As filed with the Securities and Exchange Commission on December 13, 1999
Reg. ICA No. 811-8360
File No. 33-75340
U.S. 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. 24 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 24
GUINNESS FLIGHT INVESTMENT FUNDS
(Exact name of Registrant as Specified in Trust Instrument)
225 South Lake Avenue, Suite 777
Pasadena, California 91101
---------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(800) 362-5365
(Area Code and Telephone Number)
Susan Penry-Williams, Esq.
Kramer Levin Naftalis & Frankel LLP
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 |_| on (date) pursuant to
pursuant to paragraph (b) paragraph (b)
|_| 60 days after filing |_| on (date) pursuant to
pursuant to paragraph (a)(1) paragraph (a)(1)
|_| 75 days after filing |X| on February 28, 2000 pursuant
pursuant to paragraph (a)(2) to 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.
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[GRAPHIC]
PROSPECTUS ______________, 2000
GUINNESS FLIGHT WIRED(R) INDEX FUND
GUINNESS FLIGHT XXXXX NEW ECONOMY FUND
GUINNESS FLIGHT WIRELESS WORLD FUND
This Prospectus covers a class of shares of the Guinness Flight Wired(R) Index
Fund (the "Wired Index Fund"), Guinness Flight XXXXX New Economy Fund (the
"XXXXX New Economy Fund") and Guinness Flight Wireless World Fund (the "Wireless
World Fund"). You will find specific information in this Prospectus about each
Fund plus general information about investing in the Guinness Flight Investment
Funds (the "Guinness Flight Funds"). You may find additional information about
the Funds in the Statement of Additional Information for the Guinness Flight
Funds, which is incorporated by reference into this Prospectus. If you would
like the separate prospectus that covers the other Guinness Flight Funds, please
contact us.
The Securities and Exchange Commission ("SEC") has not approved or disapproved
these securities or passed on whether the information in this Prospectus is
accurate or complete. Anyone who indicates otherwise is committing a Federal
crime.
WIRED INDEX FUND
Risk/Return Summary
Investment Objective
The Wired (R)(1) Index Fund's investment objective is long-term capital
appreciation primarily through investments in equity securities of companies
that comprise the Wired Index.
- --------
(1) "Wired Index" is a service mark, and Wired (R) is a registered trademark of
Advance Magazine Publishers, Inc. ("Advance"), used with the permission of
Advance. Wired Magazine and Advance make no representation or warranty, express
or implied, to Investec Guinness Flight Global Asset Management Limited or any
member of the public regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the Wired Index to track
any aspect of market performance. Wired Magazine will continue to determine the
composition of the Index without regard to Investec Guinness Flight Global Asset
Management Limited or the Fund, and Wired Magazine has no obligation to take the
needs of Investec Guinness Flight Global Asset Management Limited or investors
in the Fund into consideration in determining or composing the Index. Advance
does not guarantee the quality, accuracy, currency, and/or the completeness of
the Index or any data included therein. Advance makes no warranty, express or
implied, as to the results to be obtained by Investec Guinness Flight Global
Asset Management Limited, investors in the Fund, or any other person or entity
from the use of the Wired Index or any data included therein in connection with
the Fund or for any other use. Advance makes no express or implied warranties,
and hereby expressly disclaims all warranties of merchantability or fitness for
a particular purpose or use with respect to the Wired Index or any data included
therein. Without limiting any of the foregoing, in no event shall Advance have
any liability for any special, punitive, indirect or consequential damages
(including lost profits), even if notified of the possibility of such damages.
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Investment Strategies
The Wired Index Fund will invest at least 85% of its total assets in securities
that comprise the Wired Index. As an index fund, the Wired Index Fund will
attempt to replicate the performance of the Wired Index. In managing the Fund,
we will generally follow a policy of "full replication", meaning that the Fund
will generally invest in all 40 component issues that comprise the Wired Index
in the proportion they are represented within the Index. From time to time, we
may also use a method known as "index sampling", an investment technique that
seeks to replicate the performance of the Wired Index by investing in a subset
of the 40 component stocks. The Wired Index is currently comprised of the
following companies:
Acxiom Intel Thermo Electron
Affymetrix Lucent Technologies Wal-Mart
AIG Marriott International Walt Disney
America Online Microsoft Wind River Systems
AMR Monsanto WorldCom
Applied Materials News Corporation Yahoo!
Cable & Wireless Nokia
Charles Schwab Nucor
Cisco Systems Parametric Technology
Daimler-Chrysler PeopleSoft
Dell Computer Qwest Communications
EMC Reuters
Enron Schlumberger
FDX SmithKline Beecham
First Data Sony
Globalstar State Street Corporation
Incyte Pharmaceuticals Sun Microsystems
The Wired Index was created by Wired magazine to ". . .track the growth of the
companies that are building the new economy - not just (high tech companies),
but a broad range of enterprises that are using technology, networks, and
information to reshape the world." (Wired, June 1998). Wired magazine is not an
affiliate of Investec Guinness Flight Global Asset Management Limited.
The Wired Index consists of companies that play a role in the "new economy". The
new economy is based on:
o the use of technology, networks, communication and information; and
o the evolution of globalism, innovation and strategic vision.
Although technology and telecommunication companies make up approximately 50% of
the Wired Index, the Index represents a wide range of industries including the
financial, retail, consumer and energy industries.
The Wired Index is weighted by market capitalization with a ceiling of $30
billion.
If the Wired Index changes in any way, the Fund will adjust its investments
accordingly to mirror the Index.
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Principal Risks
The Wired Index Fund is subject to the risks common to all mutual funds that
invest in equity securities and the securities that make up the Wired Index. You
may lose money under any of the following circumstances:
o the Wired Index goes down;
o the Wired Index is more adversely affected by a market downturn than a
larger, more broad-based index due to its concentration and focus on
specific sectors;
o technology or telecommunication stocks fall out of favor with investors; or
o technology companies in the Wired Index lose money due to intense pricing
pressure or high capital investment costs.
See "Risks of Investing" on page ___ for a more detailed discussion of the risks
associated with investing in this Fund.
[GRAPHIC OMITTED]
Annual Returns and Performance Table
The Annual Returns bar chart demonstrates the risks of investing in the Wired
Index Fund by showing changes in the Fund's performance from December 31, 1998
through December 31, 1999. The bar chart shows the returns for another class of
shares of the Wired Index Fund. The returns for the class of shares offered by
this Prospectus will differ from the return for the shares shown on the bar
chart, depending on the expenses of each class. The bar chart does not reflect
any sales charges that you may be required to pay when you sell your shares. If
sales charges were reflected, returns would be lower than those shown. The
following table also demonstrates the risks of investing in the Wired Index Fund
by showing how the Fund's average annual returns compare with those of a broad
based securities market index. Past performance is not an indication of future
performance.
WIRED INDEX FUND
Average Annual Returns as
of 12/31/99 Past One Year Since Inception 12/15/98
- ----------- ------------- ------------------------
Wired Index Fund
_____ Index
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During the period shown in the bar chart, the best performance for a quarter was
___% (for the quarter ended ______). The worst performance was ____% (for the
quarter ended ______).
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Wired Index Fund:
Shareholder Fees (Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as % of offering price) 0%
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) 5%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions 0%
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount redeemed, if applicable) 0%
- --------------------------------------------------------------------------------
Exchange Fee 0%
- --------------------------------------------------------------------------------
Maximum Account Fee 0%
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (Expenses that are deducted from Fund assets)
- --------------------------------------------------------------------------------
Management Fee**: 0.90%
- --------------------------------------------------------------------------------
Rule 12b-1 Fee: 1.00%
- --------------------------------------------------------------------------------
Other Expenses*: 1.07%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses*: 2.97%
- --------------------------------------------------------------------------------
Expenses Reimbursed to Fund*: 0.62%
- --------------------------------------------------------------------------------
Net Annual Fund Operating Expenses
(expenses actually incurred by the Fund)*: 2.35%
- --------------------------------------------------------------------------------
*Investec Guinness Flight Global Asset Management Limited is contractually
obligated to cap the Fund's Total Annual Fund Operating Expenses at 2.35%
through June 30, 2001.
**Pursuant to an Investment Advisory Agreement, the Fund will pay an advisory
fee of 0.90% on the first $100 million in assets, 0.75% on the next $100 to $500
million, and 0.60% on assets over $500 million.
Example
This example is to help you compare the cost of investing in the Wired Index
Fund with the cost of investing in other mutual funds.
The Example assumes that
o you invest $10,000 in the Fund for the time periods indicated;
o your investment has a 5% return each year; and
o the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
- -------------------------------------------------------------------------------
1 Year 3 Years* 5 Years* 10 Years*
- -------------------------------------------------------------------------------
$127 $397 $686 $1,511
- -------------------------------------------------------------------------------
* Your costs of investing in the Fund for 1 year reflect the amount you would
pay after we reimburse the Fund for some or all of the Other Expenses. Your
costs of investing in the Fund for 3, 5 and 10 years reflect the amount you
would pay if we did not reimburse the Fund for some or all of the Other
Expenses. If we continue to cap the Fund's expenses for 3, 5 or 10 years, as we
are doing for the first year, your actual costs for those periods would be lower
than the amounts shown. We are currently under no obligation to cap expenses for
any period beyond June 30, 2001.
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XXXXX NEW ECONOMY FUND
Risk Return Summary
Investment Objective
The XXXXX New Economy Fund's investment objective is long-term capital
appreciation primarily through investments in equity securities of New Economy
companies.
Investment Strategies
New Economy companies are companies that are enabling, participating or
benefiting from the transition from an industrial based economy to the New
Economy. We believe New Economy companies exhibit one or more of several
attributes:
o Proclivity to embrace technology, communication and networking
o History of innovation and strategic vision
o Globalism
The XXXXX New Economy Fund intends to invest at least 85% of its assets in
companies with substantial interest in, or that may benefit from, the transition
from the industrial economy to the New Economy. Such companies include producers
of technology (including hardware and software), producers of telecommunications
equipment and services, Internet companies, financial services companies,
retailers, and transportation companies. New Economy companies are defined as
such more for how they operate and compete than for the industry they compete
in. For this reason some companies from nearly all industries may be considered
New Economy companies.
Principal Risks
The XXXXX New Economy Fund is subject to the following risks common to all
mutual funds that invest in equity securities and that invest in companies
involved in the telecommunications, Internet or technology industries.
You may lose money if any of the following occur:
o New Economy stocks go down;
o New Economy stocks fall out of favor with investors;
o Companies in which the Fund invests lose money due to competitive
business pressures or failure to keep pace with the rapid rate of
technological and economic change;
o The Fund's manager's investment strategy does not achieve the Fund's
objective or the manager does not implement the strategy properly; or
o The stock market goes down.
In addition, you should be aware that the share prices of technology, Internet
and telecommunications companies will fluctuate more than other stocks because
these industries are subject to more rapid change in technology and products
than other stocks. Further, to the extent that the Fund invests in small
companies there may be additional risks associated with such stocks. Stocks of
small companies are more difficult to sell during market downturns due to lower
liquidity. The Fund may exhibit a greater degree of volatility and fluctuation
on a day-to-day basis than a more diversified fund.
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See "Risks of Investing" on page xx for a more detailed discussion of the risks
associated with investing in this Fund.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the XXXXX New Economy Fund:
Shareholder Fees (Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases: 0%
As a percentage of offering price
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
Redemption Fee (as % of amount redeemed, if applicable): 0%(1)
Exchange Fee 0%
Maximum Account Fee 0%
Annual Operating Expenses (Expenses that are deducted from Fund assets)
Management Fee: 1.10%
Rule 12b-1 Fee: 0%
Other Expenses(2): 0.75%
Total Annual Fund Operating Expenses: 1.85%
(1) There is a $10 fee for redemption by wire.
(2) These expenses are based on estimated amounts for the current fiscal year.
Example
This example is to help you compare the cost of investing in the New Economy
Fund with the cost of investing in other mutual funds.
The Example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o your investment has a 5% return each year;
o the Fund's operating expenses remain the same; and
o you redeem all your shares.
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
1 Year 3 Years
------ -------
$ $
WIRELESS WORLD FUND
Risk Return Summary
Investment Objective
The Wireless World Fund's investment objective is long-term capital appreciation
primarily through investments in equity securities of companies with substantial
business interest in, or that will benefit from, a shift toward wireless
communication.
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Investment Strategies
Personal communications are in the process of moving from traditional "wired
based" to wireless transmission. The mobile phone, which is the most obvious
example, represents just the beginning of this shift. The growth in wireless
communication is a result of advances in telecommunications and technology
coupled with the explosive growth in Internet usage. In a wireless world a
variety of products and services will be available to consumers that either are
not available now or will be available in a much more convenient and time
effective manner. Industries that may be able to provide enhanced wireless
services include the automobile, banking, computer, entertainment, financial
services, media, software, telecommunications, and transportation industries.
The Wireless World Fund is designed to allow investors a means to participate in
this shift to wireless communication.
The Wireless World Fund intends to invest at least 85% of its assets in
companies with substantial interest in, or that may benefit from, a shift toward
wireless communications. This would include telecommunications companies,
hardware manufacturers, Internet companies, content providers and service
companies that supply equipment, hardware, information or services via wireless
communications devices.
Principal Risks
The Wireless World Fund is subject to the following risks common to all mutual
funds that invest in equity securities and that invest in companies involved in
the telecommunications, Internet or technology industries.
You may lose money if any of the following occur:
o Telecommunications or technology stocks go down;
o Telecommunications or technology stocks fall out of favor with
investors;
o Telecommunications or technology companies in which the Fund invests
lose money due to competitive business pressures or failure to keep
pace with the rapid rate of technological change;
o The Fund's manager's investment strategy does not achieve the Fund's
objective or the manager does not implement the strategy properly; or
o The stock market goes down.
In addition, you should be aware that the share prices of telecommunications and
technology companies will fluctuate more than other stocks because these
industries are subject to more rapid change in technology and products than
other stocks. Further, to the extent that the Fund invests in small companies
there may be additional risks associated with such stocks. Stocks of small
companies are more difficult to sell during market downturns due to lower
liquidity. The Fund may exhibit a greater degree of volatility and fluctuation
on a day-to-day basis than a more diversified fund.
See "Risks of Investing" on page xx for a more detailed discusson of the risks
associated with investing in this Fund.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Wireless World Fund:
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<PAGE>
Shareholder Fees (Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases: 0%
As a percentage of offering price
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
Redemption Fee (as % of amount redeemed, if applicable): 0%(1)
Exchange Fee 0%
Maximum Account Fee 0%
Annual Operating Expenses (Expenses that are deducted from Fund assets)
Management Fee: 1.00%
Rule 12b-1 Fee: 0%
Other Expenses(2): 0.75%
Total Annual Fund Operating Expenses: 1.75%
(1) There is a $10 fee for redemption by wire.
(2) These expenses are based on estimated amounts for the current fiscal year.
Example
This example is to help you compare the cost of investing in the Wireless World
Fund with the cost of investing in other mutual funds.
The Example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o your investment has a 5% return each year;
o the Fund's operating expenses remain the same; and
o you redeem all your shares.
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
1 Year 3 Years
------ -------
$ $
RISKS OF INVESTING
As with all mutual funds, investing in the Funds involves certain risks. We
cannot guarantee that a Fund will meet its investment objective. You may lose
money if you invest in a Fund.
The Funds may use various investment techniques, some of which involve greater
amounts of risk. You should consider the risks described below before you decide
to invest in a Fund.
Risks of Investing in Mutual Funds
The following risks are common to all mutual funds and therefore apply to the
Funds:
o Market Risk. The market value of a security may go up or down, sometimes
rapidly and unpredictably. These fluctuations may cause a security to be
worth less than it was at the
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time of purchase. Market risk applies to individual securities, a particular
sector or the entire economy. o Manager Risk. Fund management affects Fund
performance. A Fund may lose money if the Fund manager's investment
strategy does not achieve the Fund's objective or the manager does not
implement the strategy properly.
o Year 2000 Risk. For the first few months of Year 2000, a Fund, its service
providers or the companies in which the Fund invests could be disrupted by
problems in its computer systems related to the Year 2000.
Risks of Investing in Small Cap Companies
The following risks are common to all mutual funds that invest in small
capitalization companies (those with a market value of less than U.S. $1
billion), and therefore apply to a Fund which includes small cap stocks. As a
general rule, investments in stock of small cap companies (those with a market
value of less than U.S. $1 billion) are more risky than investments in the stock
of larger companies (those with a market value of more than U.S. $1 billion) for
the following reasons, among others:
o small cap companies tend to rely on more limited product lines and business
activities, which makes them more susceptible to business setbacks or
economic downturns;
o the stock of small cap companies may be traded less frequently than that of
larger companies; and
o small cap companies have more limited financial resources.
Risks of Investing in the Wired Index Fund The following risks apply to the
Wired Index Fund:
o Index Concentration. The Wired Index is comprised of 40 companies (the
largest 10 of which constitute 42% of the Index). Because of this
concentration and focus, the Wired Index may exhibit more volatility and
fluctuation on a day-to-day basis than a larger, broad-based index and may
be more affected by the performance of those 10 largest companies.
o Technology/Telecommunication Company Risk. Half of the companies that make
up the Wired Index are technology or telecommunication companies which are
subject to special risks. Because of the increasing rate of technological
innovation, the products of technology companies are subject to intense
pricing pressure and may become obsolete at a more frequent rate than other
types of companies. In addition, such companies tend to be capital
intensive and as a result, may not be able to recover all capital
investment costs.
Risks of Investing in the XXXXX New Economy Fund
The following risks apply to the XXXXX New Economy Fund:
o Industry concentration. The XXXXX New Economy Fund will invest in companies
from a variety of industries poised to benefit from a shift to a New
Economy. Many of these companies may be technology, Internet or
telecommunications related and as such the Fund may be concentrated in
these industries. Such a concentration would cause the Fund to exhibit more
volatility and fluctuation on a day-to-day basis than a more broadly
diversified fund.
o New Economy Risk: New Economy companies are competing in a very competitive
business environment that is subject to rapid change. As a result, the
share price of New Economy companies will fluctuate to a greater degree
than other stocks.
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Risks of Investing in the Wireless World Fund
The following risks apply to the Wireless World Fund:
o Industry Concentration. The Wireless World Fund will invest in companies
from a variety of industries poised to benefit from a shift in personal
communications (including telephone, the Internet and email) to wireless
technology. Many of these companies may be telecommunications or technology
related and as such the Fund may be concentrated in these industries. Such
a concentration would cause the Fund to exhibit more volatility and
fluctuation on a day-to-day basis than a more broadly diversified fund.
o Wireless Business Risk. Companies involved in providing wireless technology
and services are competing in a rapidly changing business environment. As a
result, the share price of companies involved in the delivery of wireless
services will fluctuate to a greater degree than other stocks. Changes in
telephone and communications regulations, anti-trust regulations and
freedom of speech laws may have a material effect on the demand and
business prospects for wireless services. Many of the products and services
of these companies are subject to high risks of obsolesce caused by
advances in science and technology.
GUINNESS FLIGHT FUNDS MANAGEMENT
Investment Advisor
Investec Guinness Flight Global Asset Management Limited ("Investec") is the
investment advisor for the Guinness Flight Funds. Investec supervises all
aspects of each Fund's operations and advises each Fund, subject to oversight by
the Board of Trustees of the Funds. For providing these services, the Funds pay
Investec the following annualized advisory fees:
Wired IndexFund 0.90% or less
Wireless World Rund 1.00% [or less]
XXXXX New Economy Fund 1.10% [or less]
Investec is a subsidiary of Investec Guinness Flight, which is a subsidiary of
Investec Group Limited. Investec Guinness Flight was created in November 1998
through the merger of Guinness Flight Hambro Asset Management Limited and
Investec Asset Management.
Investec Guinness Flight manages 105 investment funds domiciled in the United
Kingdom, South Africa, Guernsey, Dublin and the United States. Investec Group,
established in 1974, is an independent, international investment and private
banking group. It was listed on the Johannesburg Stock Exchange in 1986 and is
the largest independent investment banking group in South Africa.
The primary offices of Investec Guinness Flight are located in the U.K., South
Africa, Hong Kong and the United States. The U.S. office of Investec is located
at 225 S. Lake Ave., Ste. 777, Pasadena, CA 91101. Investec Guinness Flight's
main office is located in London, England at 2 Gresham Street, London EC2V7QP.
The Hong Kong office is located at 2108 Jardine House,
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One Connaught Place, Central, Hong Kong. Investec Group's main office is located
at 100 Grayston Drive, Sandown, Sandton, Johannesburg, SA 2196, South Africa.
Portfolio Management
Wired Index Fund
Doug Blatch. Mr. Blatch joined Investec Asset Management in April 1996 and is
the portfolio manager responsible for all domestic and international index funds
and derivatives trading. Prior to joining Investec Asset Management, Mr. Blatch,
who qualified as a Chartered Accountant in 1993, worked for Ernst & Young GMBH
in Berlin. He is co-manager of the Wired Index Fund.
Domenico Ferrini. Mr. Ferrini joined Investec Asset Management in 1992 as an
administrator and one of the founding members. He then moved to equity dealing
and subsequently became chief dealer, coordinating bond, money market, equity
and derivative trading as well as international dealing activity. Prior to
joining Investec Asset Management, Mr. Ferrini worked at Kaplan and Stewart
Stockbrokers beginning in 1988. He is co-manager of the Wired Index Fund. Mr.
Ferrini also manages the Investec Gilt Fund and is a director of Investec
Guinness Flight.
Wireless World Fund
[to be provided]
XXXXX New Economy Fund
[to be provided]
SHAREHOLDER GUIDE: YOUR ACCOUNT WITH GUINNESS FLIGHT FUNDS
Investment Minimums. The minimum initial investments are:
Type of Account Minimum
Regular (new investor) $2,500
Regular (Guinness Flight Shareholders) $1,000
Retirement $1,000
Gift $250
Pre-authorized investment plan (Initial and
installment payments) $100
Additional investments $250
We may reduce or waive the minimum investment requirements in some cases.
Types of Accounts We Offer:
Regular-These accounts are taxable Retirement-These accounts are generally
nontaxable
o Individual o Roth IRA
o Joint Tenant o Regular IRA
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o UGMA/UTMA o Rollover IRA
o Trust o Roth Conversion
o Corporate o SEP IRA
o 401 (k)
o 403 (b)
Deferred Sales Charges - Wired Index Fund
Shares of the Wired Index Fund are offered at their Net Asset Value ("NAV") per
share, without an initial sales charge. When you sell the shares within six
years of buying them, there is a contingent deferred sales charge (CDSC). The
CDSC is based on the original purchase cost of your investment or the NAV at the
time of redemption, whichever is lower. There is no CDSC on reinvested
dividends.
Years After Purchase CDSC on Shares Being Sold
0 - 1 5.0%
1 - 2 4.0%
2 - 3 3.0%
3 - 4 3.0%
4 - 5 2.0%
5 - 6 1.0%
After 6 Years NONE
Sales Charge Reductions and Waivers for Wired Index Fund
The CDSC will be waived for the following redemptions:
1. Distributions from retirement plans if the distributions are made:
a. Under the Systematic Withdrawal Plan after age 59 1/2 for up to 12%
of the account value annually; or
b. Following the death or disability of the participant or beneficial
owner;
2. Redemptions from accounts other than retirement accounts following the
death or disability of the shareholder;
3. Returns of excess contributions to retirement plans;
4. Distributions of less than 12% of the annual account value under the
Systematic Withdrawal Plan; or
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<PAGE>
5. Shares issued in a plan or reorganization sponsored by Investec, or
shares redeemed involuntarily in a similar situation.
How to Purchase, Exchange, and Sell Shares
The Transfer Agent is open from 8:00 a.m. to 6:00 p.m. Eastern Time for
purchase, redemption and exchange orders. Shares will be purchased, exchanged
and redeemed at NAV per share. A Fund's NAV per share is calculated by
subtracting the Fund's liabilities from its assets and dividing by the total
number of Fund shares outstanding. The Transfer Agent must receive your request
by the close of the New York Stock Exchange (generally 4:00 p.m. Eastern time)
to receive the NAV of that day. If your request is received after the close of
the New York Stock Exchange, it will be processed the next business day. The
phone number you should call for account transaction requests is (800) 915-6566.
Purchases Through Securities Dealers
Investors may submit their initial and subsequent investments directly through
participating securities dealers. For an initial investment, investors should
submit payment and, if required, a completed Investor Application to their
participating securities dealer, who will transmit such payment to Guinness
Flight Investment Funds on behalf of the investor and supply Guinness Flight
Investment Funds with required account information. Some securities dealers may
charge a fee for this service. Guinness Flight Investment Funds is not
responsible for any delay caused by securities dealers in forwarding an order to
Guinness Flight Investment Funds. Securities dealers have a responsibility to
transmit orders promptly.
SSgA Money Market Fund
Guinness Flight Funds does not operate a money market fund; however you may
exchange your shares of the XXXXX New Economy or Wireless World Funds for SSgA
Money Market Fund through Guinness Flight Funds. State Street Bank & Trust Co.
advises the SSgA Money Market Fund. Their address is 225 Franklin Street, Boston
MA 02110. You may request a SSgA Money Market Fund prospectus by calling (800)
915-6566.
How to Purchase Shares. You may purchase shares of a Fund by mail, wire or
auto-buy. You may exchange your shares of the XXXXX New Economy or Wireless
World Funds for shares of another Guinness Flight Fund or the SSgA Money Market
Fund by mail or wire. A broker may charge you a transaction fee for making a
purchase for you.
Mail (graphic): To purchase by mail, you should:
o Complete and sign the account application
o To open a regular account, write a check payable to "Guinness Flight
Investment Funds"
o To open a retirement account, write a check payable to the custodian or
trustee
o Send your account application and check or exchange request to one of the
following addresses:
For a Business reply envelope: For a stamped envelope:
Guinness Flight Investment Funds Guinness Flight Investment Funds
P.O. Box 9288 P.O. Box 8116
Boston, MA 02205-8559 Boston, MA 02266-8116
For an overnight package:
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Boston Financial Data Services
ATTN: Guinness Flight Investment Funds
66 Brooks Drive
Braintree, MA 02184
Wire (graphic): To purchase by wire, call the Transfer Agent at (800) 915-6566
between 8:00 a.m. and 6:00 p.m. Eastern Time on a business day to get an account
number and detailed instructions. You must then provide the Transfer Agent with
a signed application within 10 business days of the initial purchase. Instruct
your bank to send the wire to:
State Street Bank and Trust Company
ABA #0110 00028
Shareholder and Custody Services
DDA # 99050171
ATTN: [Your Name]
(Fund Account Number)
Pre-Authorized Investment Plan. With a pre-authorized investment plan, your
personal bank account is automatically debited on a monthly or quarterly basis
to purchase shares of a Fund. You will receive the NAV per share as of the date
the debit is made.
Auto-Buy: You may purchase additional shares of the Fund you own by ACH
(automated clearing house) after you elect the Auto-Buy option on your account.
To elect the Auto-Buy option, select it on your account application or call the
Transfer Agent and request an optional shareholder services form. ACH is similar
to the pre-authorized investment plan, except that you may choose the date on
which you want to make the purchase. We will need a voided check or deposit slip
before you may purchase by ACH.
Subsequent Investments: If you are making an additional investment in a Fund,
you should include either the stub from a previous confirmation statement or a
letter providing your name and account number to ensure that the money is
invested in your existing Guinness Flight account.
Purchase Order Cut-Off. We may cease taking purchase orders for a Fund at any
time when we believe that it is in the best interest of our current
shareholders. The purpose of such action is to limit increased Fund expenses
incurred when certain investors buy and sell shares of the Funds for the
short-term when the markets are highly volatile.
How to Exchange and Redeem Shares. You may exchange or redeem shares by mail or
telephone. When you exchange your shares of the XXXXX New Economy or Wireless
World Funds, you sell shares of your Fund and buy shares of another Guinness
Flight Fund. You may realize either a gain or loss on those shares and will be
responsible for paying the appropriate taxes. If you exchange or redeem through
a broker, the broker may charge you a transaction fee. If you purchased your
shares by check, you may not receive your redemption proceeds until the check
has cleared, which may take up to 15 calendar days. You may receive the proceeds
of redemption by wire or through a systematic withdrawal plan as described
below.
Mail: To exchange or redeem by mail, please:
14
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o Provide your name and account number;
o Specify the number of shares or dollar amount and your Fund name or number;
o To exchange shares, specify the name of the Fund (either another Guinness
Flight Fund or the SSgA Money Market Fund) you want to purchase;
o Sign the redemption or exchange request (the signature must be the same as
the one on your account application). Make sure all parties that are
required by the account registration sign the request; and
o Send your request to the appropriate address above under purchasing by
mail.
Telephone: You may redeem your shares of your Fund or exchange your shares of
the XXXXX New Economy or Wireless World Funds either in writing or by telephone
if you authorized telephone redemption on your account application. To exchange
or redeem by telephone, call the Transfer Agent at (800) 915-6566 between the
hours of 8:00 a.m. and 6:00 p.m. on a day the New York Stock Exchange is open
for business. For your protection against fraudulent telephone transactions, we
will use reasonable procedures to verify your identity. As long as we follow
these procedures, we will not be liable for any loss or cost to you if we act on
instructions to redeem your account that we reasonably believe to be authorized
by you. You will be notified if we refuse telephone redemption or exchange.
Telephone exchanges or redemptions may be difficult during periods of extreme
market or economic conditions. If this is the case, please send your exchange
request by mail or overnight courier.
Wire: You may have the proceeds of the redemption request wired to your bank
account for redemptions of $500 or more. Please provide the name, location, ABA
or bank routing number of your bank and your bank account number. Payment will
be made within 3 business days after the Transfer Agent receives your written or
telephone redemption request. There is a $10 fee for redemption by wire.
Systematic Withdrawal Plan: You may establish a systematic withdrawal plan where
you have regular monthly or quarterly payments redeemed from your Guinness
Flight Fund account and sent to either you or a third party you designate.
Payments must be at least $100 and your Guinness Flight Fund must have an
account value of at least $1,000. You will receive the NAV on the date of the
scheduled withdrawal and will redeem enough full and fractional shares at that
NAV to equal the requested withdrawal. You may realize either a capital gain or
loss on the withdrawals that must be reported for tax purposes. You may purchase
additional shares of the Fund under this plan as long as the additional
purchases are equal to at least one year's scheduled withdrawals.
Signature Guarantee. The redemption requests listed below require a signature
guarantee. You can get a signature guarantee from certain banks, brokers,
dealers, credit unions, securities exchanges, clearing agencies and savings
associations. A notarization and acknowledgment by a notary public is not a
signature guarantee.
o Redemptions by corporations, partnerships, trusts or other fiduciary
accounts;
o Redemption of an account with a value of at least $50,000 if you are making
the request in writing (if you have authorized telephone redemption on your
account, you may redeem by telephone without a signature guarantee);
o Redemption of an account where proceeds are to be paid to someone other
than the record owner; or
15
<PAGE>
o Redemption of an account where the proceeds are to be sent to an address
other than the record address.
Redemptions Through Securities Dealers
Shareholders may redeem shares by instructing their securities dealer to effect
their redemption transactions. The securities dealer will transmit the required
redemption information to Guinness Flight Investment Funds and the proceeds from
that redemption will be transmitted to the securities dealer for the account of
the shareholder. Securities dealers may impose redemption minimums, service fees
or other requirements. Securities dealers have a responsibility to transmit
redemption requests promptly.
Additional Exchange and Redemption Information:
o Small Accounts. To reduce our expenses, we may redeem an account if the
total value of the account falls below $500 due to redemptions. You will be
given 30 days' prior written notice of this redemption. During that period,
you may purchase additional shares to avoid the redemption.
o Check Clearance. The proceeds from a redemption request may be delayed up
to 15 calendar days from the date of the receipt of a purchase check until
the check clears. If the check does not clear, you will be responsible for
the loss. This delay can be avoided by purchasing shares by wire or
certified bank checks.
o Exchange Limit. In order to limit expenses, we reserve the right to limit
the total number of exchanges you can make in any year to four.
o Overdraft Protection. We may borrow cash temporarily from an overdraft
provision provided by the Transfer Agent to satisfy redemption requests.
o Suspension of Redemptions. We may temporarily suspend the right of
redemption or postpone payments under certain emergency circumstances or
when the SEC orders a suspension.
Finances
Net Asset Value. The NAV per share of a Fund is determined at the close of the
New York Stock Exchange (generally 4:00 p.m. Eastern Time) on each day the New
York Stock Exchange is open for business. The NAV is calculated by 1)
subtracting a Fund's liabilities from its assets and then 2) dividing that
number by the total number of outstanding shares. This procedure is in
accordance with Generally Accepted Accounting Principles. Securities without a
readily available price quotation may be priced at fair value. Fair value is
determined in good faith by or under the supervision of a Fund's officers under
methods authorized by the Board of Trustees.
Dividends and Capital Gains Distributions. Each Fund distributes all or most of
its net investment income and net capital gains to shareholders. Dividends and
capital gains for a Fund are normally declared and paid semi-annually, in June
and December. When calculating the amount of capital gain for a Fund, the Fund
can offset any capital gain with net capital loss (which may be carried forward
from a previous year).
Your dividends and/or capital gains distributions will be automatically
reinvested on the ex- dividend date when there is a distribution, unless you
elect otherwise, so that you will be buying more of both full and fractional
shares of a Fund. You will be buying those new shares at the NAV per share on
the ex-dividend date. You may choose to have dividends and capital gains
distributions paid to you in cash. You may also choose to reinvest dividends and
capital gains
16
<PAGE>
distributions in shares of another Guinness Flight Fund. You may authorize
either of these options by calling the Transfer Agent at (800) 915-6566 and
requesting an optional shareholder services form. You must complete the form and
return it to the Transfer Agent before the record date in order for the change
to be effective for that dividend capital gains distribution.
Buying Before a Dividend. If you purchased shares of a Fund on or before a
record date, you will receive a dividend or capital gains distribution. The
distribution will lower the NAV per share on that date and represents, in
substance, a return of basis (your cost); however you will be subject to Federal
income taxes on this distribution.
Tax Issues. The following tax information is based on tax laws and regulations
in effect on the date of this Prospectus. These laws and regulations are subject
to change. Shareholders should consult a tax professional for the tax
consequences of investing in a Fund as well as for information on state and
local taxes which may apply. A statement that provides the Federal income tax
status of a Fund's distributions will be sent to shareholders promptly at the
end of each year.
o Distributions to Shareholders. Distributions to shareholders fall into two
tax categories. The first category is ordinary income distributions.
Ordinary income distributions are distributions of net investment income,
which includes dividends, foreign currency gains and short-term capital
gains. Long-term capital losses and foreign currency losses are used to
offset ordinary income. The second category of distribution is capital
gains distributions. Capital gains distributions are distributions of a
Fund's long-term capital gain it receives from selling stocks within its
portfolio. Short- term capital losses are used to offset long- term capital
gain. You have to pay taxes on both distributions even though you have them
automatically reinvested. On some occasions a distribution made in January
will have to be treated for tax purposes as having been distributed on
December 31 of the prior year.
o Gain or Loss on Sale of Shares of a Fund. You will recognize either a gain
or loss when you sell shares of your Fund. The gain or loss is the
difference between the proceeds of the sale (the NAV of the Fund on the
date of sale times the number of shares sold) and your adjusted basis. Any
loss realized on a taxable sale of shares within six months from the date
of their purchase will be treated as a long- term capital loss that can be
used to offset short- term capital gains on those shares. If you sell
shares of a Fund at a loss and repurchase shares of the same Fund 30 days
before or after the sale, a deduction for the loss is generally disallowed
(a wash sale).
o Foreign Source Income and Withholding Taxes. Some of a Fund's investment
income may be subject to foreign income taxes that are withheld at the
source. If a Fund meets certain legal requirements, it may pass-through
these foreign taxes to shareholders. Shareholders may then claim a foreign
tax credit or a foreign tax deduction for their share of foreign taxes
paid.
Distribution Plan - XXXXX New Economy and Wireless World Funds. The XXXXX New
Economy and Wireless World Funds have each adopted a Distribution Plan
(distribution fee of 0%) under Rule 12b-1 of the Investment Company Act of 1940,
as amended (the "1940 Act"). Under this plan, no separate payments are
authorized by the Fund. The Investment Advisor or the Administrator must use its
fee revenues or other resources to pay the expenses of shareholder
17
<PAGE>
servicing and record keeping. The Investment Advisor or the Administrator may
also make payments from these sources to third parties, including affiliates and
independent contractors, for these types of services.
Distribution Plan - Wired Index Fund. In accordance with Rule 12b-1 under the
1940 Act, the Wired Index Fund has adopted a Distribution Plan for the class of
shares offered pursuant to this Prospectus. This class of shares pays _____ an
annual asset-based sales charge of 1.00%. The fee is computed on the average
daily net assets of those shares that comprise the class. _______ then uses the
asset-based sales charge to recoup sales commissions and the costs for financing
them.
Because Rule 12b-1 fees are paid out of the classes' assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges or purchasing shares on a
no-load basis.
[back cover page]
Statement of Additional Information. The Statement of Additional Information
provides a more complete discussion about the Funds and is incorporated by
reference into this prospectus, which means that it is considered a part of this
Prospectus.
Annual and Semi- Annual Reports. Additional information about a Fund's
investment is available in the Fund's annual reports to shareholders. In the
Fund's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
To Review or Obtain this Information. To obtain a free copy of the Statement of
Additional Information and annual and semi- annual reports or to make any other
inquiries about a Fund, you may call Guinness Flight Funds at (800) 915-6566.
This information may be reviewed and copied at the Public Reference Room of the
Securities and Exchange Commission or by visiting the SEC's World Wide Website
at http:// www.sec.gov. In addition, this information may be obtained for a fee
by writing the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C. 20549-6009. You may call the SEC at (800) SEC-0330 for
information on the operation of the Public Reference Room. Finally, you may also
call or write a broker-dealer or financial intermediary that sells our Funds for
a copy of the Statement of Additional Information and other information.
Investment Company Act file no. 811-08360
18
<PAGE>
PART B
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 MAINLAND CHINA FUND
GUINNESS FLIGHT NEW EUROPE FUND
GUINNESS FLIGHT WIRED(R) INDEX FUND
GUINNESS FLIGHT internet.com(TM) INDEX FUND
GUINNESS FLIGHT GLOBAL GOVERNMENT BOND FUND
GUINNESS FLIGHT XXXXX NEW ECONOMY FUND
GUINNESS FLIGHT WIRELESS WORLD FUND
This Statement of Additional Information (the "SAI") is not a
prospectus, but should be read in conjunction with the current prospectus dated
April 30, 1999, pursuant to which the Guinness Flight China & Hong Kong Fund
(the "China & Hong Kong Fund"), Guinness Flight Asia Blue Chip Fund (the "Asia
Blue Chip Fund"), Guinness Flight Asia Small Cap Fund (the "Asia Small Cap
Fund"), Guinness Flight Mainland China Fund (the "Mainland China Fund"),
Guinness Flight New Europe Fund (the "New Europe Fund"), Guinness Flight
Wired(R) Index Fund (the "Wired Index Fund") and Guinness Flight Global
Government Bond Fund (the "Global Government Bond Fund") are offered, in
conjunction with the current prospectus dated July 15, 1999, pursuant to which
Guinness Flight internet.com Index Fund (the "internet.com Index Fund") is
offered, and in conjunction with the current prospectus dated February __ 2000,
pursuant to which a separate class of shares of The Wired Index Fund, Guinness
Flight XXXXX New Economy Fund (the "XXXXX New Economy Fund") and Guinness Flight
Wireless World Fund (the "Wireless World Fund") (each fund to which this SAI
relates will be referred to as, collectively, the "Funds") are offered (each, a
"Prospectus"). Please retain this document for future reference.
For a free copy of any Prospectus, please call the Funds at
1-800-915-6565
GENERAL INFORMATION AND HISTORY.............................................. 3
INVESTMENT OBJECTIVE AND POLICIES............................................ 3
INVESTMENT STRATEGIES AND RISKS.............................................. 6
OTHER RISK FACTORS AND SPECIAL CONSIDERATIONS................................16
INVESTMENT RESTRICTIONS AND POLICIES.........................................20
<PAGE>
PORTFOLIO TRANSACTIONS.......................................................21
COMPUTATION OF NET ASSET VALUE...............................................22
PERFORMANCE INFORMATION......................................................23
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................24
TAX MATTERS..................................................................25
MANAGEMENT OF THE FUNDS......................................................30
THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS...............................32
THE ADMINISTRATOR............................................................34
ADMINISTRATION AGREEMENT, DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN.......34
DISTRIBUTION PLAN FOR THE CDSC CLASS OF THE WIRED INDEX FUND.................35
DESCRIPTION OF THE FUNDS.....................................................36
SHAREHOLDER REPORTS..........................................................36
FINANCIAL STATEMENTS.........................................................38
GENERAL INFORMATION..........................................................38
APPENDIX A...................................................................39
Dated: ___________, 2000
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GENERAL INFORMATION AND HISTORY
Guinness Flight Investment Funds ("Guinness Flight Funds") was
first organized as a Maryland Corporation on January 7, 1994 and converted to a
Delaware business trust on April 28, 1997 as an open-end, series, management
investment company. Currently, Guinness Flight Funds offers ten separate,
non-diversified, series portfolios: the China & Hong Kong Fund, the Asia Blue
Chip Fund, the Asia Small Cap Fund, the Mainland China Fund, the New Europe
Fund, the Wired(R)(1) Index Fund, the internet.com Index Fund, the Global
Government Bond Fund, the XXXXX New Economy Fund and the Wireless World Fund,
each of which has unique investment objectives and strategies.
INVESTMENT OBJECTIVE AND POLICIES
General Information about the Funds
The China & Hong Kong Fund's investment objective is long term
capital appreciation primarily through investments in securities of China and
Hong Kong. The Asia Blue Chip Fund's investment objective is long-term capital
appreciation primarily through investments in equity securities of
well-established and sizable companies located in Asia. The Asia Small Cap
Fund's investment objective is long-term capital appreciation primarily through
investments in equity securities of smaller capitalization issuers located in
Asia. The Mainland China Fund's investment objective is long-term capital
appreciation primarily through investments in equity securities of companies
which are located in Mainland China and in companies located outside Mainland
China which have a significant part of their interests in China. The New Europe
Fund's investment objective is long-term capital appreciation primarily through
investments in the securities of companies that are either based in Europe or
that conduct their primary business activities in Europe. The Wired Index Fund's
investment objective is long-term capital appreciation primarily through
investments in the equity securities of companies that comprise the Wired Index.
The internet.com Index Fund's investment objective is long-term capital
appreciation primarily through investments in equity securities of companies
that comprise the internet.com Index. The Global Government Bond Fund's
investment objective is current income and capital appreciation through
investments in government securities issued by governments throughout the world.
The XXXXX New Economy Fund's investment objective is long-term capital
appreciation primarily through investments in equity securities of New Economy
companies. The Wireless World Fund's investment objective is long-term capital
appreciation primarily through investments in equity securities of companies
with substantial business interest in, or that will benefit from, a shift toward
wireless communication. The objective of each Fund is a fundamental policy and
may not be changed except by a majority vote of shareholders.
- -------------------------
(1) "Wired Index" is a service mark, and Wired (R) is a registered trademark of
Advance Magazine Publishers, Inc. ("Advance"), used with the permission of
Advance. Wired Magazine and Advance make no representation or warranty, express
or implied, to Investec Guinness Flight Global Asset Management Limited or any
member of the public regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the Wired Index to track
any aspect of market performance. Wired Magazine will continue to determine the
composition of the Index without regard to Investec Guinness Flight Global Asset
Management Limited or the Fund, and Wired Magazine has no obligation to take the
needs of Investec Guinness Flight Global Asset Management Limited or investors
in the Fund into consideration in determining or composing the Index. ADVANCE
DOES NOT GUARANTEE THE QUALITY, ACCURACY, CURRENCY, AND/OR THE COMPLETENESS OF
THE INDEX OR ANY DATA INCLUDED THEREIN. ADVANCE MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY INVESTEC GUINNESS FLIGHT GLOBAL
ASSET MANAGEMENT LIMITED, INVESTORS IN THE FUND, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE WIRED INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH
THE FUND OR FOR ANY OTHER USE. ADVANCE MAKES NO EXPRESS OR IMPLIED WARRANTIES,
AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE WIRED INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL ADVANCE HAVE
ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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<PAGE>
In addition to the primary investment strategies set forth in
the Prospectus dated April 30, 1999, each of the China & Hong Kong Fund, Asia
Blue Chip Fund, Asia Small Cap Fund, Mainland China Fund and New Europe Fund may
invest in investment grade debt securities and may also invest up to 5% of its
net assets in options on equity securities and warrants, including those traded
in the over-the-counter markets.
The Funds do not intend to employ leveraging techniques.
Accordingly, no Fund will 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 position 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" are 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 objectives may
not be achieved.
The following information concerning the Funds augments the
disclosure provided in the Prospectus.
The China & Hong Kong Fund, Asia Blue Chip Fund, Asia Small
Cap Fund, Mainland China Fund, New Europe Fund, Wired Index Fund, internet.com
Index Fund, XXXXX New Economy Fund and Wireless World Fund (the "Equity Funds")
Investec Guinness Flight Global Asset Management Limited
("Investec") 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 Investec 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.
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
-4-
<PAGE>
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 would 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 restrictions on illiquid
securities, discussed below.
An Equity Fund, together with any of its "affiliated persons,"
as defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
may only purchase up to 3% of the total outstanding securities of any underlying
investment company. Accordingly, when an 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 Investec 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 Investec, the potential
benefits of such investment justify the payment of any applicable premium or
sales charge.
Global Government Bond Fund
Global Government Bond 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 nondollar securities.
In making international fixed income securities investments,
Investec may consider, among other things, the relative growth and inflation
rates of different countries. Investec 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. Investec 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 (described below), 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 InterAmerican Development
-5-
<PAGE>
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 Bond 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, Investec
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 Bond Fund invests in the mortgage
market, Investec 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, Investec may
use tools such as yield/duration curves, break-even prepayment rate analysis and
holding-period-return scenario testing.
The Global Government Bond 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 Bond 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 Bond
Fund or an increase in the price of such securities which the Global Government
Bond 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.
The Global Government Bond Fund will not invest more than 5% of
its net assets in initial margins or premiums for the futures and options. The
Global Government Bond Fund will not 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, Euro, and Japanese Yen.
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, Investec 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
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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 Investec 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, such transactions 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
Call options may be used to anticipate a 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 Investec 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.
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
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stated exercise price. As the writer of the call option, the Fund is obligated
to own the underlying securities subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges).
A Fund 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 Fund will realize a
profit or loss from such transaction if the cost of such transaction is less or
more, respectively, than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by a Fund.
Options written by the Funds will normally have expiration dates
not more than one year from the date written. The exercise price of the options
may be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current market price of the underlying securities at
the times the options are written. A Fund may engage in buy-and-write
transactions in which the Fund simultaneously purchases a security and writes a
call option thereon. Where a call option is written against a security
subsequent to the purchase of that security, the resulting combined position is
also referred to as buy-and-write. Buy-and-write transactions using in-the-money
call options may be utilized when it is expected that the price of the
underlying security will remain flat or decline moderately during the option
period. In such a transaction, a Fund's maximum gain will be the premium
received from writing the option reduced by any excess of the price paid by the
Fund for the underlying security over the exercise price. Buy-and-write
transactions using at-the-money call options may be utilized when it is expected
that the price of the underlying security will remain flat or advance moderately
during the option period. In such a transaction, a Fund's gain will be limited
to the premiums received from writing the option. Buy-and-write transactions
using out-of-the-money call options may be utilized when it is expected that the
premiums received from writing the call option plus the appreciation in market
price of the underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone. In any of the
foregoing situations, if the market price of the underlying security declines,
the amount of such decline will be offset wholly or in part by the premium
received and a Fund may or may not realize a loss.
To the extent that a secondary market is available on the
Exchanges, the covered call option writer may liquidate his position prior to
the assignment of an exercise notice by entering a closing purchase transaction
for an option of the same series as the option previously written. The cost of
such a closing purchase, plus transaction costs, may be greater than the premium
received upon writing the original option, in which event the writer will have
incurred a loss in the transaction.
Purchasing Put and Call Options on Securities
A Fund may purchase put options to protect its portfolio
holdings in an underlying security against a decline in market value. Such hedge
protection is provided during the life of the put option since the Fund, as
holder of the put option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying security's market
price. In order for a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the
Funds will reduce any profit they might otherwise have realized in the
underlying security by the premium paid for the put option and by transaction
costs.
A Fund may also purchase call options to hedge against an
increase in prices of securities that it wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Fund, as
holder
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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 & Hong Kong Fund may invest
in Hang-Seng Index Futures. No physical delivery of securities is made.
If Investec 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, Investec 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 Fund's
position in such put option or futures contract.
Purchase and Sale of Interest Rate Futures
A Fund may purchase and sell U.S. dollar interest rate futures
contracts on U.S. Treasury bills, notes and bonds and non-U.S. dollar interest
rate futures contracts on foreign bonds for the purpose of hedging fixed income
and interest sensitive securities against the adverse effects of anticipated
movements in interest rates.
A Fund may purchase futures contracts in anticipation of a
decline in interest rates when it is not fully invested in a particular market
in which it intends to make investments to gain market exposure that may in part
or entirely offset an increase in the cost of securities it intends to purchase.
The Funds do not consider purchases of futures contracts to be a speculative
practice under these circumstances. In a substantial majority of these
transactions, the Funds will purchase securities upon termination of the futures
contract.
A Fund may sell U.S. dollar and non-U.S. dollar interest rate
futures contracts in anticipation of an increase in the general level of
interest rates. Generally, as interest rates rise, the market value of the fixed
income securities held by the Funds will fall, thus reducing the net asset value
of the holder. This interest rate risk can be reduced without employing futures
as a hedge by selling long-term fixed income securities and either reinvesting
the
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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, cash
equivalents or other liquid securities in a segregated account with its
custodian. If at the close of business on any day the market value of the call
purchased by a Fund falls below 100% of the market value of the call written by
the Fund, the Fund will so segregate an amount of cash, cash equivalents or
other liquid securities equal in value to the difference. Alternatively, a Fund
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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
diminution 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 that 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 that might otherwise have been obtained from favorable movements in
exchange rates.
The Funds intend to write only covered call options on foreign
currencies. A call option written on a foreign currency by a Fund is "covered"
if the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian, which acts as the Fund's custodian, or by a designated
sub-custodian) upon conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if the Fund has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
or the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash, U.S. Government
Securities and other high-grade liquid debt securities in a segregated account
with its custodian or with a designated sub-custodian.
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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, it will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. If a Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between entering into a forward contract for the sale of a
foreign currency and the date the Fund enters into an offsetting contract for
the purchase of the foreign currency, the Fund will realize a gain to the extent
the price of the currency the Fund has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Fund
will suffer a loss to the extent the price of the currency the Fund has agreed
to purchase exceeds the price of the currency the Fund has agreed to sell.
The Funds' dealing in forward foreign currency exchange
contracts will be limited to the transactions described above. Of course, a Fund
is not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
Investec. 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
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currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange that 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 that 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 that could distort the normal relationship between the
securities and futures markets. Second, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
In addition, futures contracts in which a Fund may invest may be
subject to commodity exchange imposed limitations on fluctuations in futures
contract prices during a single day. Such regulations are referred to as "daily
price fluctuation limits" or "daily limits." During a single trading day no
trades may be executed at prices beyond the daily limit. Once the price of a
futures contract has increased or decreased by an amount equal to the daily
limit, positions in those futures cannot be taken or liquidated unless both a
buyer and seller are willing to effect trades at or within the limit. Daily
limits, or regulatory intervention in the commodity markets, could prevent a
Fund from promptly liquidating unfavorable positions and adversely affect
operations and profitability.
Options on foreign currencies and forward foreign currency
exchange contracts ("forward contracts") are not traded on contract markets
regulated by the Commodity Futures Trading Commission ("CFTC") and are not
regulated by the SEC. Rather, forward currency contracts are traded through
financial institutions acting as market makers. Foreign currency options are
traded on certain national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In
the forward currency market, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Moreover, a trader of forward contracts could lose amounts
substantially in excess of its initial investments, due to the collateral
requirements associated with such positions.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other securities traded
on such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby reducing the
risk of counterparty default. Further, a liquid secondary market in options
traded on a national securities exchange may exist, potentially permitting a
Fund to liquidate open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency
options, however, are subject to the risks of the availability of a liquid
secondary market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effects of
other political and economic events. In addition, exercise and settlement of
such options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental restrictions or
taxes would prevent the orderly settlement of foreign currency option exercises,
or would result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, futures contracts and related options and forward
contracts and options on foreign currencies may be traded on foreign exchanges,
to the extent permitted by the CFTC. Such transactions are subject to the risk
of governmental actions affecting trading in or the prices of foreign currencies
or securities. The value of
-13-
<PAGE>
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.
Forward Commitments
The Funds may make contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward commitments")
because new issues of securities are typically offered to investors, such as the
Funds, on that basis. Forward commitments involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date. Although the
Funds will enter into such contracts with the intention of acquiring the
securities, the Funds may dispose of a commitment prior to a settlement date if
Investec deems it appropriate to do so. A Fund may realize short-term profits or
losses upon the sale of forward commitments.
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 each Fund represents that it will
operate in a manner such that:
(i) each Fund will use commodity futures or commodity options
contracts solely for bona fide hedging purposes within the meaning and
intent of Commission Rule 1.3(z)(1); provided, however, that in
addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of
Rule 1.3(z)(1), each Fund will not enter into commodity futures and
commodity options contracts for which the aggregate initial margin and
premiums exceed five (5) percent
-14-
<PAGE>
of the fair market value of the Fund's assets, after taking into
account unrealized profits and unrealized losses on any such contracts
it has entered into; and, provided further, 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 Commission Rule 190.01(x) may be excluded in
computing such five (5) percent;
(ii) each Fund will not be, and has not been, marketing
participations to the public as or in a commodity pool or otherwise as
or in a vehicle for trading in the commodity futures or commodity
options markets;
(iii) each Fund will disclose in writing to each prospective
participant the purpose of and the limitations on the scope of the
commodity futures and commodity options trading in which the Fund
intends to engage; and
(iv) each Fund will submit to such special calls as the
Commission may make to require the Fund to demonstrate compliance with
the provisions of Commission Rule 4.5(c).
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, Investec 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 in 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.
-15-
<PAGE>
Although securities which may be resold only to "qualified
institutional buyers" in accordance with the provisions of Rule 144A under the
Securities Act of 1933, as amended, are technically considered "restricted
securities", the Funds may purchase Rule 144A securities without regard to the
limitation on investments in illiquid securities described above, provided that
a determination is made that such securities have a readily available trading
market. Investec will determine the liquidity of Rule 144A securities under the
supervision of the 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.
In reaching a liquidity decision, Investec 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
the 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 market 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.
Economic and Political Risks
The economies of foreign countries may differ unfavorably from
the United States economy in such respects as, but not limited to, growth of
domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions. Further, economies of foreign
countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by the economic
conditions of the countries in which they trade, as well as trade barriers,
managed adjustments in relative currency values and other protectionist measures
imposed or negotiated by such countries.
With respect to any foreign country, there is the possibility
of nationalization, expropriation or confiscatory taxation, political changes,
government regulations, social instability or diplomatic developments (including
war) which could adversely affect the economies of such countries or the Funds'
investments in those countries. In addition, it may be more difficult to obtain
a judgment in a court outside the United States.
China Political Risks
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, the living standards of the 800 million rural workers have
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 China. Special Economic Zones, five
originally and over thirty today, were set up, providing tax advantages to
foreign investors. Further, the Shenzhen and Shanghai Stock Exchanges have
recently opened. 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 Funds) can purchase Class "B" shares. Over the period 1978 to 1997,
China's gross domestic product grew between 9% and 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.
-16-
<PAGE>
In 1984, China and Britain signed the Joint Declaration, which
allowed for the termination of British rule in Hong Kong on June 30, 1997, but
which maintains the previously existing capitalist economic and social system of
Hong Kong for 50 years beyond that date. Obviously, there are risks arising from
Hong Kong's return 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. Investec 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 Investec, investors should
realize that there are significant risks to investing in China and Hong Kong.
The risks include:
(1) that political instability may arise as a result of
indecisive leadership;
(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.
Investors should further realize that the central government
of China is communist and, while a liberal attitude towards foreign investment
and capitalism prevails at present, a return to hard line communism and a
reaction against capitalism and the introduction of restrictions on foreign
investment is a possibility. There can be no assurance that the Chinese
government will continue to pursue its economic reform policies or, if it does,
that those policies will be successful. The issue of "B" shares, "H" shares and
"N" shares by Chinese companies and the ability to obtain a "back-door listing"
through Red Chips is still regarded by the Chinese authorities as an experiment
in economic reform. The reformist elements which now dominate Chinese policies
remain ideologically communist and political factors may, at any time, outweigh
economic policies and the encouragement of foreign investment. The Funds will be
highly sensitive to any significant change in political, social or economic
policy in China. Such sensitivity may, for the reasons specified above,
adversely affect the capital growth and thus the performance of the Funds.
Investec, however, believes that the process of reform has now gone too far to
be easily reversed.
INVESTMENT IN CHINA AT PRESENT INVOLVES ABOVE AVERAGE RISK DUE TO A NUMBER OF
SPECIAL FACTORS DESCRIBED HEREIN. INVESTMENT IN THE FUNDS SHOULD BE REGARDED AS
LONG TERM IN NATURE. THE FUNDS ARE SUITABLE ONLY FOR THOSE INVESTORS WHO CAN
AFFORD THE RISKS INVOLVED AND SHOULD CONSTITUTE ONLY A LIMITED PART OF AN
INVESTOR'S PORTFOLIO. THE PRICE OF THE FUNDS MAY EXPERIENCE SIGNIFICANT
FLUCTUATIONS.
Securities Market Risks
In general, 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'
limitations 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; however, 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.
-17-
<PAGE>
With regard to China, both the Shanghai and the Shenzhen
securities markets are in their infancy and are undergoing a period of
development and change. This may lead to trading volatility, difficulty in the
settlement and recording of transactions and difficulty in interpreting and
applying the relevant regulations. In addition, the choice of investments
available to the Funds will be severely limited as compared with the choice
available in other markets due to the small but increasing number of "B" share,
"H" share, "N" share and Red Chip issues currently available. There is a low
level of liquidity in the Chinese securities markets, which are relatively small
in terms of both combined total market value and the number of "B" shares, "H"
shares, "N" shares and Red Chips available for investment. Shareholders are
warned that this could lead to severe price volatility.
Small Capitalization Issuers
Investors should be aware that investments in small
capitalization issuers carry more risk than investments in 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
declines. The magnitude of these fluctuations generally will be greater for
securities with longer maturities.
Governmental Credit Risk
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.
Accounting Standards and Legal Framework
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 regulation of foreign stock exchanges, brokers
and listed companies than in the United States.
With regard to China, the national regulatory and legal
framework for capital markets and joint stock companies is not well developed
compared to those of Western countries. Certain matters of concern to foreign
shareholders are not adequately dealt with or are only covered in a number of
national and local laws and regulations. As the efficacy of such laws and
regulations is as yet uncertain, there can be no assurance as to the extent to
which rights of foreign shareholders will be protected.
Further, Chinese companies are not required to follow
international accounting standards. There are a number of differences between
international accounting standards and accounting practice in China, including
the valuation of property and other assets (in particular inventory and
investments and provisions against debtors), accounting for depreciation,
consolidation, deferred taxation and contingencies and the treatment of exchange
differences. There may, therefore, be significant differences in the preparation
of financial statements by accountants following Chinese accounting standards
and practices when compared with those prepared in accordance with international
accounting standards. All issuers of "B" shares, "H" shares, "N" shares and Red
Chips are, however, required to produce accounts which are prepared in
accordance with international accounting standards.
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<PAGE>
Additional Foreign Currency Considerations
The Funds' assets will be invested principally in securities
of entities in foreign markets and substantially all of the income received by
the Funds will be in foreign currencies. If the value of the foreign currencies
in which a Fund receives its income falls relative to the U.S. dollar between
the earning of the income and the time at which the Fund converts the foreign
currencies to U.S. dollars, the Fund will be required to liquidate securities in
order to make distributions if the Fund has insufficient cash in U.S. dollars to
meet distribution requirements. The liquidation of investments, if required, may
have an adverse impact on a Fund's performance.
Changes in foreign currency exchange rates also will affect
the value of securities in the Funds' portfolios and the unrealized appreciation
or depreciation of investments. Further, a Fund may incur costs in connection
with conversions between various currencies. Foreign exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to a Fund at one rate, while offering a lesser rate of exchange should
the Fund desire immediately to resell that currency to the dealer. The Funds
will conduct their foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward, futures or options contracts to
purchase or sell foreign currencies.
A Fund may enter into forward currency exchange contracts and
currency futures contracts and options on such futures contracts, as well as
purchase put or call options on currencies, in U.S. or foreign markets to
protect the value of some portion or all of its portfolio holdings against
currency risks by engaging in hedging transactions. There can be no guarantee
that instruments suitable for hedging currency or market shifts will be
available at the time when a Fund wishes to use them. Moreover, investors should
be aware that in most emerging market countries, such as China, the markets for
certain of these hedging instruments are not highly developed and that in many
emerging market countries no such markets currently exist.
Investment Funds 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" for an additional discussion concerning such investments. The
Funds may invest in these investment funds; however, if the acquired investment
fund is registered pursuant to the 1940 Act, then the acquiring Fund may not own
(i) more than three percent of the total outstanding voting stock of the
acquired investment fund, (ii) securities issued by the acquired investment fund
having an aggregate value of more than five percent of the total assets of the
Fund, or (iii) securities issued by the acquired investment fund and all other
registered investment funds having an aggregate value of more than 10 percent of
the total assets of the Fund. 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. Investec 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.
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<PAGE>
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
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.
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<PAGE>
Percentage restrictions apply at the time of acquisition and
any subsequent change in percentages due to changes in market value of portfolio
securities or other changes in total assets will not be considered a violation
of such restrictions.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities
are placed on behalf of the Funds by Investec subject to the supervision of the
Guinness Flight Funds and the Board of Trustees and pursuant to authority
contained in the Investment Advisory Agreement between the Funds and Investec.
In selecting brokers or dealers, Investec 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 Investec 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 Investec. Such allocation
shall be in such amounts as Guinness Flight Funds shall determine and Investec
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 brokers or dealers may be useful
to Investec 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 Investec's other clients may be useful to Investec
in carrying out its obligations to the Funds. The receipt of such research may
not reduce Investec's normal independent research activities.
Investec is authorized 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 Funds' 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 Investec's overall responsibilities to a Fund.
It may happen that the same security will be held by other
clients of Investec. 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 Investec 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.
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<PAGE>
Brokerage commissions paid by the Funds were as follows:
<TABLE>
<CAPTION>
Year Ended Asia Blue Asia Small China & Hong Kong Mainland New Europe Wired Index
December 31, Chip Fund Cap Fund Fund China Fund Fund Fund
------------ --------- -------- ---- ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $53,232 $340,342 $607,981 $88,875 $131(1) $12,152(2)
1997 $37,794 $1,271,036 $714,450
$18,313(3)
1996 $23,303(4) $204,067(4) $736,492
</TABLE>
The increase in Asia Small Cap Fund's brokerage commissions in 1997 is primarily
due to volatile Asian equity markets in 1997.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Funds is determined at 4:00 p.m.
New York time, on each day that the New York Stock 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, Martin Luther King, Jr.'s 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 may 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 that 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.
- ------------------
(1) For the period 11/23/98 (commencement of operations) to 12/31/98.
(2) For the period 12/15/98 (commencement of operations) to 12/31/98.
(3) For the period 11/3/97 (commencement of operations) to 12/31/97.
(4) For the period 4/29/96 (commencement of operations) to 12/31/96.
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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.
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 a 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:
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6
YIELD = 2[(ab +1) 1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to
receive dividends.
d = the maximum offering price per share on the
last day of the period.
Under this formula, interest earned on debt obligations for
purposes of "a" 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, 1998 and the average annual compounded rate of total
return from June 30, 1994 (inception) to December 31, 1998 for the China & Hong
Kong Fund was -15.27% and 0.18%, respectively, and for the Global Government
Bond Fund was 17.89% and 8.43%, respectively. The annual compounded rate of
total return for the one-year period ended December 31, 1998 and the average
annual compounded rate of total return from April 29, 1996 (inception) to
December 31, 1998 for the Asia Blue Chip Fund was -11.78% and -18.91%,
respectively, and for the Asia Small Cap Fund was -30.83 and -20.50%,
respectively. The annual compounded rate of total return for the one year period
ended December 31, 1998 and the average annual compounded rate of total return
from November 3, 1997 (inception) to December 31, 1998 for the Mainland China
Fund was -24.96% and -25.67%, respectively. For the 30 day period ended December
31, 1998, the Global Government Bond Fund's yield was 4.28%.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Funds have elected to be governed by Rule 18f-1 of the 1940
Act, under which a Fund is obligated to redeem the shares of any shareholder
solely in cash up to the lesser of 1% of the net asset value of the Fund or
$250,000 during any 90 day period. Should any shareholder's redemption exceed
this limitation, a Fund can, at its sole option, redeem the excess in cash or in
readily marketable portfolio securities. Such securities would be selected
solely by the Fund and valued as in computing net asset value. In these
circumstances a shareholder selling such securities would probably incur a
brokerage charge and there can be no assurance that the price realized by a
shareholder upon the sale of such securities will not be less than the value
used in computing net asset value for the purpose of such redemption.
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Each Fund has authorized one or more brokers to accept on its
behalf purchase and redemption orders. Such brokers are authorized to designate
intermediaries to accept orders on the Fund's behalf. Each Fund will be deemed
to have received the order when an authorized broker or broker authorized
designee accepts the order. Customer orders will be priced at the Fund's net
asset value next computed after they are accepted by an authorized broker or the
broker authorized designee.
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 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 count toward satisfaction of the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a
regulated investment company must 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").
In general, gain or loss recognized by a Fund on the disposition
of an asset will be a capital gain or loss. In addition, gain will be recognized
as a result of certain constructive sales, including short sales "against the
box." 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. 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.
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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.
Further, the Code also treats as ordinary income a portion of
the capital gain attributable to a transaction where substantially all of the
return realized is attributable to the time value of a Fund's net investment in
the transaction and: (1) the transaction consists of the acquisition of property
by the Fund and a contemporaneous contract to sell substantially identical
property in the future; (2) the transaction is a straddle within the meaning of
section 1092 of the Code; (3) the transaction is one that was marketed or sold
to the Fund on the basis that it would have the economic characteristics of a
loan but the interest-like return would be taxed as capital gain; or (4) the
transaction is described as a conversion transaction in the Treasury
Regulations. The amount of the gain that is recharacterized generally will not
exceed the amount of the interest that would have accrued on the net investment
for the relevant period at a yield equal to 120% of the federal long-term,
mid-term, or short-term rate, depending upon the type of instrument at issue,
reduced by an amount equal to: (1) prior inclusions of ordinary income items
from the conversion transaction and (2) the capital interest on acquisition
indebtedness under Code section 263(g). Built-in losses will be preserved where
the Fund has a built-in loss with respect to property that becomes a part of a
conversion transaction. No authority exists that indicates that the converted
character of the income will not be passed through to the Fund's shareholders.
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
that 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.
A 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 has three
separate options. First, it may elect to treat the PFIC as a qualifying electing
fund (a "QEF"), in which case it 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
earnings or capital gains from the PFIC. Second, for tax years beginning after
December 31, 1997, the Fund may make a mark-to-market election with respect to
its PFIC stock. Pursuant to such an election, the Fund will include as ordinary
income any excess of the fair market value of such stock at the close of any
taxable year over its adjusted tax basis in the stock. If the adjusted tax basis
of the PFIC stock exceeds the fair market value of such stock at the end of a
given taxable year, such excess will be deductible as ordinary loss in the
amount equal to the lesser of the amount of such excess or the net
mark-to-market gains on the stock that the Fund included in income in previous
years. The Fund's holding period with respect to its PFIC stock subject to the
election will commence on the first day of the following taxable year. If the
Fund makes the mark-to-market election in the first taxable year it holds PFIC
stock, it will not incur the tax described below under the third option.
Finally, if the Fund does not elect to treat the PFIC as a QEF
and does not make a mark-to-market election, then, in general, (1) any gain
recognized by the Fund upon a sale or other disposition of its interest in the
PFIC or any "excess distribution" (as defined) received by the Fund from the
PFIC will be allocated ratably over the Fund's holding period in the PFIC stock,
(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
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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, as
the case may be) in effect for such prior year, plus (ii) interest on the amount
determined under clause (i) for the period from the due date for filing a return
for such prior year until the date for filing a return for the year in which the
gain is recognized or the excess distribution is received, at the rates and
methods applicable to underpayments of tax for such period, and (4) the
distribution by the Fund to shareholders of the portions of such gain or excess
distribution so allocated to prior years (net of the tax payable by the Fund
thereon) will again be taxable to the shareholders as an ordinary income
dividend.
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 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
(including, to the extent provided in Treasury Regulations, losses recognized
pursuant to the PFIC mark-to-market election) incurred after October 31 as if it
had been incurred in the succeeding year.
In addition to satisfying the requirements described above, a
Fund must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each quarter of a
Fund's taxable year, at least 50% of the value of the Fund's assets must consist
of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to 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 and ordinary gains or losses arising
as a result of a PFIC mark-to-market election (or upon an actual disposition of
the PFIC stock subject to such election) 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.
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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 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 such
shareholder received a distribution of his pro rata share of such gain, with the
result that each shareholder will be required to report his pro rata share of
such gain on his tax return as long-term capital gain, will receive a refundable
tax credit for his pro rata share of tax paid by the Fund on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
Alternative minimum tax ("AMT") is imposed in addition to, but
only to the extent it exceeds, the regular tax and is computed at a maximum
marginal rate of 28% for noncorporate taxpayers and 20% for corporate taxpayers
on the excess of the taxpayer's alternative minimum taxable income ("AMTI") over
an exemption amount.
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 realized but undistributed
income or gain, or unrealized appreciation in the value of the assets held by
the Fund, distributions of such amounts to the shareholder will be taxable in
the manner described above, although such distributions economically constitute
a return of capital to the shareholder.
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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 provided 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 distributions, and the proceeds of redemption
of shares, paid to any shareholder (1) who has failed to provide a correct
taxpayer identification number, (2) who is subject to backup withholding for
failure properly to report the receipt of interest or dividend income, 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 gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. Long-term capital gain recognized by an
individual shareholder will be taxed at the lowest rates applicable to capital
gains if the holder has held such shares for more than 18 months at the time of
the sale. 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. 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 applicable 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 applicable 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 and
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.
taxpayers.
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 subject to withholding tax at
a reduced treaty rate) unless such shareholders furnish the Fund with proper
notification of their foreign status.
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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.
Rules of state and local taxation of ordinary income and capital
gain dividends from regulated investment companies may differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in a Fund.
MANAGEMENT OF THE FUNDS
The Board of Trustees manages the business and affairs of the Funds.
The Board approves all significant agreements between the Funds and companies
and individuals that provide services to the Funds. The officers of the Funds
manage the day-to-day operations of the Funds. The day-to-day operations of the
Funds are always subject to the investment objective of each Fund. The Board of
Trustees supervises the day-to-day operations.
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.
Timothy W.N. Guinness -- Trustee. Mr. Guinness has been the Chief Executive
Officer and Joint Chairman of Investec Guinness Flight since August 1998.
Previously, Mr. Guinness was the Chief Executive Officer of Guinness Flight
Hambro Asset Management Limited, London, England.
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
- --------
* Not an "interested person", as that term is defined by the 1940 Act.
-30-
<PAGE>
Adcole Far East, Ltd., a subsidiary that manages Adcole sales and service
throughout Asia. He has held this position since 1986.
James J. Atkinson, Jr. -- President. Mr. Atkinson has been an executive Director
of Investec Guinness Flight Global Asset Management Limited, based in Pasadena
California, since November 1993.
Robert H. Wadsworth -- Assistant Treasurer. 4455 East Camelback Road, Suite
261E, Phoenix, Arizona 85018. President, Robert H. Wadsworth and Associates,
Inc. (consultants) and Investment Company Administration, L.L.C. President and
Treasurer, First Fund Distributors, Inc.
Eric M. Banhazl -- Treasurer. 2020 East Financial Way, Suite 100, Glendora,
California 91741. Senior Vice President, Robert H. Wadsworth & Associates, Inc.
(consultants) and Investment Company Administration, L.L.C. since March 1990;
Formerly Vice President, Huntington Advisors, Inc. (investment advisor).
Steven J. Paggioli -- Secretary. 915 Broadway, Suite 1605, New York, New York
10010. Executive Vice President, Robert H. Wadsworth & Associates, Inc.
(consultant) and Investment Company Administration, L.L.C. Vice President and
Secretary, First Fund Distributors, Inc.
Rita Dam --Assistant Treasurer. 2020 East Financial Way, Suite 100, Glendora,
California 91741. Vice President, Investment Company Administration, L.L.C.
since 1994. Member of the Financial Services Audit Group at Coopers & Lybrand,
LLP from 1989-1994.
Robin Berger -- Assistant Secretary. 915 Broadway, Suite 1605, New York, New
York, 10010. Vice President, Robert H. Wadsworth and Associates, Inc. since June
1993; Formerly Regulatory and compliance Coordinator, Equitable Capital
Management, Inc. (1991-93).
The table below illustrates the compensation paid to each
Trustee for the Guinness Flight Funds' most recently completed fiscal year:
<TABLE>
<CAPTION>
Total
Aggregate Pension or Compensation from
Compensation Retirement Benefits Estimated Annual Guiness 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 $10,000 $0 $0 $10,000
James I. Fordwood $10,000 $0 $0 $10,000
Dr. Bret Herscher $10,000 $0 $0 $10,000
J. Brooks Reece, Jr. $11,000 $0 $0 $11,000
</TABLE>
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.
-31-
<PAGE>
THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS
Investec Guinness Flight Global Asset Management Limited
("Investec") furnishes investment advisory services to the Funds. Under the
Investment Advisory Agreement (the "Agreement"), Investec 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 Investec. Investec 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 Investec and of all personnel of Guinness Flight Funds or of
Investec performing services relating to research, statistical and investment
activities. Investec 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.
Investec 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 an investment vehicle; and (iii) providing
administrative services other than those provided by Guinness Flight Funds'
administrator.
Investec 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 Investec may deem to be desirable. Investec
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. Investec, 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 Investec
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 Investec 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 their 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.
Investec, from time to time, may voluntarily waive all or a portion of its fees
payable under the Agreement.
-32-
<PAGE>
The Agreement was approved by the Board of Trustees on June 3,
1998 and by the shareholders of the Funds on August 25, 1998 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 Investec 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, Investec will
receive an annual fee, payable monthly, of 1.00% of the Asia Blue Chip Fund's,
Asia Small Cap Fund's, China & Hong Kong Fund's, Mainland China Fund's and New
Europe Fund's average daily net assets and .75% of the Global Government Bond
Fund's average daily net assets. Investec will receive an annual fee of 0.90% of
the Wired Index Fund's average daily net assets up to $100 million, 0.75% of
average daily net assets between $100 and $500 million, and 0.60% of average
daily net assets in excess of $500 million. Investec will receive an annual fee
of 0.90% of the internet.com Index Fund's average daily net assets up to $100
million, 0.75% of average daily net assets between $100 and $500 million, and
0.60% of average daily net assets in excess of $500 million. Investec will
receive an annual fee of 1.10% of the XXXXX New Economy Fund's average daily net
assets up to $_____. Investec will receive an annual fee of 1.00% of the
Wireless World Fund's average daily net assets up to $_____.
Advisory fees and expense reimbursements/(recoupments) were as follows:
Gross Expenses
Advisory (Reimbursed)/
Fee Recouped
----------------------------------------
Fiscal year ended December 31, 1998:
Asia Blue Chip Fund $72,318 ($140,722)
Asia Small Cap Fund 549,616 (818,002)
China & Hong Kong Fund 1,986,087 0
Mainland China Fund 140,740 (160,801)
New Europe Fund(1) 207 (1,814)
Wired Index Fund(2) 1,771 (1,214)
Global Goverment Bond Fund 71,106 (191,086)
Fiscal year ended December 31, 1997:
Asia Blue Chip Fund $53,636 ($130,732)
Asia Small Cap Fund 1,692,574 71,583
China & Hong Kong Fund 2,958,500 0
Mainland China Fund(3) 15,705 (11,487)
-33-
<PAGE>
Global Government Bond Fund 58,063 (185,733)
Fiscal year ended December 31, 1996:
Asia Blue Chip Fund(4) $12,860 ($92,856)
Asia Small Cap Fund(4) 62,680 (71,583)
China & Hong Kong Fund 1,772,174 315,433
Global Government Bond Fund 19,110 (176,407)
- --------------------
(1) For the period 11/23/98 (commencement of operations) to 12/31/98.
(2) For the period 12/15/98 (commencement of operations) to 12/31/98.
(3) For the period 11/3/97 (commencement of operations) to 12/31/97.
(4) For the period 4/29/96 (commencement of operations) to 12/31/96.
THE ADMINISTRATOR
Investment Company Administration, L.L.C. (the "Administrator") acts as the
Funds' Administrator under an Administration Agreement. For its services, the
Administrator receives a monthly fee equal to, on an annual basis, 0.25% of the
Funds' average daily net assets, subject to a $40,000 annual minimum for the
China Fund and $80,000 allocated based on average daily net assets of the Asia
Blue Chip Fund, Asia Small Cap Fund, Mainland China Fund and Global Government
Bond Fund.
Administration fees paid by the Funds were as follows:
<TABLE>
<CAPTION>
Year Ended Asia Blue Asia Small China & Hong Mainland New Europe Wired Index Global Government
December 31 Chip Fund Cap Fund Kong Fund China Fund Fund Fund Bond Fund
----------- --------- -------- --------- ---------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $18,079 $137,404 $496,522 $35,185 Waiver(1) Waiver(2) $23,702
1997 $13,425 $424,336 $739,625 $3,926(3) $19,733
1996 13,4244 13,424(4) 443,043 -- 27,122
</TABLE>
- --------------------
(1) For the period 11/23/98 (commencement of operations) to 12/31/98.
(2) For the period 12/15/98 (commencement of operations) to 12/31/98.
(3) For the period 11/3/97 (commencement of operations) to 12/31/97.
(4) For the period 4/29/96 (commencement of operations) to 12/31/96.
ADMINISTRATION AGREEMENT, 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, L.L.C. ("Administrator") and First Fund Distributors, Inc.
("Distributor"), respectively. Under the Distribution Agreement, the Distributor
uses all reasonable efforts, consistent with its other business, to secure
purchases for the Funds' shares and pays the expenses of printing and
distributing any prospectuses, reports and other literature used by the
Distributor, advertising, and other promotional activities in connection with
the offering of shares of the Funds for sale to the
-34-
<PAGE>
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.
Except with respect to a separate class of shares of the Wired
Index Fund (see below), the Funds will not make separate payments as a result of
the Distribution Plan to Investec, 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 Investec and an administration fee to the
Administrator. To the extent that any payments made by the Funds to Investec or
the 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 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 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, Investec 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.
DISTRIBUTION PLAN FOR THE CDSC CLASS OF THE WIRED INDEX FUND
Guinness Flight Investment Funds has adopted a separate
Distribution Plan pursuant to Rule 12b-1 under the 1940 Act for shares of the
Wired Index Fund that are sold pursuant to a contingent deferred sales charge
("CDSC"). The Distribution Plan provides that the Wired Index Fund will pay
____________ a distribution fee under the Plan at the annual rate of 1.00% of
the average daily net assets of the Wired Index Fund attributable to the Wired
Index Fund's class of shares subject to a contingent deferred sales charge (the
"CDSC Shares"). Rule 12b-1 fees may be used by _____________ for payments to
persons who provide support services in connection with the distribution of the
CDSC Shares and any other expense primarily intended to result in the sale of
CDSC Shares, including, without limitation, payments to salespersons and selling
dealers at the time of the sale of such shares, continuing fees to each such
salespersons and selling dealers and accruals for interest on the amount of any
of the foregoing expenses that exceed the distribution fee and the contingent
deferred sales charges received by __________.
The amount of the Rule 12b-1 fees payable by the Wired Index
Fund under the Plan is not related directly to expenses incurred by ____________
and the Plan does not obligate the Wired Index Fund to reimburse ____________
for such expenses. The fees set forth in the Plan will be paid by the Wired
Index Fund to ___________ unless and until the Plan is terminated or not renewed
with respect to the Wired Index Fund; any distribution or service expenses
incurred by _______________ on behalf of the Wired Index Fund in excess of
payments of the distribution fees specified above which _________ has accrued
through the termination date are the sole responsibility and liability of
_______________ and not an obligation of the Wired Index Fund.
The Plan for the CDSC Shares specifically recognizes that
_____________________, directly or through an affiliate, may use its fee
revenue, past profits, or other resources, without limitation, to pay
promotional and administrative expenses in connection with the offer and sale of
CDSC Shares. In addition, the Plan provides
-35-
<PAGE>
that ______________ may use its resources, including fee revenues, to make
payments to third parties that provide assistance in selling the CDSC Shares, or
to third parties, including banks, that render shareholder support services.
The Plan and related agreements for the CDSC Shares of the Wired
Index Fund were approved by the Board of Trustees including all of the
"Qualified Trustees" (Trustees who are not "interested" persons of the Wired
Index Fund, 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
Wired Index Fund and its CDSC shareholders. The Plan may not be amended to
increase materially the amount to be spent by the Wired Index Fund 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, Investec will report in writing to the
Board of Trustees quarterly the amounts and purposes of such payments for
services rendered to CDSC 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 Wired Index Fund 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 Wired Index Fund's outstanding voting CDSC Shares or by the
Wired Index Fund's Trustees and (b) by the vote of a majority of the Qualified
Trustees.
DESCRIPTION OF THE FUNDS
Shareholder and Trustees Liability. Each Fund is 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.
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 semiannually showing the
investments of the Funds and other information. In addition, shareholders will
receive annual financial statements audited by the Funds' independent
accountants.
Principal Holders. As of February 28, 1999, principal holders
owning 5% or more of the outstanding shares of the Fund as of record date are
set forth below:
-36-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------ -------------------------------------------------------- ------------------------------
Fund Shareholder Name & Address % held as of February 28,
1999
- ------------------------------ -------------------------------------------------------- ------------------------------
<S> <C>
Asia Blue Chip Fund Charles Schwab & Co. Inc. 29.33%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94101-4122
- ------------------------------ -------------------------------------------------------- ------------------------------
Donaldson Lufkin Jenrette 13.45%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
- ------------------------------ -------------------------------------------------------- ------------------------------
Asia Small Cap Fund Charles Schwab & Co. Inc. 32.89%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- ------------------------------ -------------------------------------------------------- ------------------------------
China & Hong Kong Fund Charles Schwab & Co. Inc. 27.36%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- ------------------------------ -------------------------------------------------------- ------------------------------
Mainland China Fund Charles Schwab & Co. Inc. 21.34%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- ------------------------------ -------------------------------------------------------- ------------------------------
New Europe Fund Charles Schwab & Co. Inc. 13.43%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- ------------------------------ -------------------------------------------------------- ------------------------------
Guinness Flight Investment 12.12%
Management
225 S. Lake Ave.
Pasadena, CA 91101-3005
- ------------------------------ -------------------------------------------------------- ------------------------------
Robert G. Petrushka 9.12%
8181 Daventree Drive
Brecksville, OH 44141-1272
- ------------------------------ -------------------------------------------------------- ------------------------------
Wired Index Fund Charles Schwab & Co. Inc. 42.96%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- ------------------------------ -------------------------------------------------------- ------------------------------
Global Government Bond Fund Pegeon & Co. 49.40%
C/O Frost National Bank
P.O. Box 2479
San Antonio, TX 78298-2479
- ------------------------------ -------------------------------------------------------- ------------------------------
Charles Schwab & Co. Inc. 11.49%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- ------------------------------ -------------------------------------------------------- ------------------------------
</TABLE>
-37-
<PAGE>
FINANCIAL STATEMENTS
The audited statement of assets and liabilities and report
thereon for the Funds for the year ended December 31, 1998 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.
GENERAL INFORMATION
Independent Contractors: Investec Guinness Flight Global Asset Management
Limited may enter into agreements with independent contractors to provide
shareholder services for a fee. Shareholder services include account maintenance
and processing, direct shareholder communications, calculating net asset value,
dividend posting and other administrative functions.
Transfer Agent. State Street Bank and Trust Company is the Transfer Agent for
the Funds. The Transfer Agent provides record keeping and shareholder services.
State Street is located at P.O. Box 1912, Boston, MA 02105.
Custodian. Investors Bank and Trust Company is the custodian for the Funds. The
custodian holds the securities, cash and other assets of the Funds. Investors
Bank and Trust is located at 200 Claredon Street, Boston, MA 02116.
Legal Counsel. Kramer Levin Naftalis & Frankel LLP serves as legal counsel for
the Guinness Flight Funds and Investec Guinness Flight Global Asset Management
Limited. Kramer Levin is located at 919 Third Avenue, New York, NY 10022.
Independent Accountants. Ernst & Young LLP audits the financial statements and
financial highlights of the Funds and provides reports to the Board of Trustees.
Ernst & Young is located at 725 South Figueroa Street, Suite 500, Los Angeles,
CA 90017.
-38-
<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 Prime1 or P1 (or related supporting institutions)
have a superior capacity for repayment of short-term promissory obligations.
Prime1 or P1 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.
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<PAGE>
Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
Issuers rated Prime2 or P2 (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.
A1: 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.
A2: 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."
-40-
<PAGE>
PART C
Registration Statement
of
GUINNESS FLIGHT INVESTMENT FUNDS
on
Form N-1A
PART C. OTHER INFORMATION
Item 23.
Exhibits:
(a)(1) Certificate of Trust (1)
(a)(2) Trust Instrument.(1)
(b) Bylaws. (1)
(c) None.
(d) Investment Advisory Agreement between Registrant and Guinness
Flight Investment Management Limited.(2)
(e) General Distribution Agreement between Registrant and First
Fund Distributors, Inc.(2)
(f) None.
(g) Amended Custodian Agreement between Registrant and Investors
Bank & Trust Company. (2)
(h)(1) Amended Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust Company. (2)
(h)(2) Amended Administration Agreement between Registrant and
Investment Company Administration Corporation. (2)
(i)(1) Opinion of Kramer Levin Naftalis & Frankel LLP as to the
legality of securities being registered. (3)
- --------
(1) 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.
(2) Filed as an Exhibit to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed electronically on August 28, 1998,
accession number 0000922423-98-000948 and incorporated herein by reference.
(3) Filed as an Exhibit to Post-Effective Amendment No. 11 to Registrant's
Registration Statement on Form N-1A filed electronically on June 17, 1998,
accession number 0000922423-98-000615 and incorporated herein by reference.
C-1
<PAGE>
(i)(2) Opinion of Morris, Nichols, Arsht & Tunnell.(4)
(j)(1) Consent of Kramer Levin Naftalis & Frankel LLP, Counsel for
Registrant.(5)
(j)(2) Consent of Ernst & Young LLP, Independent Auditors for the
Registrant.(5)
(k) Annual Report for the year ended December 31, 1998 is
incorporated by reference from the Rule 30D filing made by the
Registrant on March 3, 1999 (Accession number
0001047469-99-008302). (5)
(l) Investment Letters. (4)
(m)(1) Distribution and Service Plan. (2)
(m)(2) Form of Distribution Plan for a class of the Guinness Flight
Wired Index Fund.(5)
(n) Form of Rule 18f-3 Multi-Class Plan.(5)
(o) None.
ITEM 24. Persons Controlled By or Under Common Control with Registrant
None.
ITEM 25. 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,
- -------------------
(4) Filed as an Exhibit to Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A filed electronically on April 25, 1997,
accession number 0000922423-97-000401 and incorporated herein by reference.
(5) Filed herewith.
C-2
<PAGE>
without limitation, attorneys' fees, costs, judgments, amounts paid
in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body
before which the proceeding was brought (A) to be liable to the Trust
or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office or (B) not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or
other body approving the settlement; (B) by at least a majority of
those Trustees who are neither Interested Persons of the Trust nor
are parties to the matter based upon a review of readily available
facts (as opposed to a full trial-type inquiry); or (C) by written
opinion of independent legal counsel based upon a review of readily
available facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable,
shall not be exclusive of or affect any other rights to which any
Covered Person may now or hereafter be entitled, shall continue as to
a person who has ceased to be a Covered Person and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Nothing contained herein shall affect any rights to indemnification
to which Trust personnel, other than Covered Persons, and other
persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in Subsection (a) of this Section 10.02 may be paid by the
Trust or Series from time to time prior to final disposition thereof
upon receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the Trust or Series if
it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that
either (i) such Covered Person shall have provided appropriate
security for such undertaking, (ii) the Trust is insured against
losses arising out of any such advance payments or (iii) either a
majority of the Trustees who are neither Interested Persons of the
Trust nor parties to the matter, or independent legal counsel in a
written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Section
10.02."
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
C-3
<PAGE>
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 26. Business and Other Connections of Investment Adviser
Investec Guinness Flight Global Asset 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 27. 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) Masters' Select Equity Fund;
(5) O'Shaughnessy Funds Inc.;
(6) Professionally Managed Portfolios;
(7) Rainier Investment Management Mutual Funds;
(8) Kayne Anderson Mutual Funds;
(9) The Purisima Total Return Fund;
(10) Advisor's Series Trust;
(11) Trust for Investment Managers;
(12) Builders Fixed Income Fund Inc;
(13) Investors Research Fund Inc;
(14) Fleming Capital Mutual Fund Group, Inc.;
(15) Fremont Mutual Funds, Inc.;
(16) Puget Sound Alternative Investment Series Trust;
(17) Brandes Investment Trust.
(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 Assistant Treasurer
4455 East Camelback Road
Suite 261E
Phoenix, AZ 85014
Steven J. Paggioli Vice President/Secretary Secretary
479 West 22nd Street
New York, NY 10011
C-4
<PAGE>
Eric M. Banhazl Vice President Treasurer
2020 East Financial Way
Suite 100
Glendora, CA 91741
(c) not applicable
ITEM 28. 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 LLC, 2020 East Financial
Way, Suite 100, Glendora, CA 91741, except for those maintained by the Funds'
Custodian.
ITEM 29. Management Services
Not applicable.
ITEM 30. 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 has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and the State of New York on
this 13th of December, 1999.
GUINNESS FLIGHT INVESTMENT FUNDS
By: /s/ James J. Atkinson
-------------------------
James J. Atkinson
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Eric Banhazl Treasurer December 13, 1999
- -----------------------------
Eric Banhazl
/s/ Dr. Gunter Dufey Trustee December 13, 1999
- -----------------------------
Dr. Gunter Dufey
/s/ J. I. Fordwood Trustee December 13, 1999
- -----------------------------
J. I. Fordwood
/s/ Timothy Guinness Trustee December 13, 1999
- -----------------------------
Timothy Guinness
/s/ Bret A. Herscher Trustee December 13, 1999
- -----------------------------
Bret A. Herscher
/s/ J. Brooks Reece, Jr. Trustee December 13, 1999
- -----------------------------
J. Brooks Reece, Jr.
<PAGE>
EXHIBIT INDEX
EX-99.j(a) Consent of Kramer Levin Naftalis & Frankel LLP, Counsel for
the Registrant
EX-99.j(b) Consent of Ernst & Young LLP, Independent Auditors for the
Registrant
EX-99.m(2) Form of Distribution Plan
EX-99.n Form of Rule 18f-3 Multi-Class Plan
KRAMER LEVIN NAFTALIS & FRANKEL LLP
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
TEL (212) 715-9100 47, Avenue Hoche
FAX (212) 715-8000 75008 Paris
France
December 13, 1999
Guinness Flight Investment Funds
225 South Lake Avenue
Suite 777
Pasadena, California 91101
Re: Guiness Flight Investment Funds
Post-Effective Amendment No. 24
File No. 33-75340; ICA No. 811-8360
Gentlemen:
We hereby consent to the reference of our firm as Counsel in
this Post-Effective Amendment No. 24 to Registration Statement No. 33-75340 on
Form N-1A.
Very truly yours,
/s/ Kramer Levin Naftalis & Frankel LLP
Letterhead of Ernst & Young LLP
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Independent
Accountants" and "Financial Statements" in Post-Effective Amendment No. 24 under
the Securities Act of 1933 and Amendment No. 24 under the Investment Company Act
of 1940 to the Registration Statement (Form N-1A, No. 33-75340) and related
Prospectus and Statement of Additional Information of Guinness Flight Investment
Funds and to the incorporation by reference therein of our report dated February
10, 1999, with respect to the financial statements and financial highlights
included in the Annual Report for the year ended December 31, 1998, filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Los Angeles, California
December 10, 1999
FORM OF
GUINNESS FLIGHT INVESTMENT FUNDS
DISTRIBUTION PLAN
(CLASS "B" SHARES)
WHEREAS, Guinness Flight Investment Funds (the "Trust") engages in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of the Trust are divided into separate portfolios of
investments, each with different investment objectives and policies (each a
"Fund") and, in turn one or more Funds are divided into separate classes (each a
"Class");
WHEREAS, the Trust desires to adopt this Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act (the "Rule") with respect to each Class of
"B" Shares of each Fund listed on Schedule 1 annexed hereto;
WHEREAS, the public offering price for Class B Shares is the net asset
value that the Trust calculates after an order is placed with no initial sales
charge, but subject to a contingent deferred sales charge if the shares are sold
within six years of purchase, all as described in the Trust's relevant
prospectus or statement of additional information on file with the Securities
and Exchange Commission which is part of the most recent registration statement
effective from time to time under the Securities Act of 1933, as amended;
WHEREAS, the Trust's Board has determined that there is a reasonable
likelihood that adoption of this Plan will benefit the Funds and their
shareholders; and
WHEREAS, the Trust employs _____________________________ (the
"Distributor") as Distributor of the Funds' shares (the "Shares") pursuant to a
Distribution Agreement dated ___________, ____.
NOW, THEREFORE, the Trust hereby adopts, and the Distributor hereby
agrees to the terms of, this Plan in accordance with Rule 12b-1 under the Act on
the following terms and conditions:
1. (a) Each Fund shall pay the Distributor for distributing its Class
"B" Shares a monthly fee at the annual rate set forth on Schedule
1.
(b) The Distributor may pay one or more third parties a fee in respect
of any Class "B" Shares owned by investors for whom the third
party is the dealer or holder of record. The Distributor shall
determine the amounts to be paid to such third parties and the
basis on which such payments will be made. Payments to a third
party are subject to compliance by the third party with the terms
of any related Plan agreement between the third party and the
Distributor.
(c) To the extent that any payments made by the Distributor, or
Investec Guinness Flight Global Asset Management, directly or
through an affiliate (in each case, from its own resources),
should be deemed to be indirect financing of any activity
primarily
<PAGE>
intended to result in the sale of Class "B" Shares within the
context of the Rule, then such payments shall be deemed to be
authorized by this Plan.
(d) For the purposes of determining the fees payable under this Plan,
the value of the net assets of the Class "B" Shares of each Fund
shall be computed in the manner specified in the Trust's charter
documents as then in effect for the computation of the value of
net assets.
2. The terms and provisions of this Plan shall be interpreted and defined in
a manner consistent with the provisions and definitions contained in (i)
the Act, (ii) the Rule and (iii) Section 2830 of the National Association
of Securities Dealers, Inc. Business Conduct Rules or its successor.
3. As to any Fund or its Class "B" Shares, this Plan shall not take effect
until it, together with any related agreement, has been approved by vote
of a majority of both (a) the Trust's Board and (b) those Trustees who
are not "interested persons" of the Trust (as defined by the Act) and who
have no direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1 Trustees") cast in
person at a meeting (or meetings) called for the purpose of voting on
this Plan and such related agreements.
4. As to any Fund or its Class "B" Shares, as the case may be, this Plan
shall remain in effect for one year from the date on which the Plan was
first executed and shall continue in effect thereafter so long as such
continuance is specifically approved at least annually in the manner
provided for approval of this Plan in paragraph 3.
5. The Distributor shall provide to the Trust's Board and the Board shall
review, at least quarterly, a written report of amounts paid hereunder
and the purposes for which they were made.
6. As to any Fund or its Class "B" Shares, as the case may be, this Plan may
be terminated at any time by vote of a majority of the Rule 12b-1
Trustees or by a vote of a majority of its outstanding voting securities.
7. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof unless such amendment
is approved by a vote of at least a majority (as defined in the Act) of
the outstanding voting securities of the relevant Fund or its Class "B"
Shares. No material amendment to the Plan shall be made unless approved
in the manner provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons (as defined in the Act) of the
Trust shall be committed to the discretion of the Trustees who are not
such interested persons.
9. The Trust shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 5 hereof, for a period of not
less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily
accessible place.
2
<PAGE>
10. All persons dealing with the Trust must look solely to the property of
the Trust for enforcement of any claims against the Trust as neither the
Trustees, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Trust.
IN WITNESS WHEREOF, the Trust, on behalf each Fund and its Class "B"
Shares, and the Distributor have executed this Plan as of the date set forth
below.
__________ ____ 2000.
GUINNESS FLIGHT INVESTMENT FUNDS
By:_______________________
By: _______________________
3
<PAGE>
SCHEDULE 1
Name of Fund Class "B" Shares
Wired Index Fund 1.00%*
* Annual Fee as a Percentage of Average Daily Net Assets.
4
<PAGE>
FORM OF RULE 18f-3 MULTI-CLASS PLAN
GUINNESS FLIGHT INVESTMENT FUNDS
RULE 18f-3 MULTI-CLASS PLAN
I. Introduction.
Pursuant to Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act"), the following sets forth the method for
allocating fees and expenses among each class of shares of the underlying
investment funds of Guinness Flight Investment Funds (the "Trust") that issues
multiple classes of shares (the "Multi-Class Funds"). In addition, this Rule
18f-3 Multi-Class Plan (the "Plan") sets forth the distribution arrangements,
exchange privileges and other shareholder services of each class of shares in
the Multi-Class Funds.
The Trust is an open-end series investment company registered
under the 1940 Act and the shares of which are registered on Form N-1A under the
Securities Act of 1933. Upon the effective date of this Plan, the Trust hereby
elects to offer multiple classes of shares in the Multi-Class Funds pursuant to
the provisions of Rule 18f-3 and this Plan.
The Trust currently consists of the ten separate Funds. The
Wired Index Fund is currently authorized to issue two classes of shares
representing interests in the same underlying portfolio of assets.
II. Allocation of Expenses.
Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall
allocate to each class of shares in a Multi-Class Fund any fees and expenses
incurred by the Trust in connection with the distribution of such class of
shares under a distribution plan adopted for such class of shares pursuant to
Rule 12b-1. In addition, pursuant to Rule 18f-3, the Trust may allocate the
following fees and expenses to a particular class of shares in a single
Multi-Class Fund:
(i) fees of the Trustees who are not "interested persons"
of the Trust and the travel and related expenses of
the Trustees incident to their attending
shareholders', trustees' and committee meetings
pertaining to such class of shares; and
(ii) extraordinary expenses, including but not limited to
legal claims and liabilities and litigation costs and
any indemnification related thereto pertaining to
such class of shares.
The initial determination of the class expenses that will be
allocated by the Trust to a particular class of shares and any subsequent
changes thereto will be reviewed by the Board of Trustees and approved by a vote
of the Trustees of the Trust, including a majority of the
6
<PAGE>
Trustees who are not "interested persons" of the Trust. The Trustees will
monitor conflicts of interest among the classes and agree to take any action
necessary to eliminate conflicts.
Income, realized and unrealized capital gains and losses, and
any expenses of a Multi-Class Fund not allocated to a particular class of such
Fund pursuant to this Plan shall be allocated to each class of the Fund on the
basis of the net asset value of that class in relation to the net asset value of
the Fund.
Investec Guinness Flight Global Asset Management may waive or
reimburse the expenses of a particular class or classes, provided, however, that
such waiver shall not result in cross subsidization between the classes.
III. Class Arrangements.
The following summarizes the Rule 12b-1 distribution fees,
exchange privileges and other shareholder services applicable to each class of
shares of the Multi-Class Funds. Additional details regarding such fees and
services are set forth in each Fund's current Prospectus and Statement of
Additional Information.
A. Wired Index Fund (shares sold without a contingent
deferred sales charge).
1. Rule 12b-1 Distribution Fees: 0.0% per annum
of the average daily net assets.
2. Exchange Privileges: Subject to restrictions
and conditions set forth in the Fund's
Prospectus, may be exchanged for shares of
any other Fund.
3. Other Shareholder Services: As provided in
the Fund's Prospectus. Services do not
differ from those applicable to shares
subject to a contingent deferred sales
charge.
B. Wired Index Fund (class of shares sold subject to a
contingent deferred sales charge).
1. Rule 12b-1 Distribution Fees: 1.00% per
annum of the average daily net assets.
2. Exchange Privileges: Subject to restrictions
and conditions set forth in the Fund's
Prospectus, only may be exchanged for shares
of another Fund sold subject to a contingent
deferred sales charge.
3. Other Shareholder Services: As provided in
the Fund's Prospectus. Services do not
differ from those applicable to shares sold
without a contingent deferred sales charge.
-2-
<PAGE>
IV. Board Review.
The Board of Trustees of the Trust shall review this Plan as
frequently as it deems necessary. Prior to any material amendment(s) to this
Plan, the Board of Trustees, including a majority of the Trustees that are not
"interested persons" of the Trust, shall find that the Plan (including any
proposed amendments to the method of allocating class and/or fund expenses), is
in the best interest of each class of shares of a Multi-Class Fund individually
and the Fund as a whole. In considering whether to approve any proposed
amendment(s) to the Plan, the Trustees shall request and evaluate such
information as they consider reasonably necessary to evaluate the proposed
amendment(s) to the Plan. Such information shall address the issue of whether
any waivers or reimbursements of fees could be considered a cross-subsidization
of one class by another, and other potential conflicts of interest between
classes.
In making its initial determination to approve this Plan, the
Trustees have focused on, among other things, the relationship between or among
the classes and has examined potential conflicts of interest among classes
(including those potentially involving a cross-subsidization between classes)
regarding the allocation of fees, services, waivers and reimbursements of
expenses, and voting rights. The Board has evaluated the level of services
provided to each class and the cost of those services to ensure that the
services are appropriate and the allocation of expenses is reasonable. In
approving any subsequent amendments to this Plan, the Board shall focus on and
evaluate such factors as well as any others deemed necessary by the Board.
Adopted effective ________________, 2000
-3-
<PAGE>
FORM OF
GUINNESS FLIGHT INVESTMENT FUNDS
DISTRIBUTION PLAN
(CLASS "B" SHARES)
WHEREAS, Guinness Flight Investment Funds (the "Trust") engages in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of the Trust are divided into separate portfolios of
investments, each with different investment objectives and policies (each a
"Fund") and, in turn one or more Funds are divided into separate classes (each a
"Class");
WHEREAS, the Trust desires to adopt this Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act (the "Rule") with respect to each Class of
"B" Shares of each Fund listed on Schedule 1 annexed hereto;
WHEREAS, the public offering price for Class B Shares is the net asset
value that the Trust calculates after an order is placed with no initial sales
charge, but subject to a contingent deferred sales charge if the shares are sold
within six years of purchase, all as described in the Trust's relevant
prospectus or statement of additional information on file with the Securities
and Exchange Commission which is part of the most recent registration statement
effective from time to time under the Securities Act of 1933, as amended;
WHEREAS, the Trust's Board has determined that there is a reasonable
likelihood that adoption of this Plan will benefit the Funds and their
shareholders; and
WHEREAS, the Trust employs _____________________________ (the
"Distributor") as Distributor of the Funds' shares (the "Shares") pursuant to a
Distribution Agreement dated ___________, ____.
NOW, THEREFORE, the Trust hereby adopts, and the Distributor hereby
agrees to the terms of, this Plan in accordance with Rule 12b-1 under the Act on
the following terms and conditions:
1. (a) Each Fund shall pay the Distributor for distributing its Class
"B" Shares a monthly fee at the annual rate set forth on Schedule
1.
(b) The Distributor may pay one or more third parties a fee in respect
of any Class "B" Shares owned by investors for whom the third
party is the dealer or holder of record. The Distributor shall
determine the amounts to be paid to such third parties and the
basis on which such payments will be made. Payments to a third
party are subject to compliance by the third party with the terms
of any related Plan agreement between the third party and the
Distributor.
(c) To the extent that any payments made by the Distributor, or
Investec Guinness Flight Global Asset Management, directly or
through an affiliate (in each case, from its own resources),
should be deemed to be indirect financing of any activity
primarily
<PAGE>
intended to result in the sale of Class "B" Shares within the
context of the Rule, then such payments shall be deemed to be
authorized by this Plan.
(d) For the purposes of determining the fees payable under this Plan,
the value of the net assets of the Class "B" Shares of each Fund
shall be computed in the manner specified in the Trust's charter
documents as then in effect for the computation of the value of
net assets.
2. The terms and provisions of this Plan shall be interpreted and defined in
a manner consistent with the provisions and definitions contained in (i)
the Act, (ii) the Rule and (iii) Section 2830 of the National Association
of Securities Dealers, Inc. Business Conduct Rules or its successor.
3. As to any Fund or its Class "B" Shares, this Plan shall not take effect
until it, together with any related agreement, has been approved by vote
of a majority of both (a) the Trust's Board and (b) those Trustees who
are not "interested persons" of the Trust (as defined by the Act) and who
have no direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1 Trustees") cast in
person at a meeting (or meetings) called for the purpose of voting on
this Plan and such related agreements.
4. As to any Fund or its Class "B" Shares, as the case may be, this Plan
shall remain in effect for one year from the date on which the Plan was
first executed and shall continue in effect thereafter so long as such
continuance is specifically approved at least annually in the manner
provided for approval of this Plan in paragraph 3.
5. The Distributor shall provide to the Trust's Board and the Board shall
review, at least quarterly, a written report of amounts paid hereunder
and the purposes for which they were made.
6. As to any Fund or its Class "B" Shares, as the case may be, this Plan may
be terminated at any time by vote of a majority of the Rule 12b-1
Trustees or by a vote of a majority of its outstanding voting securities.
7. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof unless such amendment
is approved by a vote of at least a majority (as defined in the Act) of
the outstanding voting securities of the relevant Fund or its Class "B"
Shares. No material amendment to the Plan shall be made unless approved
in the manner provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons (as defined in the Act) of the
Trust shall be committed to the discretion of the Trustees who are not
such interested persons.
9. The Trust shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 5 hereof, for a period of not
less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily
accessible place.
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10. All persons dealing with the Trust must look solely to the property of
the Trust for enforcement of any claims against the Trust as neither the
Trustees, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Trust.
IN WITNESS WHEREOF, the Trust, on behalf each Fund and its Class "B"
Shares, and the Distributor have executed this Plan as of the date set forth
below.
__________ ____ 2000.
GUINNESS FLIGHT INVESTMENT FUNDS
By:_______________________
By: _______________________
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SCHEDULE 1
Name of Fund Class "B" Shares
Wired Index Fund 1.00%*
* Annual Fee as a Percentage of Average Daily Net Assets.
FORM OF RULE 18f-3 MULTI-CLASS PLAN
GUINNESS FLIGHT INVESTMENT FUNDS
RULE 18f-3 MULTI-CLASS PLAN
I. Introduction.
Pursuant to Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act"), the following sets forth the method for
allocating fees and expenses among each class of shares of the underlying
investment funds of Guinness Flight Investment Funds (the "Trust") that issues
multiple classes of shares (the "Multi-Class Funds"). In addition, this Rule
18f-3 Multi-Class Plan (the "Plan") sets forth the distribution arrangements,
exchange privileges and other shareholder services of each class of shares in
the Multi-Class Funds.
The Trust is an open-end series investment company registered
under the 1940 Act and the shares of which are registered on Form N-1A under the
Securities Act of 1933. Upon the effective date of this Plan, the Trust hereby
elects to offer multiple classes of shares in the Multi-Class Funds pursuant to
the provisions of Rule 18f-3 and this Plan.
The Trust currently consists of the ten separate Funds. The
Wired Index Fund is currently authorized to issue two classes of shares
representing interests in the same underlying portfolio of assets.
II. Allocation of Expenses.
Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall
allocate to each class of shares in a Multi-Class Fund any fees and expenses
incurred by the Trust in connection with the distribution of such class of
shares under a distribution plan adopted for such class of shares pursuant to
Rule 12b-1. In addition, pursuant to Rule 18f-3, the Trust may allocate the
following fees and expenses to a particular class of shares in a single
Multi-Class Fund:
(i) fees of the Trustees who are not "interested persons"
of the Trust and the travel and related expenses of
the Trustees incident to their attending
shareholders', trustees' and committee meetings
pertaining to such class of shares; and
(ii) extraordinary expenses, including but not limited to
legal claims and liabilities and litigation costs and
any indemnification related thereto pertaining to
such class of shares.
The initial determination of the class expenses that will be
allocated by the Trust to a particular class of shares and any subsequent
changes thereto will be reviewed by the Board of Trustees and approved by a vote
of the Trustees of the Trust, including a majority of the
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Trustees who are not "interested persons" of the Trust. The Trustees will
monitor conflicts of interest among the classes and agree to take any action
necessary to eliminate conflicts.
Income, realized and unrealized capital gains and losses, and
any expenses of a Multi-Class Fund not allocated to a particular class of such
Fund pursuant to this Plan shall be allocated to each class of the Fund on the
basis of the net asset value of that class in relation to the net asset value of
the Fund.
Investec Guinness Flight Global Asset Management may waive or
reimburse the expenses of a particular class or classes, provided, however, that
such waiver shall not result in cross subsidization between the classes.
III. Class Arrangements.
The following summarizes the Rule 12b-1 distribution fees,
exchange privileges and other shareholder services applicable to each class of
shares of the Multi-Class Funds. Additional details regarding such fees and
services are set forth in each Fund's current Prospectus and Statement of
Additional Information.
A. Wired Index Fund (shares sold without a contingent
deferred sales charge).
1. Rule 12b-1 Distribution Fees: 0.0% per annum
of the average daily net assets.
2. Exchange Privileges: Subject to restrictions
and conditions set forth in the Fund's
Prospectus, may be exchanged for shares of
any other Fund.
3. Other Shareholder Services: As provided in
the Fund's Prospectus. Services do not
differ from those applicable to shares
subject to a contingent deferred sales
charge.
B. Wired Index Fund (class of shares sold subject to a
contingent deferred sales charge).
1. Rule 12b-1 Distribution Fees: 1.00% per
annum of the average daily net assets.
2. Exchange Privileges: Subject to restrictions
and conditions set forth in the Fund's
Prospectus, only may be exchanged for shares
of another Fund sold subject to a contingent
deferred sales charge.
3. Other Shareholder Services: As provided in
the Fund's Prospectus. Services do not
differ from those applicable to shares sold
without a contingent deferred sales charge.
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IV. Board Review.
The Board of Trustees of the Trust shall review this Plan as
frequently as it deems necessary. Prior to any material amendment(s) to this
Plan, the Board of Trustees, including a majority of the Trustees that are not
"interested persons" of the Trust, shall find that the Plan (including any
proposed amendments to the method of allocating class and/or fund expenses), is
in the best interest of each class of shares of a Multi-Class Fund individually
and the Fund as a whole. In considering whether to approve any proposed
amendment(s) to the Plan, the Trustees shall request and evaluate such
information as they consider reasonably necessary to evaluate the proposed
amendment(s) to the Plan. Such information shall address the issue of whether
any waivers or reimbursements of fees could be considered a cross-subsidization
of one class by another, and other potential conflicts of interest between
classes.
In making its initial determination to approve this Plan, the
Trustees have focused on, among other things, the relationship between or among
the classes and has examined potential conflicts of interest among classes
(including those potentially involving a cross-subsidization between classes)
regarding the allocation of fees, services, waivers and reimbursements of
expenses, and voting rights. The Board has evaluated the level of services
provided to each class and the cost of those services to ensure that the
services are appropriate and the allocation of expenses is reasonable. In
approving any subsequent amendments to this Plan, the Board shall focus on and
evaluate such factors as well as any others deemed necessary by the Board.
Adopted effective ________________, 2000
