or is a series thereof, for
adequate consideration which may include the assumption of all
outstanding obligations, taxes and other liabilities, accrued or
contingent, of the Trust or any affected Series, and which may include
shares of beneficial interest, stock or other ownership interests of
such trust, partnership, association or corporation or of a series
thereof;
(ii) enter into a plan of liquidation in order to terminate and
liquidate any Series (or class) of the Trust, or the Trust; or
(iii) at any time sell and convert into money all of the assets
of the Trust or any affected Series.
Upon making reasonable provision, in the determination of the Trustees, for the
payment of all liabilities by assumption or otherwise, the Trustees shall
distribute the remaining proceeds or assets (as the case may be) of each Series
(or class) ratably among the holders of Shares of the affected Series, based
upon the ratio that each Shareholder's Shares bears to the number of Shares of
such Series (or class) then outstanding.
(c) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in Subsection 11.04(b), the Trust or any
affected Series shall terminate and the Trustees and the Trust shall be
discharged of any and all further liabilities and duties hereunder and the
right, title and interest of all parties with respect to the Trust or Series
shall be cancelled and discharged.
Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's certificate of trust to be filed in
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accordance with the Delaware Act, which certificate of cancellation may be
signed by any one Trustee.
SECTION 11.05 REORGANIZATION.
(a) Notwithstanding anything else herein, the Trustees, in order to
change the form or jurisdiction of organization of the Trust, may (i) cause the
Trust to merge or consolidate with or into one or more trusts, partnerships
(general or limited), associations or corporations so long as the surviving or
resulting entity is an open-end management investment company under the 1940
Act, or is a series thereof, that will succeed to or assume the Trust's
registration under that Act and which is formed, organized or existing under the
laws of a state, commonwealth, possession or colony of the United States or (ii)
cause the Trust to incorporate under the laws of Delaware.
(b) The Trustees may, subject to a vote of a majority of the Trustees
and any shareholder vote required under the 1940 Act, if any, cause the Trust to
merge or consolidate with or into one or more Trusts, partnerships (general or
limited), associations, limited liability companies or corporations formed,
organized or existing under the laws of a state, commonwealth, possession or
colony of the United States.
(c) Any agreement of merger or consolidation or certificate of merger
or consolidation may be signed by a majority of Trustees and facsimile
signatures conveyed by electronic or telecommunication means shall be valid.
(d) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the contrary
contained in this Trust Instrument, an agreement of merger or consolidation
approved by the Trustees in accordance with paragraph (a) or (b) of this Section
11.05 may effect any amendment to the Trust Instrument or effect the adoption of
a new trust instrument of the Trust if it is the surviving or resulting trust in
the merger or consolidation.
SECTION 11.06 FILING OF COPIES, REFERENCES, HEADINGS. The original or a
copy of this Trust Instrument and of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer or Trustee of the Trust as to whether or not any such
amendments or supplements have been made and as to any matters in connection
with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy
of this Trust Instrument or of any such amendment or supplemental Trust
Instrument. In this Trust Instrument or in any such amendment or supplemental
Trust Instrument, references to this Trust Instrument, and all expressions such
as "herein," "hereof" and "hereunder," shall be deemed to refer to this Trust
Instrument as amended or affected by any such supplemental Trust Instrument. All
expressions such as "his," "he" and "him," shall be deemed to include the
feminine and neuter, as well as masculine, genders. Headings are placed herein
for convenience of reference only and in case of any conflict, the text of this
Trust Instrument, rather than the headings, shall control. This Trust Instrument
may be executed in any number of counterparts each of which shall be deemed an
original.
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SECTION 11.07 APPLICABLE LAW. The trust set forth in this instrument is
made in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Act and the
laws of said State; provided, however, that there shall not be applicable to the
Trust, the Trustees or this Trust Instrument (a) the provisions of Section 3540
of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or
common) of the State of Delaware (other than the Delaware Act) pertaining to
trusts which relate to or regulate (i) the filing with any court or governmental
body or agency of trustee accounts or schedules of trustee fees and charges,
(ii) affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Trust Instrument. The Trust shall be of the type commonly called a
"business trust," and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
SECTION 11.08 AMENDMENTS. Except as specifically provided herein, the
Trustees may, without shareholder vote, amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto or an
amended and restated trust instrument. Shareholders shall have the right to vote
(a) on any amendment which would affect their rights to vote granted in Section
7.01 of Article VII hereof, (b) on any amendment to this Section 11.08, (c) on
any amendment as may be required by law or by the Trust's registration statement
filed with the Commission and (d) on any amendment submitted to them by the
Trustees. Any amendment required or permitted to be submitted to Shareholders
which, as the Trustees determine, shall affect the Shareholders of one or more
Series shall be authorized by vote of the Shareholders of each Series affected
and no vote of shareholders of a Series not affected shall be required.
Notwithstanding any other provision of this Trust Instrument, any amendment to
Article X hereof shall not limit the rights to indemnification or insurance
provided therein with respect to action or omission of Covered Persons prior to
such amendment.
SECTION 11.09 FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the Bylaws, provided, however, that the Trustees
may change the fiscal year of the Trust.
SECTION 11.10 NAME RESERVATION. The Trustees on behalf of the Trust
acknowledge that Guinness Flight Investment Management Limited has licensed to
the Trust the non-exclusive right to use the name "Guinness Flight" as part of
the name of the Trust, and has reserved the right to
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grant the non-exclusive use of the name "Guinness Flight" or any derivative
thereof to any other party. In addition, Guinness Flight Investment Management
Limited reserves the right to grant the non-exclusive use of the name "Guinness
Flight" to, and to withdraw such right from, any other business or other
enterprise. Guinness Flight Investment Management Limited reserves the right to
withdraw from the Trust the right to use said name "Guinness Flight" and will
withdraw such right if the Trust ceases to employ, for any reason, Guinness
Flight Investment Management Limited, an affiliate or any successor as adviser
of the Trust.
SECTION 11.11 PROVISIONS IN CONFLICT WITH LAW. The provisions of this
Trust Instrument are severable, and if the Trustees shall determine, with the
advice of counsel, that any of such provisions is in conflict with the 1940 Act,
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any matter affect such provision in any other jurisdiction or any
other provision of this Trust Instrument in any jurisdiction.
IN WITNESS WHEREOF, the undersigned, being the initial Trustee of the
Trust, has executed this instrument as of date first written above.
/s/ Joanne Doldo
-----------------------
Joanne Doldo, as Trustee
and not individually
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SCHEDULE A
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
26
GUINNESS FLIGHT INVESTMENT FUNDS
BYLAWS
MARCH 6, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
PRINCIPAL OFFICE.......................................................... 1
ARTICLE II
OFFICERS AND THEIR ELECTION............................................... 1
Section 2.01 Officers............................................ 1
Section 2.02 Election of Officers................................ 1
Section 2.03 Resignations........................................ 1
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES................................ 1
Section 3.01 Management of the Trust............................. 1
Section 3.02 Executive And Other Committees...................... 2
Section 3.03 Compensation........................................ 2
Section 3.04 Chairman Of The Trustees............................ 2
Section 3.05 President........................................... 2
Section 3.06 Treasurer........................................... 2
Section 3.07 Secretary........................................... 3
Section 3.08 Vice President...................................... 3
Section 3.09 Assistant Treasurer................................. 3
Section 3.10 Assistant Secretary................................. 3
Section 3.11 Subordinate Officers................................ 3
Section 3.12 Surety Bonds........................................ 3
Section 3.13 Removal............................................. 4
Section 3.14 Remuneration........................................ 4
ARTICLE IV
SHAREHOLDERS' MEETINGS.................................................... 4
Section 4.01 Special Meetings.................................... 4
Section 4.02 Notices............................................. 4
Section 4.03 Voting-Proxies...................................... 5
Section 4.04 Place of Meeting.................................... 5
Section 4.05 Action Without a Meeting............................ 5
ARTICLE V
TRUSTEES' MEETINGS........................................................ 6
Section 5.01 Special Meetings.................................... 6
Section 5.02 Regular Meetings.................................... 6
Section 5.03 Quorum.............................................. 6
Section 5.04 Notice.............................................. 6
Section 5.05 Place of Meeting.................................... 6
Section 5.06 Special Action...................................... 6
Section 5.07 Action by Consent................................... 6
Section 5.08 Participation in Meetings By Conference
Telephone............................................... 6
ARTICLE VI
FISCAL YEAR; REGISTERED OFFICE AND REGISTERED AGENT....................... 7
Section 6.01 Fiscal Year......................................... 7
Section 6.02 Registered Office and Registered Agent.............. 7
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ARTICLE VII
INSPECTION OF BOOKS....................................................... 7
ARTICLE VIII
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES............................ 7
ARTICLE IX
SEAL...................................................................... 8
ARTICLE X
AMENDMENTS................................................................ 8
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GUINNESS FLIGHT INVESTMENT FUNDS
BYLAWS
These Bylaws of Guinness Flight Investment Funds (the "Trust"), a
Delaware business trust, are subject to the Trust Instrument of the Trust, dated
March 6, 1997, as from time to time amended, supplemented or restated (the
"Trust Instrument"). Capitalized terms used herein which are defined in the
Trust Instrument are used as therein defined.
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Trust shall be located in Pasadena,
California or such other location as the Trustees may, from time to time,
determine. The Trust may establish and maintain such other offices and places of
business as the Trustees may, from time to time, determine.
ARTICLE II
OFFICERS AND THEIR ELECTION
SECTION 2.01 OFFICERS. The officers of the Trust shall be a President,
a Treasurer, a Secretary, and such other officers as the Trustees may from time
to time elect. The Trustees may delegate to any officer or committee the power
to appoint any subordinate officers or agents. It shall not be necessary for any
Trustee or other officer to be a holder of Shares in the Trust.
SECTION 2.02 ELECTION OF OFFICERS. The Treasurer and Secretary shall be
chosen by the Trustees. The President shall be chosen by and from the Trustees.
Two or more offices may be held by a single person except the offices of
President and Secretary. Subject to the provisions of Section 3.13 hereof the
President, the Treasurer and the Secretary shall each hold office until their
successors are chosen and qualified and all other officers shall hold office at
the pleasure of the Trustees.
SECTION 2.03 RESIGNATIONS. Any officer of the Trust may resign,
notwithstanding Section 2.02 hereof, by filing a written resignation with the
President, the Trustees or the Secretary, which resignation shall take effect on
being so filed or at such time as may be therein specified.
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
SECTION 3.01 MANAGEMENT OF THE TRUST. The business and
affairs of the Trust shall be managed by, or under the direction
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of the Trustees, and they shall have all powers necessary and desirable to carry
out their responsibilities, so far as such powers are not inconsistent with the
laws of the State of Delaware, the Trust Instrument or with these Bylaws.
SECTION 3.02 EXECUTIVE AND OTHER COMMITTEES. The Trustees may elect
from their own number an executive committee, which shall have any or all of the
powers of the Board of Trustees while the Board of Trustees is not in session.
The Trustees may also elect from their own number other committees from time to
time. The number composing such committees and the powers conferred upon the
same are to be determined by vote of a majority of the Trustees. All members of
such committees shall hold such offices at the pleasure of the Trustees. The
Trustees may abolish any such committee at any time. Any committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect.
SECTION 3.03 COMPENSATION. Each Trustee and each committee member may
receive such compensation for his services and reimbursement for his expenses as
may be fixed from time to time by resolution of the Trustees.
SECTION 3.04 CHAIRMAN OF THE TRUSTEES. The Trustees may appoint from
among their number a Chairman who shall serve as such at the pleasure of the
Trustees. When present, he shall preside at all meetings of the Shareholders and
the Trustees, and he may, subject to the approval of the Trustees, appoint a
Trustee to preside at such meetings in his absence. He shall perform such other
duties as the Trustees may from time to time designate.
SECTION 3.05 PRESIDENT. The President shall be the chief executive
officer of the Trust and, subject to the direction of the Trustees, shall have
general administration of the business and policies of the Trust. Except as the
Trustees may otherwise order, the President shall have the power to grant,
issue, execute or sign such powers of attorney, process, agreements or other
documents as may be deemed advisable or necessary in the furtherance of the
interests of the Trust or any Series thereof. He shall also have the power to
employ attorneys, accountants and other advisors and agents and counsel for the
Trust. The President shall perform such duties additional to all of the
foregoing as the Trustees may from time to time designate.
SECTION 3.06 TREASURER. The Treasurer shall be the principal financial
and accounting officer of the Trust. He shall deliver all funds and securities
of the Trust which may come into his hands to such company as the Trustees shall
employ as Custodian in accordance with the Trust Instrument and
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applicable provisions of law. He shall make annual reports regarding the
business and condition of the Trust, which reports shall be preserved in Trust
records, and he shall furnish such other reports regarding the business and
condition of the Trust as the Trustees may from time to time require. The
Treasurer shall perform such additional duties as the Trustees may from time to
time designate.
SECTION 3.07 SECRETARY. The Secretary shall record in books kept for
the purpose all votes and proceedings of the Trustees and the Shareholders at
their respective meetings. He shall have the custody of the seal of the Trust.
The Secretary shall perform such additional duties as the Trustees may from time
to time designate.
SECTION 3.08 VICE PRESIDENT. Any Vice President of the Trust shall
perform such duties as the Trustees or the President may from time to time
designate. At the request or in the absence or disability of the President, the
Vice President (or, if there are two or more Vice Presidents, then the senior of
the Vice Presidents) present and able to act may perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
SECTION 3.09 ASSISTANT TREASURER. Any Assistant Treasurer of the Trust
shall perform such duties as the Trustees or the Treasurer may from time to time
designate, and, in the absence of the Treasurer, the senior Assistant Treasurer,
present and able to act, may perform all the duties of the Treasurer and, when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Treasurer.
SECTION 3.10 ASSISTANT SECRETARY. Any Assistant Secretary of the Trust
shall perform such duties as the Trustees or the Secretary may from time to time
designate, and, in the absence of the Secretary, the senior Assistant Secretary,
present and able to act, may perform all the duties of the Secretary and, when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Secretary.
SECTION 3.11 SUBORDINATE OFFICERS. The Trustees from time to time may
appoint such officers or agents as they may deem advisable, each of whom shall
have such title, hold office for such period, have such authority and perform
such duties as the Trustees may determine. The Trustees from time to time may
delegate to one or more officers or committees of Trustees the power to appoint
any such subordinate officers or agents and to prescribe their respective terms
of office, authorities and duties.
SECTION 3.12 SURETY BONDS. The Trustees may require any officer or
agent of the Trust to execute a bond (including without limitation, any bond
required by the 1940 Act and the
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<PAGE>
rules and regulations of the Commission) to the Trust in such sum and with such
surety or sureties as the Trustees may determine, conditioned upon the faithful
performance of his duties to the Trust including responsibility for negligence
and for the accounting of any of the Trust's property, funds or securities that
may come into his hands.
SECTION 3.13 REMOVAL. Any officer may be removed from office, with or
without cause, whenever in the judgment of the Trustees the best interest of the
Trust will be served thereby, by the vote of a majority of the Trustees given at
any regular meeting or any special meeting of the Trustees. In addition, any
officer or agent appointed in accordance with the provisions of Section 3.10
hereof may be removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees.
SECTION 3.14 REMUNERATION. The salaries or other compensation, if any,
of the officers of the Trust shall be fixed from time to time by resolution of
the Trustees.
ARTICLE IV
SHAREHOLDERS' MEETINGS
SECTION 4.01 SPECIAL MEETINGS. A special meeting of the shareholders
shall be called by the Secretary whenever (a) ordered by the Trustees or (b)
requested in writing by the holder or holders of at least 10% of the Outstanding
Shares entitled to vote for the purpose of voting upon the question of removal
of Trustees. If the meeting is a meeting of the Shareholders of one or more
Series or classes of Shares, but not a meeting of all Shareholders of the Trust,
then only special meetings of the Shareholders of such one or more Series or
classes shall be called and only the shareholders of such one or more Series or
classes shall be entitled to notice of and to vote at such meeting.
SECTION 4.02 NOTICES. Except as provided in Section 4.01, notices of
any meeting of the Shareholders shall be given by the Secretary by delivering or
mailing, postage prepaid, to each Shareholder entitled to vote at said meeting,
written or printed notification of such meeting at least ten (10) days before
the meeting, to such address as may be registered with the Trust by the
Shareholder. Notice of any Shareholder meeting need not be given to any
Shareholder if a written waiver of notice, executed before or after such
meeting, is filed with the records of such meeting, or to any Shareholder who
shall attend such meeting in person or by proxy. Notice of adjournment of a
Shareholder's meeting to another time or place need not be given, if such time
and place are announced at the meeting or reasonable notice is given to persons
present at the meeting and the adjourned meeting is held within a reasonable
time after the date set for the original meeting.
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<PAGE>
SECTION 4.03 VOTING-PROXIES. Subject to the provisions of the Trust
Instrument, shareholders entitled to vote may vote either in person or by proxy,
provided that either (a) an instrument authorizing such proxy to act is executed
by the Shareholder in writing and dated not more than eleven (11) months before
the meeting, unless the instrument specifically provides for a longer period or
(b) the Trustees adopt by resolution an electronic, telephonic, computerized or
other alternative to execution of a written instrument authorizing the proxy to
act, which authorization is received not more than eleven (11) months before the
meeting. Proxies shall be delivered to the Secretary of the Trust or other
person responsible for recording the proceedings before being voted. A proxy
with respect to shares held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the Trust
receives a specific written notice from any one of them. Unless otherwise
specifically limited by their terms, proxies shall entitle the holder thereof to
vote at any adjournment of a meeting. A proxy purporting to be exercised by or
on behalf of a Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden of proving invalidity shall rest on the
challenger. At all meetings of the Shareholders, unless the voting is conducted
by inspectors, all questions relating to the qualifications of voters, the
validity of proxies, and the acceptance or rejection of votes shall be decided
by the Chairman of the meeting. Except as otherwise provided herein or in the
Trust Instrument, as these Bylaws or such Trust Instrument may be amended or
supplemented from time to time, all matters relating to the giving, voting or
validity of proxies shall be governed by the General Corporation Law of the
State of Delaware relating to proxies, and judicial interpretations thereunder,
as if the Trust were a Delaware corporation and the Shareholders were
shareholders of a Delaware corporation.
SECTION 4.04 PLACE OF MEETING. All special meetings of the Shareholders
shall be held at the principal place of business of the Trust or at such other
place in the United States as the Trustees may designate.
SECTION 4.05 ACTION WITHOUT A MEETING. Any action to be taken by
Shareholders may be taken without a meeting if all Shareholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of meetings of Shareholders of the Trust. Such consent
shall be treated for all purposes as a vote at a meeting of the Shareholders
held at the principal place of business of the Trust.
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<PAGE>
ARTICLE V
TRUSTEES' MEETINGS
SECTION 5.01 SPECIAL MEETINGS. Special meetings of the Trustees may be
called orally or in writing by the Chairman of the Board of Trustees or any two
other Trustees.
SECTION 5.02 REGULAR MEETINGS. Regular meetings of the Trustees may be
held at such places and at such times as the Trustees may from time to time
determine; each Trustee present at such determination shall be deemed a party
calling the meeting and no call or notice will be required to such Trustee
provided that any Trustee who is absent when such determination is made shall be
given notice of the determination by the Chairman or any two other Trustees, as
provided for in Section 4.04 of the Trust Instrument.
SECTION 5.03 QUORUM. A majority of the Trustees shall constitute a
quorum for the transaction of business at any meeting and an action of a
majority of the Trustees in attendance constituting a quorum shall constitute
action of the Trustees.
SECTION 5.04 NOTICE. Except as otherwise provided, notice of any
special meeting of the Trustees shall be given by the party calling the meeting
to each of the Trustees, as provided for in Section 4.04 of the Trust
Instrument. A written notice may be mailed, postage prepaid, addressed to him at
his address as registered on the books of the Trust or, if not so registered, at
his last known address.
SECTION 5.05 PLACE OF MEETING. All special meetings of the Trustees
shall be held at the principal place of business of the Trust or such other
place as the Trustees may designate. Any meeting may adjourn to any place.
SECTION 5.06 SPECIAL ACTION. When all the Trustees shall be present at
any meeting however called or wherever held, or shall assent to the holding of
the meeting without notice, or shall sign a written assent thereto filed with
the records of such meeting, the acts of such meeting shall be valid as if such
meeting had been regularly held.
SECTION 5.07 ACTION BY CONSENT. Any action by the Trustees may be taken
without a meeting if a written consent thereto is signed by all the Trustees and
filed with the records of the Trustees' meeting. Such consent shall be treated,
for all purposes, as a vote at a meeting of the Trustees held at the principal
place of business of the Trustees.
SECTION 5.08 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Except
when presence in person is required at a meeting under the 1940 Act or other
applicable laws, Trustees may participate in a meeting of Trustees by conference
telephone or similar communications equipment by means of which all persons
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<PAGE>
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting. Any meeting conducted by
telephone shall be deemed to take place at and from the principal office of the
Trust.
ARTICLE VI
FISCAL YEAR; REGISTERED OFFICE AND REGISTERED AGENT
SECTION 6.01 FISCAL YEAR. The fiscal year of the Trust and of each
Series of the Trust shall end on December 31 of each year; provided that the
last fiscal year of the Trust and each Series shall end on the date on which the
Trust or each such Series is terminated, as applicable; and further provided
that the Trustees by resolution and without a Shareholder vote may at any time
change the fiscal year of the Trust and of any or all Series (and the Trust and
each Series may have different fiscal years as determined by the Trustees).
SECTION 6.02 REGISTERED OFFICE AND REGISTERED AGENT. The initial
registered office of the Trust in the State of Delaware shall be located at 1201
North Market Street, P.O. Box 1347, Wilmington, Delaware 19899-1347. The
registered agent of the Trust at such location shall be Delaware Corporation
Organizers, Inc.; provided that the Trustees by resolution and without a
Shareholder vote may at any time change the Trust's registered office or its
registered agent, or both.
ARTICLE VII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and regulations
the accounts and books of the Trust or any of them shall be open to the
inspection of the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees or by resolution of the Shareholders.
ARTICLE VIII
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES
The Trust may purchase and maintain insurance on behalf of any Covered
Person (as defined in Section 10.02 of the Trust Instrument) or employee of the
Trust, including any Covered Person or employee of the Trust who is or was
serving at the request of the Trust as a Trustee, officer or employee of a
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and claimed by him in any such capacity or
arising out of his status as such, whether or not the Trustees would have the
power to indemnify him against such liability.
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<PAGE>
The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
liability to the Trust or its Shareholders 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.
ARTICLE IX
SEAL
The seal of the Trust shall be circular in form bearing the
inscription:
"GUINNESS FLIGHT INVESTMENT FUNDS, MARCH 6, 1997
THE STATE OF DELAWARE"
ARTICLE X
AMENDMENTS
These Bylaws may be amended from time to time by action of the
Trustees, without requirement for the vote or approval of shareholders.
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FORM OF
INVESTMENT ADVISORY AGREEMENT
BETWEEN
GUINNESS FLIGHT INVESTMENT FUNDS
AND
GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED
INVESTMENT ADVISORY AGREEMENT, dated as of ________, 1997, by and
between GUINNESS FLIGHT INVESTMENT FUNDS, a Delaware business trust which may
issue one or more series of shares of beneficial interest (the "Trust"), and
GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED (the "Adviser").
W I T N E S S E T H
-------------------
WHEREAS, the Trust 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, the Trust wishes to engage the Adviser to provide certain
investment advisory services to the series of the Trust listed on Schedule A
(each, a "Fund" and collectively, the "Funds"), and the Adviser is willing to
provide such investment advisory services for the Funds 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 Funds with respect to the investment of their assets
and to supervise and arrange the purchase of securities for and the sale of
securities held in the portfolios of the Funds.
2. Duties and Obligations of the Adviser With Respect to the Invest-
ment of Assets of the Funds.
(a) Subject to the succeeding provisions of this section and subject to
the direction and control of the Board of Trustees of the Trust, the Adviser
shall:
(i) supervise continuously the investment program of each Fund
and the composition of its portfolio;
(ii) determine what securities be purchased or sold by each Fund;
and
(iii) arrange for the purchase and the sale of securities held in
the portfolio of each 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 the Trust's Trust Instrument and By-Laws,
as amended from time to time;
(iv) any policies and determinations of the Board of Trustees of
the Trust; and
(v) the fundamental policies of each Fund, as reflected in its
Registration Statement under the Act, as amended from time
to time.
(c) The Adviser shall give each Fund the benefit of its best judgment
and effort in rendering services hereunder, and in connection therewith the
Adviser shall not be liable to any 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 such
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<PAGE>
Fund, except for wilful misfeasance, bad faith or gross negligence in the
performance of its 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 Funds
under this Agreement. The Adviser agrees that it will not deal with itself, or
with the Trustees of the Trust or the Funds' principal underwriter or
distributor, as principals in making purchases or sales of securities or other
property for the account of the Funds, except as permitted by the Act, and will
comply with all other provisions of the Trust's Trust Instrument and By-Laws and
the then-current prospectus and statement of additional information applicable
to each Fund relative to the Adviser and its board members and officers.
(e) The Funds will supply the Adviser with certified copies of the
following documents: (i) the Trust's Trust Instrument and By-Laws; (ii)
resolutions of the Trust's Board of Trustees and shareholders authorizing the
appointment of the Adviser and approving this Agreement; (iii) the Funds'
Registration Statement, as filed with the Securities and Exchange Commission;
and (iv) the Funds' most recent prospectus and statement of additional
information. The Funds 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 Funds 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
each 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. Each Fund understands that many
of its 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
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<PAGE>
order; and the value of the expected contribution of the broker or dealer to the
investment performance of a Fund on a continuing basis. Accordingly, the price
to a Fund in any 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 Trustees 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 a 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 a 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 Trustees 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 each 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 Funds all necessary
financial information in connection with the Administrator's duties under any
agreement between the Administrator and the Trust on behalf of the Funds. 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 a Fund or the Adviser and a 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 Trust on behalf of a 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
-4-
<PAGE>
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 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.
For the services to be rendered, each Fund shall pay to the Adviser
from the assets of the Fund an investment advisory fee paid monthly at an annual
rate set forth opposite each Fund's name on Schedule A which shall be a
percentage 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.
6. Duration Amendment and Termination.
(a) This Agreement shall go into effect as to each 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 long as such continuance is
specifically approved at least annually by the Board of Trustees, including the
vote of a majority of the trustees 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 a Fund and by such a vote of the trustees.
(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 a Fund.
(c) This Agreement may be terminated as to a Fund by the Adviser at any
time without penalty upon giving such Fund sixty (60) days' written notice
(which notice may be waived by the Fund) and may be terminated by a 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
such Fund shall be approved by the vote of a majority of all the trustees in
office at the time or by the vote of the holders of a "majority" (as defined in
the Act) of the
-5-
<PAGE>
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 Trustees' Meeting.
Each Fund agrees that notice of each meeting of the Board of Trustees
will be sent to the Adviser and that each 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".
Each 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 a 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, each Fund shall immediately delete "Guinness Flight" from its name
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.
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.
-6-
<PAGE>
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
By___________________________________
Title:
GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED
By____________________________________
Title:
-7-
<PAGE>
Schedule A
Name of Fund Fee*
- ------------ ----
1. Guinness Flight Asia Blue Chip Fund 1.00%
2. Guinness Flight Asia Small Cap Fund 1.00%
3. Guinness Flight China & Hong Kong Fund 1.00%
4. Guinness Flight Global Government Bond Fund .75%
- --------------
* As a percentage of average daily net assets. Note, however, that the
Adviser shall have the right, but not the obligation, to voluntarily waive
any portion of the advisory fee from time to time. Any such voluntary
waiver will be irrevocable and determined in advance of rendering
investment advisory services by the Adviser, and shall be in writing and
signed by the parties hereto.
Kramer, Levin, Naftalis & Frankel
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
Arthur H. Aufses III Monica C. Lord Sherwin Kamin
Thomas D. Balliett Richard Marlin Arthur B. Kramer
Jay G. Baris Thomas E. Molner Maurice N. Nessen
Philip Bentley Thomas H. Moreland Founding Partners
Saul E. Burian Ellen R. Nadler Counsel
Barry Michael Cass Gary P. Naftalis _____
Thomas E. Constance Michael J. Nassau
Michael J. Dell Michael S. Nelson Martin Balsam
Kenneth H. Eckstein Jay A. Neveloff Joshua M. Berman
Charlotte M. Fischman Michael S. Oberman Jules Buchwald
David S. Frankel Paul S. Pearlman Rudolph de Winter
Marvin E. Frankel Susan J. Penry-Williams Meyer Eisenberg
Alan R. Friedman Bruce Rabb Arthur D. Emil
Carl Frischling Allan E. Reznick Maxwell M. Rabb
Mark J. Headley Scott S. Rosenblum James Schreiber
Robert M. Heller Michele D. Ross Counsel
Philip S. Kaufman Max J. Schwartz _____
Peter S. Kolevzon Mark B. Segall
Kenneth P. Kopelman Judith Singer M. Frances Buchinsky
Michael Paul Korotkin Howard A. Sobel Abbe L. Dienstag
Shari K. Krouner Jeffrey S. Trachtman Ronald S. Greenberg
Kevin B. Leblang Jonathan M. Wagner Debora K. Grobman
David P. Levin Harold P. Weinberger Christian S. Herzeca
Ezra G. Levin E. Lisk Wyckoff, Jr. Jane lee
Larry M. Loeb Pinchas Mendelson
Lynn R. Saidenberg
Special Counsel
-----
FAX
(212) 715-8000
---
WRITER'S DIRECT NUMBER
(212)715-9100
-------------
March 14, 1997
Guinness Flight Investment Funds, Inc.
201 South Lake Avenue
Suite 510
Pasadena, California 91101
Re: Guinness Flight Investment Funds
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 & Frankel
-------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Guinness Flight Investment Funds:
We consent to the incorporation by reference in Post-Effective Amendment
No. 7 to the Registration Statement of Guinness Flight Investment Funds on Form
N-1A (File No. 33-75340) of our report dated February 8, 1995, on our audit of
the financial highlights for the period June 30, 1994 (commencement of
operations) through December 31, 1994, for the Guinness Flight China and Hong
Kong Fund and Guinness Flight Global Government Bond Fund.
/s/COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 17, 1997
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Accountants" and "Financial Statements" in
Post-Effective Amendment No. 7 to the Registration Statement and related
Statement of Additional Information of Guinness FlightInvestment Funds.
/s/ERNST & YOUNG LLP
Los Angeles, California
March 13, 1997
