Reg. ICA No. 811-8360
File No. 33-75340
AS FILED VIA EDGAR WITH THE SECURITIES AND EXCHANGE COMMISSION ON
APRIL 25, 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. 8 |X|
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 8
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 [X] on April 28, 1997 pursuant
paragraph (b) to paragraph (b)
[_] 60 days after filing pursuant to [_] on ( ) pursuant to
paragraph (a)(1) 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, 1996 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 *
<PAGE>
(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
8(a) How to Redeem Shares *
(b) How to Redeem Shares *
(c) How to Redeem Shares - *
Redemption of Small Accounts
(d) Not Applicable *
9 Not Applicable *
-2-
<PAGE>
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
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
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>
PROSPECTUS
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
- 2 -
<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 Flight Funds") is a
Delaware business trust organized as an open-end, series, management investment
company. Currently, the Guinness Flight 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
<TABLE>
<CAPTION>
A. Shareholder Transaction Expenses
<S> <C> <C> <C> <C>
Asia Asia
Blue Small Global
Chip Cap China Gov't
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."
<TABLE>
<CAPTION>
B. Annual Fund Operating Expenses (as a percentage of average daily net assets)
<S> <C> <C> <C> <C>
Asia Asia
Blue Small Global
Chip Cap China Gov't
---- --- ----- -----
Advisory Fee 1.00% 1.00% 1.00% .75%
Rule 12b-1 Fee .00% .00% .00% .00%
Other Expenses (after expense reimbursement) .98% .98% .78% .00%
---- ---- ---- ----
Total Fund Operating Expenses
(after expense reimbursement) 1.98% 1.98% 1.78% .75% ++
++ 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.
</TABLE>
- 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Asia Asia
Blue Small Global
Chip Cap China Gov't
---- --- ----- -----
One Year $20 $20 $20 $8
Three Year $62 $62 $62 $24
Five Year $107 $107 $107 $42
Ten Year $231 $231 $231 $93
</TABLE>
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. 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 .75%, respectively. For the current year, the China Fund
repaid Guinness Flight for amounts it had absorbed during prior fiscal periods.
Including such repayment, "other expenses" were .98% and "total fund operating
expenses" were 1.98%. For the prior fiscal year, Guinness Flight absorbed some
of the expenses of each of the funds except the China Fund . If Guinness Flight
had not absorbed such expenses, "other expenses" for the Asia Blue Chip, Asia
Small Cap and Global Government Fund would have been 8.14%, 2.09% and 7.46%,
respectively and "total fund operating expenses" would have been 9.14%, 3.09%
and 8.21%%, respectively. See "The Funds' Management."
C. Example of Expenses. The hypothetical example illustrates the expenses
associated with a $1,000 investment in a Fund over periods of one, 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.
- 5 -
<PAGE>
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 the 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
years ended December 31, 1995 and 1996 for each of the Funds has been audited by
Ernst & Young LLP, independent accountants to the Funds. The unqualified report
of Ernst & Young LLP, covering the fiscal period ending December 31, 1996 is
incorporated by reference into the Statement of Additional Information, which
may be obtained by calling the telephone number on the cover page of this
prospectus. 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
<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
<S> <C>
Net asset value, beginning of period $12.50
Income from investment operations:
Net investment income 0.00
Net realized and unrealized gain on investments
and foreign currency 0.48
----
Total from investment operations 0.48
-----
Net asset value, end of period $12.98
=======
Total return 3.84%+
Ratios/supplemental data:
Net assets, end of period (thousands) $3,687
Ratio of expenses to average net assets:**
Before expense reimbursement 9.14%
After expense reimbursement 1.98%
Ratio of net investment income (loss) to average net assets:**
Before expense reimbursement (7.10)%
After expense reimbursement 0.06%
Portfolio turnover rate 10.97%
Average Commission Rate Paid++ $0.0190
* Commencement of operations.
** Annualized.
+ Not 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.
</TABLE>
- 6 -
<PAGE>
Guinness Flight Asia Small Cap Fund
Financial Highlights
for a capital share outstanding throughout the period
<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
<S> <C>
Net asset value, beginning of period $12.50
Income from investment operations:
Net investment income 0.02
Net realized and unrealized gain on investments 1.61
Total from investment operations 1.63 Less distributions:
Dividends from net investment income (0.02)
Distribution from taxable net capital gains (0.01)
(0.03)
Net asset value, end of period $14.10
Total return 13.08%+
Ratios/supplemental data:
Net assets, end of period (thousands) $50,868
Ratio of expenses to average net assets:**
Before expense reimbursement 3.09%
After expense reimbursement 1.98%
Ratio of net investment income to average net assets:**
Before expense reimbursement (0.76)%
After expense reimbursement 0.36%
Portfolio turnover rate 21.91%
Average Commission Rate Paid++ $0.0029
* Commencement of operations.
** Annualized.
+ Not 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.
</TABLE>
- 7 -
<PAGE>
Guinness Flight China & Hong Kong Fund
Financial Highlights
for a capital share outstanding throughout the period
<TABLE>
<CAPTION>
For the Year Ended June 30, 1994*
December 31, through
--------------------------
1996 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 .19 .14 .04
Net realized and unrealized gain
(loss) on investments 4.43 2.20 (.96)
----- ---- -----
Total from investment operations 4.62 2.34 (.92)
----- ---- -----
Less distributions:
Dividends from net investment income (.19) (.14) (.04)
Distributions from net capital gains (.36) (.03) (.07)
----- ----- -----
Total distributions (.55) (.17) (.11)
----- ----- -----
Net asset value, end of period $17.71 $13.64 $11.47
======= ====== ======
Total return 34.38% 20.45% (7.74)%++
Ratios/supplemental data:
Net assets, end of period (thousands) 311,521 $55,740 $2,287
Ratio of expenses to average net assets:
Before expense reimbursement (recoupment) 1.78% 3.02%** 19.92%+
After expense reimbursement (recoupment) 1.96% 1.98% 2.00% +
Ratio of net investment income to average net assets:
Before expense reimbursement (recoupment) 1.57% 0.49% (17.15)%+
After expense reimbursement (recoupment) 1.39% 1.52% 0.78% +
Portfolio turnover rate 30.04% 10.89% 27.25%
Average commission rate paid# $0.0070 -- --
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) 11,419 -- --
Average amount of debt per share
during the period $0.12 -- --
</TABLE>
* Commencement of operations.
** 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.
+ Annualized.
++ Not annualized.
- 8 -
<PAGE>
Guinness Flight Global Government Bond Fund
Financial Highlights
for a capital share outstanding throughout the period
<TABLE>
<CAPTION>
For the Year Ended June 30, 1994*
December 31, through
-------------------------
1996 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 .63 .69 .29
Net realized and unrealized gain
(loss) on investments .13 1.01 (.58)
--- ---- -----
Total from investment operations .76 1.70 (.29)
--- ---- -----
Less distributions:
Dividends from net investment income (.69) (.65) (.21)
Distributions from net capital gains (.12) (.28) -0-
----- ----- ---
Total distributions (.81) (.93) (.21)
----- ----- -----
Net asset value, end of period $12.72 $12.77 $12.00
======= ====== ======
Total return 6.21% 14.49% (2.33)%++
Ratios/supplemental data:
Net assets, end of period (thousands) $6,564 $1,153 $751
Ratio of expenses to average net assets:
Before expense reimbursement 8.21% 21.52% ** 40.78%+
After expense reimbursement 1.31% 1.73% 1.75%+
Ratio of net investment income to average net assets:
Before expense reimbursement (1.76)% (14.26)% (34.18)% +
After expense reimbursement 5.14% 5.53% 4.86% +
Portfolio turnover rate 296.51% 202.54% 46.15%
</TABLE>
+ Annualized.
++ Not annualized.
* Commencement of operations.
** 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%.
- 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 Flight 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,
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 in
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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 June 30, 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 Flight Funds' Board of Trustees. The Board of Trustees approves all
significant agreements between the Guinness Flight 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 Flight
Funds and to Guinness Flight, subject always to the investment objective and
policies of each Fund and to the general supervision of the Guinness Flight
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 April 28, 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 income policies 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 Flight 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 Flight 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:
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<PAGE>
State Street Bank and Trust Company
ABA # 0011 000 028
Shareholder and Custody Services
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.
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
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<PAGE>
associations. A signature guarantee is not the same as notarization and an
acknowledgment by a notary public is not acceptable as a substitute for a
signature guarantee.
Redemptions By Telephone. Shareholders may establish telephone redemption
privileges if so elected on the account application. Shares of a Fund may then
be redeemed by telephoning the Transfer Agent at (800) 915-6566, between the
hours of 8:00 a.m. and 4:00 p.m. (Eastern time) on a day when the New York Stock
Exchange is open for normal trading.
Special Factors Regarding Telephone Redemptions. In order to protect itself and
shareholders from liability for unauthorized or fraudulent telephone
transactions, the Guinness Flight Funds will use reasonable procedures in an
attempt to verify the identity of a person making a telephone redemption
request. The Guinness Flight 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 Flight Funds nor its agents will
be liable for any loss, liability or cost which results from acting upon
instructions of a person believed to be a shareholder with respect to the
telephone redemption privilege. However, if the Guinness Flight Funds or its
agents fail to follow such reasonable procedures, then the Guinness Flight Funds
or its 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.
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<PAGE>
Shareholder Services
Exchange Privilege. You may exchange shares of a Fund for shares of the other
Funds by mailing or delivering written instructions to the Transfer Agent at the
following address:
Guinness Flight Investment Funds
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 21.
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 Flight
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
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<PAGE>
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
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
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<PAGE>
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 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 Flight Funds, which is
registered under the 1940 Act, as an open-end management investment company.
Guinness Flight Funds was formed as a Maryland corporation on January 7, 1994
and converted to a Delaware business trust on April 28, 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
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<PAGE>
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.
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.
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<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 Flight 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
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<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
<PAGE>
GENERAL INFORMATION AND HISTORY
As described in the Funds' Prospectus, Guinness Flight Investment Funds
("Guinness Flight Funds") is a Delaware business trust organized as an open-end,
series, management investment company. Currently, Guinness Flight 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 Flight
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-to- market 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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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 Flight 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 Flight Funds shall determine and
Guinness Flight shall report regularly to Guinness Flight 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 Flight 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 June 30, 1994 (commencement of operations) to December
31, 1994 and the fiscal years ended December 31, 1995 and 1996, the China Fund
paid brokerage commissions equal to $13,875, $258,319 and $736,492, respectively
and the Global Government Fund paid $0, $0, and $ -0-, respectively. For the
period April 29, 1996 (commencement of operations) to December 31, 1996, the
Asia Blue Chip Fund paid brokerage commissions equal to $23,303 and the Asia
Small Cap Fund paid $204,067 .
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
34.38% and 17.35%, respectively, and for the Global Government Fund was 6.21%
and 7.10%, respectively. The annual compounded rate of total return for the
period from April 29, 1996 (inception) to December 31, 1996 for the Asia Blue
Chip Fund was 3.84% and the Asia Small Cap Fund was 13.08%. For the 30 day
period ended December 31, 1996, the Global Government Fund's yield was 5.42%.
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 for
federal income tax purposes 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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<PAGE>
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 will 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 such 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 (as applicable, depending on
the type of the Fund) (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 the 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 the 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, a 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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<PAGE>
Certain 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. Under Treasury Regulations deemed 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.
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 qualified 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 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 and (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 proposed Treasury Regulations, a Fund holding PFIC stock 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
contribute ordinary income, and will not be subject to the Short-Short Gain
Test, and the Fund's holding period with respect to such PFIC stock will
commence on the first day of the next taxable year. If a Fund makes such
election in the first taxable year it holds PFIC stock, it will not incur the
tax described in the preceding 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
each of which the Fund has not invested more than 5% of the value of the Fund's
total assets in securities of such issuer and 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. Net capital gain that 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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<PAGE>
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
may 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 they 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 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 an "exempt
recipient" (such as a corporation).
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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<PAGE>
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
their 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 Flight Funds' most recently completed fiscal year:
<TABLE>
<CAPTION>
Total Compen-
Aggregate Pension or sation from
Compensation Retirement Benefits Estimated Annual Guinness Flight
Name of Person, from Guinness Accrued as Part of Benefits Upon Funds Paid to
Position Flight Funds Fund Expenses Retirement Trustees
<S> <C> <C> <C> <C>
Dr. Gunter Dufey $5,000 $0 $0 $5,000
James I. Fordwood $5,000 $0 $0 $5,000
Dr. Bret Herscher $5,000 $0 $0 $5,000
J. Brooks Reece, Jr. $5,000 $0 $0 $5,000
</TABLE>
Each Trustee who is not an "interested person" of the Funds receives an
annual fee of $7,500 (with the exception of the Chairman, who receives $8,500)
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 Flight 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 Flight Funds other than those whose salaries and
fees are paid by Guinness Flight Funds' administrator or distributor; and pays
the salaries and fees of all Trustees of Guinness Flight Funds who are
"interested persons" of Guinness Flight Funds or of Guinness Flight and of all
personnel of Guinness Flight 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 Flight 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 Flight 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 Flight Funds' administrator.
Guinness Flight also furnishes such reports, evaluations, information
or analyses to Guinness Flight Funds as Guinness Flight 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 Flight Funds' Board of
Trustees with respect to Guinness Flight 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 $1,772,174,
respectively, and the Global Government Fund paid Guinness Flight $2,141, $7,425
and $19,110 respectively. For the period commencing April 29, 1996 to December
31, 1996, the Asia Blue Chip Fund and Asia Small Cap Fund paid Guinness Flight
$12,860 and $62,680, respectively.
DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN
Guinness Flight 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 Flight 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 Flight 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 Flight Funds; provided that no indemnification shall
be provided to any Trustee who has been adjudicated by a court to be liable to
Guinness Flight 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 Flight Funds.
Guinness Flight Funds may advance money for expenses, provided that the Trustee
undertakes to repay Guinness Flight 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 Flight
Funds is insured against losses stemming from any such advance; or (iii) there
is a determination by a majority of the Guinness Flight 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 April 4, 1997, Charles Schwab & Co. Inc. (101
Montgomery St., San Francisco 94104-4122) owned, for the exclusive benefit of
its accounts: 5,589,546.145 (38.59 %) of the outstanding shares of the China
Fund; 152,154.556 (26.77 %) of the outstanding shares of the Global Government
Fund; 9,427,911.746 (41.73 %) of the outstanding shares of the Asia Small Cap
Fund; and 103,794.628 (23.67 %) of the outstanding shares of the Asia Blue Chip
Fund.
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 December 31, 1996 are incorporated by reference. The
opinion of Ernst & Young LLP, independent accountants, with respect to the
audited 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.
-29-
<PAGE>
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
BOND RATINGS:
Investment grade debt securities are those rating categories indicated by an
asterisk (*).
*AAA: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
*AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
*A: Bond which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
*BAA: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its bond rating system. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category, the modifier 2 indicates a mid-range ranking, and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months.
Issuers rated PRIME-1 or P-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory obligations. Prime-1
or P-1 repayment capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
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:
Financial Highlights
In Part B:
The audited statement of assets and liabilities and
report thereon for the year ended December 31, 1996 are
incorporated by reference.
In Part C:
Annual Report for the fiscal year ended
December 31, 1996.
(b) Exhibits
EX-99.B1(a) Certificate of Trust. (2)
EX-99.B1(b) Trust Instrument. (2)
EX-99.B2 By-laws. (2)
EX-99.B3 None.
EX-99.B4 None.
EX-99.B5 Investment Advisory Agreement between Registrant and
Guinness Flight Investment Management Limited. (3)
EX-99.B6 General Distribution Agreement between Registrant
and First Fund Distributors, Inc. (3)
EX-99.B7 None.
EX-99.B8 Amended Custodian Agreement between Registrant and
Investors Bank & Trust Company. (3)
EX-99.B9 (a) Amended Transfer Agency and Service Agreement
between Registrant and State Street Bank and Trust
Company. (3)
(b) Amended Administration Agreement between Registrant
and Investment Company Administration Corporation. (3)
EX-99.B10 (a) Opinion of Kramer, Levin, Naftalis & Frankel as
to legality of securities being registered. (3)
(b) Opinion of Morris, Nichols, Arsht & Tunnell . (3)
EX-99.B11 (a) Consent of Kramer, Levin, Naftalis & Frankel,
Counsel for the Registrant. (3)
(b) Consent of Ernst & Young LLP, Independent
Auditors for the Registrant. (3)
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<PAGE>
EX-99.B12 Annual Report for the fiscal year ended December 31, 1996.
(3)
EX-99.B13 Investment Letters. (3)
EX-99.B14 None.
EX-99.B15 Rule 12b-1 Distribution Plan. (3)
EX-99.B16 Schedule for Computation of each Performance Quotation. (1)
EX-27 Financial Data Schedules. (3)
(1) Filed as an Exhibit to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A filed
electronically on February 14, 1996, accession number
0000922423-96-000062 and incorporated herein by reference.
(2) Filed as an Exhibit to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A filed
electronically on March 20, 1997, accession number
0000922423-96-000220 and incorporated herein by reference.
(3) Filed herewith.
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
as of April 2, 1997
--------------------
China & Hong Kong Fund 13,801
Global Government Bond Fund 216
Asia Blue Chip Fund 986
Asia Small Cap Fund 9,848
ITEM 27. INDEMNIFICATION
Article X, Section 10.02 of the Registrant's Delaware Trust
Instrument, incorporated herein by reference to Exhibit 1(b) to
Post-Effective Amendment No. 7 to Registrant's Registration Statement
on Form N-1A filed electronically on March 20, 1997, 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
- 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
- Harris Bretall & Sullivan & Smith Growth Fund
- Insightful Investor Growth Fund
- Pzena Growth Fund
- Titan Investment Trust
(8) Rainier Investment Management Mutual Funds;
(9) Kayne Anderson 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 with Registrant
- ---------------- --------------------- --------------------
Robert H. Wadsworth President/Treasurer President/Asst.
4455 East Camelback Road Treasurer
Suite 261E
Phoenix, AZ 85014
Steven J. Paggioli Vice President/Secretary Secretary
479 West 22nd Street
New York, NY 10011
Eric M. Banhazl Vice President Treasurer
2025 East Financial Way
Suite 101
Glendora, CA 91741
(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
<PAGE>
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(b) 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 23rd day of April, 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 April 23, 1997
- ------------------------------- -----------------------
Eric M. Banhazl
/s/ Dr. Gunter Dufey Director April 23, 1997
- ------------------------------- -----------------------
Dr. Gunter Dufey
/s/ J. I. Fordwood Director April 23, 1997
- ------------------------------- -----------------------
J. I. Fordwood
/s/ Bret A. Herscher Director April 23, 1997
- ------------------------------- -----------------------
Bret A. Herscher
/s/ J. Brooks Reece, Jr. Director April 23, 1997
- ------------------------------- -----------------------
J. Brooks Reece, Jr.
*By:
--------------------------
Attorney-in-Fact
C-6
<PAGE>
EXHIBIT INDEX
EX-99.B5 Investment Advisory Agreement between Registrant and Guinness
Flight Investment Management Limited
EX-99.B6 Distribution Agreement between Registrant and First Fund
Distributors, Inc.
EX-99.B8 Amended Custodian Agreement between Registrant and Investors Bank
& Trust Company
EX-99.B9(a) Amended Transfer Agency and Service Agreement between Registrant
and State Street Bank and Trust Company
EX-99.B9(b) Amended Administration Agreement between Registrant and Investment
Company Administration Corporation.
EX-99.B10(a) Opinion of Kramer, Levin, Naftalis & Frankel as to legality of
securities being registered
EX-99.B10(b) Opinion of Morris, Nichols, Arsht & Tunnell
EX-99.B11(a) Consent of Kramer, Levin, Naftalis & Frankel, Counsel for the
Registrant.
EX-99.B11(b) Consent of Ernst & Young LLP, Independent Auditors for the
Registrant
EX-99.12 Annual Report for the fiscal year ended December 31, 1996
EX-99.B13 Investment Letters
EX-99.B15 Rule 12b-1 Distribution Plan
EX-27 Financial Data Schedules
INVESTMENT ADVISORY AGREEMENT
BETWEEN
GUINNESS FLIGHT INVESTMENT FUNDS
AND
GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED
INVESTMENT ADVISORY AGREEMENT, dated as of April 28, 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:
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.
<PAGE>
2. Duties and Obligations of the Adviser With Respect to the Investment
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 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.
-2-
<PAGE>
(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 their 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 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
-3-
<PAGE>
agent of the Fund; (viii) expenses, including clerical expenses, incident to the
issuance, redemption or repurchase of shares of the Fund, including issuance on
the payment of, or reinvestment of, dividends; (ix) fees and expenses incident
to the registration under Federal or state securities laws of the Fund or its
shares; (x) expenses of preparing, setting in type, printing and mailing
prospectuses, statements of additional information, reports and notices and
proxy material to shareholders of the Fund; (xi) all other expenses incidental
to holding meetings of the Fund's shareholders; (xii) expenses connected with
the execution, recording and settlement of portfolio securities transactions;
(xiii) fees and expenses of the Fund's custodian for all services to the Fund,
including safekeeping of funds and securities and maintaining required books and
accounts; (xiv) expenses of calculating net asset value of the 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
trustees 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 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.
-4-
<PAGE>
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.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in 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:
-6-
<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.
-7-
GENERAL DISTRIBUTION AGREEMENT
AGREEMENT made April 28, 1997 by and between the Guinness Flight
Investment Funds, a Delaware business trust which may issue one or more series
of shares (the "Guinness Funds"), and First Fund Distributors, Inc., a Delaware
corporation having its principal place of business at 479 West 22nd Street, New
York, New York (the "Distributor").
WHEREAS, the Guinness Funds wishes to employ the services of the
Distributor in connection with the promotion and distribution of shares of the
funds listed on Schedule A (each, a "Fund" and collectively, the "Funds");
NOW, THEREFORE, in consideration of the mutual promises and
undertakings herein contained, the parties agree as follows:
1. Documents. The Guinness Funds has furnished the Distributor with
copies of its Certificate of Trust, Trust Instrument, By Laws, Investment
Advisory Agreement, Custodian Agreement, current Prospectus and Statement of
Additional Information, and all forms relating to any plan, program or service
offered by the Guinness Funds. The Guinness Funds shall furnish promptly to the
Distributor a copy of any amendment or supplement to any of the above mentioned
documents. The Guinness Funds shall furnish promptly to the Distributor any
additional documents necessary or advisable to perform its functions hereunder.
2. Sale of Shares. The Guinness Funds grants to the Distributor the
right to sell shares as agent on behalf of the Guinness Funds (the "Shares"),
during the term of this Agreement, subject to the registration requirements of
the Securities Act of 1933, as amended ("1933 Act"), and of the laws governing
the sale of securities in the various states ("Blue Sky Laws"), under the terms
and conditions set forth in this agreement. The Distributor (i) shall have the
right to sell, as agent on behalf of the Guinness Funds, shares authorized for
issue and registered under the 1933 Act, and (ii) may sell shares under offers
of exchange, if available, between and among other funds or portfolios advised
by Guinness Flight Investment Management Limited ("Guinness Flight").
3. Sale of Shares by the Guinness Funds. The rights granted to the
Distributor shall be nonexclusive in that the Guinness Funds reserves the right
to sell the Shares to investors on applications received and accepted by the
Guinness Funds. Further, the Guinness Funds reserves the right to issue Shares
in connection with the merger, consolidation or other combination by the
Guinness Funds through purchase or otherwise, with any other entity.
4. Public Offering Price. Except as otherwise noted in the Guinness
Funds' current Prospectus and/or Statement of Additional Information, all Shares
sold to
<PAGE>
investors by the Distributor or the Guinness Funds will be sold at the public
offering price. The public offering price for all accepted subscriptions will be
the net asset value per share, as determined in the manner described in the
Guinness Funds' current Prospectus and/or Statement of Additional Information,
plus a sales charge (if any) described in the Guinness Funds' current Prospectus
and/or Statement of Additional Information. The Guinness Funds shall in all
cases receive the net asset value per share on all sales. If a sales charge is
in effect, the Distributor shall have the right, subject to such rules or
regulations of the Securities and Exchange Commission as may then be in effect
pursuant to Section 22 of the Investment Company Act of 1940, to pay a portion
of the sales charge to dealers who have sold shares of the Guinness Funds. If a
fee in connection with shareholder redemptions is in effect, the Guinness Funds
shall collect the fee on behalf of the Distributor and, unless otherwise agreed
upon by the Guinness Funds and the Distributor, the Distributor shall be
entitled to receive all of such fees.
5. Suspension of Sales. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further orders
for Shares shall be processed by the Distributor except such unconditional
orders as may have been placed with the Distributor before it had knowledge of
the suspension. In addition, the Guinness Funds reserves the right to suspend
sales and the Distributor's authority to process orders for Shares on behalf of
the Guinness Funds if, in the judgment of the Guinness Funds, it is in the best
interests of the Guinness Funds to do so. Suspension will continue for such
period as may be determined by the Guinness Funds.
6. Solicitation of Sales. In consideration of these rights granted to
the Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for Shares of the
Guinness Funds. This shall not prevent the Distributor from entering into like
arrangements (including arrangements involving the payment of underwriting
commissions) with other issuers. While the Distributor is registered as a broker
or dealer under the Blue Sky Laws of certain United States jurisdictions, it
shall not be required to maintain its registration in any jurisdiction in which
it is now registered. If a sales charge is in effect, the Distributor shall have
the right to enter into sales agreements with dealers of its choice for the sale
of shares of the Guinness Funds to the public at the public offering price only
and fix in such agreements the portion of the sales charge which may be retained
by dealers, provided that the Guinness Funds shall approve the form of the
dealer agreement and the dealer discounts set forth therein and shall evidence
such approval by filing said form of dealer agreement and amendments thereto as
an exhibit to its currently effective Registration Statement under the 1933 Act.
7. Authorized Representations. The Distributor is not authorized by the
Guinness Funds to give any information or to make any representations other than
those contained in the appropriate registration statements or Prospectuses and
Statements of Additional Information filed with the Securities and Exchange
Commission under the 1933 Act (as these registration statements, Prospectuses
and Statements of Additional Information may be amended from time to time), or
contained in shareholder reports or other material that may be prepared by or on
behalf of the Guinness Funds for the Distributor's use. Consistent with the
foregoing, the Distributor may prepare and distribute sales literature or
- 2 -
<PAGE>
other material as it may deem appropriate, provided such sales literature
complies with applicable law and regulation.
8. Registration of Shares. The Guinness Funds agrees that it will take
all action necessary to register Shares under the 1933 Act (subject to the
necessary approval of its shareholders) so that there will be available for sale
the number of Shares the Distributor may reasonably be expected to sell. The
Guinness Funds shall make available to the Distributor such number of copies of
its currently effective Prospectus and Statement of Additional Information as
the Distributor may reasonably request at the Distributor's expense. The
Guinness Funds, at its expense, shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of shares of the
Guinness Funds.
9. Distribution Expenses. The Distributor shall bear all expenses in
connection with the performance of its services hereunder, including, but not
limited to, (a) printing and distributing any Prospectuses and Statements of
Additional Information or reports prepared for its use in connection with the
offering of shares for sale to the public other than to existing shareholders of
the Guinness Funds determined at the time of mailing any such Prospectuses and
Statements of Additional Information or reports, (b) any other literature used
by the Distributor in connection with such offering, and (c) advertising and
promotional activities in connection with such Offering.
10. Guinness Funds Expenses. The Guinness Funds shall pay all fees and
expenses (a) in connection with the preparation, setting in type and filing of
any registration statement, Prospectus and Statement of Additional Information
under the 1933 Act and amendments for the issue of its shares, (b) in connection
with the registration and qualification of shares for sale in the various states
in which the Board of Trustees of the Guinness Funds shall determine it
advisable to qualify such shares for sale (including registering the Guinness
Funds as a broker or dealer or any officer of the Guinness Funds as agent or
salesman in any state), (c) of preparing, setting in type, printing and mailing
any report or other communication to shareholders of the Guinness Funds in their
capacity as such, and (d) of preparing, setting in type, printing and mailing
Prospectuses, Statements of Additional Information and any supplements thereto
sent to existing shareholders.
The Distributor shall bear all expenses in connection with the
performance of its services hereunder and shall have no obligation to pay or to
reimburse the Guinness Funds for any other expenses incurred by or on behalf of
the Funds, including any expenses which may be in excess of expense limitations
imposed by any state.
11. Use of the Distributor's Name. The Guinness Funds shall not use the
name of the Distributor, or any of its affiliates, in any Prospectus or
Statement of Additional Information, sales literature, and other material
relating to the Guinness Funds in any manner without the prior written consent
of the Distributor (which shall not be unreasonably withheld); provided,
however, that the Distributor hereby approves all lawful uses of the names of
the Distributor and its affiliates in the Prospectus and Statement of Additional
Information of the Guinness Funds and in all other materials which merely refer
in accurate
- 3 -
<PAGE>
terms to their appointments hereunder or which are required by the Securities
and Exchange Commission or any state securities authority.
12. Use of the Guinness Funds' Name. Neither the Distributor nor any of
its affiliates shall use the name of the Guinness Funds in any Prospectuses or
Statements of Additional Information, sales literature, or other material
relating to the Guinness Funds on any forms for other than internal use in any
manner without the prior consent of the Guinness Funds (which shall not be
unreasonably withheld); provided, however, that the Guinness Funds hereby
approves all uses of its name in the Prospectus and Statement of Additional
Information of the Guinness Funds and in sales literature and all other
materials which are required by the Distributor in the discharge of its duties
hereunder which merely refer in accurate terms to the appointment of the
Distributor hereunder, or which are required by the Securities and Exchange
Commission or any state securities authority.
13. Insurance. The Distributor agrees to maintain fidelity bond and
liability insurance coverages which are, in scope and amount, consistent with
coverages customary for distribution activities. The Distributor shall notify
the Guinness Funds upon receipt of any notice of material, adverse change in the
terms or provisions of its insurance coverage. Such notification shall include
the date of change and the reason or reasons therefor. The Distributor shall
notify the Guinness Funds of any material claim against it, whether or not
covered by insurance, and shall notify the Guinness Funds, from time to time as
may be appropriate, of the total outstanding claims made by it under its
insurance coverage.
14. Indemnification. The Guinness Funds agrees to indemnify and hold
harmless the Distributor and each of its directors and officers and each person,
if any, who controls the Distributor within the meaning of Section 15 of the
1933 Act against any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damages, or expense and reasonable counsel fees incurred in connection
therewith) arising by reason of any person acquiring any shares, based upon the
ground that the registration statement, Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made public by
the Guinness Funds (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading under the 1933 Act, or
any other statute or the common law. However, the Guinness Funds does not agree
to indemnify the Distributor or hold it harmless to the extent that the
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Guinness Funds by or on behalf of the Distributor.
In no case (i) is the indemnity of the Guinness Funds in favor of the
Distributor or any person indemnified to be deemed to protect the Distributor or
any person against any liability to the Guinness Funds or its security holders
to which the Distributor or such person would otherwise be subjected by reason
of willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this Agreement, or (ii) is the Guinness Funds to be liable under its
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
person, as the case may be, shall have
- 4 -
<PAGE>
notified the Guinness Funds in writing of the claim within a reasonable time
after the summons or other first written notification giving information of the
nature of the claim shall have been served upon the Distributor or any such
person (or after the Distributor or such person shall have received notice of
service on any designated agent). However, failure to notify the Guinness Funds
of any claim shall not relieve the Guinness Funds from any liability which it
may have to the Distributor or any person against whom such action is brought
otherwise than on account of its indemnity agreement contained in this
paragraph. The Guinness Funds shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any claims, but if the Guinness Funds elects to assume the
defense, the defense shall be conducted by counsel chosen by it and satisfactory
to the Distributor or person or persons, defendant or defendants in the suit. In
the event the Guinness Funds elects to assume the defense of any suit and retain
counsel, the Distributor, officers or directors or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them. If the Guinness Funds does not elect
to assume the defense of any suit, it will reimburse the Distributor, officers
or directors or controlling person or persons, defendant or defendants in the
suit for the reasonable fees and expenses of any counsel retained by them. The
Guinness Funds agrees to notify the Distributor promptly of the commencement of
any litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of any of the shares.
The Distributor also covenants and agrees that it will indemnify and
hold harmless the Guinness Funds and each of its Board members and officers and
each person, if any, who controls the Guinness Funds within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith) arising by reason of any person acquiring any Shares,
based upon the 1933 Act or any other statute or common law, alleging any
wrongful act of the Distributor or any of its employees or alleging that the
registration statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the Guinness
Funds (as from time to time amended) included an untrue statement of a material
fact or omitted to state a material fact required to be stated or necessary in
order to make the statements not misleading, insofar as the statement or
omission was made in reliance upon, and in conformity with information furnished
to the Guinness Funds by or on behalf of the Distributor. In no case (i) is the
indemnity of the Distributor in favor of the Guinness Funds or any person
indemnified to be deemed to protect the Guinness Funds or any person against any
liability to which the Guinness Funds or such person would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Distributor to be
liable under its indemnity agreement contained in this paragraph with respect to
any claim made against the Guinness Funds or any person indemnified unless the
Guinness Funds or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon the Guinness Funds or any such person (or
after the Guinness Funds or such person shall have received notice of service on
any
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<PAGE>
designated agent). However, failure to notify the Distributor of any claim shall
not relieve the Distributor from any liability which it may have to the Guinness
Funds or any person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. In the case of
any notice to the Distributor, it shall be entitled to participate, at its own
expense, in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claim, but if the Distributor elects to assume the
defense, the defense shall be conducted by counsel chosen by it and satisfactory
to the Guinness Funds, to its officers and Board and to any controlling person
or persons, defendant or defendants in the suit. In the event the Distributor
elects to assume the defense of any suit and retain counsel, the Guinness Funds
or controlling persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them. If the Distributor does
not elect to assume the defense of any suit, it will reimburse the Guinness
Funds, officers and Board or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Distributor agrees to notify the Guinness Funds promptly
of the commencement of any litigation or proceedings against it in connection
with the issue and sale of any of the shares.
15. Liability of the Distributor. The Distributor shall not be liable
for any damages or loss suffered by the Guinness Funds in connection with the
matters to which this Agreement relates, except for damages or loss resulting
from willful misfeasance, reckless disregard, bad faith or gross negligence on
the Distributor's part in the performance of its duties under this Agreement.
Any person, even though also an officer, partner, employee or agent of the
Distributor, or any of its affiliates, who may be or become an officer of the
Guinness Funds, shall be deemed, when rendering services to or acting on any
business of the Guinness Funds in any such capacity (other than services or
business in connection with the Distributor's duties under this Agreement), to
be rendering such services to or acting solely for the Guinness Funds and not as
an officer, partner, employee or agent or one under the control or direction of
the Distributor or any of its affiliates, even if paid by the Distributor or an
affiliate thereof.
16. Acts of God, Etc. The Distributor shall not be liable for delays or
errors occurring by reason of circumstances not reasonably foreseeable and
beyond its control, including, but not limited to, acts of civil or military
authority, national emergencies, work stoppages, fire, flood, catastrophe, acts
of God, insurrection, war, riot or failure of communication or power supply. In
addition, in the event of equipment breakdowns which are (i) beyond the
reasonable control of the Distributor and (ii) not primarily attributable to the
failure of the Distributor to reasonably maintain or provide for the maintenance
of such equipment, the Distributor shall, at no additional expense to the
Guinness Funds, take reasonable steps in good faith to minimize service
interruptions but shall have no liability with respect thereto.
17. Supplemental Information. The Distributor and the Guinness Funds
shall regularly consult with each other regarding the Distributor's performance
of its obligations under this Agreement. In connection therewith, the Guinness
Funds shall submit to the Distributor at a reasonable time in advance of filing
with the Securities and Exchange Commission copies of any amended or
supplemented registration statements (including
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<PAGE>
exhibits) under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and, at a reasonable time in advance of their
proposed use, copies of any amended or supplemented forms relating to any plan,
program or service offered by the Guinness Funds. Any change in such material
which would require any change in the Distributor's obligations under the
foregoing provisions shall be subject to the Distributor's approval, which shall
not be unreasonably withheld.
18. Term. This Agreement shall become effective on April 28, 1997 or
such later date as may be agreed upon by the parties hereto, and shall continue
through April 27, 1999, and thereafter shall continue automatically for
successive annual periods, provided such continuance is specifically approved at
least annually (i) by the Guiness Funds' Board of Trustees or (ii) by a vote of
a majority of the outstanding Shares of the Guinness Funds (as defined in the
Investment Company Act of 1940), provided that in either event the continuance
is also approved by the majority of the Guinness Funds' Trustees who are not
parties to the Agreement or "interested persons" (as defined in the 1940 Act) of
any party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable without penalty
on not less than sixty days' notice by the Guinness
Funds' Board of Trustees, by
vote of a majority of the outstanding Shares of the Guinness Funds (as defined
by the 1940 Act) or by the Distributor. Any termination shall not affect the
rights and obligations of the parties under Sections 9, 14, 15, and 16, hereof.
Upon termination of this Agreement in whole, at the Guinness Funds'
expense and direction, the Distributor shall transfer to such successor as the
Guinness Funds shall specify all relevant books, records and other data
established or maintained by the Distributor under this Agreement.
19. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by (i) telex, (ii)
telecopier, or (iii) registered or certified mail, postage prepaid, addressed by
the party giving notice to the other party at the last address furnished by the
other party to the party giving notice: if to the Guinness Funds, at Guinness
Flight Investment Funds, Attention James Atkinson, 225 South Lake Avenue, Suite
777, Pasadena, CA 91101, Telecopy No. (818) 795-0593; and if to the Distributor,
First Fund Distributors, Attention Robert Wadsworth, 4455 E. Camelback Road,
Suite 261E, Phoenix, AZ 85018, Telecopy No. (602) 952-8520, or such other
telecopy number or address as may be furnished by one party to the other.
20. Confidential Information. The Distributor will treat confidentially
and as proprietary information of the Guinness Funds all records and other
information relative to the Guinness Funds and to prior or present shareholders
or to those persons or entities who respond to the Distributor's inquiries
concerning investment in the Guinness Funds, and will not use such records and
information for any purposes other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Guinness Funds, which approval shall not be unreasonably withheld and may
not be withheld if the Distributor might, in its sole judgment exercised in good
faith, be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Guinness Funds.
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<PAGE>
21. Limitation of Liability. The Distributor is expressly put on notice
of the limitation of shareholder liability as set forth in the Trust Instrument
of the Guinness Funds and agrees that the obligations assumed by the Guinness
Funds under this contract shall be limited in all cases to the Guinness Funds
and its assets. The Distributor shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Guinness Funds. Nor
shall the Distributor seek satisfaction of any such obligation from the Trustees
or any individual Trustee of the Guinness Funds. The Distributor understands
that the rights and obligations of each series of shares of the Guinness Funds
under the Guinness Funds' Trust Instrument are separate and distinct from those
of any and all other series.
22. Miscellaneous. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts to the extent federal
law does not govern. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. Except as otherwise provided
herein or under the Investment Company Act of 1940, this Agreement may not be
changed, waived, discharged or amended except by written instrument which shall
make specific reference to this Agreement and which shall be signed by the party
against which enforcement of such change, waiver, discharge or amendment is
sought. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the Guinness Funds has executed this instrument in
its name and behalf, and its seal affixed, by one of its officers duly
authorized, and the Distributor has executed this instrument in its name and
behalf, and its corporate seal affixed, by one of its officers duly authorized,
as of the day and year first above written.
Guinness Flight Investment Funds, Inc. with respect to
its series of funds listed on Schedule A
Attest:
- ---------------------
By:
----------------------------
President
FIRST FUND DISTRIBUTORS, INC.
Attest:
- ---------------------
By:
----------------------------
Vice President and Secretary
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<PAGE>
SCHEDULE A
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
ASSIGNMENT AND ASSUMPTION
WHEREAS, Guinness Flight Investment Funds, Inc., a Maryland corporation
(the "Company") and Investors Bank & Trust Company, a Massachusetts trust
company (the "Bank") have entered into a Custodian Agreement, dated the 1st day
of July 1994 (the "Agreement"); and
WHEREAS, pursuant to the terms of an Agreement and Plan of Conversion
and Termination, the Company is converting to a Delaware business trust
("Guinness Flight Investment Funds" or the "Trust"); and
WHEREAS, the Company desires to obtain, and the undersigned desires to
grant, the undersigned's consent to the assignment of the Agreement.
NOW THEREFORE, the Bank, in consideration of and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound by the terms of this Assignment and
Assumption, hereby agrees as follows:
The Bank acknowledges that the Agreement by and between the Company and
the Bank is in full force and effect, and that it is not aware of any default or
event which, after notice or the passage of time or both, could become a default
under the Agreement. The Bank hereby consents to the assignment of all rights
and obligations under the Agreement to the Trust by the Company, to become
effective on April 28, 1997.
The Trust acknowledges that the Agreement is in full force and effect,
and that it is not aware of any default or event which, after notice or the
passage of time, or both, could become a default under the Agreement. The Trust
hereby agrees to assume all of the rights, duties and obligations of the Company
under the Agreement effective April 28, 1997.
Dated: April 28, 1997 INVESTORS BANK & TRUST COMPANY
By:______________________________
Name:____________________________
Title:___________________________
GUINNESS FLIGHT INVESTMENT FUNDS
By:______________________________
Name:____________________________
Title:
<PAGE>
AMENDMENT NO. 1
to
CUSTODIAN AGREEMENT
(the "Agreement")
between
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
and
INVESTORS BANK & TRUST COMPANY
dated April 29, 1996
Pursuant to Section 17 (Amendments) of the Agreement, the first sentence of the
second paragraph of the Agreement is amended to read: The Fund, an open-end
management investment company consisting of the separate portfolios listed on
Appendix A which is attached hereto, desires to place and maintain all of its
portfolio securities and cash in the custody of the Bank.
Guinness Flight Investment Funds, Inc.
By:/s/ Steven J. Paggiali
-----------------------------------
Steven J. Paggiali
Dated: April 29, 1997
--------------------------------
Investors Bank & Trust Company
By:/s/ Henry M. Joyce
-----------------------------------
Henry M. Joyce
Dated: April 29, 1997
--------------------------------
<PAGE>
APPENDIX A
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
<PAGE>
(4/94)
CUSTODIAN AGREEMENT
Between
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Bank Appointed Custodian............................................... 1
2. Definitions............................................................ 1
2.1 Authorized Person............................................. 1
2.2 Security...................................................... 1
2.3 Portfolio Security............................................ 1
2.4 Officers' Certificate......................................... 2
2.5 Book-Entry System............................................. 2
2.6 Depository.................................................... 2
2.7 Proper Instructions........................................... 2
3. Separate Accounts...................................................... 2
4. Certification as to Authorized Persons................................. 2
5. Custody of Cash........................................................ 3
5.1 Purchase of Securities........................................ 3
5.2 Redemptions................................................... 3
5.3 Distributions and Expenses of Fund............................ 3
5.4 Payment in Respect of Securities.............................. 3
5.5 Repayment of Loans............................................ 4
5.6 Repayment of Cash............................................. 4
5.7 Foreign Exchange Transactions................................. 4
5.8 Other Authorized Payments..................................... 4
5.9 Termination................................................... 4
6. Securities............................................................. 4
6.1 Segregation and Registration.................................. 4
6.2 Voting and Proxies............................................ 5
6.3 Book-Entry System............................................. 5
6.4 Use of a Depository........................................... 6
6.5 Use of Book-Entry System for Commercial Paper................. 7
6.6 Use of Immobilization Programs................................ 8
6.7 Eurodollar CDs................................................ 8
6.8 Options and Futures Transactions.............................. 8
6.9 Segregated Account............................................ 9
6.10 Interest Bearing Call or Time Deposits........................ 11
6.11 Transfer of Securities........................................ 11
7. Redemptions............................................................ 13
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<PAGE>
Page
8. Merger, Dissolution, etc. of Fund....................................... 13
9. Actions of Bank Without Prior Authorization............................. 13
10. Collection and Defaults................................................. 14
11. Maintenance of Records and Accounting Services.......................... 14
12. Fund Evaluation......................................................... 14
13. Concerning the Bank..................................................... 15
13.1 Performance of Duties and Standard of Care........................ 15
13.2 Agents and Subcustodians with Respect to Property of the Fund
Held in the United States......................................... 16
13.3 Duties of the Bank with Respect to Property of the Fund Held Outside
of the United States............................................. 16
13.4 Insurance......................................................... 19
13.5 Fees and Expenses of Bank......................................... 19
13.6 Advances by Bank.................................................. 20
14. Termination............................................................. 20
15. Confidentiality......................................................... 21
16. Notices................................................................. 21
17. Amendments.............................................................. 22
18. Parties................................................................. 22
19. Governing Law........................................................... 22
20. Counterparts............................................................ 22
- ii -
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this [1st] day of [July], 1994, between GUINNESS
FLIGHT INVESTMENT FUNDS, INC., a Maryland corporation (the "Fund") and INVESTORS
BANK & TRUST COMPANY (the "Bank")
The Fund, an open-end management investment company consisting of two
portfolios, Guinness Flight Hong Kong Fund and Guinness Flight Global Government
Bond Fund, desires to place and maintain all of its portfolio securities and
cash in the custody of the Bank. The Bank has at least the minimum
qualifications required by Section 17(f)(1) of the Investment Company Act of
1940 (the "1940 Act") to act as custodian of the portfolio securities and cash
of the Fund, and has indicated its willingness to so act, subject to the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have
the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board of Directors (the "Board"),
and set forth in a certificate as required by Section 4 hereof.
2.2 Security. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.3 Portfolio Security. Portfolio Security will mean any security
owned by the Fund.
<PAGE>
2.4 Officers' Certificate. Officers' Certificate will mean,
unless otherwise indicated, any request, direction, instruction, or
certification in writing signed by any two Authorized Persons of the Fund.
2.5 Book-Entry System. Book-Entry System shall mean the Federal
Reserve- Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.6 Depository. Depository shall mean The Depository Trust
Company ("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any United States or foreign person
authorized to act as a depository under the 1940 Act, its successor or
successors and its nominee or nominees, specifically identified in a certified
copy of a resolution of the Board.
2.7 Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person
as shall have been designated in an Officers' Certificate, such instructions to
be given in such form and manner as the Bank and the Fund shall agree upon from
time to time, and (ii) instructions (which may be continuing instructions)
regarding other matters signed or initiated by such one or more persons from
time to time designated in an Officers' Certificate as having been authorized by
the Board. Oral instructions will be considered Proper Instructions if the Bank
reasonably believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause all
oral instructions to be promptly confirmed in writing. The Bank shall act upon
and comply with any subsequent Proper Instruction which modifies a prior
instruction and the sole obligation of the Bank with respect to any follow-up or
confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires the Bank
to act the Fund shall give the Bank specific Proper Instructions as to the
action required. Upon receipt of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the
Board and the Bank are satisfied that such procedures afford adequate safeguards
for the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or
portfolio, the Bank will segregate the assets of each series or portfolio to
which this Agreement relates into a separate account for each such series or
portfolio containing the assets of such series or portfolio (and all investment
earnings thereon).
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in
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<PAGE>
such form as may be acceptable to the Bank, of (i) the names and signatures of
the Authorized Persons and (ii) the names of the Board, it being understood that
upon the occurrence of any change in the information set forth in the most
recent certification on file (including without limitation any person named in
the most recent certification who is no longer an Authorized Person as
designated therein), the Secretary or Assistant Secretary of the Fund, will sign
a new or amended certification setting forth the change and the new, additional
or omitted names or signatures. The Bank will be entitled to rely and act upon
any Officers' Certificate given to it by the Fund which as been signed by
Authorized Persons named in the most recent certification.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Section 13.2 hereof, including borrowed funds, delivered
to the Bank, subject only to draft or order by the Bank acting pursuant to the
terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which
may be continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding shares of common stock of the Fund, notification from
the Fund's transfer agent as provided in Section 7, requesting such payment,
designating the payee or the account or accounts to which the Bank will release
funds for deposit, and stating that it is for a purpose permitted under the
terms of this Section 5, specifying the applicable subsection, the Bank will
make payments of cash held for the accounts of the Fund, insofar as funds are
available for that purpose, only as permitted in subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for
the Fund, against a contemporaneous receipt of such securities by the Bank
registered in the name of the Fund or in the name of, or properly endorsed and
in form for transfer to, the Bank, or a nominee of the Bank, or receipt for the
account of the Bank pursuant to the provisions of Section 6 below, each such
payment to be made at the purchase price shown on a broker's confirmation (or
transaction report in the case of Book Entry Paper) of purchase of the
securities received by the Bank before such payment is made, as confirmed in the
Proper Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the
repurchase or redemption of common shares of the Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liability of the Bank, as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection
with the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
- 3 -
<PAGE>
5.5 Repayment of Loans. To repay loans of money made to the Fund,
but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan.
5.6 Repayment of Cash. To repay the cash delivered to the Fund
for the purpose of collateralizing the obligation to return to the Fund
certificates borrowed from the Fund representing Portfolio Securities, but only
upon redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions. For payments in connection
with foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery which may be entered into by the Bank on
behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
5.8 Other Authorized Payments. For other authorized transactions
of the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination. Upon termination of this Agreement as
hereinafter set forth pursuant to Section 8 and Section 14 of this Agreement.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Section 13.2 hereof, the Bank as custodian, will receive and hold
pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Bank will use its best
- 4 -
<PAGE>
efforts to the end that the specific Portfolio Securities held by it thereunder
will be at all times identifiable.
The Fund will from time to time furnish to the Bank
appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any Portfolio
Securities which may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of
the Bank will vote any of the Portfolio Securities held hereunder, except in
accordance with Proper Instructions or an Officers' Certificate. The Bank will
execute and deliver, or cause to be executed and delivered, to the Fund all
notices, proxies and proxy soliciting materials with respect to such Securities,
such proxies to be executed by the registered holder of such Securities (if
registered otherwise than in the name of the Fund), but without indicating the
manner in which such proxies are to be voted.
6.3 Book-Entry System. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for any subsequent changes to
such arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the
Book-Entry System provided that such Portfolio Securities are represented in an
account ("Account") of the Bank (or its agent) in such System which shall not
include any assets of the Bank (or such agent) other than assets held as a
fiduciary, custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with
respect to the Fund's participation in the Book-Entry System through the Bank
(or any such agent) will identify by book entry Portfolio Securities which are
included with other securities deposited in the Account and shall at all times
during the regular business hours of the Bank (or such agent) be open for
inspection by duly authorized officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank shall also, by book
entry or otherwise, identify as belonging to the Fund a quantity of securities
in fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities
purchased for the account of the Fund or shall pay cash collateral against the
return of Portfolio Securities loaned by the Fund upon (i) receipt of advice
from the Book-Entry System that such Securities have been transferred to the
Account, and (ii) the making of an entry on the records of the Bank (or its
agent) to reflect such payment and transfer for the account of the Fund. The
Bank (or its agent) shall transfer securities sold or loaned for the account of
the Fund upon
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(i) receipt of advice from the Book-Entry
System that payment for securities sold or payment of the initial cash
collateral against the delivery of securities loaned by the Fund has been
transferred to the Account; and
(ii) the making of an entry on the records of
the Bank (or its agent) to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Book-Entry System of transfers of
securities for the account of the Fund shall identify the Fund, be maintained
for the Fund by the Bank and shall be provided to the Fund at its request. The
Bank shall send the Fund a confirmation, as defined by Rule 17f-4 of the 1940
Act, of any transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any
report obtained by the Bank or its agent on the Book-Entry System's accounting
system, internal accounting control and procedures for safeguarding securities
deposited in the Book-Entry System;
(e) The Bank shall be liable to the Fund for any loss
or damage to the Fund resulting from use of the Book-Entry System by reason of
any gross negligence, willful misfeasance or bad faith of the Bank or any of its
agents or of any of its or their employees or from any reckless disregard by the
Bank or any such agent of its duty to use its best efforts to enforce such
rights as it may have against the Book-Entry System; at the election of the
Fund, it shall be entitled to be subrogated for the Bank in any claim against
the Book-Entry System or any other person which the Bank or its agent may have
as a consequence of any such loss or damage if and to the extent that the Fund
has not been made whole for any loss or damage.
6.4 Use of a Depository. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive,
exchange, release, lend, deliver and otherwise deal with Portfolio Securities
including stock dividends, rights and other items of like nature, and to receive
and remit to the Bank on behalf of the Fund all income and other payments
thereon and to take all steps necessary and proper in connection with the
collection thereof;
(b) Registration of Portfolio Securities may be made in
the name of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be
made through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund only upon delivery of the Securities to
or for the account of the Fund; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against payment thereof or, in the
event Portfolio Securities are loaned, delivery
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of Securities will be made only against receipt of the initial cash collateral
to or for the account of the Fund; and
(d) The Bank shall be liable to the Fund for any loss
or damage to the Fund resulting from use of a Depository by reason of any gross
negligence, willful misfeasance or bad faith of the Bank or its employees or
from any reckless disregard by the Bank of its duty to use its best efforts to
enforce such rights as it may have against a Depository. In this connection, the
Bank shall use its best efforts to ensure that:
(i) The Depository obtains replacement of any
certificated Portfolio Security deposited with it in the event such Security is
lost, destroyed, wrongfully taken or otherwise not available to be returned to
the Bank upon its request;
(ii) Any proxy materials received by a
Depository with respect to Portfolio Securities deposited with such Depository
are forwarded immediately to the Bank for prompt transmittal to the Fund;
(iii) Such Depository immediately forwards to
the Bank confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to
the Bank such records with respect to the performance of the Bank's obligations
and duties hereunder as may be necessary for the Fund to comply with the
recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a)
thereunder; and
(v) Such Depository delivers to the Bank and
the Fund all internal accounting control reports, whether or not audited by an
independent public accountant, as well as such other reports as the Fund may
reasonably request in order to verify the Portfolio Securities held by such
Depository.
6.5 Use of Book-Entry System for Commercial Paper. Provided (i)
the Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-Entry agreement (the "Issuers"). In maintaining its Book-Entry Paper
System, the Bank agrees that:
(a) the Bank will maintain all Book-Entry Paper held by
the Fund in an account of the Bank that includes only assets held by it for
customers;
(b) the records of the Bank with respect to the Fund's
purchase of Book-Entry Paper through the Bank will identify, by book-entry,
Commercial Paper belonging
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to the Fund which is included in the Book-Entry Paper System and shall at all
times during the regular business hours of the Bank be open for inspection by
duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased
for the account of the Fund upon contemporaneous (i) receipt of advice from the
Issuer that such sale of Book- Entry Paper has been effected, and (ii) the
making of an entry on the records of the Bank to reflect such payment and
transfer for the account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper
obligation upon the maturity thereof upon contemporaneous (i) receipt of advice
that payment for such Book-Entry Paper has been transferred to the Fund, and
(ii) the making of an entry on the records of the Bank to reflect such payment
for the account of the Fund;
(e) the Bank shall transmit to the Fund a transaction
journal confirming each transaction in Book-Entry Paper for the account of the
Fund on the next business day following the transaction; and
(f) the Bank will send to the Fund such reports on its
system of internal accounting control with respect to the Book-Entry Paper
System as the Fund may reasonably request from time to time.
6.6 Use of Immobilization Programs. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.7 Eurodollar CDs. Any Portfolio Securities which are Eurodollar
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Securities are identified on the books of the Bank as
belonging to the Fund and that the books of the Bank identify the European
Branch holding such Securities. Notwithstanding any other provision of this
Agreement to the contrary, except as stated in the first sentence of this
subsection 6.7, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund, and shall have no liability to the Fund or
its shareholders with respect to the actions, inactions, whether negligent or
otherwise of such European Branch in connection with such Eurodollar CDs, except
for any loss or damage to the Fund resulting from the Bank's own gross
negligence, willful misfeasance or bad faith in the performance of its duties
hereunder.
6.8 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter.
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1. The Bank shall take action as to put options
("puts") and call options ("calls") purchased or sold (written) by the Fund
regarding escrow or other arrangements (i) in accordance with the provisions of
any agreement entered into upon receipt of Proper Instructions between the Bank,
any broker-dealer registered under the Exchange Act and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the
Fund relating to the compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations.
2. Unless another agreement requires it to do so,
the Bank shall be under no duty or obligation to see that the Fund has deposited
or is maintaining adequate margin, if required, with any broker in connection
with any option, nor shall the Bank be under duty or obligation to present such
option to the broker for exercise unless it receives Proper Instructions from
the Fund. The Bank shall have no responsibility for the legality of any put or
call purchased or sold on behalf of the Fund, the propriety of any such purchase
or sale, or the adequacy of any collateral delivered to a broker in connection
with an option or deposited to or withdrawn from a Segregated Account (as
defined in subsection 6.9 below). The Bank specifically, but not by way of
limitation, shall not be under any duty or obligation to: (i) periodically check
or notify the Fund that the amount of such collateral held by a broker or held
in a Segregated Account is sufficient to protect such broker of the Fund against
any loss; (ii) effect the return of any collateral delivered to a broker; or
(iii) advise the Fund that any option it holds, has or is about to expire. Such
duties or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities
Exchanges
1. The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the Fund in accordance with
the provisions of any agreement among the Fund, the Bank and a Futures
Commission Merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund.
2. The responsibilities and liabilities of the Bank
as to futures, puts and calls traded on commodities exchanges, any Futures
Commission Merchant account and the Segregated Account shall be limited as set
forth in subparagraph (a)(2) of this Section 6.8 as if such subparagraph
referred to Futures Commission Merchants rather than brokers, and Futures and
puts and calls thereon instead of options.
6.9 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund, into which Account or Accounts may be transferred upon
receipt of Proper Instructions cash and/or Portfolio Securities;
(a) in accordance with the provisions of any agreement
among the Fund, the Bank and a broker-dealer registered under the Exchange Act
and a member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act,
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<PAGE>
relating to compliance with the rules of the Options Clearing Corporation and of
any registered national securities exchange or the Commodity Futures Trading
Commission or any registered Contract Market, or of any similar organizations
regarding escrow or other arrangements in connection with transactions by the
Fund;
(b) for the purpose of segregating cash or securities
in connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(c) for the deposit of liquid assets, such as cash,
U.S. Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(d) for the deposit of any Portfolio Securities which
the Fund has agreed to sell on a forward commitment basis, all in accordance
with Investment Company Act Release No. 10666;
(e) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(f) for other proper corporate purposes, but only, in
the case of this clause (f), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board, or of the Executive
Committee signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
(g) Assets may be withdrawn from the Segregated Account
pursuant to Proper Instructions only
(i) in accordance with the provisions of any
agreements referenced in (a) or (b) above;
(ii) for sale or delivery to meet the Fund's
obligations under outstanding firm commitment or
when-issued agreements for the purchase of Portfolio
Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal
or greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding
forward commitment or when-issued agreements for the
purchase of portfolio securities or
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<PAGE>
reverse repurchase agreements are sold to other parties
or the Fund's obligations thereunder are met from assets
of the Fund other than those in the Segregated Account;
or
(v) for delivery upon settlement of a forward
commitment agreement for the sale of Portfolio
Securities.
6.10 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.11 Transfer of Securities. The Bank will transfer, exchange,
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section the Bank will receive
Proper Instructions requesting such transfer, exchange or delivery stating that
it is for a purpose permitted under the terms of this Section 6.11, specifying
the applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only
(a) upon sales of Portfolio Securities for the account
of the Fund, against contemporaneous receipt by the Bank of payment therefor in
full, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale of the Portfolio Securities received by the Bank
before such payment is made, as confirmed in the Proper Instructions received by
the Bank before such payment is made;
(b) in exchange for or upon conversion into other
securities alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided however that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or subcustodian hereunder) has actual possession
of such Security at least two business days prior to the date of tender;
(c) upon conversion of Portfolio Securities pursuant to
their terms into other securities;
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<PAGE>
(d) for the purpose of redeeming in kind shares of the
Fund upon authorization from the Fund;
(e) in the case of option contracts owned by the Fund,
for presentation to the endorsing broker;
(f) when such Portfolio Securities are called, redeemed
or retired or otherwise become payable;
(g) for the purpose of effectuating the pledge of
Portfolio Securities held by the Bank in order to collateralize loans made to
the Fund by any bank, including the Bank; provided, however, that such Portfolio
Securities will be released only upon payment to the Bank for the account of the
Fund of the moneys borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, and such fact is made to appear in
the Proper Instructions, further Portfolio Securities may be released for that
purpose without any such payment. In the event that any such pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender, that an event of deficiency or default on the
loan has occurred, the Bank may deliver such pledged Portfolio Securities to or
for the account of the lender;
(h) for the purpose of releasing certificates
representing Portfolio Securities, against contemporaneous receipt by the Bank
of the fair market value of such security, as set forth in the Proper
Instructions received by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by
the Fund to a bank or broker dealer, but only against receipt in accordance with
street delivery custom except as otherwise provided herein, of adequate
collateral as agreed upon from time to time by the Fund and the Bank, and upon
receipt of payment in connection with any repurchase agreement relating to such
securities entered into by the Fund;
(j) for other authorized transactions of the Fund or
for other proper corporate purposes; provided that before making such transfer,
the Bank will also receive a certified copy of resolutions of the Board, signed
by an authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (e), (f), (g), (h) and (i) securities or cash receivable in exchange
therefor shall be delivered to the Bank.
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7. Redemptions. In the case of payment of assets of the Fund held by
the Bank in connection with redemptions and repurchases by the Fund of
outstanding common shares, the Bank will rely on notification by the Fund's
transfer agent of receipt of a request for redemption and certificates, if
issue, in proper form for redemption before such payment is made. Payment shall
be made in accordance with the Articles and By-laws of the Fund, from assets
available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate.
9. Actions of Bank Without Prior Authorization. Notwithstanding
anything herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the
name of the Fund all checks, drafts, or other negotiable or transferable
instruments or other orders for the payment of money received by it for the
account of the Fund and hold for the account of the Fund all income, dividends,
interest and other payments or distribution of cash with respect to the
Portfolio Securities held thereunder;
9.2 Present for payment all coupons and other income items held
by it for the account of the Fund which call for payment upon presentation and
hold the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder;
9.4 Execute as agent on behalf of the Fund all necessary
ownership and other certificates and affidavits required by the Internal Revenue
Code or the regulations of the Treasury Department issued thereunder, or by the
laws of any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
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<PAGE>
9.5 Present for payment all Portfolio Securities which are
called, redeemed, retired or otherwise become payable, and hold cash received by
it upon payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for
definitive securities.
10. Collection and Defaults. The Bank will use all reasonable efforts
to collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the date on which it receives knowledge of such default
or refusal. In addition, the Bank will send the Fund a written report once each
month showing any income on any Portfolio Security held by it which is more than
ten days overdue on the date of such report and which has not previously been
reported.
11. Maintenance of Records and Accounting Services. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act and will furnish the Fund
daily with a statement of condition of the Fund. The Bank will furnish to the
Fund at the end of every month, and at the close of each quarter of the Fund's
fiscal year, a list of the Portfolio Securities and the aggregate amount of cash
held by it for the Fund. The books and records of the Bank pertaining to its
actions under this Agreement and reports by the Bank or its independent
accountants concerning its accounting system, procedures for safeguarding
securities and internal accounting controls will be open to inspection and audit
at reasonable times by officers of or auditors employed by the Fund and will be
preserved by the Bank in the manner and in accordance with the applicable rules
and regulations under the 1940 Act.
The Bank shall keep the books of account and render statements or
copies from time to time as reasonably requested by the Treasurer or any
executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation. The Bank shall compute and, unless otherwise
directed by the Board, determine as of the close of business on the New York
Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other hours, if any, as may be authorized by the Board
the net asset value and the public offering price of a share of capital stock of
the Fund, such determination to be made in accordance with the provisions of the
Articles and By-laws of the Fund and Prospectus and Statement of Additional
Information relating to the Fund, as they may from time to time be amended, and
any applicable resolutions of the Board at the time in force and applicable; and
promptly to notify the Fund, the proper exchange and the NASD or such other
persons as the Fund may request of the results of such
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<PAGE>
computation and determination. In computing the net asset value hereunder, the
Bank may rely in good faith upon information furnished to it by any Authorized
Person in respect of (i) the manner of accrual of the liabilities of the Fund
and in respect of liabilities of the Fund not appearing on its books of account
kept by the Bank, (ii) reserves, if any, authorized by the Board or that no such
reserves have been authorized, (iii) the source of the quotations to be used in
computing the net asset value, (iv) the value to be assigned to any security for
which no price quotations are available, and (v) the method of computation of
the public offering price on the basis of the net asset value of the shares, and
the Bank shall not be responsible for any loss occasioned by such reliance or
for any good faith reliance on any quotations received from a source pursuant to
(iii) above.
13. Concerning the Bank.
13.1 Performance of Duties and Standard of Care.
In performing its duties hereunder and any other duties listed on
any Schedule hereto, if any, the Bank will be entitled to receive and act upon
the advice of independent counsel of its own selection, which may be counsel for
the Fund, and will be without liability for any action taken or thing done or
omitted to be done in accordance with this Agreement in good faith in conformity
with such advice. In the performance of its duties hereunder, the Bank will be
protected and not be liable, and will be indemnified and held harmless for any
action taken or omitted to be taken by it in good faith reliance upon the terms
of this Agreement, any Officers' Certificate, Proper Instructions, resolution of
the Board, telegram, notice, request, certificate or other instrument reasonably
believed by the Bank to be genuine and for any other loss to the Fund except in
the case of its gross negligence, willful misfeasance or bad faith in the
performance of its duties or reckless disregard of its obligations and duties
hereunder.
The Bank will be under no duty or obligation to inquire into and
will not be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the
Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the
Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund
or the legality of the distribution of any Portfolio Securities as payment in
kind of such dividend; and
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<PAGE>
(f) any property or moneys of the Fund unless and until received
by it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank be liable hereunder or to any third party:
(a) for any losses or damages of any kind resulting from acts of
God, earthquakes, fires, floods, storms or other disturbances of nature,
epidemics, strikes, riots, nationalization, expropriation, currently
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation, or computers (hardware or software) and computer facilities, the
unavailability of energy sources and other similar happenings or events except
as results from the Bank's own gross negligence; or
(b) for special, punitive or consequential damages arising from
the provision of services hereunder, even if the Bank has been advised of the
possibility of such damages.
13.2 Agents and Subcustodians with Respect to Property of the
Fund Held in the United States. The Bank may employ agents in the performance of
its duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder.
Upon receipt of Proper Instructions, the Bank may employ
subcustodians, provided that any such subcustodian meets at least the minimum
qualifications required by Section 17(f)(1) of the 1940 Act to act as a
custodian of the Fund's assets with respect to property of the Fund held in the
United States. The Bank shall have no liability to the Fund or any other person
by reason of any act or omission of any subcustodian and the Fund shall
indemnify the Bank and hold it harmless from and against any and all actions,
suits and claims, arising directly or indirectly out of the performance of any
subcustodian. Upon request of the Bank, the Fund shall assume the entire defense
of any action, suit, or claim subject to the foregoing indemnity. The Fund shall
pay all fees and expenses of any subcustodian.
13.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Sub-Custodians. The Fund hereby
authorizes and instructs the Bank to employ as sub-custodians for the Fund's
Portfolio Securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated on
the Schedule attached hereto (each, a "Selected Foreign Sub- Custodian"). Upon
receipt of Proper Instructions, together with a certified resolution of the
Fund's Board of Trustees, the Bank and the Fund may agree to designate
additional foreign
- 16 -
<PAGE>
banking institutions and foreign securities depositories to act as Selected
Foreign Sub-Custodians hereunder. Upon the receipt of Proper Instructions, the
Fund may instruct the Bank to cease the employment of any one or more such
Selected Foreign Sub-Custodians for maintaining custody of the Fund's assets,
and the Bank shall so cease to employ such sub-custodian as soon as alternate
custodial arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by the Bank and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign
Sub-Custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be agreed upon in writing by the Bank and the Fund, the Fund authorizes the
deposit in Euro-clear, the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Portfolio Securities eligible for deposit therein and to utilize such
securities depository in connection with settlements of purchases and sales of
securities and deliveries and returns of securities, until notified to the
contrary pursuant to subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its
books as belonging to the Fund the Foreign Portfolio Securities held by each
Selected Foreign Sub- Custodian. Each agreement pursuant to which the Bank
employs a foreign banking institution shall require that such institution
establish a custody account for the Bank and hold in that account, Foreign
Portfolio Securities and other assets of the Fund, and, in the event that such
institution deposits Foreign Portfolio Securities in a foreign securities
depository, that it shall identify on its books as belonging to the Bank the
securities so deposited.
(d) Agreements with Foreign Banking Institutions. Each of the
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub- Custodian Agreement") shall be substantially in the
form previously made available to the Fund and shall provide that: (a) the
Fund's assets will not be subject to any right, charge, security interest, lien
or claim of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
administration (including, without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (b) beneficial ownership of the
Fund's assets will be freely transferable without the payment of money or value
other than for custody or administration (including, without limitation, any
fees or taxes payable upon transfers or reregistration of securities); (c)
adequate records will be maintained identifying the assets as belonging to the
Fund; (d) officers of or auditors employed by, or other representatives of the
Bank, including to the extent permitted under applicable law, the independent
public accountants for the Fund, will be given access to the books and records
of the foreign banking institution relating to its actions under its agreement
with the Bank; and (e) assets of the Fund held by the Selected Foreign
Sub-Custodian will be subject only to the instructions of the Bank or its
agents.
(e) Access of Independent Accountants of the Fund. Upon request
of the Fund, the Bank will use its best efforts to arrange for the independent
accountants of the Fund
- 17 -
<PAGE>
to be afforded access to the books and records of any foreign banking
institution employed as a Selected Foreign Sub-Custodian insofar as such books
and records relate to the performance of such foreign banking institution under
its Foreign Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by Selected Foreign Sub-Custodians, including but
not limited to an identification of entities having possession of the Foreign
Portfolio Securities and other assets of the Fund.
(g) Transactions in Foreign Custody Account. Transactions with
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
If at any time any Foreign Portfolio Securities shall be registered in the name
of the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold
any such nominee harmless from any liability by reason of the registration of
such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the account
of the Fund and delivery of Foreign Portfolio Securities maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in connection
with any other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Foreign Sub- Custodian, and shall promptly forward to the applicable Foreign
Sub-Custodian any instructions, forms or certifications with respect to such
Rights, and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further duty
or obligation with respect to such Rights, including, without limitation, the
determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
(h) Liability of Selected Foreign Sub-Custodians. Each Foreign
Sub-Custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and each
- 18 -
<PAGE>
Fund from and against certain losses, damages, costs, expenses, liabilities or
claims arising out of or in connection with the institution's performance of
such obligations, all as set forth in the applicable Foreign Sub-Custodian
Agreement. The Fund acknowledges that the Bank, as a participant in Euro-clear,
is subject to the Terms and Conditions Governing the Euro-Clear System, a copy
of which has been made available to the Fund. The Fund acknowledges that
pursuant to such Terms and Conditions, Morgan Guaranty Brussels shall have the
sole right to exercise or assert any and all rights or claims in respect of
actions or omissions of, or the bankruptcy or insolvency of, any other
depository, clearance system or custodian utilized by Euro-clear in connection
with the Fund's securities and other assets.
(i) Liability of Bank. The Bank shall have no more or less
responsibility or liability on account of the acts of omissions of any Selected
Foreign Sub-Custodian employed hereunder than any such Selected Foreign
Sub-Custodian has to the Bank and, without limiting the foregoing, the Bank
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or acts of
war or terrorism, political risk (including, but not limited to, exchange
control restrictions, confiscation, insurrection, civil strife or armed
hostilities) other losses due to Acts of God, nuclear incident or any loss where
the Selected Foreign Sub-Custodian has otherwise exercised reasonable care.
(j) Monitoring Responsibilities. The Bank shall furnish annually
to the Fund, information concerning the Selected Foreign Sub-Custodians employed
hereunder for use by the Fund in evaluating such Selected Foreign Sub-Custodians
to ensure compliance with the requirements of Rule 17f-5 of the Act. In
addition, the Bank will promptly inform the Fund in the event that the Bank is
notified by a Selected Foreign Sub-Custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles) or any other capital adequacy
test applicable to it by exemptive order, or if the Bank has actual knowledge of
any material loss of the assets of the Fund held by a Foreign Sub-Custodian.
(k) Tax Law. The Bank shall have no responsibility or liability
for any obligations now or hereafter imposed on the Fund or the Bank as
custodian of the Fund by the tax laws of any jurisdiction, and it shall be the
responsibility of the Fund to notify the Bank of the obligations imposed on the
Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of jurisdictions for which the Fund
has provided such information.
13.4 Insurance. The Bank shall use the same care with respect to
the safekeeping of Portfolio Securities and cash of the Fund held by it as it
uses in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
13.5 Fees and Expenses of Bank. The Fund will pay or reimburse
the Bank from time to time for any transfer taxes payable upon transfer of
Portfolio Securities made
- 19 -
<PAGE>
hereunder, and for all necessary proper disbursements, expenses and charges made
or incurred by the Bank in the performance of this Agreement (including any
duties listed on any Schedule hereto, if any) including any indemnities for any
loss, liabilities or expense to the Bank as provided above. For the services
rendered by the Bank hereunder, the Fund will pay to the Bank such compensation
or fees at such rate and at such times as shall be agreed upon in writing by the
parties from time to time. The Bank will also be entitled to reimbursement by
the Fund for all reasonable expenses incurred in conjunction with termination of
this Agreement by the Fund.
13.6 Advances by Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness, a loan made by the Bank to the Fund payable on demand and
bearing interest at the current rate charged by the Bank for such loans unless
the Fund shall provide the Bank with agreed upon compensating balances. The Fund
agrees that the Bank shall have a continuing lien and security interest to the
extent of any overdraft or indebtedness, in and to any property at any time held
by it for the Fund's benefit or in which the Fund has an interest and which is
then in the Bank's possession or control (or in the possession or control of any
third party acting on the Bank's behalf). The Fund authorizes the Bank, in its
sole discretion, at any time to charge any overdraft or indebtedness, together
with interest due thereon against any balance of account standing to the credit
of the Fund on the Bank's books.
14. Termination.
14.1 This Agreement may be terminated at any time without penalty
upon sixty days written notice delivered by either party to the other by means
of registered mail, and upon the expiration of such sixty days this Agreement
will terminate; provided, however, that the effective date of such termination
may be postponed to a date not more than ninety days from the date of delivery
of such notice (i) by the Bank in order to prepare for the transfer by the Bank
of all of the assets of the Fund held hereunder, and (ii) by the Fund in order
to give the Fund an opportunity to make suitable arrangements for a successor
custodian. At any time after the termination of this Agreement, the Fund will,
at its request, have access to the records of the Bank relating to the
performance of its duties as custodian.
14.2 In the event of the termination of this Agreement, the Bank
will immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (14.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of its own selection
- 20 -
<PAGE>
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board.
14.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel tot he Fund in form and content satisfactory to the Bank.
15. Confidentiality. Both parties hereto agree that any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of a governmental
agency. The parties further agree that a breach of this provision would
irreparably damage the other party and accordingly agree that each of them is
entitled, without bond or other security, to an injunction or injunctions to
prevent breaches of this provision.
16. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below, namely:
(a) In the case of notices sent to the Fund to
Guinness Flight Investment Funds, Inc.
201 South Lake Avenue, Suite 510
Pasadena, California 91101
Attention: Mr. Robert H. Wadsworth
(b) In the case of notices sent to the Bank to
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention: Mr. Henry N. Joyce
or at such other place as such party may from time to time designate in
writing.
- 21 -
<PAGE>
17. Amendments. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Board.
18. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 14 hereof will not be deemed to
be an assignment within the meaning of this provision.
19. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
Guinness Flight Investment Funds, Inc.
By:
---------------------------
Name:
Title:
ATTEST:
- -----------------------------
Investors Bank & Trust Company
By:
---------------------------
Name:
Title:
ATTEST:
- -----------------------------
- 22 -
<PAGE>
DATE:
-----------------------
- 23 -
<PAGE>
Guinness Flight Investment Funds, Inc.
Fee Schedule
For Two U.S. Based International Funds
July 1, 1994
===============================================================================
FUND ACCOUNTING, CALCULATION OF N.A.V. & CUSTODY
===============================================================================
A. FUND ACCOUNTING & CALCULATION OF N.A.V.
o There will be a per fund fee for Fund Accounting and
Calculation of NAV as follows:
First year $40,000 per fund
Second year and beyond $50,000 per fund
The first year reduction will stay in effect for the
designated time frame or when total assets in the two funds
combined reach $50 million, whichever comes first.
B. DOMESTIC & FOREIGN CUSTODY
o The following incremental basis point fees are based on all
assets for which we are Custodian. The following asset based
fees and transaction fees vary by country, based upon the
attached International Custody Bands. These amounts are
calculated monthly as of the 20th of the month. Local duties,
script fees, registration and exchange fees are out-of-pocket.
o Investors Bank will require the fund to hold all assets that
are eligible with Euroclear and to submit all assets that are
Euroclear petitionable to an eligibility review.
Country Annual Fee Transactions
------- ---------- ------------
Band I (US) 3 Basis Points See item (C)
Band II 8 Basis Points 20
Band III 15 Basis Points 60
Band IV 20 Basis Points 60
Band V 24 Basis Points 100
Band VI 31 Basis Points 110
Band VII 42 Basis Points 120
Band VIII 45 Basis Points 120
<PAGE>
C. DOMESTIC TRANSACTION COSTS
o DTC/Fed Book Entry $12
o Physical Securities 35
o Options and Futures 18
o GNMA Securities 40
o Principal Paydown 5
o Foreign Currency 18
o Outgoing Wires 8
o Incoming Wires 6
===============================================================================
OUT-OF-POCKET, BALANCE CREDITS & SECURITIES LENDING
===============================================================================
A. OUT-OF-POCKET
o These charges consist of:
- Pricing & Verification Services - Legal Costs
- Printing, Delivery & Postage - Third Party Review
- Telephone - Forms and Supplies
B. DOMESTIC BALANCE CREDIT
o We allow balance credit against fees (excluding
out-of-pocket charges) for fund balances arising out
of the custody relationship. The credit is based on
collected balances reduced by balances required to
support the activity charges of the accounts. The
monthly earnings allowance is equal to 75% of the
90-day T-bill rate.
C. SECURITIES LENDING
o Investors Bank assumes that it will act as lending
agent for the funds. Typically the income generated
is split with the fund on a 55%-45% basis with 55%
going to the fund.
<PAGE>
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
FEE SCHEDULE
February 15, 1996
===============================================================================
FUND ACCOUNTING, CALCULATION OF N.A.V. & CUSTODY
===============================================================================
A. FUND ACCOUNTING & CALCULATION OF N.A.V.
o There will be a per fund fee for Fund Accounting and
Calculation of NAV as follows:
First year of $25 million assets $30,000 per fund
Second year or $50 million in assets $40,000 per fund
Third year and beyond $50,000 per fund
This fee will apply to any new funds sponsored by Guinness Flight.
B. DOMESTIC & FOREIGN CUSTODY
o The following incremental basis point fees are based
on all assets for which we are Custodian. The
following asset based fees and transaction fees vary
by country, based upon the attached International
Custodial Bands. These amounts are calculated monthly
as of the 20th of the month. Local duties, script
fees, registration and exchange fees are
out-of-pocket.
o Investors Bank will require the fund to hold all
international assets at the subcustodian of our choice.
Country Annual Fee Transactions
------- ---------- ------------
BandI (US) 3 Basis Points See Item (C)
BandII 8 Basis Points 20***
BandIII 15 Basis Points**** 60
BandIV 20 Basis Points 60
BandV 24 Basis Points***** 100
BandVI 31 Basis Points 110
BandVII 42 Basis Points 120******
BandVIII 45 Basis Points 120
BandIX 50 Basis Points 200
BandX 53 Basis Points 100
- --------
*** Transactions in Australia, Austria, Italy, New Zealand, Switzerland
and UK are charged at $60.
**** The annual fee for Hong Kong is 12 basis points.
***** Asset based charges in Argentina are based on face value not market
value.
****** Transactions in India are 50 basis points of trade value.
<PAGE>
C. DOMESTIC TRANSACTIONS COSTS
o DTC/Fed Book Entry $12
o Physical Securities 35
o Options ad and Futures 18
o GNMA Securities 40
o Principal Paydown 5
o Foreign Currency 18**
o Outgoing Wires 8
o Incoming Wires 6
** There are no transactions charges for F/X contracts executed by Investors
Bank
===============================================================================
MISCELLANEOUS
===============================================================================
A. OUT-OF-POCKET
o These charges consist of:
- Pricing & Verification Services - Legal Costs
- Printing, Delivery & Postage - Third Party Review
- Telecommunications - Forms and Supplies
- Extraordinary Travel Expenses - Customized Development
B. DOMESTIC BALANCE CREDIT
o We allow balance credit against fees (excluding
out-of-pocket charges) for fund balances arising out
of the custody relationship. The credit is based on
collected balances reduced by balances required to
support the activity charges of the accounts. The
monthly earnings allowances is equal to 75% of the
90-day T-bill rate.
C. SYSTEMS
o The details of any systems work will be determined
after a thorough business analysis. System's work
will be billed on a time and material basis.
D. PAYMENT
o The above fees will be charged against the fund's
custodian account five business days after the
invoice if mailed.
E. SECURITIES LENDING & FOREIGN EXCHANGE
o The assumption was made that Investors Bank would
perform securities lending and foreign exchange
services for the portfolios. Securities Lending
revenue is split with the fund and Investors Bank on
a 60/40% basis: 60% going to the fund.*
- --------
* This fee schedule is valid for 60 days from date of issue and
assumes the execution of our standard contractual agreements
for a minimum of three years.
- 2 -
ASSIGNMENT AND ASSUMPTION
WHEREAS, Guinness Flight Investment Funds, Inc., a Maryland corporation
(the "Company") and State Street Bank and Trust Company, a Massachusetts trust
company (the "Bank") have entered into a Transfer Agency and Service Agreement,
dated the 1st day of July, 1994, (the "Agreement"); and
WHEREAS, pursuant to the terms of an Agreement and Plan of Conversion
and Termination, the Company is converting to a Delaware business trust
("Guinness Flight Investment Funds" or the "Trust"); and
WHEREAS, the Company desires to obtain, and the undersigned desires to
grant, the undersigned's consent to the assignment of the Agreement.
NOW THEREFORE, the Bank, in consideration of and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound by the terms of this Assignment and
Assumption, hereby agrees as follows:
The Bank acknowledges that (i) the Agreement by and between the Company
and the Bank is in full force and effect, and that it is not aware of any
default or event which, after notice or the passage of time or both, could
become a default under the Agreement. The Bank hereby consents to the assignment
of all rights and obligations under the Agreement to the Trust by the Company,
to become effective on April 28, 1997; and (ii) that Guinness Flight Asia Small
Cap Fund and Guinness Flight Asia Blue Chip Fund are both parties to the
Agreement as of April 29, 1996.
The Trust acknowledges that the Agreement is in full force and effect,
and that it is not aware of any default or event which, after notice or the
passage of time, or both, could become a default under the Agreement. The Trust
hereby agrees to assume all of the rights, duties and obligations of the Company
under the Agreement effective April 28, 1997.
Dated: April 28, 1997 STATE STREET BANK TRUST AND COMPANY
By:____________________________________
Name:__________________________________
Title:__________________________________
GUINNESS FLIGHT INVESTMENT FUNDS
By:____________________________________
Name:__________________________________
Title:
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
Article 1 Terms of Appointment; Duties of the Bank........................2
Article 2 Fees and Expenses...............................................6
Article 3 Representations and Warranties of the Bank......................7
Article 4 Representations and Warranties of the Fund......................8
Article 5 Data Access and Proprietary Information.........................8
Article 6 Indemnification................................................11
Article 7 Standard of Care...............................................13
Article 8 Covenants of the Fund and the Bank.............................13
Article 9 Termination of Agreement.......................................15
Article 10 Additional Funds...............................................15
Article 11 Assignment.....................................................16
Article 12 Amendment......................................................16
Article 13 Massachusetts Law to Apply.....................................16
Article 14 Force Majeure..................................................17
Article 15 Consequential Damages..........................................17
Article 16 Merger of Agreement............................................17
Article 17 Counterparts...................................................17
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of July, 1994, by and between GUINNESS
FLIGHT INVESTMENT FUNDS, INC., a Maryland corporation, having its principal
office and place of business at 201 South Lake Avenue, Suite 510, Pasadena,
California 91101 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series,
Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government
Bond Fund (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Article 10, being herein referred to, as a "Portfolio", and collectively as the
"Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the
Bank as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities and the
Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
<PAGE>
Article 1 Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement,
the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to
act as, and the Bank agrees to act as its transfer agent for the authorized and
issued shares of capital stock of the Fund representing interests in each of the
respective Portfolios ("Shares"), dividend disbursing agent, custodian of
certain retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of the
respective Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus") of
the Fund on behalf of the applicable Portfolio, including without limitation any
periodic investment plan or periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as applicable
and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
thereof to the Custodian of the Fund authorized pursuant to
the Articles of Incorporation of the Fund (the
"Custodian");
-2-
<PAGE>
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and hold such Shares in the appropriate
Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation
thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner
such monies as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
applicable Portfolio;
(viii) Issue replacement certificates for those certificates
alleged to have been lost,
-3-
<PAGE>
stolen or destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and protecting the
Bank and the Fund, and the Bank at its option, may issue
replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total
number of Shares of the Fund which are authorized, based
upon data provided to it by the Fund, and issued and
outstanding. The Bank shall also provide the Fund on a
regular basis with the total number of Shares which are
authorized and issued and outstanding and shall have no
obligation, when recording the issuance of Shares, to
monitor the issuance of such Shares or to take cognizance
of any laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of the
Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a
-4-
<PAGE>
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and, as relevant, agent in connection with accumulation, open-account or similar
plans (including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, mailing
Shareholder reports and prospectuses to current Shareholders, withholding taxes
on U.S. resident and non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required with respect
to dividends and distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information and (ii) provide
a system which will enable the Fund to monitor the total number of Shares sold
in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of the Bank for the Fund's blue sky
State registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by
-5-
<PAGE>
the Fund and the reporting of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Fund on
behalf of each Portfolio and the Bank per the attached service responsibility
schedule. The Bank may at times perform only a portion of these services and the
Fund or its agent may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing between the
Fund and the Bank.
Article 2 Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the
Fund agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.2 below may be changed from time to time subject to
mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund
agrees on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation production,
postage, forms, telephone, microfilm, microfiche, tabulating proxies, records
storage or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses
-6-
<PAGE>
incurred by the Bank at the request or with the consent of the Fund, will be
reimbursed by the Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees
and reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be advanced to the
Bank by the Fund at least seven (7) days prior to the mailing date of such
materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth
of Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
-7-
<PAGE>
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.4 It is an open-end and non-diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of the Fund being
offered for sale.
Article 5 Data Access and Proprietary Information
5.1 The Fund acknowledges that the data bases, computer programs,
screen formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank or other third party
("Data Access Services") constitute copyrighted,
-8-
<PAGE>
trade secret, or other proprietary information (collectively, "Proprietary
Information") of substantial value to the Bank or other third party. In no event
shall Proprietary Information be deemed Customer Data. The Fund agrees to treat
all Proprietary Information as proprietary to the Bank and further agrees that
it shall not divulge any Proprietary Information to any person or organization
except as may be provided hereunder. Without limiting the foregoing, the Fund
agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as
may be designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way
the Proprietary Information;
(c) to refrain from obtaining unauthorized access to any
portion of the Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose of such
information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data
acquired hereunder from being retransmitted to any other computer facility or
other location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those
authorized transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by
the Bank to protect at the Bank's expense the rights of the Bank
-9-
<PAGE>
in Proprietary Information at common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Article 5. The obligations of this Article
shall survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services
do not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner to
correct such failure. Organizations from which the Bank may obtain certain data
included in the Data Access Services are solely responsible for the contents of
such data and the Fund agrees to make no claim against the Bank arising out of
the contents of such third-party data, including, but not limited to, the
accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS
AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI"), then in such
event the Bank shall be entitled to rely on the validity and authenticity of
-10-
<PAGE>
such instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures established by
the Bank from time to time.
Article 6 Indemnification
6.1 The Bank shall not be responsible for, and the Fund shall on behalf
of the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records, documents or services which (i) are received by the
Bank or its agents or subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of the Fund
including but not limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf of the
applicable Portfolio.
-11-
<PAGE>
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund on behalf of the applicable Portfolio for any
action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be genuine and to have been signed
by the proper person or persons, or upon any instruction, information, data,
records or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. The Bank, its
agents and subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
-12-
<PAGE>
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.3 In order that the indemnification provisions contained in this
Article 6 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim or
make any compromise in any case in which the Fund may be required to indemnify
the Bank except with the Fund's prior written consent.
Article 7 Standard of Care
7.1 The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not be
liable for loss or damage due to errors unless said errors are caused by its
negligence, bad faith, or willful misconduct of that of its employees.
Article 8 Covenants of the Fund and the Bank
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish
to the Bank the following:
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<PAGE>
(a) A certified copy of the resolution of the Directors of the Fund
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund and
all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.3 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.4 The Bank and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
-14-
<PAGE>
8.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
9.1 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund on behalf of the applicable Portfolio(s). Additionally, the Bank
reserves the right to charge for any other reasonable expenses associated with
such termination.
Article 10 Additional Funds
10.1 In the event that the Fund establishes one or more series of
Shares in addition to Guinness Flight China & Hong Kong Fund and Guinness Flight
Global Government Bond Fund with respect to which it desires to have the Bank
render services as transfer agent under the terms hereof, it shall so notify the
Bank in writing, and if the Bank agrees in writing to provide such services,
such series of Shares shall become a Portfolio hereunder.
-15-
<PAGE>
Article 11 Assignment
11.1 Except as provided in Section 11.3 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
Article 12 Amendment
12.1 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Directors of the Fund.
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<PAGE>
Article 13 Massachusetts Law to Apply
13.1 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 14 Force Majeure
14.1 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
Article 15 Consequential Damages
15.1 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
Article 16 Merger of Agreement
16.1 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 17 Counterparts
17.1 This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said
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<PAGE>
counterparts taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
BY:
-----------------------------------
ATTEST:
- ------------------------------
STATE STREET BANK AND TRUST COMPANY
BY:
-----------------------------------
Executive Vice President
ATTEST:
- ------------------------------
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<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
1. Receives orders for the purchase X
of Shares.
2. Issue Shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X
4. Effect transactions 1-3 above X
directly with broker-dealers.
5. Pay over monies to redeeming X
Shareholders.
6. Effect transfers of Shares. X
7. Prepare and transmit dividends X
and distributions.
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and X
accurate control book for each
issue of securities.
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current X
Shareholders.
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<PAGE>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
15. Withhold taxes on U.S. resident X
and non-resident alien accounts.
16. Prepare and file U.S. Treasury X
Department forms.
17. Prepare and mail account and X
confirmation statements for
Shareholders.
18. Provide Shareholder account X
information.
19. Blue sky reporting. X
* Such services are more fully described in Article 1.02(a),
(b) and (c) of the Agreement.
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
BY:
-----------------------------------
ATTEST:
- ----------------------
STATE STREET BANK AND TRUST COMPANY
BY:
-----------------------------------
Executive Vice President
ATTEST:
- ----------------------
-20-
<PAGE>
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
GUINNESS FLIGHT
Annual Account Service Fees
Daily Dividend Fund $ 14.00
Non-Daily Dividend Fund $ 12.00
Closed Account Fee $ 1.50
Minimum
First year minimum $30,000 per fund
Second year minimum $36,000 per fund
Fees are billable on a monthly basis at the rate of 1/12 of the annual fee. A
charge is made for an account in the month that an account opens or closes.
Account service fees are the higher of: open account charges plus closed account
charges or the fund minimum.
Activity Based Fees **
New Account Set-up $ 3.00/each
Manual Transactions $ 1.50/each
Telephone Calls $ 1.50/each
Correspondence $ 1.50/each
Banking Services
Checkwriting Setup $ 5.00
Checkwriting (per draft) $ 1.00
ACH $ .35
Other Fees
Investor Processing $ 1.80/Investor
12b-1 Commissions $ 1.20/account
IRA Custodial Fees
Acceptance & Setup $ 5.00/account
Annual Maintenance $10.00/account
Out-of-Pocket Expenses Billed as incurred
Out-of-Pocket expenses include but are not limited to: confirmation statements,
postage, forms, audio response, telephone, records retention, transcripts,
microfilm, microfiche, and expenses incurred at the specific direction of the
fund.
** Activity based fee will be waived the first quarter of operations.
GUINNESS FLIGHT STATE STREET BANK AND TRUST CO.
By By
----------------------------- ---------------------------------
Title Title
-------------------------- ---------------------------------
Date Date
-------------------------- ------------------------------
-21-
ASSIGNMENT AND ASSUMPTION
WHEREAS, Guinness Flight Investment Funds, Inc., a Maryland corporation
(the "Company") and Investment Company Administration Corporation, a New Jersey
Corporation (the "Administrator") have entered into a Administration Agreement,
dated the 1st day of July, 1994 (the "Agreement"); and
WHEREAS, pursuant to the terms of an Agreement and Plan of Conversion
and Termination, the Company is converting to a Delaware business trust
("Guinness Flight Investment Funds" or the "Trust"); and
WHEREAS, the Company desires to obtain, and the undersigned desires to
grant, the undersigned's consent to the assignment of the Agreement.
NOW THEREFORE, the Administrator, in consideration of and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound by the terms of this Assignment and
Assumption, hereby agrees as follows:
The Administrator acknowledges that (i) the Agreement by and between
the Company and the Administrator is in full force and effect, and that it is
not aware of any default or event which, after notice or the passage of time or
both, could become a default under the Agreement. The Administrator hereby
consents to the assignment of all rights and obligations under the Agreement to
the Trust by the Company, to become effective on April 28, 1997; and (ii) that
Guinness Flight Asia Small Cap Fund and Guinness Flight Asia Blue Chip Fund are
both parties to the Agreement as of April 29, 1996.
The Trust acknowledges that the Agreement is in full force and effect,
and that it is not aware of any default or event which, after notice or the
passage of time, or both, could become a default under the Agreement. The Trust
hereby agrees to assume all of the rights, duties and obligations of the Company
under the Agreement effective April 28, 1997.
Dated: April 28, 1997 INVESTMENT COMPANY ADMINISTRATION CORPORATION
By:____________________________________
Name:__________________________________
Title:__________________________________
GUINNESS FLIGHT INVESTMENT FUNDS
By:____________________________________
Name:__________________________________
Title:
<PAGE>
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of the 1st day of July, 1994 by and between
Guinness Flight China & Hong Kong and Global Government Bond Funds (the
"Funds"), two separate series of the Guinness Flight Investment Funds, Inc., a
Maryland Corporation (the "Company"), and INVESTMENT COMPANY ADMINISTRATION
CORPORATION, a New Jersey Corporation (the "Administrator");
WITNESSETH:
WHEREAS, the Funds are non-diversified series of an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company wishes to retain the Administrator to provide
certain administrative services in connection with the management of the Funds'
operations and the Administrator is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints the Administrator to
provide certain administrative services, hereinafter enumerated, in connection
with the management of the Funds' operations for the period and on the terms set
forth in this Agreement. The Administrator accepts such appointment and agrees
to comply with all relevant provisions of the 1940 Act, applicable rules and
regulations thereunder, and other applicable law.
2. Services on a Continuing Basis. Subject to the overall supervision
of the Board of Directors of the Company and Guinness Flight Investment
Management Limited (the "Manager"), the Administrator will perform the following
services on a regular basis which would be daily, weekly or as otherwise
appropriate:
A) perform the services in Exhibit 1 attached; and
B) such additional services as may be agreed upon by the Funds and the
Administrator.
3. Responsibility of the Administrator. The Administrator shall be
under no duty to take any action on behalf of the Funds except as set forth
herein or as may be agreed to by the Administrator in writing. In the
performance of its duties hereunder, the Administrator shall be obligated to
exercise reasonable care and diligence and to act in good faith and to use its
best efforts. Without limiting the generality of the foregoing or any other
provision of this Agreement, the Administrator shall not be liable for delays or
errors or loss of data occurring by reason of circumstances beyond the
Administrator's control.
4. Reliance Upon Instructions. The Company agrees that the
Administrator shall be entitled to rely upon any instructions, oral or written,
actually received by the Administrator from
<PAGE>
the Board of Directors of the Company and shall incur no liability to the
Company or the Company's Manager in acting upon such oral or written
instructions, provided such instructions reasonably appear to have been received
from a person duly authorized by the Board of Directors of the Company to give
oral or written instructions on behalf of the Funds.
5. Confidentiality. The Administrator agrees on behalf of itself and
its employees to treat confidentially all records and other information relative
to the Funds and all prior, present or potential shareholders of the Funds,
except after prior notification to, and approval of release of information in
writing by, the Funds, which approval shall not be unreasonably withheld where
the Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Funds.
6. Equipment Failures. In the event of equipment failure or the
occurrence of events beyond the Administrator's control which render the
performance of the Administrator's functions under this Agreement impossible,
the Administrator shall take reasonable steps to minimize service interruptions
and is authorized to engage the services of third parties (at the
Administrator's expense) to prevent or remedy such service interruptions.
7. Compensation. As compensation for services rendered by the
Administrator during the term of this Agreement, each Fund (the Guinness Flight
China & Hong Kong Fund and Guinness Flight Global Government Bond Fund) will pay
to the Administrator a minimum annual fee of $40,000 or .25%, whichever is
greater, payable monthly by the fifth day of the next month.
8. Indemnification. The Funds agree to indemnify and hold harmless the
Administrator from all taxes, filing fees, charges, expenses, assessments,
claims and liabilities (including without limitation, liabilities arising under
Securities Act of 1933, the Securities Exchange Act of 1934, the 1940 Act, and
any state and foreign securities laws, all as amended from time to time) and
expenses, including (without limitation) reasonable attorneys' fees and
disbursements, arising directly or indirectly from any action or thing which the
Administrator takes or does or omits to take or do at the request of or in
reliance upon the advice of the Board of Directors of the Company, provided,
that the Administrator will not be indemnified against any liability to the
Funds or to shareholders of the Funds (or any expenses incident to such
liability) arising out of the Administrator's own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement. The Administrator agrees to indemnify and hold harmless
the Funds, the Company, and each of its Directors from all claims and
liabilities (including, without limitation, liabilities arising under the
Securities Act of 1933, the Securities Exchange Act of 1934, the 1940 Act, and
any state and foreign securities laws, all as amended from time to time) and
expenses, including (without limitation) reasonable attorneys' fees and
disbursements, arising directly or indirectly from any action or thing which the
Administrator takes or does or omits to take or do which is in violation of this
Agreement or not in accordance with instructions properly given to the
Administrator, or arising out of the Administrator's own willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement. No fund or other series of the Company shall be liable for
any claim against, or expense of, any other fund or series of the Company.
- 2 -
<PAGE>
9. Duration and Termination. This Agreement shall continue until
termination by the Funds (through the Board of Directors of the Company) or the
Administrator on 30 days' written notice to the other. All notices and other
communications hereunder shall be in writing. This Agreement cannot be assigned
without the prior written consent of the other party hereto.
10. Amendments. This Agreement or any part hereof may be changed or
waived only by instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
11. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the services to be
performed hereunder, and supersedes all prior agreements and understandings,
relating to the subject matter hereof. The captions in this Agreement are
included for convenience of reference only and in no way define or limit any of
the provisions hereof or otherwise affect their construction or effect, This
Agreement shall be deemed to be a contract made in California and governed by
California law. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
will not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first written
above.
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
By: /s/
------------------------------------------
Title: President
---------------------------------------
INVESTMENT COMPANY ADMINISTRATION CORPORATION
By: /s/Steven J. Paggioli
------------------------------------------
Title: Vice President
------------------------------------------
- 4 -
<PAGE>
EXHIBIT 1
INVESTMENT COMPANY ADMINISTRATION CORPORATION ("ICAC")
ADMINISTRATIVE SERVICES
ICAC typically performs the following services on a regular basis which would be
daily, weekly or as otherwise appropriate:
1) prepare and coordinate reports and other materials to be supplied to
the Board of Directors of the Fund;
2) prepare and/or supervise the preparation and filing of all
securities filings (i.e., N- SARs, 24f-2 notices, etc.), periodic financial
reports, prospectuses, statements of additional information, marketing
materials, tax returns, shareholder reports and other regulatory reports and
filings required of the Fund;
3) supervise and monitor the preparation of all required filings
necessary to maintain the Fund's qualification and/or registration to sell
shares in all states where the Fund currently does, or intends to do business;
4) coordinate the preparation, printing and mailing of all materials
(e.g., Annual Reports) required to be sent to shareholders;
5) coordinate the preparation and payment of Fund-related expenses;
6) monitor and oversee the activities of the Fund's servicing agents
(i.e., transfer agent, custodian, fund accountants, etc.);
7) review and adjust as necessary the Fund's daily expense accruals;
8) monitor daily, monthly and periodic compliance with respect to SEC
(40' Act), IRS and prospectus guidelines and restrictions;
9) send periodic information (i.e., performance figures) to service
organizations that track investment company information; and
10) perform such additional services as may be agreed upon by the Fund
and ICAC.
- 5 -
<PAGE>
ADDENDUM TO ADMINISTRATION AGREEMENT
Effective May 1, 1996, the Administration Agreements between
Investment Company Administration Corporation and Guinness Flight Investments
Funds, Inc. (the "Trust") dated July 1, 1994 is hereby amended as follows:
1. PARAGRAPH 7 OF THE AGREEMENT
7. Compensation. As compensation for services rendered by the
Administrator during the term of this agreement, each series of the Trust agrees
to pay the Administrator:
The Greater of:
(1) Minimum annual fees of $40,000 for China & Hong Kong Fund and
$60,000 for Guinness Flight Asia Blue Chip Fund, Guinness Flight
Asia Small Cap Fund and Guinness Flight Global Government Fund,
allocated based on the daily average net assets of each
respective fund.
OR
(2) 0.25% of the daily average net assets for China & Hong Kong Fund.
For the Asia Blue Chip Fund, Asia Small Cap Fund and Global
Government Bond Fund: 0.25% (annual rate) of the combined daily
average net assets.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum
to be executed by their officers designated below:
INVESTMENT COMPANY ADMINISTRATION CORPORATION
By: Date:
------------------------------------ ------------------
Title: Senior Vice President
---------------------------------
GUINNESS FLIGHT INVESTMENT FUNDS, INC.
By: Date:
------------------------------------ ------------------
Title: President
------------------------------------
GUINNESS FLIGHT INVESTMENT MANAGEMENT LIMITED
By: Date:
------------------------------------ ------------------
Title: Director
------------------------------------
- 6 -
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
-------------
April 25, 1997
Guinness Flight Investment Funds, Inc.
225 South Lake Avenue, Suite 777
Pasadena, California 91101
Guinness Flight Investment Funds
225 South Lake Avenue, Suite 777
Pasadena, California 91101
Re: Conversion of Guinness Flight Investment Funds, Inc.
to a Delaware business trust
Gentlemen:
We have acted as counsel to Guinness Flight Investment Funds, Inc., a
Maryland corporation (the "Company"), and its series: Guinness Flight Asia Blue
Chip Fund, Guinness Flight Asia Small Cap Fund, Guinness Flight China & Hong
Kong Fund and Guinness Flight Global Government Bond Fund (the "Current Funds"),
and Guinness Flight Investment Funds, a Delaware business trust (the "Trust") in
connection with an Agreement and Plan of Conversion and Termination (the "Plan")
adopted by the Board of Directors of the Company on March 9, 1997, and to be
presented to Shareholders of Guinness Flight Investment Funds, Inc. on April 25,
1997. Pursuant to the Plan, all of the assets of the Current Funds will be
transferred to corresponding shell series of the Trust (the "Successor Funds")
in exchange for (i) the assumption by each Successor Fund of all the
corresponding Current Fund's liabilities and (ii) the issuance of that number of
shares of the Successor Fund (the "Successor Fund Shares") equal to the number
of outstanding shares of the corresponding Current Fund (the "Current Fund
Shares") and such Successor Fund Shares shall be distributed by each Current
<PAGE>
KRAMER LEVIN, NAFTALIS & FRANKEL
Guinness Flight Investment Funds, Inc.
Guinness Flight Investment Funds
April 25, 1997
Page 2
Fund pro rata to its shareholders upon its termination. Capitalized terms used
herein without definition which are defined in the Plan have the same respective
meanings herein as therein.
In rendering this opinion, we have relied as to factual matters on
representations provided by the officers of the Trust and have not independently
established or verified the accuracy of such factual matters.
As counsel for the Trust, we have reviewed its Certificate of Trust,
Trust Instrument, By-laws, resolutions of the Board of Trustees and registration
statements (including the prospectus and statement of additional information
contained therein). We also have made such inquiries of public officials and
officers of the Trust and have examined originals, certified copies or copies
otherwise identified to our satisfaction of such other documents, records and
other instruments as we have deemed necessary or appropriate for the purposes of
our opinions. With respect to all documents we reviewed or examined, we have
assumed the genuineness of all signatures on original documents and the
conformity to the original documents of all copies.
We are members of the Bar of the State of New York and do not hold
ourselves out as experts on, or express any opinion as to, the law of any state
or jurisdiction other than the laws of the State of New York and applicable
federal laws of the United States which are in effect on the date hereof. As to
matters involving Delaware law, we have relied solely upon an opinion of Morris,
Nichols, Arsht & Tunnell, special Delaware counsel to the Trust, a copy of which
is attached as Exhibit A, and our opinion is subject to the qualifications and
limitations set forth therein, which are incorporated herein by reference as
though fully set forth herein.
Based upon, and subject to, the foregoing, we are of the opinion that:
(1) the Trust is a duly organized and validly existing business
trust in good standing under the State of Delaware,
(2) the Trust is an open-end investment company of the
management type registered under the 1940 Act,
(3) the Trust has adopted the Registration Statement of the
Company, for purposes of the Securities Act of 1933, as amended
and the Investment Company Act of 1940, as amended,
<PAGE>
KRAMER LEVIN, NAFTALIS & FRANKEL
Guinness Flight Investment Funds, Inc.
Guinness Flight Investment Funds
April 25, 1997
Page 3
(4) Successor Fund Shares to be issued to the Company in the
Conversion will have been duly authorized and when issued and
delivered in accordance with the Plan will be legally and
validly issued and will be fully paid and non-assessable by the
Trust.
This opinion letter is solely for your benefit and is not to be quoted
in whole or in part, summarized or otherwise referred to, nor is it to be filed
with or supplied to any governmental agency or other person without the written
consent of this firm. This opinion letter is rendered as of the date hereof. We
specifically disclaim any responsibility to update or supplement this opinion
letter to reflect any events or state of facts which may hereafter come to our
attention, or any changes in statutes or regulations or any court decisions
which may hereafter occur.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
-------------------------------------
[MORRIS, NICHOLS, ARSHT & TUNNELL LETTERHEAD]
April 25, 1997
Guinness Flight Investment Funds, Inc.
225 South Lake Avenue
Suite 777
Pasadena, CA 91101
Guinness Flight Investment Funds
225 South Lake Avenue
Suite 777
Pasadena, CA 91101
Re: Guinness Flight Investment Funds
--------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel to Guinness Flight Investment
Funds, a Delaware business trust (the "Trust"), in connection with certain
matters relating to the organization of the Trust and the issuance of Shares of
beneficial interest in the Trust. Capitalized terms used herein and not
otherwise herein defined are used as defined in the Trust Instrument of the
Trust dated March 6, 1997 (the "Governing Instrument").
In rendering this opinion, we have examined copies of the following
documents, each in the form provided to us: the Certificate of Trust of the
Trust as filed in the Office of the Secretary of State of the State of Delaware
(the "Recording Office") on March 6, 1997 (the "Certificate"); the Governing
Instrument; the Bylaws of the Trust; certain resolutions of the Trustees of the
Trust; Post-Effective Amendment No. 7 to the Registration Statement On Form N-1A
(the "Registration Statement") of Guinness Flight Investment Funds by which the
Trust adopted the Registration Statement of Guinness Flight Investment Funds,
Inc., a Maryland corporation, as filed with the Securities and Exchange
Commission on March 20, 1997; and a certification of good standing of the Trust
obtained as of a recent date from the Recording office. In such examinations, we
have assumed the genuineness of all signatures, the conformity to original
documents of all documents submitted to us as copies or drafts of documents to
be executed, and the legal capacity of natural persons to complete the execution
of documents. We have further assumed for the purpose of this opinion: (i) the
due authorization, execution and delivery by, or on behalf of, each of the
parties thereto of the above-referenced instruments, certificates and other
documents, and of all documents contemplated by the Governing Instrument [and
<PAGE>
Guinness Flight Investment Funds, Inc.
Guinness Flight Investment Funds
April 25, 1997
Page 2
applicable resolutions [of the Trustees] to be executed by investors desiring to
become Shareholders]; (ii) the payment of consideration for Shares, and the
application of such consideration, as provided in the Governing Instrument, and
compliance with the other terms, conditions and restrictions set forth in the
Governing Instrument and all applicable resolutions of the Trustees in
connection with the issuance of Shares (including, without limitation, the
taking of all appropriate action by the Trustees to designate Series of Shares
and the rights and preferences attributable thereto as contemplated by the
Governing Instrument), (iii) that appropriate notation of the names and
addresses of, the number of Shares held by, and the consideration paid by,
Shareholders will be maintained in the appropriate registers and other books and
records of the Trust in connection with the issuance or transfer of Shares; (iv)
that no event has occurred subsequent to the filing of the Certificate that
would cause a termination or dissolution of the Trust under Sections 11.04 or
11.05 of the Governing Instrument; (v) that the activities of the Trust have
been and will be conducted in accordance with the terms of the Governing
Instrument and the Delaware Act; and (vi) that each of the documents examined by
us is in full force and effect and has not been modified, supplemented or
otherwise amended except as herein referenced. No opinion in expressed herein
with respect to the requirements of, or compliance with, federal or state
securities or blue sky laws. Further, we express no opinion on the sufficiency
or accuracy of the Registration Statement or any other registration or offering
material relating to the Trust or the Shares. As to any facts material to our
opinion, other than those assumed, we have relied without independent
investigation on the above-referenced documents and on the accuracy, as of the
date hereof, of the matters therein contained.
Based on and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Trust is a duly organized and validly existing business trust in
good standing under the laws of the State of Delaware.
2. The Shares, when issued to Shareholders in accordance with the
terms, conditions, requirements and procedures set forth in the Governing
Instrument, will constitute legally issued, fully paid and non-assessable Shares
of beneficial interest in the Trust.
3. Under the Delaware Act and the terms of the Governing Instrument,
each Shareholder of the Trust, in such capacity, will be entitled to the same
limitation of personal liability as that extended to stockholders of private
corporations
<PAGE>
Guinness Flight Investment Funds, Inc.
Guinness Flight Investment Funds
April 25, 1997
Page 3
for profit organized under the general corporation law of the State of Delaware;
provided, however, that we express no opinion with respect to the liability of
any Shareholder who is, was or may become a named Trustee of the Trust.
We hereby consent to the filing of a copy of this opinion with the
Securities and Exchange Commission as an exhibit to a post-effective amendment
to the Registration Statement. In giving this consent, we do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder. Except as
provided in this paragraph, the opinion set forth above is expressed solely for
the benefit of the addressee hereof in connection with the matters contemplated
hereby and may not be relied upon by, or filed with, any other person or entity
or for any other purpose without our prior written consent.
Sincerely,
MORRIS, NICHOLS, ARSHT & TUNNELL
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
-------------
April 23, 1997
Guinness Flight Investment Funds
225 South Lake Avenue
Suite 777
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 AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Independent Accountants" and "Financial Statements" and the use of
our report dated February 3, 1997, in Post-Effective Amendment No. 8 to the
Registration Statement and related Statement of Additional Information of
Guinness Flight Investment Funds.
/s/ERNST & YOUNG LLP
--------------------
Los Angeles, California
April 18, 1997
ANNUAL REPORT 12/31/96
NO LOAD INVESTING
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
<PAGE>
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
February 24, 1997
Dear Guinness Flight Fund Shareholder:
Guinness Flight called 1996 "The Year of the Investor." Looking back on the
year, we can say more precisely that it was a year of growth for our investors
and for the Guinness Flight Investment Funds. Fund performance was up for the
year; the number of funds in the family was doubled to four; and total assets
under management grew more than six-fold, increasing from $56 million on
December 31, 1995 to $369 million at year-end 1996. With such growth, we wanted
to take this opportunity to welcome new shareholders to the Guinness Flight Fund
Family.
Looking ahead, we are excited about the prospects for 1997 and the success that
we can again share with our shareholders. We continue to work hard to deliver
superior service to our shareholders. In 1996, improvements were made to our
overall methods of shareholder communication. You can count on seeing more
changes and improvements in 1997, including a Guinness Flight Shareholder Guide
and a World Wide Web site exclusively for Guinness Flight shareholders.
Clearly though, investment management is what decides your investment decisions.
Be certain that your assets are being managed by dedicated and experienced
portfolio managers. We are proud to report that all four Guinness Flight Funds
posted satisfactory results in 1996.
Guinness Flight China & Hong Kong Fund
The China & Hong Kong Fund produced a total return of 34.38% for the 12-month
period ending December 31, 1996. This return represents a 0.9% outperformance
over the 33.48% (US$) posted by the Hang Seng Index for the same period. This
outperformance can be attributed to being fully weighted in the property sector
and underweighted in utilities, particularly during the latter part of the year.
The Hang Seng Index climbed steadily since our mid-year report, regularly
hitting new highs and reaching a peak during the year of 13,531.
Guinness Flight Asia Blue Chip Fund
The Asia Blue Chip Fund produced a total return of 3.84% since inception on
April 29, 1996 through December 31, 1996. The funds' total return can be
compared to the -3.6% return of the Morgan Stanley AC Asia Free Ex-Japan
<PAGE>
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
Index for the same eight-month period. The last eight-month period has been a
difficult time for Asian Blue Chip securities, with Hong Kong being the
exception. However the expectations for the potential of Asian Blue Chips in
1997 is favorable. We are predicting better value in emerging markets like
Thailand, India and Korea, all of which fell precipitously last year.
Guinness Flight Asia Small Cap Fund
For the first eight months since inception, the Fund produced a 13.08% return,
outperforming by far the benchmark HSBC James Capel Southeast Asia Smaller
Companies Index's total return of -2.8% (US$). The Fund's strong performance was
achieved mainly through being overweight in Hong Kong and underweight in
Malaysia, Singapore and Thailand. The possibility of higher U.S. interest rates
coupled with poor export demand led to the underweight positions in most Asian
markets excluding Hong Kong.
Guinness Flight Global Government Bond Fund
For the 12-month period, the Fund's return was 6.21% versus the 3.62% (US$)
return for the Salomon Brothers World Government Bond Index. The Fund benefited
from overweight positions in the U.S. dollar and German mark. In the latter part
of 1996, Canadian bond positions were reduced while a high currency position in
this market was maintained. In Australia, the gradually declining economy
renewed calls for an interest rate reduction, supporting the bond market but
depressing its currency.
Reflection and Outlook
In 1996, as in 1995, Hong Kong remained "the jewel in the crown" of Asia. This
market's recent success has been driven by the recovery of the Chinese economy,
the strong property market and improving sentiment towards the territory's
transition back to Chinese rule on July 1, 1997.
In 1996, major events affecting the Hong Kong and Chinese economies included the
April General Election and the May interest rate cut in China. Undoubtedly the
possible effects of Hong Kong's transition to new leadership on July 1, 1997
will dominate economic trends in the coming year. While there is potential for
volatility, we believe the transition will be seen as a positive event for the
market, with all the negative aspects already being out of the way. The last
thing the Chinese leadership would want the world to say is that Hong Kong was a
-2-
<PAGE>
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
smashing success under the British but went into decline as soon as the Chinese
took over. As optimism surrounding the transition continues to rise, there will
be a rippling effect causing a pick-up in consumer spending, which has been very
weak in the last two years.
As for other Asian markets, smart stock selection will be the key to investing
in the region in 1997. The situation in Singapore is looking increasingly
positive, particularly after recent strong earnings, due in large part to better
prospects in the electronics industry. The economic slowdown is expected to
continue in Malaysia, while we expect to see a generally recovering economic and
political outlook in Thailand after the deterioration over the last 12 months.
We expect to see outperformance in Indonesia, given its robust economic
fundamentals and undemanding market multiples. The Philippines will continue to
be clouded by interest rate worries, especially given the property market's
substantial representation in the stock market. A few bargains may be picked up
in Korea.
In the global currency and bond markets, the outlook for 1997 remains mixed. The
U.S. economy appears to have picked up momentum from the relatively sluggish
pace of the third quarter but is, as yet, not threatening to accelerate away.
U.S. inflation remains subdued, although wage inflation and high energy costs
could creep into the headline figures. Elsewhere in the world, some economies
are not on such a strong footing. Fiscal tightening in Europe and now Japan is
likely to depress activity in 1997, offsetting the significant easing of
monetary policy that has occurred so far. We continue to expect selective
currencies such as the British pound sterling, the Norwegian kroner and the U.S.
dollar to outperform the hard European currencies, and to a lesser extent, the
Japanese yen.
Summary
While there are still moderate concerns about the effects of the July 1
transition on the markets, we remain optimistic and even bullish about the
economic future in Asia and especially in China. In Hong Kong, earnings are
forecast to grow by nearly 15% in 1997 at 13,000 with the market trading on a
Price/Earnings ratio of 13.8 times 1997 earnings. Risks to the market include a
correction on Wall Street, a flaring up of inflation in China or some
unpredictable political crisis.
-3-
<PAGE>
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
As we have cautioned in the past, these markets are volatile; however, we are
confident investors who are in it for the long term will be well-rewarded. We
appreciate your confidence in our management team and look forward to a long and
profitable relationship.
/s/ Timothy Guinness /s/ Howard Flight
- ---------------------- --------------------
Timothy Guinness Howard Flight
-4-
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT
ASIA BLUE CHIP FUND AND THE MORGAN STANLEY AC ASIA FREE EX-JAPAN INDEX
04/29/96 06/30/96 09/30/96 12/31/96
-------- -------- -------- --------
Guinness Flight Asia Blue Chip Fund $10,000 $9,904 $9,980 $10,384
Morgan Stanley AC Asia Free Ex-Japan 10,000 9,706 9,372 9,564
Total Return Since Inception 3.84%
__________________
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE GUINNESS FLIGHT
ASIA SMALL CAP FUND AND THE HSBC JAMES CAPEL SOUTHEAST ASIA SMALLER
COMPANIES INDEX (HSBC JAMES CAPEL SASC INDEX)
04/29/96 06/30/96 09/30/96 12/31/96
-------- -------- -------- --------
Guinness Flight Asia Small Cap Fund $10,000 $10,461 $10,397 $11,308
HSBC James Capel Southeast Asia
Smaller Companies Index 10,000 9,530 9,467 9,720
Total Return Since Inception 13.08%
-5-
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GUINNESS FLIGHT CHINA & HONG KONG FUND AND THE HANG SENG INDEX
<TABLE>
<CAPTION>
06/30/94 09/30/94 12/30/94 03/31/95 06/30/95 09/30/95 12/31/95 03/31/96 06/30/96 09/30/96 12/31/96
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Guinness Flight
China &
Hong Kong Fund $10,000 $10,616 $9,226 $9,274 $10,040 $10,680 $11,112 $12,066 $12,254 $13,054 $14,933
Hang Seng Index 10,000 10,871 9,352 9,805 10,512 11,014 11,501 12,510 12,582 13,589 15,358
</TABLE>
Average Annual Total Return
One Year Since Inception
-------- ---------------
34.38% 17.35%
________________
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND AND
THE SALOMON BROTHERS' WORLD GOVERNMENT BOND INDEX
<TABLE>
<CAPTION>
06/30/94 09/30/94 12/30/94 03/31/95 06/30/95 09/30/95 12/31/95 03/31/96 06/30/96 09/30/96 12/31/96
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Guinness Flight
Global Government
Bond Fund $10,000 $ 9,754 $ 9,767 $10,093 $10,638 $10,809 $11,183 $11,083 $11,197 $11,378 $11,877
Salomon Bros.
World Gov't
Bond Index 10,000 10,117 10,166 11,278 11,879 11,755 12,102 11,875 11,923 12,248 12,540
</TABLE>
Average Annual Total Return
One Year Since Inception
-------- ---------------
6.21% 7.10%
-6-
<PAGE>
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
Index to Financial Statements
<TABLE>
<S> <C> <C>
Guinness Flight Asia Blue Chip Fund
Portfolio of Investments............................ 9
Statement of Assets and Liabilities................. 13
Statement of Operations............................. 14
Statement of Changes in Net Assets.................. 15
Financial Highlights................................ 16
Guinness Flight Asia Small Cap Fund
Portfolio of Investments............................ 17
Statement of Assets and Liabilities................. 23
Statement of Operations............................. 24
Statement of Changes in Net Assets.................. 25
Financial Highlights................................ 26
Guinness Flight China & Hong Kong Fund
Portfolio of Investments............................ 27
Statement of Assets and Liabilities................. 32
Statement of Operations............................. 33
Statements of Changes in Net Assets................. 34
Financial Highlights................................ 35
Guinness Flight Global Government Bond Fund
Portfolio of Investments............................ 36
Statement of Assets and Liabilities................. 39
Statement of Operations............................. 40
Statements of Changes in Net Assets................. 41
Financial Highlights................................ 42
Notes to Financial Statements.............................. 43
Report of Independent Auditors............................. 48
</TABLE>
-7-
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares COMMON STOCKS: 92.03% Value
- ------------------------------------------------------------------------
<C> <S> <C>
CHINA: 2.44%
4,000 Huaneng Power International Inc. ADR*........... $ 90,000
----------
HONG KONG: 41.63%
60,000 Amoy Properties Ltd............................. 86,496
100,000 CDL Hotel International......................... 57,211
7,000 Cheung Kong..................................... 62,221
36,000 First Pacific Co................................ 46,777
7,200 HSBC Holdings Plc............................... 154,063
8,000 Hang Seng Bank.................................. 97,227
35,000 Hong Kong & China Gas........................... 67,651
20,000 Hong Kong Electric*............................. 66,455
32,500 Hong Kong & Shanghai Hotels*.................... 61,349
2,500 Hong Kong & Shanghai Hotels Wts.*............... 937
35,000 Hong Kong Land Holdings Ltd..................... 97,300
30,000 Hong Kong Telecom............................... 48,290
12,000 Hutchison Whampoa............................... 94,253
100,000 National Mutual Ltd.*........................... 95,029
20,000 New World Development........................... 135,109
30,000 Shangri-La Asia Ltd............................. 44,411
6,000 Sun Hung Kai Properties Ltd..................... 73,502
12,000 Swire Pacific Ltd. A............................ 114,422
20,000 Television Broadcasts Ltd....................... 79,902
200,000 Tingyi (Cayman Island) Holding Co.*............. 52,363
----------
Total Hong Kong................................. 1,534,968
----------
INDIA: 4.53%
5,000 State Bank of India GDR*........................ 87,500
3,600 Crompton Greaves Ltd. GDR*...................... 14,310
6,000 Tata Engineering & Locomotive Ltd. GDR*......... 65,100
----------
Total India..................................... 166,910
----------
INDONESIA: 7.22%
82,806 Bank International Indonesia (Alien Mkt)........ 81,509
25,000 Bank Intl Indonesia (For Reg)*.................. 24,608
30,000 Pt Indofood Sukses Makmur-F*.................... 59,695
30,000 Pt Indocement Tunggal Prakarsa*................. 45,724
2,000 Pt Indonesia Satellite.......................... 54,750
----------
Total Indonesia................................. 266,286
----------
</TABLE>
-8-
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
KOREA (SOUTH): 3.18%
1,000 Dong-Ah Construction EDR*....................... $ 10,750
1,500 Pohong Iron & Steel Ltd. ADR.................... 30,375
3,000 Korea Electric Power Corp. ADR.................. 61,500
800 Samsung Electronics GDS*........................ 14,760
----------
Total South Korea............................... 117,385
----------
MALAYSIA: 14.87%
20,000 DCB Holdings Berhad*............................ 68,507
6,000 Edaran Otomobil Nasional Berhad................. 59,993
50,000 IOI Corporation Berhad.......................... 76,823
15,000 Kuala Lumpur Kepong Berhad...................... 38,015
45,000 Kumpulan Guthrie Berhad*........................ 79,832
10,000 Malayan Banking Berhad.......................... 110,878
8,000 Petronas Gas Berhad............................. 33,263
4,000 Telekom Malaysia Berhad......................... 35,639
5,000 United Engineers Berhad......................... 45,143
----------
Total Malaysia.................................. 548,093
----------
PHILIPPINES: 4.80%
30,000 Ayala Corp. Class B............................. 32,510
200,000 Metro Pacific Corp.*............................ 49,430
2,750 Metropolitan Bank & Trust Co.................... 67,966
80,000 Petron Corp.*................................... 27,072
----------
Total Philippines............................... 176,978
----------
SINGAPORE: 7.15%
7,000 City Developments Ltd. ......................... 63,059
8,100 Overseas Chinese Banking Corp. (For. Reg)....... 100,765
6,000 Singapore Airlines Ltd (For. Reg)............... 54,479
8,000 Singapore Telecom Ltd. ......................... 18,875
10,000 Wont Nant Holdings*............................. 26,300
----------
Total Singapore................................. 263,478
----------
TAIWAN: 2.69%
3,000 China Steel Corp. GDS........................... 59,775
2,200 President Enterprise GDS*....................... 39,325
----------
Total Taiwan.................................... 99,100
----------
</TABLE>
-9-
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
THAILAND: 3.52%
2,000 Land & House Plc Alien Market*.................. $ 14,589
1,600 Siam Cement Co Ltd. (For. Reg).................. 50,181
5,000 Siam Makro Public Co Ltd.*...................... 21,065
10,000 Siam Makro Public Co. (For. Reg)*............... 44,080
----------
Total Thailand.................................. 129,915
----------
Total Common Stocks: (Identified cost
$3,227,448) 92.03%.............................. $3,393,113
----------
- ------------------------------------------------------------------------
Par
Value CORPORATE BONDS: 3.01% Value
- ------------------------------------------------------------------------
$50,000 Formosa Chemical & Fiber 1.75% due 07/19/01..... $ 56,125
20,000 Nan Ya Plastics Convertible Bond 1.75% due
07/19/01........................................ 22,800
30,000 Ssangyong Oil Refining 3.75% due 12/31/08....... 32,213
----------
Total Corporate Bonds: 3.01%
(Identified cost $109,650)...................... 111,138
----------
Total Investments in Securities
(cost $3,337,098+): 95.04%...................... $3,504,251
----------
Other Assets Less Liabilities: 4.96%............ 182,914
----------
NET ASSETS: 100.00%............................. $3,687,165
==========
</TABLE>
* Security is non-income producing
+ Cost for federal income tax purposes is the same:
<TABLE>
<S> <C>
Net unrealized appreciation consists of:
Gross unrealized appreciation.......................... $ 372,011
Gross unrealized depreciation.......................... (204,858)
---------
167,153
=========
</TABLE>
See accompanying notes to financial statements.
-10-
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------
<S> <C>
Automobile.................................................. 1.63%
Banking..................................................... 19.65
Chemical.................................................... 1.52
Construction................................................ 5.06
Diversified operations...................................... 10.61
Electric utilities.......................................... 5.91
Electronics................................................. 0.39
Finance..................................................... 2.58
Food and beverage........................................... 6.59
Gas......................................................... 2.74
Hotels...................................................... 4.45
Industrial.................................................. 0.62
Iron and steel.............................................. 2.44
Media....................................................... 2.17
Oil/Petroleum refining...................................... 1.61
Real-Estate................................................. 14.44
Technology.................................................. 1.22
Telecommunications.......................................... 4.27
Transportation.............................................. 3.24
Wholesalers................................................. 3.90
------
TOTAL INVESTMENTS IN SECURITIES............................. 95.04
OTHER ASSETS LESS LIABILITIES............................... 4.96
------
NET ASSETS.................................................. 100.00%
======
</TABLE>
-11-
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $3,337,098)..... $3,504,251
Cash...................................................... 250,669
Receivables:
Fund shares sold..................................... 40,000
Dividends and interest............................... 7,197
Prepaid expenses.......................................... 8,610
Deferred organization costs, net.......................... 7,561
----------
Total assets......................................... 3,818,288
----------
LIABILITIES
Payables
Securities purchased................................. 89,867
Due to Adviser....................................... 18,395
Accrued expenses.......................................... 22,861
----------
Total liabilities.................................... 131,123
----------
NET ASSETS................................................ $3,687,165
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($3,687,165/284,068 shares outstanding; unlimited
number of shares authorized without par value)....... $12.98
=======
SOURCE OF NET ASSETS
Paid-in capital...................................... $3,517,505
Undistributed net investment income.................. 838
Accumulated net realized gain on investments......... 1,740
Net unrealized appreciation on investments and
foreign currency................................... 167,082
----------
Net assets...................................... $3,687,165
==========
</TABLE>
See accompanying notes to financial statements.
-12-
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- --------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends (net of foreign taxes withheld $1,517)....... $ 20,595
Interest............................................... 5,834
--------------
Total Investment Income........................... 26,429
EXPENSES
Advisory fees (Note 3)................................. 12,860
Administration fee (Note 3)............................ 13,424
Custodian.............................................. 10,963
Accounting............................................. 20,137
Transfer agent fees.................................... 16,767
Auditing fees.......................................... 15,741
Legal fees............................................. 4,213
Directors' fees........................................ 4,699
Registration fees...................................... 14,095
Reports to shareholders................................ 2,350
Deferred organization costs amortization............... 1,184
Miscellaneous.......................................... 2,014
--------------
Total expenses.................................... 118,447
Less: Expenses reimbursed (Note 3)................ (92,856)
--------------
Net expenses...................................... 25,591
--------------
NET INVESTMENT INCOME........................ 838
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from investments..................... 2,695
Net realized loss from foreign currency................ (955)
Net unrealized appreciation on investments and foreign
currency............................................. 167,082
--------------
Net realized and unrealized gain on investments... 168,822
--------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $ 169,660
==============
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
-13-
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- --------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income................................ $ 838
Net realized gain from investments................... 2,695
Net realized loss on foreign currency................ (955)
Net unrealized appreciation on investments and
foreign currency................................... 167,082
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... 169,660
---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 3,961,160
Cost of shares redeemed.............................. (843,655)
---------------
Net increase from capital share transactions......... 3,117,505
---------------
TOTAL INCREASE IN NET ASSETS.................... 3,287,165
NET ASSETS
Beginning of period.................................. 400,000
---------------
End of period (including undistributed net investment
income of $838).................................... $ 3,687,165
===============
CHANGES IN SHARES
Shares sold.......................................... 320,248
Shares redeemed...................................... (68,180)
---------------
NET INCREASE.................................... 253,068
===============
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
-14-
<PAGE>
GUINNESS FLIGHT ASIA BLUE CHIP FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- --------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period.................. $ 12.50
--------
Income from investment operations:
Net investment income............................... 0.00
Net realized and unrealized gain on investments and
foreign currency................................. 0.48
--------
Total from investment operations...................... 0.48
--------
Net asset value, end of period........................ $ 12.98
========
Total return.......................................... 3.84%+
Ratios/supplemental data:
Net assets, end of period (thousands)................. $ 3,687
Ratio of expenses to average net assets:**
Before expense reimbursement........................ 9.14%
After expense reimbursement......................... 1.98%
Ratio of net investment income (loss) to average net
assets:**
Before expense reimbursement........................ (7.10)%
After expense reimbursement......................... 0.06%
Portfolio turnover rate............................... 10.97%
Average Commission Rate Paid++........................ $0.0190
</TABLE>
* Commencement of operations.
** Annualized.
+ Not 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.
See accompanying notes to financial statements.
-15-
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares COMMON STOCKS: 82.84% Value
- --------------------------------------------------------------------------
<C> <S> <C>
CHINA: 11.18%
1,100,000 Anhui Expressway Co Ltd-H*.................... $ 309,328
455,400 Changchai Co. Ltd. B*......................... 395,667
457,478 China First Pencil-B*......................... 202,205
472,280 Dazhong Taxi-B*............................... 390,103
1,373,000 Guandong Kelon Elec Hld-H*.................... 887,582
476,100 Guangdong Provincial Expr-B*.................. 461,665
855,000 Huangshan Tourism DVLP Co-B*.................. 376,200
500,000 Inner Mongolia Erdos Cashmere*................ 315,000
2,468,000 Nanjing Panda Electronics-H*.................. 542,453
772,000 Shanghai Dajiang Group-B*..................... 375,964
1,149,000 Shanghai Diesel Engineering-B*................ 544,626
90,000 Shanghai Refrigerator Comp-B ADR.............. 48,960
860,000 Shanghai Tyre and Rubber Co-B*................ 364,640
480,000 Shenzhen Fangda Co Ltd-B*..................... 471,653
------------
Total China................................... 5,686,046
------------
HONG KONG: 40.50%
500,000 ASM Pacific Technology........................ 387,873
2,400,000 Allied Properties............................. 390,976
250,000 Anex International Holdings Ltd............... 42,989
162,000 Apt Satellite Holdings*....................... 268,097
1,188,000 Asean Resources*.............................. 326,395
980,000 CIG Wh Intl Holdings Ltd.*.................... 240,740
2,200,000 Chaifa Holdings Ltd........................... 575,991
32,000 Chen Hsong Holdings........................... 19,445
510,000 China Elegance Intl Fashion*.................. 296,722
250,000 China Resources Beijing Land*................. 158,381
668,000 Companion Building Material................... 124,367
15,160 Concord Land Dev Co Ltd.*..................... 6,566
160,000 Dah Sing Financial Holdings*.................. 649,557
135,000 Dickson Cocept Intl-New*...................... 506,174
200,000 FPB Bank Holding Co Ltd.*..................... 89,857
1,628,000 First Sign International Holdings Ltd......... 520,952
1,200,000 Founder Hong Kong Limited*.................... 461,568
1,182,000 Four Seas Mercantile Holdings*................ 618,928
1,500,000 Gold Lion Holdings Ltd.*...................... 1,231,497
1,500,000 Glorious Sun Enterprises Ltd.*................ 625,444
1,500,000 Guangnan Holdings Ltd......................... 1,289,676
</TABLE>
-16-
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
HONG KONG: (CONTINUED)
548,000 High Fashion International*................... $ 53,139
983,000 Hung Hing Print Group......................... 355,860
600,000 Interform Ceramics*........................... 93,865
1,980,000 Innovative Intl Holdings Ltd.*................ 831,987
300,000 Jardine Intl Motor Holdings*.................. 401,448
800,000 Kumagai Gumi*................................. 930,894
80,000 Kwong On Bank Ltd.*........................... 94,124
69,800 Lai Sun Development........................... 105,587
200,000 Luen Fat Hong International Holding Ltd....... 44,217
13,125 Lung Kee (Bermuda) Holdings................... 3,903
200,000 Midlands Realty Holdings Ltd.................. 183,593
410,000 Moulin International Holdings................. 286,250
800,000 NG Fung Hong Ltd.............................. 718,857
40,000 Nanyang Holdings Ltd.*........................ 62,060
10,000 New Asia Realty & Trust Co.................... 36,913
758,000 Pacific Concord Holdings...................... 195,025
150,000 Playmates Toys Holdings Ltd................... 40,242
1,200,000 QPL Intl Holdings Limited*.................... 930,894
1,778,000 Qingling Motors Company Ltd.*................. 982,731
830,000 Ryoden Developments Ltd....................... 244,133
85,000 Shanghai Industrial Holdings Ltd.*............ 309,910
1,230,000 Silver Grant Intl Ltd.*....................... 548,646
626,000 Sinocan Holdings Ltd.......................... 307,557
20,000 South China Morning Post...................... 16,549
1,200,000 Stelux Holdings International Ltd............. 310,298
2,942,000 Ta Fu International Ltd.*..................... 471,663
516,000 Tai Cheung Holdings*.......................... 487,013
2,150,000 Tysan Holdings Limited*....................... 469,778
1,500,000 USI Holdings Ltd.............................. 698,171
794,000 Vanda Systems & Communications*............... 207,880
176,000 Varitronix International Ltd.................. 318,573
1,000,000 Wongs International........................... 313,530
223,000 YGM Trading................................... 227,772
1,324,000 Zhenhai Refining & Chem Co.*.................. 487,866
------------
Total Hong Kong............................... 20,603,125
------------
</TABLE>
-17-
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
INDONESIA: 2.88%
250,000 Pt Bank Dagang Nasional (For Reg)*............ $ 254,022
180,000 Pt Bank Tiara Asia (For Reg)*................. 194,327
52,000 Pt Citra Marga Nusaphala Per.................. 40,728
100,000 Pt Darya Varia Lab (For Reg)*................. 160,881
200,000 Pt Enseval Putera Mega (For Reg)*............. 97,375
216,000 Pt Indorama Synthetics (For Reg)*............. 210,330
180,000 Pt Semen Cibinong*............................ 506,774
------------
Total Indonesia............................... 1,464,437
------------
MALAYSIA: 9.89%
3,000 Arab Malaysian Fin (Alien).................... 16,750
60,000 Brisdale Holdings Berhad*..................... 95,989
88,000 Kumpulan Jetson Berhad*....................... 362,412
100,000 Hock Hua Bank Berhad (For Reg)*............... 463,311
130,000 IJM Corp Berhad-A*............................ 306,300
300,000 MBM Resources Berhad.......................... 641,508
65,000 Malakoff Berhad*.............................. 319,170
250,000 Malayan Credit Limited*....................... 434,332
15,000 Pan Pacific Asia Berhad*...................... 44,252
120,000 Road Builder*................................. 679,523
25,000 Sap Holdings*................................. 119,788
30,000 Star Publications (Malaysia).................. 118,204
18,000 Sungei Way Holdings Berhad.................... 53,459
1,800 Sungei Way Holdings Berhad Rights*............ 2,138
200,000 Tractors Malaysia Hldgs Bhd................... 375,401
180,000 Tradewinds (Malaysia) Berhad.................. 602,305
195,000 United Merchant Group Berhad*................. 321,229
48,000 Worldwide Holdings Berhad..................... 76,031
------------
Total Malaysia................................ 5,032,102
------------
</TABLE>
-18-
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
PHILIPPINES: 1.49%
2,724,000 Alaska Milk Corporation*...................... $ 352,152
180,000 Cn Solid Group Inc.*.......................... 36,958
375,000 Davao Union Cement Corp.-B.................... 105,513
1,680,000 Universal Rightfield Property*................ 220,380
80,000 Universal Robina Corp.*....................... 44,867
------------
Total Philippines............................. 759,870
------------
SINGAPORE: 11.53%
25,000 Acer Computer International Ltd............... 43,000
359,000 Amtek Engineering............................. 713,534
19,000 Aztech Systems Ltd............................ 5,841
18,000 Clipsal Industries Ltd........................ 65,520
80,000 Comfort Group Ltd............................. 70,923
62,000 Datacraft Asia Limited........................ 103,540
600,000 Delifrance Asia Limited*...................... 493,315
432,000 Elec & Eltek Int Co Ltd....................... 1,641,600
680,000 FJ Benjamin Holdings Ltd.*.................... 478,873
440,000 Pacific Andes Hldg Ltd.*...................... 217,800
600,000 Roly International Holdings................... 438,000
50,000 Singapore Tech Automotive (For Reg)*.......... 111,532
600,000 Sunright Ltd.*................................ 634,875
300,000 Venture Manufacturing*........................ 746,407
100,000 Wong's Circuits Hldgs Ltd.*................... 99,000
------------
Total Singapore............................... 5,863,760
------------
</TABLE>
-19-
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY COUNTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
THAILAND: 5.37%
63,000 Jasmine Intl PLC Foreign*..................... $ 96,460
3,000 Kce Electronics*.............................. 8,894
70,000 Lam Soon (Thailand)-Foreign*.................. 84,650
160,000 National Petrochemical-Foreign................ 123,269
347,000 Robinson Department Store-Foreign*............ 673,425
50,000 Thairung Union Car Pub Co.-Foreign*........... 243,807
6,000 Tipco Asphalt*................................ 36,513
100,000 Tipco Asphalt-Local*.......................... 608,543
885,300 Tuntex (Thailand) Co Ltd.*.................... 854,737
------------
Total Thailand................................ 2,730,298
------------
Total Common Stocks
(Identified cost $40,254,577): 82.84%......... $ 42,139,638
------------
</TABLE>
FORWARD CONTRACTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Currency Delivery Unrealized
Receivable Currency Deliverable Date Gain/(Loss)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. $ 534,277 Hong Kong Dollar 4,132,096.... 01/02/97 $ (32)
U.S. $ 367,148 Malaysian Ringgit 927,340..... 01/02/97 47
U.S. $ 677,686 Malaysian Ringgit 1,711,293... 01/03/97 (98)
U.S. $ 330,959 Singapore Dollar 462,912...... 01/03/97 46
U.S. $ 381,193 Thai Baht 9,760,443........... 01/03/97 (446)
-----------
Total Forward Contracts....... (483)
-----------
Total Investments in
Securities:
(cost $40,254,577+) 82.84%.... $42,139,155
Other assets less liabilities:
17.16%...................... 8,729,129
-----------
NET ASSETS: 100.0%............ $50,868,284
===========
* Security is non-income producing.
+ Cost for federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation......... $3,037,791
Gross unrealized depreciation......... (1,152,730)
-----------
Net unrealized appreciation...... $1,885,061
===========
</TABLE>
See accompanying notes to financial statements.
-20-
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------
<S> <C>
Agriculture................................................. 1.18%
Automobile.................................................. 7.96
Chemical.................................................... 1.37
Construction................................................ 9.81
Consumer-related............................................ 15.54
Energy...................................................... 0.87
Finance..................................................... 4.95
Food........................................................ 6.54
Manufacturing............................................... 2.11
Media....................................................... 0.26
Pharmaceutical.............................................. 0.51
Pulp........................................................ 0.09
Real-Estate................................................. 5.90
Retail...................................................... 9.61
Technology.................................................. 13.21
Telecommunications.......................................... 1.10
Toys........................................................ 0.09
Transportation.............................................. 1.74
------
TOTAL INVESTMENTS IN SECURITIES............................. 82.84
OTHER ASSETS LESS LIABILITIES............................... 17.16
------
NET ASSETS.................................................. 100.00%
======
</TABLE>
-21-
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $40,254,577)... $42,139,155
Cash..................................................... 14,605,938
Receivables:
Fund shares sold.................................... 534,304
Securities sold..................................... 27,027
Dividends and interest.............................. 68,112
Prepaid expenses......................................... 12,127
Deferred organization costs, net......................... 7,561
-----------
Total assets........................................ 57,394,224
-----------
LIABILITIES
Payables:
Securities purchased................................ 6,381,487
Fund shares redeemed................................ 38,003
Dividends to shareholders........................... 6,653
Due to Adviser (Note 3).................................. 60,838
Accrued expenses......................................... 38,959
-----------
Total liabilities................................... 6,525,940
-----------
NET ASSETS............................................... $50,868,284
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($50,868,284/3,608,723, shares outstanding;
unlimited number of shares authorized without par
value).............................................. $14.10
=======
SOURCE OF NET ASSETS
Paid-in capital..................................... $48,964,942
Overdistribution of net investment income........... (15,240)
Undistributed net realized gain on investments...... 37,404
Net unrealized appreciation (depreciation) on:
Investments.................................... 1,885,061
Foreign currency............................... (3,883)
-----------
Net assets..................................... $50,868,284
===========
</TABLE>
See accompanying notes to financial statements.
-22-
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- --------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends (Net of foreign taxes withheld $2,351)...... $ 56,603
Interest.............................................. 92,775
-----------
Total Investment Income.......................... 149,378
EXPENSES
Advisory fees (Note 3)................................ 62,680
Administration fee (Note 3)........................... 13,424
Custodian............................................. 28,156
Accounting............................................ 27,637
Transfer agent fees................................... 16,767
Auditing fees......................................... 17,241
Legal fees............................................ 7,713
Directors' fees....................................... 4,699
Registration fees..................................... 14,095
Reports to shareholders............................... 2,350
Deferred organization costs amortization.............. 1,184
Miscellaneous......................................... 2,014
-----------
Total expenses................................... 197,960
Less: Expenses reimbursed (Note 3)............... (71,583)
-----------
Net expenses..................................... 126,377
-----------
NET INVESTMENT INCOME....................... 23,001
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from investments.................... 73,470
Net realized loss from foreign currency............... (7,229)
Net unrealized appreciation on investments............ 1,885,061
Net unrealized loss on foreign currency............... (3,883)
-----------
Net realized and unrealized gain on
investments.................................... 1,947,419
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... $ 1,970,420
===========
</TABLE>
*Commencement of operations.
See accompaning notes to financial statements.
-23-
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- ---------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income.................................. $ 23,001
Net realized gain from investments..................... 73,470
Net realized loss on foreign currency.................. (7,229)
Net unrealized appreciation on investments............. 1,885,061
Net unrealized loss on foreign currency................ (3,883)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 1,970,420
-----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income.............. (38,241)
Distributions from taxable realized gains.............. (28,837)
-----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS............... (67,078)
-----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.............................. 49,952,419
Net asset value of shares issued on reinvestment of
distributions........................................ 60,299
Cost of shares redeemed................................ (1,447,776)
-----------
NET INCREASE FROM CAPITAL SHARE TRANSACTIONS...... 48,564,942
-----------
TOTAL INCREASE IN NET ASSETS...................... 50,468,284
NET ASSETS
Beginning of period.................................... 400,000
-----------
End of period (including overdistributed net investment
income of $15,240)................................... $50,868,284
===========
CHANGES IN SHARES
Shares sold............................................ 3,681,439
Shares reinvested from distributions................... 4,288
Shares redeemed........................................ (109,004)
-----------
NET INCREASE...................................... 3,576,723
===========
</TABLE>
*Commencement of operations.
See accompanying notes to financials statements.
-24-
<PAGE>
GUINNESS FLIGHT ASIA SMALL CAP FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 29, 1996*
through
December 31, 1996
- --------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period.................. $ 12.50
--------
Income from investment operations:
Net investment income............................... 0.02
Net realized and unrealized gain on investments..... 1.61
--------
Total from investment operations...................... 1.63
--------
Less distributions:
Dividends from net investment income................ (0.02)
Distributions from taxable net capital gains........ (0.01)
--------
(0.03)
--------
Net asset value, end of period........................ $ 14.10
========
Total return.......................................... 13.08%+
Ratios/supplemental data:
Net assets, end of period (thousands)................. $50,868
Ratio of expenses to average net assets:**
Before expense reimbursement........................ 3.09%
After expense reimbursement......................... 1.98%
Ratio of net investment income to average net
assets:**
Before expense reimbursement........................ (0.76)%
After expense reimbursement......................... 0.36%
Portfolio turnover rate............................... 21.91%
Average Commission Rate Paid++........................ $0.0029
</TABLE>
* Commencement of operations.
** Annualized.
+ Not 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.
See accompanying notes to financial statements.
-25-
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares COMMON STOCKS: (97.51%) Value
- -------------------------------------------------------------------------
<C> <S> <C>
AIR TRANSPORT, SCHED, & AIR COURIER SERVICES:
1.09%
2,160,000 Cathay Pacific Airways Ltd. ................. $ 3,407,072
------------
APPAREL, PIECE GOODS, & NOTIONS: 0.35%
1,287,000 Giordano Holdings Ltd. ...................... 1,098,222
------------
AUTOMOTIVE DEALERS: 0.83%
4,686,000 Qingling Motors Company Ltd. ................ 2,590,038
------------
BANKS: 20.72%
735,400 Bank of East Asia Hong Kong.................. 3,270,769
851,000 Dao Heng Bank Group Ltd...................... 4,081,983
1,613,500 Hang Seng Bank............................... 19,609,412
1,548,400 HSBC Holding Plc............................. 33,132,096
604,000 Liu Chong Hing Investment Ltd. .............. 745,775
536,000 Union Bank of Hong Kong...................... 675,674
666,000 Wing Hang Bank Limited....................... 3,022,380
------------
Total Banks.................................. 64,538,089
------------
BOOT & SHOE CUT STOCK & BINDING: 0.39%
3,234,000 Yue Yuen Industrial Holdings................. 1,233,473
------------
CHEMICALS: 0.53%
2,834,000 Shanghai Petrochemical....................... 861,064
3,210,000 Yizheng Chemical Fibre Co. .................. 780,244
------------
Total Chemicals.............................. 1,641,308
------------
CONTAINER - MARINE: 1.76%
4,699,000 Cosco Pacific Ltd. .......................... 5,467,839
------------
CONSUMER GOODS: 0.55%
642,000 Inner Mongolia Erdos Cashmere................ 404,460
1,020,000 Shanghai Refrigerator Comp - B*.............. 554,880
750,000 Wuxi Little Swan*............................ 756,351
------------
Total Consumer Goods......................... 1,715,691
------------
</TABLE>
-26-
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
DEPARTMENT STORES: 0.16%
1,932,000 Joyce Boutique............................... $ 489,588
------------
DIVERSIFIED OPERATIONS: 11.28%
2,438,000 Citic Pacific Ltd. .......................... 14,152,977
1,723,000 First Pacific Co. ........................... 2,238,820
509,000 Gold Lion Holdings Ltd. ..................... 417,887
4,605,000 Guangdong Investment Ltd. ................... 4,435,613
1,244,733 New World Infrastructure*.................... 3,637,076
132,000 Shanghai Industrial Holdings Ltd.*........... 481,272
673,000 Sinocan Holdings Ltd. ....................... 330,648
991,000 Swire Pacific Ltd. A......................... 9,449,383
------------
Total Diversified Operations................. 35,143,676
------------
ELECTRIC POWER: 3.40%
932,500 China Light & Power Co. ..................... 4,147,392
1,742,000 Hong Kong Electric........................... 5,788,273
30,000 Huaneng Power International Inc. ADR*........ 675,000
------------
Total Electric Power......................... 10,610,665
------------
FINANCIAL SERVICES: 1.70%
803,200 Dah Sing Financial Holdings.................. 3,260,777
816,000 National Mutual Asia Ltd. ................... 775,435
725,000 Peregrine Investment Holdings................ 1,242,000
35,000 Peregrine Investment Holdings Wts.-98*....... 11,200
------------
Total Financial Services..................... 5,289,412
------------
FOOD & BEVERAGE: 0.42%
1,602,000 Four Seas Mercantile Holdings*............... 838,852
320,400 Four Seas Mercantile Holdings Wts.*.......... 40,182
1,630,000 Tingyi (Cayman Island) Holding Co.*.......... 426,757
------------
Total Food & Beverage........................ 1,305,791
------------
</TABLE>
-27-
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
GAS PRODUCTION & DISTRIBUTION: 3.08%
4,896,800 Hong Kong & China Gas........................ $ 9,465,015
238,900 Hong Kong & China Gas Wts*................... 132,817
------------
Total Gas Productions & Distribution......... 9,597,832
------------
HOTELS, TOURIST COURTS & MOTELS: 2.72%
350,000 Assoc. International Hotels.................. 262,460
1,942,000 CDL Hotel International...................... 1,111,041
2,054,875 Hong Kong & Shanghai Hotels.................. 3,878,877
146,375 Hong Kong & Shanghai Hotels Wts.-98* ........ 54,882
1,986,000 Shangri - La Asia Ltd. ...................... 2,940,035
529,000 Shanghai New Asia Group Ltd.-B............... 230,644
------------
Total Hotels, Tourist Courts & Motels........ 8,477,939
------------
RETAILERS: 0.57%
4,050,000 Esprit Asia Holdings Ltd..................... 1,793,426
------------
MANUFACTURING - ELECTRICAL EQUIPMENT: 0.48%
1,446,000 Gold Peak Industrial......................... 990,859
276,000 Varitronix International Ltd................. 499,580
------------
Total Manufacturing-Electrical Equipment..... 1,490,439
------------
MANUFACTURING - SHOES: 0.02%
193,800 Guangdong Tannery*........................... 48,860
------------
MEDIA: 0.20%
153,000 Television Broadcasts Ltd. .................. 611,248
------------
PETROLEUM REFINING: 0.67%
5,690,000 Zhenhai Refining & Chemical Co............... 2,096,645
------------
REAL ESTATE - AGENTS, BROKERS & MANAGERS:
0.70%
964,000 China Resources Enterprises.................. 2,168,673
------------
</TABLE>
-28-
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE - OPERATIONS & LESSORS: 20.63%
3,742,000 Amoy Properties Ltd. Ord. ................... $ 5,394,440
2,146,000 Cheung Kong.................................. 19,075,247
2,231,000 Sun Hung Kai Properties Ltd. ................ 27,330,435
2,499,000 Wharf Holdings Ltd. ......................... 12,471,575
------------
Total Real Estate - Operations & Lessors..... 64,271,697
------------
REAL ESTATE - SUBDIVIDERS, DEVELOPERS &
OPERATIVE BUILDERS: 12.88%
1,448,000 Henderson Land Development................... 14,602,625
1,309,600 HKR International Ltd.* ..................... 2,209,617
1,400,000 Hysan Development Company.................... 5,575,021
38,850 Hysan Development Company Wts-98*............ 35,161
200,000 New Asia Realty & Trust Co. ................. 738,251
2,069,000 New World Development........................ 13,977,019
2,436,000 Sino Land Company............................ 2,976,301
------------
Total Real Estate - Subdividers, Developers &
Operative Builders......................... 40,113,995
------------
TELECOMMUNICATIONS: 3.26%
52,000 Asia Satellite Telecom Holdings*............. 120,680
6,231,600 Hong Kong Telecom............................ 10,030,826
------------
Total Telecommunications..................... 10,151,506
------------
WHOLESALE TRADE - MISC. WHOLESALERS: 9.12%
3,520,000 Hutchison Whampoa............................ 27,647,556
868,000 Li & Fung Ltd................................ 768,738
------------
Total Wholesale Trade - Misc. Wholesalers.... 28,416,294
------------
</TABLE>
-29-
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
Total Investments in Securities
(Identified cost $256,329,436+): 97.51%...... $303,769,418
------------
Other Assets less Liabilities: 2.49%......... 7,751,444
------------
NET ASSETS: 100.00%.......................... $311,520,862
============
* Security is non-income producing
+ Cost to federal income tax purpose is as
follows:
Gross unrealized appreciation................ $ 50,514,566
Gross unrealized depreciation................ (3,074,584)
------------
$ 47,439,982
============
</TABLE>
See accompanying notes to financial statements.
-30-
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost
$256,329,436)........................................ $303,769,418
Cash................................................... 10,036,497
Receivables:
Fund shares sold.................................. 993,246
Dividends and interests........................... 232,553
Prepaid expenses....................................... 9,099
Deferred organizational costs, net..................... 29,420
------------
Total assets...................................... 315,070,233
------------
LIABILITIES
Payables:
Securities purchased.............................. 2,769,170
Dividends to shareholders......................... 203,563
Fund shares redeemed.............................. 121,858
Due to Adviser (Note 3)................................ 235,415
Other accrued expenses................................. 219,365
------------
Total liabilities................................. 3,549,371
------------
NET ASSETS............................................. $311,520,862
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($311,520,862/17,589,379 shares outstanding;
unlimited number of shares authorized without par
value)............................................ $17.71
=======
SOURCE OF NET ASSETS
Paid-in capital................................... $263,479,700
Undistributed net investment income............... 46,560
Undistributed net realized gain on investments.... 555,628
Net unrealized appreciation (depreciation) on:
Investments.................................. 47,439,982
Foreign currency............................. (1,008)
------------
Net assets................................... $311,520,862
============
</TABLE>
See accompanying notes to financial statements.
-31-
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year
Ended
December 31, 1996
- ---------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends.............................................. $ 5,754,444
Interests.............................................. 203,761
----------------
Total investment income........................... 5,958,205
EXPENSES
Advisory fees (Note 3)................................. 1,772,174
Administration fees (Note 3)........................... 443,043
Custodian.............................................. 329,720
Accounting............................................. 50,511
Transfer agent fees.................................... 268,776
Auditing fees.......................................... 31,109
Legal fees............................................. 61,646
Director's fees........................................ 13,777
Registration fees...................................... 87,888
Reports to shareholders................................ 46,560
Deferred organization costs amortization............... 11,757
Interest on loans...................................... 5,977
Miscellaneous.......................................... 46,383
----------------
Total expenses.................................... 3,169,321
Expenses recouped (Note 3)........................ 315,433
----------------
Net expenses...................................... 3,484,754
----------------
NET INVESTMENT INCOME........................ 2,473,451
----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from investments..................... 5,591,892
Net realized loss from foreign currency................ (54,179)
Net change in unrealized appreciation (depreciation)
on:
Investments....................................... 43,834,616
Foreign currency.................................. (1,038)
----------------
Net realized and unrealized gain on
investments................................ 49,371,291
----------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $51,844,742
================
</TABLE>
See accompanying notes to financial statements.
-32-
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income....................... $ 2,473,451 $ 300,352
Net realized gain from investments.......... 5,591,892 28,920
Net realized loss on foreign currency....... (54,179) (6,121)
Net unrealized appreciation on investments
and foreign currency...................... 43,833,578 3,847,844
------------ -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS...................... 51,844,742 4,170,995
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income... (2,426,162) (301,331)
Distributions from taxable realized gains... (4,883,242) (123,918)
------------ -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS.... (7,309,404) (425,249)
------------ -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................... 344,443,893 57,621,477
Net asset value of shares issued on
reinvestment of distributions............. 6,537,646 395,581
Cost of shares redeemed..................... (139,736,255) (8,309,577)
------------ -----------
Net increase from capital share
transactions.............................. 211,245,284 49,707,481
------------ -----------
TOTAL INCREASE IN NET ASSETS........... 255,780,622 53,453,227
NET ASSETS
Beginning of year........................... 55,740,240 2,287,013
------------ -----------
End of year (including undistributed
(overdistributed) net investment income of
$46,560 and $(729), respectively)......... $311,520,862 $55,740,240
============ ===========
CHANGES IN SHARES
Shares sold................................. 22,049,194 4,513,348
Shares reinvested from distributions........ 453,347 29,558
Shares redeemed............................. (8,999,261) (656,232)
------------ -----------
NET INCREASE........................... 13,563,280 3,886,674
============ ===========
</TABLE>
See accompanying notes to financial statements.
-33-
<PAGE>
GUINNESS FLIGHT CHINA & HONG KONG FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGH THE PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years From June 30,
Ended 1994*
December 31, through
------------------ December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period......... $ 13.64 $ 11.47 $12.50
-------- ------- ----------
Income from investment operations:
Net investment income...................... 0.19 0.14 0.04
Net realized and unrealized gain (loss) on
investments.............................. 4.43 2.20 (0.96)
-------- ------- ----------
Total from investment operations............. 4.62 2.34 (0.92)
-------- ------- ----------
Less distributions:
Dividends from net investment income....... (0.19) (0.14) (0.04)
Distributions from taxable net capital
gains.................................... (0.36) (0.03) (0.07)
-------- ------- ----------
Total distributions.......................... (0.55) (0.17) (0.11)
-------- ------- ----------
Net asset value, end of period............... $ 17.71 $ 13.64 $11.47
======== ======= ==========
Total return................................. 34.38% 20.45% (7.74)%++
Ratios/supplemental data:
Net assets, end of period (thousands)........ $311,521 $55,740 $2,287
Ratio of expenses to average net assets:
Before expense reimbursement
(recoupement)............................ 1.78% 3.02%** 19.92%+
After expense reimbursement
(recoupement)............................ 1.96% 1.98% 2.00%+
Ratio of net investment income to average net
assets:
Before expense reimbursement
(recoupement)............................ 1.57% 0.49% (17.15)%+
After expense reimbursement
(recoupement)............................ 1.39% 1.52% 0.78%+
Portfolio turnover rate...................... 30.04% 10.89% 27.25%
Average Commission Rate Paid#................ $ 0.0070 -- --
BANK LOANS
Amount outstanding at end of period (000).... -- -- --
Average amount of bank loans outstanding
during the period (monthly average)
(000)...................................... $ 1,413 -- --
Average number of shares outstanding during
the period (monthly average) (000)......... 11,419 -- --
Average amount of debt per share during the
period..................................... $ 0.12 -- --
</TABLE>
* Commencement of operations.
** 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%
+ Annualized.
++ Not Annualized.
# For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commissions 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.
See accompanying notes to financial statements.
-34-
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value GOVERNMENT BONDS: 79.59% Market Value US$
- ----------------------------------------------------------------------------
<C> <S> <C>
AUSTRALIAN DOLLAR: 9.59%
670,000 Australian Government 10.000% 10/15/07...... $ 629,768
----------
BRITISH POUND: 11.41%
90,000 United Kingdom Gilts 8.000% 06/07/21........ 160,627
295,000 United Kingdom Gilts 7.500% 12/07/06........ 504,860
40,000 Italy Sterling NCL 10.500% 04/28/14......... 83,183
----------
Total British Pound......................... 748,670
----------
CANADIAN DOLLAR: 2.19%
177,000 Canadian Government Bond 8.000% 06/01/23.... 143,845
----------
DANISH KRONER: 2.37%
970,000 Kingdom of Denmark 7.000% 11/10/24.......... 155,749
----------
EUROPEAN CURRENCY UNIT: 4.87%
240,000 France O.A.T. 7.000% 04/25/06............... 319,554
----------
GERMAN MARKS: 12.08%
1,135,000 Deutschland Republic 6.875% 05/12/05........ 793,087
----------
IRISH PUNT: 1.29%
30,000 Irish Gilts 9.750% 06/01/98................. 53,447
18,000 Irish Gilts 8.750% 07/27/97................. 30,960
----------
Total Irish Punt............................ 84,407
----------
</TABLE>
-35-
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value Market Value US$
- ----------------------------------------------------------------------------
<C> <S> <C>
NORWEGIAN KRONER: 4.14%
1,385,000 Norwegian Government 9.500% 10/31/02........ $ 256,738
100,000 Norwegian Government 5.750% 11/30/04........ 15,314
----------
Total Norwegian Kroner...................... 272,052
----------
SPANISH PESETA: 9.87%
35,000,000 Spanish Government 10.500% 10/30/03......... 327,610
35,000,000 Spanish Government 10.300% 06/15/02......... 320,062
----------
Total Spanish Peseta........................ 647,672
----------
SWEDISH KRONA: 2.38%
1,100,000 Kingdom of Sweden 6.000% 02/09/05........... 156,266
----------
UNITED STATES DOLLAR: 19.40%
360,000 Tokyo Metro 6.125% 03/27/06................. 348,840
847,000 U.S. Treasury Note 7.875% 11/15/04.......... 924,553
----------
Total United States Dollar.................. 1,273,393
----------
Total Government Bonds -- 79.59% (Identified
Cost $5,169,524).......................... $ 5,224,463
----------
</TABLE>
-36-
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FORWARD CONTRACTS: (0.26%)
- -----------------------------------------------------------------------------
Currency Unrealized
Receivable Currency Deliverable Delivery Date Gain/(Loss)
- --------------- -------------------------------- ------------- ----------
<S> <C> <C> <C> <C>
US$ 294,953 Australian Dollar 376,176 01/23/97 $ 3,493
US$ 620,760 Canadian Dollar 844,420 01/23/97 (590)
US$ 2,469,395 Deutsche Mark 3,686,612 01/23/97 4,726
US$ 62,125 Danish Krone 362,812 01/23/97 363
US$ 355,685 Spanish Peseta 43,061,277 01/23/97 (804)
US$ 8,753 French Franc 45,342 01/23/97 9
US$ 651,341 British Pound Sterling 416,187 01/23/97 17,361
US$ 317,342 Irish Punt 198,705 01/23/97 (4,327)
US$ 908,089 Italian Lira 1,380,901,671 01/23/97 4,292
US$ 570,427 Japanese Yen 3,751,746,093 01/23/97 (1,246)
US$ 118,198 New Zealand Dollar 172,258 01/23/97 159
US$ 181,682 Norwegian Krone 4,056,466 01/23/97 891
US$ 741,778 Swedish Krona 4,921,302 01/23/97 6,068
US$ 228,697 Singapore Dollar 321,846 01/23/97 1,386
US$ 327,428 European Currency Unit 261,725 01/23/97 235
US$ 2,941,784 Australian Dollar 2,333,804 04/24/97 (52,937)
US$ 2,044,428 Canadian Dollar 2,713,639 04/24/97 (14,232)
US$ 1,957,744 Deutsche Mark 2,973,742 04/24/97 9,411
US$ 98,972 Danish Krone 578,627 04/24/97 1,199
US$ 959,946 Spanish Peseta 124,628,851 04/24/97 (303)
US$ 4,924,753 British Pound Sterling 3,001,572 04/24/97 46,282
US$ 656,820 Irish Punt 393,335 04/24/97 (2,466)
US$ 2,454,355 Italian Lira 3,750,746,093 04/24/97 (9,991)
US$ 1,433,829 Japanese Yen 159,315,100 04/24/97 (15,214)
US$ 651,103 Norwegian Krone 4,150,502 04/24/97 (880)
US$ 43,269 New Zealand Dollar 62,560 04/24/97 682
US$ 29,533 Swedish Krona 193,912 04/24/97 (937)
US$ 494,195 Singapore Dollar 691,978 04/24/97 (3,337)
US$ 503,682 European Currency Unit 394,264 04/24/97 (6,075)
----------
Total Forward Contracts........................ (16,782)
----------
Total Investments in Securities: (cost
$5,169,524*) 79.33%............................ 5,207,681
Other Assets Less Liabilities: 20.67%.......... 1,356,609
----------
NET ASSETS: 100.0%............................. $6,564,290
==========
*Cost for federal income tax purposes is the
same.
Net unrealized depreciation consists of:
Gross unrealized appreciation.................. $ 107,536
Gross unrealized depreciation.................. (52,597)
----------
Net unrealized appreciation.................... $ 54,939
==========
</TABLE>
See accompanying notes to financial statements.
-37-
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $5,169,524)..... $5,207,681
Cash...................................................... 1,255,124
Receivables:
Fund shares sold..................................... 2,500
Interests............................................ 135,555
Prepaid expenses.......................................... 216
Deferred organizational costs, net........................ 29,420
----------
Total assets......................................... 6,630,496
----------
LIABILITIES
Dividends payable to shareholders......................... 2,891
Due to Adviser............................................ 27,374
Other accrued expenses.................................... 35,941
----------
Total liabilities.................................... 66,206
----------
NET ASSETS................................................ $6,564,290
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($6,564,290/516,037 shares outstanding; unlimited number
of shares authorized without par value)................. $12.72
=======
SOURCE OF NET ASSETS
Paid-in capital...................................... $6,460,077
Undistributed net investment income (including
equalization credits of $44,071)................... 21,798
Undistributed net realized gain on investments....... 43,561
Net unrealized appreciation (depreciation) on:
Investments..................................... 54,939
Foreign currency................................ (16,085)
----------
Net assets...................................... $6,564,290
==========
</TABLE>
See accompanying notes to financial statements.
-38-
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year
Ended
December 31, 1996
- ---------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Interests.............................................. $ 164,890
----------
EXPENSES
Advisory fees (Note 3)................................. 19,110
Administration fee (Note 3)............................ 27,122
Custodian.............................................. 13,898
Accounting............................................. 40,022
Transfer agent fees.................................... 34,891
Auditing fees.......................................... 16,002
Legal fees............................................. 8,599
Directors' fees........................................ 13,777
Registration fees...................................... 18,501
Reports to shareholders................................ 3,419
Deferred organization costs amortization............... 11,757
Miscellaneous.......................................... 2,742
----------
Total expenses.................................... 209,840
Less: Expenses reimbursed (Note 3)................ (176,407)
----------
Net expenses...................................... 33,433
----------
NET INVESTMENT INCOME........................ 131,457
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investments..................... 75,867
Net realized gain from foreign currency................ 575
Net change in unrealized appreciation on investments... 21,387
Net change in unrealized loss on foreign currency...... (16,057)
----------
Net realized and unrealized gain on investments... 81,772
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $ 213,229
==========
</TABLE>
See accompanying notes to financial statements.
-39-
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------------
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income......................... $ 131,457 $ 55,076
Net realized gain from investments............ 75,867 33,385
Net realized gain (loss) on foreign
currency.................................... 575 (12,113)
Net change in unrealized appreciation on
investments................................. 21,387 52,690
Net change in unrealized depreciation on
foreign currency............................ (16,057) (28)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................. 213,229 129,010
----------- -----------
NET EQUALIZATION CREDITS...................... 44,071 1,667
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income..... (162,397) (51,665)
Distributions from net capital gains.......... (22,795) (25,177)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS....... (185,192) (76,842)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold..................... 6,348,475 1,144,047
Net asset value of shares issued on
reinvestment of distributions............... 175,240 44,505
Cost of shares redeemed....................... (1,184,883) (840,420)
----------- -----------
Net increase from capital share
transactions................................ 5,338,832 348,132
----------- -----------
TOTAL INCREASE IN NET ASSETS.............. 5,410,940 401,967
NET ASSETS
Beginning of year............................. 1,153,350 751,383
----------- -----------
End of year (including undistributed net
investment income of $21,798 and $8,667,
respectively)............................... $ 6,564,290 $ 1,153,350
=========== ===========
CHANGES IN SHARES
Shares sold................................... 507,485 90,886
Shares issued from dividend distributions..... 13,939 3,547
Shares redeemed............................... (95,726) (66,716)
----------- -----------
NET INCREASE.............................. 425,698 27,717
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-40-
<PAGE>
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended From June 30,
December 31, 1994*
------------------- through
1996 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.......... 0.63 0.69 0.29
Net realized and unrealized
gain (loss) on
investments................. 0.13 1.01 (0.58)
------- ------- -------------
Total from investment
operations..................... 0.76 1.70 (0.29)
------- ------- -------------
Less distributions:
Dividends from net investment
income...................... (0.69) (0.65) (0.21)
Distributions from net capital
gains....................... (0.12) (0.28) --
------- ------- -------------
Total distributions.............. (0.81) (0.93) (0.21)
------- ------- -------------
Net asset value, end of period... $ 12.72 $ 12.77 $ 12.00
======= ======= =============
Total return..................... 6.21% 14.49% (2.33)%++
Ratios/supplemental data:
Net assets, end of period
(thousands).................... $ 6,564 $ 1,153 $ 751
Ratio of expenses to average net
assets:
Before expense reimbursement... 8.21% 21.52%** 40.78%+
After expense reimbursement.... 1.31% 1.73% 1.75%+
Ratio of net investment income to
average net assets:
Before expense reimbursement... (1.76)% (14.26)% (34.18)%+
After expense reimbursement.... 5.14% 5.53% 4.86%+
Portfolio turnover rate.......... 296.51% 202.54% 46.15%
</TABLE>
+ Annualized
++ Not Annualized
* Commencement of operations.
** 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.
-41-
<PAGE>
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Guinness Flight Investment Funds, Inc. (the "Guinness Funds") is a Maryland
Corporation incorporated on January 7, 1994 and registered under the Investment
Company Act of 1940 (the "1940 Act") as a non-diversified, open-end management
investment company. Currently, the Guinness Funds offer four separate series
portfolios: Guinness Flight Asia Blue Chip Fund (the "Asia Blue Chip Fund")
whose objective is long-term capital appreciation, Guinness Flight Asia Small
Cap Fund (the "Asia Small Cap Fund") whose objective is long-term capital
appreciation, Guinness Flight China & Hong Kong Fund (the "China Fund") whose
objective is long-term capital appreciation, and Guinness Flight Global
Government Bond Fund (the "Global Government Fund") whose objective is to
provide current income and capital appreciation (collectively, the "Funds"). The
China and Global Government Funds began operations on June 30, 1994 and the Asia
Blue Chip and Asia Small Cap Funds began operations on April 29, 1996.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a primary
exchange are valued at the last reported sale price at the close of regular
trading on the last business day of the period; securities traded on an exchange
for which there has been no sale are valued at the last reported bid price.
Securities for which quotations are not readily available are valued at their
respective fair values as determined in good faith by the Board of Trustees.
Short-term investments are stated at cost, which when combined with accrued
interest, approximates market value.
U.S. Government securities with less than 60 days remaining to maturity
when acquired by the Fund are valued on an amortized cost basis. U.S. Government
securities with more than 60 days remaining to maturity are valued at the
current market value (using the mean between the bid and asked price) until the
60th day prior to maturity, and are then valued at amortized cost based upon the
value on such date unless the Board determines during such 60 day period that
this amortized cost basis does not represent fair value.
Foreign securities are recorded in the financial statements after
translation to U.S. dollars based on the applicable exchange rate at the end of
the period. The Funds do not isolate that portion of the results of operations
arising as a result of changes in the currency exchange rate from the
fluctuations arising as a result of changes in the market prices of investments
during the period.
-42-
<PAGE>
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Interest income is translated at the exchange rates which existed at the
dates the income was accrued. Exchange gains and losses related to interest
income are included in interest income on the accompanying Statements of
Operations.
B. Forward Foreign Currency Exchange Contracts. The Funds may utilize
forward foreign currency exchange contracts ("forward contracts") under which it
is obligated to exchange currencies at specific future dates and at specified
rates, and is subject to the risks of foreign exchange fluctuations. All
commitments are "marked-to-market" daily and any resulting unrealized gains or
losses are included as unrealized appreciation (depreciation) on foreign
currency denominated assets and liabilities. The Funds record realized gains or
losses at the time the forward contract is settled. Counterparties to these
forward contracts are major U.S. financial institutions.
The Asia Blue Chip Fund, Asia Small Cap Fund and Global Government Fund use
forward foreign currency exchange contracts as part of their strategy of
preserving capital. Upon entering into forward foreign currency contracts, the
funds are required to deposit with the broker an amount of cash or cash
equivalents equal to the amount of the contract. The daily changes in the
contract are recorded as unrealized gains or losses. The funds recognize a
realized gain or loss when the contract is sold.
C. Security Transactions, Dividends and Distributions. As is common in the
industry, security transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
D. Federal Income Taxes. The Funds intend to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of their taxable income to its shareholders. Therefore, no
federal income tax provision is required.
E. Equalization. The Global Government Fund follows the accounting
practice known as equalization, by which a portion of the proceeds from sales
and costs of redemptions of capital shares, equivalent on a per share basis to
the amount of undistributed net investment income on the date of the
transaction, is credited or charged to undistributed net investment income. As a
result, undistributed net investment income per share is unaffected by sales or
redemptions of the Fund's shares.
F. Deferred Organization Costs. The China Fund and the Global Government
Fund have each incurred expenses of $58,785 in connection with their
organization. The Asia Blue Chip Fund and the Asia Small Cap Fund have each
incurred expenses of $8,745 in connection with their origination. These costs
have been deferred and are being amortized on a straight line basis over a
-43-
<PAGE>
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
period of sixty months from the date the Funds commenced investment operations.
In the event that any of the initial shares of either Fund are redeemed by the
holder during the period of amortization of the Funds' organization costs, the
redemption proceeds will be reduced by any such unamortized organization costs
in the same proportion as the number of initial shares being redeemed bears to
the number of those shares outstanding at the time of redemption.
G. Concentration of Risk. The Asia Blue Chip Fund and Asia Small Cap Fund
invests substantially all of its assets in Asian continent. The China Fund
invests substantially all of its assets in securities that are traded in China
or Hong Kong or that are issued by companies that do a substantial part of their
business in China. The Global Government Fund invests substantially in bonds
issued by various European governments. The consequences of political, social or
economic changes in the countries in which the securities are offered or the
issuers conduct of their operations as well as foreign currency fluctuations,
may affect the market prices of the Funds' investments and any income generated,
as well as the Funds' ability to repatriate such amounts.
H. Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
I. Other. Under terms of the Custodial Agreement, the Funds may earn
credits, based on custody cash balances, to be applied to custodian fees. For
the year ended December 31, 1996, there were no such credits.
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
Guinness Funds, on behalf of the Funds, entered into an Investment Advisory
Agreement with Guinness Flight Investment Management Limited (the "Advisor"), to
provide the Funds with investment management services. The Advisor furnished all
investment advice, office space and certain administrative services, and
provides certain personnel needed by the Funds. As compensation
-44-
<PAGE>
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
for its services, the Advisor was entitled to a monthly fee equal to the
following annual percentages of daily average net assets:
<TABLE>
<S> <C>
Asia Blue Chip Fund 1.00%
Asia Small Cap Fund 1.00%
China Fund 1.00%
Global Government Fund 0.75%
</TABLE>
The Funds are responsible for their own operating expenses. The Advisor and
Administrator have agreed to reimburse each Fund to the extent necessary so that
its ratio of operating expenses to average daily net assets will not exceed the
following levels. Expenses reimbursed from the Adviser for the year ended
December 31, 1996 are stated in the Funds' Statement of Operations:
<TABLE>
<S> <C>
Asia Blue Chip Fund 1.98%
Asia Small Cap Fund 1.98%
China Fund 1.98%
Global Government Fund 0.75%*
*(effective 10/31/96)
</TABLE>
Investment Company Administration Corporation (the "Administrator") acts as the
Funds' Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, prepares reports and
materials to be supplied to the Directors; monitors the activities of the Funds'
custodian, transfer agent and accountants; coordinates the preparation and
payment of Fund expenses and reviews the Funds' expense accruals. For its
services, the Administrator receives an annual fee equal to the greater of 0.25
of 1% of the Funds' average daily net assets, subject to a $40,000 annual
minimum for the China Fund and $60,000 allocated based on average daily net
assets of the Asia Blue Chip Fund, Asia Small Cap Fund and Global Government
Fund.
The Funds will reimburse the Advisor and Administrator in subsequent years when
operating expenses (before reimbursements) are less than the applicable
percentage limitation in effect at that time for each of the Funds.
First Fund Distributors, Inc. (the "Distributor") acts as the Funds' principal
underwriter in a continuous public offering of the Funds' shares. The
Distributor is an affiliate of the Administrator.
Certain officers of the Guinness Funds are also officers and/or Directors of the
Administrator and Distributor.
-45-
<PAGE>
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight China & Hong Kong Fund
Guinness Flight Global Government Bond Fund
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, excluding U.S.
Government obligations and short-term investments, for the year ended December
31, 1996 were:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
---------------------------------- ------------ -----------
<S> <C> <C>
Asia Blue Chip Fund $ 3,556,809 $ 222,407
Asia Small Cap Fund $ 41,644,290 $ 1,465,163
China Fund $251,846,277 $52,153,660
Global Government Fund $ 7,517,715 $ 4,430,766
</TABLE>
Purchases and sales of U.S. Government obligations by the Global Government Fund
were $1,629,500 and $1,010,692, respectively.
NOTE 5 - LINE OF CREDIT
The Funds have a $20 million unsecured line of credit with a bank that expires
on October 11, 1997. The interest rate on the line of credit is the bank's base
rate, as revised from time to time.
-46-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
Guinness Flight Investment Funds, Inc.
We have audited the accompanying statements of assets and liabilities of the
Guinness Flight Asia Blue Chip Fund ("Blue Chip Fund"), Guinness Flight Asia
Small Cap Fund ("Small Cap Fund"), Guinness Flight China & Hong Kong Fund
("China Fund") and Guinness Flight Global Government Bond Fund ("Global Bond
Fund"), (collectively, the "Funds"), series of Guinness Flight Investment Funds,
Inc., including the portfolios of investments, as of December 31, 1996, and the
related statements of operations for the year then ended for the China Fund and
Global Bond Fund and for the period April 29, 1996 (commencement of investment
operations) through December 31, 1996 for the Blue Chip Fund and Small Cap Fund,
and the statements of changes in net assets and the financial highlights for
each of the two years in the period then ended for the China Fund and Global
Bond Fund, and for the period April 29, 1996 (commencement of investment
operations) through December 31, 1996 for the Blue Chip Fund and Small Cap Fund.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of the China Fund and Global Bond Fund for the period from June 30,
1994 (commencement of operations) through December 31, 1994, were audited by
other auditors whose report dated February 8, 1995 expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
Guinness Flight Asia Blue Chip Fund, Guinness Flight Asia Small Cap Fund,
Guinness Flight China & Hong Kong Fund and Guinness Flight Global Government
Bond Fund as of December 31, 1996, the results of their operations for the year
then ended for the China Fund and Global Bond Fund and for the period from April
29, 1996 (commencement of investment operations) through December 31, 1996 for
the Blue Chip Fund and Small Cap Fund, and the changes in their net assets and
the financial highlights for each of the two years in the period then ended for
the China Fund and Global Bond Fund and for the period from April 29, 1996
(commencement of investment operations) through December 31, 1996 for the Blue
Chip Fund and Small Cap Fund in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Los Angeles, California
February 3, 1997
-47-
<PAGE>
USEFUL GUINNESS FLIGHT PHONE NUMBERS
Shareholder Service Line: 1-800-915-6566
Fund Literature Line: 1-800-915-6565
Automated Line for NAVs: 1-800-915-6564
This report is intended for the shareholders of Guinness Flight
Investment Funds, Inc. and should not be used as sales
literature unless accompanied or preceded by the
Funds current prospectus.
New York, New York
May 6, 1994
Guinness Flight Investment Funds, Inc.
201 South Lake Avenue, Suite 510
Pasadena, California 91101
Dear Gentlemen:
I have this day purchased 4,000 shares (the "Shares") of the Common
Stock, $.001 par value of Guinness Flight Investment Funds, Inc. (the "Company")
at a price of $12.50 per share. I hereby represent that I have purchased the
Shares for investment purposes and not with a view to or for sale in connection
with any distribution hereof, provided, however, that the disposition of the
Shares shall at all times be and remain within my control. I further agree that
the Shares will not be resold except for redemption by the Company and that the
proceeds of any such redemption will be reduced by an amount of the organization
expenses of the Company remaining unamortized at the time of the redemption
based on the proportion that the number of Shares being redeemed bears to the
total number of share of the common stock of the Company outstanding at the time
of the redemption.
This letter may be signed in counterpart, each of which being
considered an original, but all of which together being considered one and the
same instrument.
Sincerely yours,
Guinness Mahon Nominees
A/c James Hay Pension Trustees
Limited A/c Tim Guinness
By: /s/Howard Flight
---------------------------
By: /s/Timothy Guinness
---------------------------
By: /s/David Liddell
---------------------------
<PAGE>
New York, New York
May 6, 1994
Guinness Flight Investment Funds, Inc.
201 South Lake Avenue, Suite 510
Pasadena, California 91101
Dear Gentlemen:
I have this day purchased 4,000 shares (the "Shares") of the Common
Stock, $.001 par value of Guinness Flight Investment Funds, Inc. (the "Company")
at a price of $12.50 per share. I hereby represent that I have purchased the
Shares for investment purposes and not with a view to or for sale in connection
with any distribution hereof, provided, however, that the disposition of the
Shares shall at all times be and remain within my control. I further agree that
the Shares will not be resold except for redemption by the Company and that the
proceeds of any such redemption will be reduced by an amount of the organization
expenses of the Company remaining unamortized at the time of the redemption
based on the proportion that the number of Shares being redeemed bears to the
total number of share of the common stock of the Company outstanding at the time
of the redemption.
This letter may be signed in counterpart, each of which being
considered an original, but all of which together being considered one and the
same instrument.
Sincerely yours,
Guinness Mahon Nominees
A/c James Hay Pension Trustees
Limited A/c Howard Flight
By: /s/Howard Flight
---------------------------
By: /s/Timothy Guinness
---------------------------
By: /s/David Liddell
---------------------------
DISTRIBUTION AND SERVICE PLAN
1. This Distribution and Service Plan (the "Plan") when effective in
accordance with its terms, shall be the written plan contemplated by Rule 12b-1
under the Investment Company Act of 1940, as amended (the "1940 Act") of the
funds listed on Schedule A (the "Portfolios"), duly established series of shares
of Guinness Flight Investment Funds, a Delaware business trust, registered as an
open-end investment company under the 1940 Act (the "Guinness Funds").
2. Guinness Funds has entered into separate Administration
("Administration") and General Distribution ("Distribution") Agreements with
Investment Company Administration Corporation (the "Administrator") and First
Fund Distributors Inc. (the "Distributor"), respectively, with respect to the
Portfolios under which the Distributor uses all reasonable efforts, consistent
with its other business, to secure purchasers for each Portfolio's shares. Under
the Distribution Agreement, the Distributor pays the expenses of printing and
distributing any prospectuses, reports and other literature used by the
Distributor, advertising, and other promotional activities in connection with
the offering of shares of each Portfolio for sale to the public. Guinness Funds
has entered into an Investment Advisory Agreement with Guinness Flight
Investment Management Limited (the "Investment Adviser"). It is understood that
the Administrator may reimburse the Distributor for these expenses from any
source available to it, including the administration fee paid to the
Administrator by each Portfolio.
3. The Investment Adviser may, subject to the approval of the Trustees,
make payments to third parties who render shareholder support services,
including but not limited to, answering routine inquiries regarding the
Portfolios, processing shareholder transactions and providing such other
shareholder and administrative services as Guinness Funds may reasonably
request.
4. The Portfolios will not make separate payments as a result of this
Plan to the Investment Adviser, Administrator, Distributor or any other party,
it being recognized that each Portfolio presently pays, and will continue to
pay, an investment advisory fee to the Investment Adviser and an administration
fee to the Administrator. To the extent that any payments made by the Portfolios
to the Investment Adviser or Administrator, including payment of fees under the
Investment Advisory Agreement or the Administration Agreement, respectively,
should be deemed to be indirect financing of any activity primarily intended to
result in the sale of shares of the Portfolios within the context of Rule 12b-1
under the 1940 Act, then such payments shall be deemed to be authorized by this
Plan.
5. This Plan shall become effective on April 28, 1997 following
approval by a vote of at least a "majority of the outstanding voting securities
of a Portfolio" (as defined in the 1940 Act), the Plan having been approved by a
vote of a majority of the Trustees of Guinness Funds, including a majority of
Trustees who are not interested persons of Guinness Funds (as defined in the
1940 Act) and who have no direct or indirect financial interest in the operation
of this Plan or in any agreements related to this
<PAGE>
Plan (the "Independent Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from April 28, 1997 through April 28, 1998, and from year to year
thereafter, provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of Guinness Funds, including a
majority of the Independent Trustees, cast in person at a meeting called for the
purpose of voting on this Plan. This Plan may be amended at any time by the
Board of Trustees, provided that (a) any amendment to authorize direct payments
by a Portfolio to finance any activity primarily intended to result in the sale
of shares of a Portfolio, to increase materially the amount spent by a Portfolio
for distribution, or any amendment of the Investment Advisory Agreement or the
Administration Agreement to increase the amount to be paid by a Portfolio
thereunder shall be effective only upon approval by a vote of a majority of the
outstanding voting securities of such Portfolio, and (b) any material amendments
of this Plan shall be effective only upon approval in the manner provided in the
first sentence in this paragraph.
7. This Plan may be terminated at any time, with respect to a
Portfolio, without the payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of a majority of the outstanding voting
securities of such Portfolio.
8. During the existence of this Plan, Guinness Funds shall require the
Investment Adviser and/or Distributor to provide Guinness Funds, for review by
Guinness Funds' Board of Trustees, and the Trustees shall review, at least
quarterly, a written report of the amounts expended in connection with financing
any activity primarily intended to result in the sale of shares of the
Portfolios (making estimates of such costs where necessary or desirable) and the
purposes for which such expenditures were made.
9. This Plan does not require the Investment Adviser or Distributor to
perform any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result in the
sale of shares of the Portfolios.
10. Consistent with the limitation of shareholder and Trustee liability
as set forth in the Guinness Funds' Trust Instrument, any obligations assumed by
a Portfolio pursuant to this Plan and any agreements related to this Plan shall
be limited in all cases to such Portfolio and its assets, and shall not
constitute obligations of any shareholder or other series of shares of Guinness
Funds or of any Trustee.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
- 2 -
<PAGE>
SCHEDULE A
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000919160
<NAME> GUINNESS FLIGHT INVESTMENT FUNDS INC.
<SERIES>
<NUMBER> 1
<NAME> GUINNESS FLIGHT CHINA & HONG KONG FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
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