As filed with the Securities and Exchange Commission on April 28, 2000
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. 25 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 25
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:
|X| Immediately upon filing pursuant |_| on (date) pursuant to paragraph (b)
to paragraph (b)
|_| 60 days after filing pursuant |_| on (date) pursuant to paragraph (a)(1)
to paragraph (a)(1)
|_| 75 days after filing pursuant
to paragraph (a)(2)
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
GUINNESS FLIGHT PROSPECTUS
April 28, 2000
ASIA BLUE CHIP FUND
ASIA SMALL CAP FUND
CHINA & HONG KONG FUND
MAINLAND CHINA FUND
WIRED INDEX(TM) FuNd
WIRELESS WORLD FUND(TM)
INTERNET.COM INDEX(TM) FUND
This Prospectus covers seven different Funds currently offered by Guinness
Flight Investment Funds. You will find specific information in this Prospectus
about each of the Funds plus general information on the Funds. You may find
additional information in the Funds' Statement of Additional Information, which
is incorporated by reference into this Prospectus.
The Securities and Exchange Commission has not approved any of the above listed
Funds. The Securities and Exchange Commission also has not determined whether
this Prospectus is accurate or complete. Any person who tells you that the
Securities and Exchange Commission has made such an approval or determination is
committing a crime.
<PAGE>
Asia Blue Chip Fund
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Asia Blue Chip Fund's investment objective is long-term capital appreciation
primarily through investments in equity securities of established and sizable
companies that are located in Asia.
INVESTMENT STRATEGIES
The Asia Blue Chip Fund intends to invest at least 65% of its total assets in
securities issued by "blue chip" companies that are traded on the Asian markets.
Under normal market conditions, the Asia Blue Chip Fund will invest in at least
four different countries. These countries include, but are not limited to:
o Mainland China, Hong Kong, Taiwan and South Korea in Northeast Asia;
o Singapore, Thailand, Malaysia, Indonesia, Vietnam and the Philippines
in Southeast Asia; and
o India, Pakistan, Bangladesh and Sri Lanka in South Asia.
The Asia Blue Chip Fund's decision to invest in a particular company is based
upon whether the company has:
o a significant market position in the sector or industry in which it
operates;
o a sound financial structure and well-respected management;
o a strategic plan and progressive products supported by adequate
research, development and marketing; and
o intrinsic value demonstrated by, among other indicators, a
price/earnings or price/cash flow ratio that is less than the market
average, and a dividend yield that is higher than the market as a
whole.
The Asia Blue Chip Fund will invest primarily in the following types of
securities:
o common and preferred stock; and
o convertible preferred stocks
-1-
<PAGE>
When current market, economic, political or other conditions are unsuitable
for the Asia Blue Chip Fund's investment objective, the Asia Blue Chip Fund
may temporarily invest up to 100% of its assets in cash, cash equivalents or
high quality short-term money market instruments. However, the Fund will not
engage in market timing. The philosophy of the Fund is to remain invested.
PRINCIPAL RISKS
The Asia Blue Chip Fund is subject to the risks common to all mutual funds that
invest in equity securities and foreign securities. Investing in this Fund may
be more risky than investing in a Fund that invests in U.S. "blue chip"
companies. You may lose money by investing in this Fund if any of the following
occur:
o the Asian stock markets decline in value;
o Asian blue chip stocks fall out of favor with investors;
o a stock, or stocks, selected by the investment advisor for the Fund's
portfolio do not perform well;
o the value of Asian currencies declines relative to the U.S. dollar;
o a foreign government expropriates the Fund's assets; or
o political, social or economic instability in Asia causes the value of
the Fund's investments to decline.
See "Risks of Investing" on page 44 for a more detailed discussion of the risks
associated with investing in this Fund.
ANNUAL RETURNS AND PERFORMANCE TABLE
The Annual Returns bar chart demonstrates the risks of investing in the Asia
Blue Chip Fund by showing changes in the Fund's performance from December 31,
1996 through December 31, 1999. The following table also demonstrates these
risks by showing how the Fund's average annual returns compare with those of the
MSCI Asia Free ex-Japan Index (a broad measure of market performance for the
region in which the Fund invests). Past performance is not an indication of
future performance.
[INSERT BAR CHART]
During the period shown in the bar chart, the best performance for a quarter was
35.67% (for the quarter ended 12/31/99). The worst performance was -26.75% (for
the quarter ended 6/30/98).
Average Annual Returns Past Year
as of 12/31/99 Since Inception
4/29/96
- --------------------------------------------------------------------------------
Asia Blue Chip Fund 61.16% -2.24%
MSCI Asia Free Ex-Japan Index 59.40% -5.67%
-2-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Asia Blue Chip Fund:
- --------------------------------------------------------------------------------
Shareholder Fees
- --------------------------------------------------------------------------------
(fees paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases:
(as % of offering price) 0%
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
- --------------------------------------------------------------------------------
30-Day Redemption/Exchange Fee: 1%*
Maximum Account Fee: 0%
*You will be charged a 1% fee if you redeem or exchange shares of this Fund
within 30 days of purchase. There is a $10 fee for redemptions by wire.
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
- --------------------------------------------------------------------------------
(expenses that are deducted from Fund assets)
Advisory Fee: 1.00%
- --------------------------------------------------------------------------------
Distribution Fee: 0.00%
Other Expenses*: 1.99%
- --------------------------------------------------------------------------------
Total Annual Fund
- --------------------------------------------------------------------------------
Operating Expenses*: 2.99%
Expenses Reimbursed to Fund*: 1.01%
- --------------------------------------------------------------------------------
Net Annual Fund Operating Expenses
- --------------------------------------------------------------------------------
(expenses actually incurred by the Fund)*: 1.98%
* Investec Guinness Flight is contractually obligated to cap the Fund's Total
Annual Fund Operating Expenses at 1.98% through June 30, 2001.
-3-
<PAGE>
Example:
This example is intended to help you compare the cost of investing in the Asia
Blue Chip 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 and you
redeem your shares at the end of those periods;
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**
$201 $829 $1,484 $3,237
**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.
A BLUE CHIP COMPANY FOR PURPOSES OF THIS FUND IS A COMPANY THAT HAS: o a market
value of at least U.S. $1 billion;
o a reputation for quality and wide acceptance of its products; and
o a history of consistent profitability over time.
THE ASIA BLUE CHIP FUND'S DECISION TO INVEST IN A PARTICULAR COUNTRY IS BASED
UPON:
o the size and liquidity of the country's stock market;
o the reliability of the legal, accounting, and regulatory regimes of the
country; and
o currency restrictions of the country.
-4-
<PAGE>
ASIA SMALL CAP FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Asia Small Cap Fund's investment objective is long-term capital appreciation
primarily through investments in equity securities of smaller capitalization
issuers that are located in Asia.
INVESTMENT STRATEGIES
The Asia Small Cap Fund intends to invest at least 65% of its total assets in
securities issued by "small cap" companies that are traded on the Asian markets.
A small cap company for purposes of this Fund is a company that has a market
value of less than U.S. $1 billion.
Under normal market conditions, the Asia Small Cap Fund will invest in at least
four different countries. These countries include, but are not limited to:
o Mainland China, Hong Kong, Taiwan and South Korea in Northeast Asia;
o Singapore, Thailand, Malaysia, Indonesia, Vietnam and the Philippines
in Southeast Asia; and
o India, Pakistan, Bangladesh and Sri Lanka in South Asia.
The Asia Small Cap Fund's decision to invest in a particular company is based
upon:
o internal proprietary company financial data/estimates developed from
information gathered through company visits and interviews with senior
executives;
o the outlook for the particular company's sector of the economy;
o the company's potential to generate high returns on capital in the
next three years demonstrated by, among other factors, a growing
market for the company's products.
o the company's intrinsic value demonstrated by, among other indicators,
a price/earnings or price/cash flow ratio that is less than the market
average, and a dividend yield that is higher than the market as a
whole.
When current market, economic, political or other conditions are unsuitable for
the Asia Small Cap Fund's investment objective, the Asia Small Cap Fund may
temporarily invest up to 100% of its assets in cash, cash equivalents or high
quality short-term money market instruments. However, the Fund will not engage
in market timing. The philosophy of the Fund is to remain invested.
-5-
<PAGE>
PRINCIPAL RISKS
The Asia Small Cap Fund is subject to the risks common to all mutual funds that
invest in equity securities, foreign companies and smaller capitalization
securities. You may lose money by investing in this Fund if any of the following
occur:
o the Asian stock markets decline in value;
o Asian small cap stocks fall out of favor with investors;
o small cap stocks are more difficult to sell during a down market due
to lower liquidity;
o a stock or stocks in the Fund's portfolio do not perform well;
o the value of Asian currencies declines relative to the U.S. dollar;
o a foreign government expropriates the Fund's assets; or
o political, social or economic instability in Asia causes the value of
the Fund's investments to decline.
See "Risks of Investing" on page 44 for a more detailed discussion of the risks
associated with investing in this Fund.
Annual Returns and Performance Table
The Annual Returns bar chart demonstrates the risks of investing in the Asia
Small Cap Fund by showing changes in the Fund's performance from December 31,
1996 through December 31, 1999. The following table also demonstrates these
risks by showing how the Fund's average annual returns compare with those of the
HSBC James Capel Southeast Asia Smaller Companies Index (a broad measure of
market performance for the region in which the Fund invests).
Past performance is not an indication of future performance.
[INSERT BAR CHART]
During the period shown in the bar chart, the best performance for a quarter was
40.59% (for the quarter ended 6/30/99). The worst performance was -37.39% (for
the quarter ended 12/31/97).
Average Annual Returns One Year
as of 12/31/99 Since Inception
4/29/96
- --------------------------------------------------------------------------------
Asia Blue Small Cap Fund 42.43% -6.82%
HSBC James Capel Southeast Asia Smaller Companies 43.35% -15.11%
Index
-6-
<PAGE>
FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Asia Small Cap Fund:
- --------------------------------------------------------------------------------
Shareholder Fees
- --------------------------------------------------------------------------------
(fees paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases:
(as % of offering price) 0%
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
- --------------------------------------------------------------------------------
30-Day Redemption/Exchange Fee: 1%*
Maximum Account Fee: 0%
* You will be charged a 1% fee if you redeem or exchange shares of this
Fund within 30 days of purchase. There is a $10 fee for redemption by wire.
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
- --------------------------------------------------------------------------------
(expenses that are deducted from Fund assets)
Advisory Fee: 1.00%
- --------------------------------------------------------------------------------
Distribution Fee: 0.00%
Other Expenses*: 1.39%
- --------------------------------------------------------------------------------
Total Annual Fund
- --------------------------------------------------------------------------------
Operating Expenses*: 2.39%
Expenses Reimbursed to Fund*: 0.41%
- --------------------------------------------------------------------------------
Net Actual Fund Operating Expenses
- --------------------------------------------------------------------------------
(expenses actually incurred by the Fund)*: 1.98%
*Investec Guinness Flight is contractually obligated to cap the Fund's
Total Annual Operating Expenses at 1.98% through June 30, 2001.
-7-
<PAGE>
Example:
This example is intended to help you compare the cost of investing in the Asia
Small Cap 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 and you
redeem your shares at the end of those periods;
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**
$201 $706 $1,238 $2,695
**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.
THE ASIA SMALL CAP FUND'S DECISION TO INVEST IN A PARTICULAR COUNTRY IS BASED
UPON:
o the size and liquidity of the country's stock market;
o the reliability of the legal, accounting, and regulatory regimes of the
country; and
o currency restrictions of the country.
THE ASIA SMALL CAP FUND INVESTS PRIMARILY IN THE FOLLOWING TYPES OF SECURITIES:
o common and preferred stock; and
o convertible preferred stocks.
-8-
<PAGE>
CHINA & HONG KONG FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The China & Hong Kong Fund's investment objective is long-term capital
appreciation primarily through investments in securities of China and Hong Kong.
INVESTMENT STRATEGIES
The China & Hong Kong Fund intends to invest at least 85% of its total assets in
the following types of equity securities:
o equity securities of companies that are primarily traded on the China
or Hong Kong exchanges; or
o equity securities of companies that derive a substantial portion of
their revenues from business activities in China and/or Hong Kong, but
which are listed and traded elsewhere.
The Fund normally invests at least 65% of its assets in companies listed on the
Hang Seng Index1, with the actual weightings of the Hang Seng Index companies
held in the Fund's portfolio normally higher than that.
When current market, economic, political or other conditions are unsuitable for
the China & Hong Kong Fund's investment objective, the China & Hong Kong Fund
may temporarily invest up to 100% of its assets in cash, cash equivalents or
high quality short-term money market instruments. However, the Fund will not
engage in market timing. The philosophy of the Fund is to remain invested.
PRINCIPAL RISKS
The China & Hong Kong Fund is subject to the risks common to all mutual funds
that invest in equity securities and foreign securities. You may lose money by
investing in this Fund if any of the following occur:
o the Hong Kong and/or China stock markets decline in value;
o China and/or Hong Kong stocks fall out of favor with investors;
o a stock or stocks in the Fund's portfolio do not perform well;
o the value of Chinese currencies declines relative to the U.S. dollar;
- --------
1 The Hang Seng Index is a barometer of the Hong Kong Stock Market. The index
comprises 33 constituent stocks, whose aggregate market cap accounts for about
70% of the total market capitalization of the Stock Exchange of Hong Kong
Limited.
-9-
<PAGE>
o the Chinese government expropriates the Fund's assets; or
o political, social or economic instability in China causes the value of
the Fund's investments to decline.
See "Risks of Investing" on page 44 for a more detailed discussion of the risks
associated with investing in this Fund.
Annual Returns and Performance Table
The Annual Returns bar chart demonstrates the risks of investing in the China &
Hong Kong Fund by showing changes in the Fund's performance from December 31,
1994 through December 31, 1999. The following table also demonstrates these
risks by showing how the Fund's average annual returns compare with those of the
Hang Seng Index (a broad measure of market performance for the region in which
the Fund invests). Past performance is not an indication of future performance.
[INSERT BAR CHART]
During the period shown in the bar chart, the best performance for a quarter was
32.16% (for the quarter ended 12/31/99). The worst performance was -28.32% (for
the quarter ended 12/31/97).
- --------------------------------------------------------------------------------
Average Annual Returns
Since Inception
as of 12/31/99 One Year Five Year 6/30/94
- --------------------------------------------------------------------------------
China & Hong Kong Fund 66.27% 12.68% 9.83%
- --------------------------------------------------------------------------------
Hang Seng Index 68.80% 13.90% 12.75%
-10-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the China & Hong Kong Fund:
- --------------------------------------------------------------------------------
Shareholder Fees
- --------------------------------------------------------------------------------
(fees paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases:
(as % of offering price) 0%
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
- --------------------------------------------------------------------------------
30-Day Redemption/Exchange Fee: 2%*
Maximum Account Fee: 0%
* You will be charged a 2% fee if you redeem or exchange shares of this
Fund within 30 days of purchase. Annual Fund Operating Expenses. There is
also a $10 fee for redemption by wire.
- --------------------------------------------------------------------------------
(expenses that are deducted from Fund assets)
Advisory Fee: 1.00%
- --------------------------------------------------------------------------------
Distribution Fee: 0.00%
Other Expenses: 0.86%
- --------------------------------------------------------------------------------
Total Annual Fund
- --------------------------------------------------------------------------------
Operating Expenses: 1.86%
Expenses Reimbursed to Fund 0.00%
-----------------------------------------------------------------------------
Net Actual Fund Operating Expenses
(expenses actually incurred by the Fund) 1.86%
-11-
<PAGE>
Example:
This example is intended to help you compare the cost of investing in the China
& Hong Kong 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 and you
redeem your shares at the end of those periods;
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
$189 $585 $1,006 $2,180
THE CHINA & HONG KONG FUND'S DECISION TO INVEST IN A PARTICULAR COMPANY IS BASED
UPON:
o the weighting of the company and sector in the Hang Seng Index;
o internal proprietary company models developed from information gathered
through company visits and interviews with senior executives; and
o the ability of the company to generate regular cash flows and provide a
sustained or growing return on capital.
THE CHINA & HONG KONG FUND INVESTS PRIMARILY IN THE FOLLOWING TYPES OF
SECURITIES:
o common and preferred stock; and
o convertible preferred stocks.
-12-
<PAGE>
MAINLAND CHINA FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
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 ("Chinese companies") and companies located outside
Mainland China that have a majority of their assets in China or that derive a
majority of their revenues from activities in China.
INVESTMENT STRATEGIES
The Mainland China Fund intends to invest at least 65% of its total assets in
the following types of equity securities:
o "B" shares - shares issued by Chinese companies that are listed on the
Shanghai Stock Exchange or the Shenzhen Stock Exchange;
o "H" shares - shares issued by Chinese companies that are listed on the Hong
Kong Stock Exchange;
o "N" shares - shares issued by Chinese companies that are listed on the New
York Stock Exchange;
o "Red Chips" - shares issued by Hong Kong companies that are controlled by
Chinese corporations and listed on the Hong Kong Stock Exchange; and
o "China Plays" - shares issued by non-Chinese companies that have the
majority of their assets in China or that derive a majority of their
revenues from activities in China.
When current market, economic, political or other conditions are unsuitable for
the Mainland China Fund's investment objective, the Mainland China Fund may
temporarily invest up to 100% of its assets in cash, cash equivalents or high
quality short-term money market instruments. However, the Fund will not engage
in market timing. The philosophy of the Fund is to remain invested.
-13-
<PAGE>
PRINCIPAL RISKS
The Mainland China Fund is subject to the risks common to all mutual funds that
invest in equity securities and foreign securities. You may lose money by
investing in this Fund if any of the following occur:
o the China and/or Hong Kong stock markets decline in value;
o China and/or Hong Kong stocks fall out of favor with investors;
o a stock or stocks in the Fund's portfolio do not perform well;
o the value of Chinese currencies declines relative to the U.S. dollar;
o the Chinese government expropriates the Fund's assets; or
o political, social or economic instability in China causes the value of the
Fund's investments to decline.
See "Risks of Investing" on page 44 for a more detailed discussion of the risks
associated with investing in this Fund.
Fund Asset Cap
Because the stock of Mainland Chinese companies is less liquid (it trades less
often) than that of other more developed markets, Investec Guinness Flight will
close the Mainland China Fund to new shareholders when the Fund has $50 million
in net assets. Existing shareholders will be able to add to their Mainland China
Fund account after it closes. The Fund may reopen at a later date to new
shareholders when Investec Guinness Flight believes that the Mainland Chinese
markets are more liquid and developed.
Annual Returns and Performance Table
The Annual Returns bar chart demonstrates the risks of investing in the Mainland
China Fund by showing changes in the Fund's performance from December 31, 1997
through December 31, 1999. The following table also demonstrates these risks by
showing how the Fund's average annual return compares with that of the MSCI
China Free Index (a broad measure of market performance for the region in which
the Fund invests). Past performance is not an indication of future performance.
[INSERT BAR CHART]
During the period shown in the bar chart, the best performance for a quarter was
53.66% (for the quarter ended 6/30/99). The worst performance was -29.59% (for
the quarter ended 6/30/98).
- --------------------------------------------------------------------------------
Average Annual Returns Since Inception
as of 12/31/99 Past Year 11/03/97
- --------------------------------------------------------------------------------
Mainland China Fund 32.20% -2.95%
- --------------------------------------------------------------------------------
MSCI China Free Index 9.94% -28.08%
-14-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Mainland China Fund:
- --------------------------------------------------------------------------------
Shareholder Fees
- --------------------------------------------------------------------------------
(fees paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases:
(as % of offering price) 0%
- --------------------------------------------------------------------------------
-
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
-
60-Day Redemption/Exchange Fee: 2%*
Maximum Account Fee: 0%
* You will be charged a 2% fee if you redeem or exchange shares of this Fund
within 30 days of purchase. There is also a $10 fee for redemption by wire.
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
- --------------------------------------------------------------------------------
(expenses that are deducted from Fund assets)
Advisory Fee: 1.00%
- --------------------------------------------------------------------------------
Distribution Fee: 0.00%
Other Expenses*: 2.33%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses*: 3.33%
Expenses Reimbursed to Fund*: 1.35%
- --------------------------------------------------------------------------------
Net Annual Fund Operating Expenses
(expenses actually incurred by the Fund)*: 1.98%
* Investec Guinness Flight is contractually obligated to cap the Fund's Total
Annual Fund Operating Expenses at 1.98% through June 30, 2001.
Example:
This example is intended to help you compare the cost of investing in the
Mainland China 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 and you
redeem those shares at the end of those periods;
o your investment has a 5% return each year; and
o the Fund's operating expenses remain the same.
-15-
<PAGE>
Although your actual costs may be higher or lower, under these assumptions, your
costs would be:
1 Year** 3 Years** 5 Years** 10 Years**
$201 $899 $1,620 $3,531
**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.
THE MAINLAND CHINA FUND'S DECISION TO INVEST IN A PARTICULAR COMPANY IS BASED
UPON:
o the quality of the company's management as determined by visits to the
company and meetings with management;
o the ability of the company to maximize shareholder return under the
prevailing business environment;
o the outlook for the particular company's sector of the economy; and
o internal proprietary company financial data/estimates developed from
information gathered through company visits and interviews with senior
executives.
THE MAINLAND CHINA FUND INVESTS PRIMARILY IN THE FOLLOWING TYPES OF SECURITIES:
o common and preferred stock; and
o convertible preferred stocks.
-16-
<PAGE>
WIRED INDEX(TM) FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Wired Index(TM) Fund's investment objective is long-term capital
appreciation primarily through investments in equity securities of companies
that comprise the Wired Index(TM).
PRINCIPAL INVESTMENT STRATEGIES
The Wired Index(TM) Fund will invest at least 85% of its total assets in
securities that comprise the Wired Index(TM). As an index fund, the Wired
Index(TM) Fund will attempt to replicate the performance of the Wired Index(TM).
In managing the Fund, we will follow a principal investment policy of "full
replication", meaning that the Fund will attempt to invest in all 40 component
issues that comprise the Wired Index(TM) in the proportion they are represented
within the Index. From time to time, we may also use a method known as "index
sampling", to efficiently handle cash inflows and outflows on a short-term
basis. "Index sampling" is an investment technique that seeks to replicate the
performance of the Wired Index(TM) by investing in fewer than the 40 component
stocks. Effective May 1, 2000, the Wired Index(TM) will be comprised of the
following companies:
- --------------------------------------------------------------------------------
Affymetrix Incyte Pharmaceuticals Sun Microsystems
- --------------------------------------------------------------------------------
AIG Intel Wal-Mart
- --------------------------------------------------------------------------------
America Online JDS Uniphase Corporation Walt Disney
- --------------------------------------------------------------------------------
AMR Lucent Technologies WorldCom
- --------------------------------------------------------------------------------
Applied Materials Marriott International Yahoo|_|
- --------------------------------------------------------------------------------
Aventis S.A Microsoft
- --------------------------------------------------------------------------------
BroadVision Inc. News Corporation
- --------------------------------------------------------------------------------
Charles Schwab Nokia
- --------------------------------------------------------------------------------
Cisco Systems Nucor
- --------------------------------------------------------------------------------
Daimler-Chrysler Oracle Corporation
- --------------------------------------------------------------------------------
EMC Parametric Technology
- --------------------------------------------------------------------------------
Enron Qwest Communications
- --------------------------------------------------------------------------------
FDX Reuters
- --------------------------------------------------------------------------------
First Data Schlumberger
- --------------------------------------------------------------------------------
Flextronics International SmithKline Beecham
- --------------------------------------------------------------------------------
Globalstar Sony
- --------------------------------------------------------------------------------
i2 Technologies, Inc. State Street Corporation
- --------------------------------------------------------------------------------
-17-
<PAGE>
The Wired Index(TM) was created by Wired(R) 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(R)
magazine is not an affiliate of Investec Guinness Flight Global Asset Management
Limited.
The Wired Index(TM) consists of companies that play a role in the New Economy.
The New Economy is based on:
|_| the use of technology, networks, communication and information; and
|_| the evolution of globalism, innovation and strategic vision.
Although technology and telecommunication companies make up approximately 50% of
the Wired Index(TM), the Index represents a wide range of industries including
the financial, retail, consumer and energy industries.
The Wired Index(TM) is weighted by market capitalization with a ceiling of $30
billion. If the Wired Index(TM) changes in any way, the Fund will adjust its
investments accordingly to mirror the Index.
Temporary Defensive Investing. During unusual economic or business circumstances
as determined by the manager, the Fund may adopt a temporary defensive position
and invest a portion or all of its portfolio in Money Market Instruments. To the
extent the Fund is invested in Money Market Instruments for defensive purposes
the Fund's investment objective may not be achieved.
PRINCIPAL RISKS
The Wired Index(TM) 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(TM).
You may lose money under any of the following circumstances:
o the Wired Index(TM) declines in value;
o the Wired Index(TM) 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(TM) lose money due to intense
pricing pressure or high capital investment costs.
-18-
<PAGE>
The Wired Index(TM) Fund currently has a meaningful minority percentage of its
assets represented by companies in the technology, Internet and communications
industries. These industries are extremely competitive and subject to rapid
rates of change. The competitive nature of these industries and rapid rate of
change places a challenge on the management of these companies to be successful.
In addition, investing in common stocks entails a number of risks. The stock
markets in which the Fund invests may experience periods of volatility and
instability. A variety of factors can negatively impact the value of common
stocks. These factors include a number of economic factors such as changes in
interest rates, currency values, economic growth rates, savings rates, inflation
rates as well as non-economic factors such as political events.
The Wired Index(TM) Fund is non-diversified which means that, compared to other
funds, the Fund may invest a greater percentage of its assets in a particular
issuer. To the extent that the Fund invests in a small number of issuers, there
may be a greater risk of losing money than in a diversified investment company.
See "Risks of Investing" on page 44 for a more detailed discussion of the risks
associated with investing in this Fund.
ANNUAL RETURNS AND PERFORMANCE TABLE
The Annual Returns bar chart demonstrates the risks of investing in the Wired
Index(TM) Fund by showing changes in the Fund's performance from December 31,
1998 through December 31, 1999. 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(TM) 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.
[Insert Bar Chart]
During the period shown in the bar chart, the best performance for a quarter was
40.06% (for the quarter ended 12/31/99). The worst performance was -4.11% (for
the quarter ended 9/30/99).
- --------------------------------------------------------------------------------
Average Annual Returns as Past One Year Since Inception
of December 31, 1999 12/15/98
- --------------------------------------------------------------------------------
Wired Index(TM)Fund 68.68% 83.31%
- --------------------------------------------------------------------------------
NASDAQ Composite Index 85.59% 96.35%
- --------------------------------------------------------------------------------
Wired Index(TM) 71.32% 90.07%
- --------------------------------------------------------------------------------
-19-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Wired Index(TM) Fund:
- --------------------------------------------------------------------------------
Shareholder Fees
- --------------------------------------------------------------------------------
(fees paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases:
- --------------------------------------------------------------------------------
(as % of offering price) 0%
Maximum Deferred Sales Charge (Load): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
- --------------------------------------------------------------------------------
30-Day Redemption/Exchange Fee: 1%*
Maximum Account Fee: 0%
* You will be charged a 1% fee if you redeem or exchange shares of this Fund
within 30 days of purchase. There is also a $10 fee for redemption by wire.
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Advisory Fee**: 0.90%
- --------------------------------------------------------------------------------
Rule 12b-1 Fee: 0.00%
Other Expenses*: .48%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses*: 1.38%
Expenses Reimbursed to Fund*: 0.03%
- --------------------------------------------------------------------------------
Net Annual Fund Operating Expenses
(expenses actually incurred by the Fund)*: 1.35%
* Investec Guinness Flight is contractually obligated to cap the Fund's Total
Annual Fund Operating Expenses at 1.35% 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.
-20-
<PAGE>
Example:
This example is intended to help you compare the cost of investing in the Wired
Index(TM) 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 and you
redeem your shares at the end of those periods;
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**
$137 $434 $752 $1,655
**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.
WIRED INDEX SERVICE MARK AND REGISTERED TRADE MARK
"WIRED INDEX" is a service mark, and "WIRED" a registered trademark, of Advance
Magazine Publishers Inc. ("Advance"), used with permission of Advance. Wired
Magazine and Advance make no representation or warranty, express or implied, to
Guinness Flight 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 Guinness
Flight or the Fund, and Wired Magazine has no obligation to take the needs of
Guinness Flight 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 guinness
flight, investors in the fund, or any other person or entity from the use of the
wired index or any data included therein connection with the fund or for any
other use. Advance makes no express or implied warranties, and hereby expressly
disclaims all warranties, or 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.
-21-
<PAGE>
THE WIRELESS WORLD FUNDTM
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Wireless World Fund(TM)'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.
INVESTMENT STRATEGIES
The 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.
The Fund intends to invest in a portfolio of 40 stocks that the manager believes
represent the most attractive "wireless companies."
In evaluating and selecting companies for inclusion in the Fund the manager uses
a "bottom up" process. This process places a premium on examining and selecting
individual stocks based on their individual investment merits. The manager will
be particularly interested in growth companies that are likely to benefit from
new or innovative products, services or processes that should enhance such
companies' prospects for future growth in earnings and revenues. The manager
will invest mainly in medium to large capitalization companies (companies with
market capitalizations of more than U.S. $1 billion at the time of purchase) but
will from time to time invest in smaller capitalization issues (companies with
market capitalizations of less than U.S. $1 billion at the time of purchase).
Temporary Defensive Investing. During unusual economic or business circumstances
as determined by the manager, the Fund may adopt a temporary defensive position
and invest a portion or all of its portfolio in Money Market Instruments. To the
extent the Fund is invested in Money Market Instruments for defensive purposes
the Fund's investment objective may not be achieved.
-22-
<PAGE>
PRINCIPAL RISKS
The 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:
|_| The stock market declines in value;
|_| Telecommunications, technology or wireless services stocks decline in
value;
|_| Telecommunications, technology or wireless services stocks fall out of
favor with investors;
|_| Telecommunications, technology or wireless services 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; or
|_| The Fund manager's investment strategy does not achieve the Fund's
objective or the manager does not implement the strategy properly.
You should also be aware that the share prices of telecommunications, technology
and wireless services companies fluctuate more than other stocks because these
industries are subject to more rapid change in technology and products than
stocks of companies in most other industries. 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.
In addition, investing in common stocks entails a number of risks. The stock
markets in which the Fund invests may experience periods of volatility and
instability. A variety of factors can negatively impact the value of common
stocks. These factors include a number of economic factors such as changes in
interest rates, currency values, economic growth rates, savings rates, inflation
rates as well as non-economic factors such as political events. Foreign
securities experience more volatility than their domestic counterparts, in part
because of higher political and economic risks, lack of reliable information,
fluctuations in currency exchange rates, and the risks that a foreign government
may take over assets, restrict the ability to exchange currency or restrict the
delivery of securities. The prices of foreign securities issued in emerging
countries experience more volatility because the securities markets in these
countries may not be well established.
The Fund is non-diversified which means that, compared to other funds, the Fund
may invest a greater percentage of its assets in a particular issuer. To the
extent that the Fund invests in a small number of issuers, there may be a
greater risk of losing money than in a diversified investment company.
See "Risks of Investing" on page 44 for a more detailed discussion of the risks
associated with investing in this Fund.
No bar chart or performance table is available because the Fund has not been in
operation for a full calendar year.
-23-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
<S> <C>
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%
- ----------------------------------------------------------------------------------------------
30-Day Redemption/Exchange Fee: (as % of amount redeemed, if applicable):........... 1.00%
Maximum Account Fee................................................................. 0%
* You will be charged a 1% fee if you redeem or exchange shares of the Fund
within 30 days of purchase. There is a $10 fee for redemption by wire.
- ----------------------------------------------------------------------------------------------
Annual Operating Expenses
(Expenses that are deducted from Fund assets)
Advisory Fee*....................................................................... 1.00%
- ---------------------------------------------------------------------------------------------
Distribution Fee:................................................................... 0%
Other Expenses*:.................................................................... 0.75%
- ----------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses:*.............................................. 1.75%
</TABLE>
- -----------
* These expenses are based on estimated amounts for the current fiscal year.
-24-
<PAGE>
Example:
This example is to help you compare the cost of investing in the Wireless World
Fund(TM) with the cost of investing in other mutual funds.
The Example assumes that:
|_| you invest $10,000 in the Fund for the time periods indicated;
|_| your investment has a 5% return each year;
|_| the Fund's operating expenses remain the same; and
|_| 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
$178 $551
THE WIRELESS WORLD FUND'S(TM) DECISION TO INVEST IN A PARTICULAR SECTOR OF THE
WIRELESS INDUSTRY IS BASED UPON:
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 Fund is designed to allow investors a means to participate in this shift to
wireless communication.
THE WIRELESS WORLD FUND(TM) INVESTS PRIMARILY IN THE FOLLOWING TYPES OF
SECURITIES:
o common and preferred stocks; and
o convertible preferred stocks.
The Wireless World Fund is a trademark of Investec Guinness Flight Global Asset
Management Limited and application for registration has been applied for.
-25-
<PAGE>
THE INTERNET.COM INDEX(TM) FUND
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The internet.com Index(TM) Fund's investment objective is long-term capital
appreciatiON primarily through investments in equity securities of companies
that comprise the internet.com Index.
INVESTMENT STRATEGIES
The internet.com Index(TM) Fund will invest at least 85% of its total assets in
the securitiES that comprise the internet.com Index. As an index fund, the
internet.com Index(TM) Fund wiLL attempt to replicate the performance of the
internet.com Index. In managing the Fund, we will follow a principal investment
policy of "full replication," meaning that the Fund will attempt to invest in
all 50 component issues that comprise the internet.com Index in proportion to
their weighting in the Index. From time to time, we may also use a method known
as "index sampling" to efficiently handle cash inflows and outflows on a
short-term basis. "Index sampling" is an investment technique that seeks to
replicate the performance of the Index by investing in fewer than the 50
component stocks.
The internet.com Index consists of companies (including some small cap
companies) that represent the following sub-sectors within the Internet sector.
o Search/Portals -- These are companies that run Web sites designed
to be gateways to the Internet. Most feature news and information
organized by category, and all offer Internet search
capabilities. With the exception of AOL and GoTo.com, most
search/portals rely primarily on advertising revenue, though all
are seeking to increase e-commerce revenue.
o Conent/Communities-- These are Web sites and networks organized
around specific content (sports, politics, stocks, etc.) and
personal or professional interests. Some are B2B-oriented
(VerticalNet, internet.com), others are geared toward consumers
or a mix. A few charge membership fees or for premium content -
and, like Search/Portals, all are trying to increase e-commerce
revenue-but most live and die by advertising revenue.
-26-
<PAGE>
o e-tailers-- These companies sell stuff online, to consumers,
business, or both. E-tailers include sellers of products (toys,
books), downloadable music, plane tickets, hotel rooms, etc.
Consumer auction sites also are considered e-tailers.
o Financial Services-- These include online stockbrokers, loan
processors, credit card providers, banks, venture capital
companies (CMGI, Internet Capital Group).
o e-commerce enablers-- A lot of the companies in this sector are
classified as B2B e-commerce software providers. Some sell
transaction software for e-tailers, others make e-commerce
software linking companies with their suppliers and customers. A
few run sites bringing together buyers and sellers in certain
industries (cattle auction site e-Merge Interactive, software
site Intraware).
o Security-- These companies sell firewalls and e-commerce security
software (digital certificates) and provide outsourced services.
o Performance Software-- These companies cover a wide range;
operating systems (Red Hat), software that measures Web site
performance, software that allows users to do something (stream
audio and video, use to Internet to make long-distance calls),
software that allows you to build applications.
o Internet Services-- These companies offer services such as Web
hosting, e-mail management, application hosting and delivery and
employment listings.
o Advertising/Marketing-- Companies in this sector include ad
services providers such as DoubleClick, direct marketing
companies, Web site traffic measurers and opt-in e-mailers.
Business models vary.
o Consultants/Designers-- These companies provide Web site design,
business consulting, some e-commerce services, etc.
o Speed/Bandwidth-- These are companies that, one way or another,
are trying to improve the performance of the Internet. Cable
access providers, caching server vendors, router and switch
makers, etc.
o ISPs/Access Providers-- They provide Internet access to
computers, corporate clients (VPNs), wireless devices, etc. Some
charge a monthly fee, others offer free access in exchange for
bombarding you with ads.
-27-
<PAGE>
The Index is reviewed quarterly by internet.com to insure that it includes the
most representative list of Internet stocks. If a company representing a new
sub-sector (meaning it offers a service or product not included in the twelve
sub-sectors already identified) becomes publicly traded, or if a company changes
direction into a new market sub-sector, it may be added to the Index
intra-quarterly. In managing the Fund, the manager will seek to adjust the
Fund's holdings as soon as practicable to reflect any underlying changes in the
Index.
For the purposes of the internet.com Index, an Internet stock is defined as a
company that derives a majority of its revenue from the Internet.
As an Internet index, it attempts to capture the growth of the Internet, which
is a global collection of connected computers that allows commercial and
professional organizations, educational institutions, government agencies, and
consumers to communicate electronically, access and share information, and
conduct business.
The internet.com Index is adjusted for stock splits, mergers, acquisitions or
delistings similar to how the Dow Jones Industrial Average is adjusted.
AS AN INDEX FUND, THE INTERNET.COM INDEX(TM) FUND WILL ATTEMPT TO REPLICATE THE
PERFORMANCE OF THE INTERNET.COM INDEX.
-28-
<PAGE>
PRINCIPAL RISKS
The internet.com Index(TM) Fund is subject to the following risks common to all
mutual funDS that invest in equity securities and the securities that make up
the internet.com Index.
You may lose money under any of the following circumstances:
o the internet.com Index declines in value;
o Internet stocks fall out of favor with investors (market value of
an Internet stock goes down);
o the internet.com Index is more adversely affected by a market
downturn than a larger, more broad-based index due to its
concentration and focus on Internet stocks or a specific
sub-sector within the Internet sector;
o Internet companies in the internet.com Index lose money due to
intense pricing pressure or high capital investment costs;
o the Fund 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 declines in value
In addition, you should be aware that share prices of Internet companies will
fluctuate more than other stocks because Internet stocks are subject to more
rapid change in technology and products than other stocks and that small cap
stocks which comprise the internet.com Index are more difficult to sell during a
down market due to lower liquidity. The Fund may exhibit a greater degree of
volatility and fluctuation on a day-to day basis than a larger, broad-based
index.
See "Risks of Investing" on page 44 for a more detailed discussion of the risks
associated with investing in this Fund.
No bar chart or performance table is available because the Fund has not been in
operation for a full calendar year.
THE INDEX IS REVIEWED QUARTERLY BY INTERNET.COM TO INSURE THAT IT INCLUDES THE
MOST REPRESENTATIVE LIST OF INTERNET STOCKS.
FOR THE PURPOSES OF THE INTERNET.COM INDEX, AN INTERNET STOCK IS DEFINED AS A
COMPANY THAT DERIVES A MAJORITY OF ITS REVENUE FROM THE INTERNET.
-29-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the internet.com Index(TM) Fu ees
- --------------------------------------------------------------------------------
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): 0%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions: 0%
- --------------------------------------------------------------------------------
30-Day Redemption/ Exchange Fee 2%
Maximum Account Fee: 0%
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Advisory Fee: 0.90%**
- --------------------------------------------------------------------------------
Distribution Fee: 0%
Other Expenses:*** 1.48%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses:**** 2.38%
Expenses Reimbursed to Fund 1.03%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Annual Fund Operating Expenses
(expenses actually incurred by the Fund) 1.35%
-----------------------------------------------------------------------------
* You will be charged a 2% fee only if you redeem or exchange shares of
this Fund within 30 days of purchase.
There is a $10 fee for redemption by wire.
** 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.
*** These expenses are based on estimated amounts for the current fiscal
year.
**** Investec Guinness Flight Global Asset Management Limited is
contractually obligated to cap the Fund's Total Annual Fund Operating
Expenses at 1.35% through June 30, 2001.
-30-
<PAGE>
Example:
This example is to help you compare the cost of investing in the internet.com
Index(TM) 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 5 Years 10 Years
$137 $644 $1,177 $ 2,637
THE INTERNET.COM INDEX(TM) FUND INVESTS PRIMARILY IN THE FOLLOWING TYPES OF
SECURITIES:
o common and preferred stock; and
o convertible preferred stocks; and
o internet.com INDEX
INDEX TRADEMARK
"ISDEX INDEX" and "internet.com" are service marks, internet.com is a trademark
and ISDEX is a registered trademark of internet.com Corporation, and are used by
Investec Guinness Flight Global Asset Management Limited in connection with the
Fund pursuant to a license agreement between Investec Guinness Flight Global
Asset Management Limited and internet.com.
Under the license agreement, internet.com is partially compensated for its
license to Investec Guinness Flight Global Asset Management Limited and the Fund
of the service mark and trademarks described above based on the total assets
invested in the Fund. internet.com makes no representation or warranty, express
or limited, 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 ISDEX to track any
aspect of market performance. internet.com will continue to determine the
composition of the ISDEX Index without regard to Investec Guinness Flight Global
Asset Management Limited or the Fund, and internet.com has no obligation,
express or implied, to take the needs of Investec Guinness Flight Global Asset
Management Limited or investors in the Fund into consideration in determining or
composing the ISDEX Index. Internet.com does not guarantee the quality,
accuracy, currency, and/or the completeness of the isdex index or any data
included therein. Internet.com makes no express or implied warranty 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 isdex index or any data included therein in connection with the fund or for
any other use. Internet.com 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 isdex index or any data included
therein. Without limiting any of the foregoing, in no event
-31-
<PAGE>
shall internet.com have any liability for any special, punitive, indirect or
consequential damages (including lost profits), even if notified of the
possibility of such damages.
-32-
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
As with all mutual funds, investing in our Funds involves certain risks. We
cannot guarantee that a Fund will meet its investment objective or that a Fund
will perform as it has in the past. You may lose money if you invest in one of
our Funds.
The Funds may use various investment techniques, some of which involve greater
amounts of risk. We discuss these investment techniques in detail in the
Statement of Additional Information. To reduce risk, the Funds are subject to
certain limitations and restrictions, which we also describe in the Statement of
Additional Information.
You should consider the risks described below before you decide to invest in our
Funds.
RISKS OF INVESTING IN MUTUAL FUNDS
The following risks are common to all mutual funds and therefore apply to all
our 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 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 Portfolio Turnover Risk. We may trade actively and frequently to
achieve a Fund's goals. This may result in higher capital gains
distributions, which would increase your tax liability. Frequent
trading may also increase the Fund's costs which would affect the
Fund's performance over time.
RISKS OF INVESTING IN FOREIGN SECURITIES
The following risks are common to mutual funds that invest in foreign securities
and therefore apply to all our Funds:
o Legal System and Regulation Risks. Foreign countries have different
legal systems and different regulations concerning financial
disclosure, accounting, and auditing standards. Corporate financial
information that would be disclosed under U.S. law may not be
available. Foreign accounting and auditing standards may render a
foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards. Additionally,
government oversight of foreign stock exchanges and brokerage
industries may be less stringent than in the U.S.
o Currency Risk. Most foreign stocks are denominated in the currency of
the stock exchange where it is traded. The Funds' Net Asset Values are
denominated in U.S. Dollars. The exchange rate between the U.S. Dollar
and most foreign currencies fluctuates; therefore the Net Asset Value
of a Fund will be affected by a change in the exchange rate between
the U.S. Dollar and the currencies in which a Fund's stocks are
denominated. The Funds may also incur transaction costs associated
with exchanging foreign currencies into U.S. Dollars.
-33-
<PAGE>
o Stock Exchange and Market Risk. Foreign stock exchanges generally have
less volume than U.S. stock exchanges. Therefore, it may be more
difficult to buy or sell shares of foreign securities, which increases
the volatility of share prices on such markets. Additionally, trading
on foreign stock markets may involve longer settlement periods and
higher transaction costs.
o Market Concentration. Many foreign stock markets are more concentrated
than the U.S. stock market as a smaller number of companies make up a
larger percentage of the market. Therefore, the performance of a
single company or group of companies could have a much greater impact
on a foreign stock market than a single company or group of companies
would on the U.S. stock market.
o Expropriation Risk. Foreign governments may expropriate a Fund's
investments either directly by restricting the Fund's ability to sell
a security, or by imposing exchange controls that restrict the sale of
a currency, or indirectly by taxing the Fund's investments at such
high levels as to constitute confiscation of the security. There may
be limitations on the ability of a Fund to pursue and collect a legal
judgment against a foreign government.
RISKS OF INVESTING IN ASIA
The following risks are common to all mutual funds that invest in Asia, and
therefore apply to all our Funds that invest in Asia:
o Currency Devaluation. Over 1997 and 1998, the values of many Asian
currencies declined because corporations in these Asian countries had
to buy U.S. Dollars to pay large U.S. Dollar denominated debts. The
decline in the value of the currencies triggered a loss of investor
confidence that resulted in a decline in the value of the stock
markets of the effected countries. Similar devaluations could occur in
countries that have not yet experienced currency devaluation to date
or could continue to occur in countries that have already experienced
such devaluations.
o Political Instability. The economic reforms that Asian nations are
instituting under the guidelines of the International Monetary Fund
(IMF) could cause higher interest rates and higher unemployment. This
could, in turn, cause political instability as the people in these
nations feel the effects of higher interest rates and higher
unemployment, which could cause some Asian nations to abandon economic
reform or could result in the election or installation of new
governments.
o Foreign Trade. Asian nations tend to be very export-oriented.
Countries that receive large amounts of Asian exports could enact
protectionist trade barriers in response to cheaper Asian exports,
which would hurt the profits of Asian exporters.
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<PAGE>
RISKS OF INVESTING IN COUNTRY SPECIFIC FUNDS
The above risks apply to our Mainland China Fund and China & Hong Kong Fund to a
greater extent because the investments of these Funds are not diversified across
many countries.
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 all our Funds that invest in small cap stocks
(including, but not limited to, the Asia Small Cap Fund, the Mainland China
Fund, the Wired Index(TM) Fund, the Wireless World Fund(TM) , and the
internet.com Index(TM) Fund):
As a general rule, investments in stock of small cap companies are more risky
than investments in the stock of larger companies (those with a market value of
greater than U.S. $1 billion) for the following reasons, among others:
o Limited Product Line. Small cap companies tend to rely on more limited
product lines and business activities, which make them more
susceptible to setbacks or down turns;
o Illiquidity. The stock of small cap companies may be traded less
frequently than that of larger companies; and
o Limited Resources. Small cap companies have more limited financial
resources.
RISKS OF INVESTING IN THE WIRED INDEX(TM) The following risks apply to the Wired
Index(TM) Fund:
o Index Concentration. The Wired Index(TM) is comprised of 40 companies.
Because of thIS concentration and focus, the Wired Index(TM) 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(TM) 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 COMPANIES WITH SUBSTANTIAL INTEREST IN WIRELESS
COMMUNICATION
The following risks apply to the Wireless World Fund(TM):
o Concentration. The Fund will invest in companies from a variety of
sectors poised to benefit from a shift in personal communications
(including telephone, the Internet and e-mail) to wireless technology.
Many of these companies may be telecommunications or technology
related and as such the Fund may be concentrated in these companies.
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.
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<PAGE>
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
obsolescence caused by advances in science and technology.
RISKS OF INVESTING IN THE INTERNET.COM INDEX The following risks apply to the
internet.com Index(TM) Fund:
o Index Concentration. The internet.com Index(TM) Fund is comprised of
50 companieS. Because of this concentration and focus on Internet
stocks, the internet.com Index(TM) Fund may exhibit more volatility
and fluctuation on a day-to-day basis than a larger, broad-based
index.
o Internet Sector Concentration. The internet.com Index(TM) Fund is
solely invested IN Internet companies or Internet-related companies.
Because of this concentration and focus, the Fund may exhibit a
greater degree of volatility and fluctuation on a day-to-day basis
than a larger, broader-based index.
o Internet Company Risk. Internet companies, which are the primary
components of the internet.com Index, are subject to special risks.
Internet companies are subject to a more rapid rate of change in
technology and products than non-Internet companies. As a result, the
share prices of Internet companies will fluctuate to a greater degree
than other stocks. Changes in telephone and cable regulations,
anti-trust regulations and freedom of speech laws may have a material
effect on the demand for Internet services. Many of the products and
services of Internet companies are subject to high risks of
obsolescence caused by advances in science and technology.
-36-
<PAGE>
GUINNESS FLIGHT MANAGEMENT
GUINNESS FLIGHT MANAGEMENT
Investec Guinness Flight Global Asset Management is the investment advisor for
the Guinness Flight Investment Funds. Investec Guinness Flight supervises all
aspects of the Funds' operations and advises the Funds, subject to oversight by
the Fund's Board of Trustees. For providing these services, the Funds pay
Investec Guinness Flight an annualized 1% advisory fee for the Asian Equity
Funds and the Wireless World Fund(TM), an annualized 0.90% or leSS advisory fee
for the Wired Index(TM) Fund and the internet.com Index(TM) Fund.
Investec Guinness Flight is a subsidiary of Investec Group Limited. Investec
Guinness Flight was created in November 1998 through the merger of Guinness
Flight Hasbro Asset Management Limited and Investec Asset Management. Investec
Guinness Flight and its subsidiaries manage 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, Guernsey Hong Kong, and the U.S. The U.S. office is located at 225 S.
Lake Avenue, Suite 777, Pasadena, CA 91101. Investec Guinness Flight's main
office is located in London, England at 2 Gresham Street, London EC2V 7QP. The
Hong Kong office is located at 2106-2108 Jardine House, One Connaught Place,
Central, Hong Kong. Investec Group's main office is located at 100 Grayston
Drive, Sandown, Sandton, Johannesburg, 2196, South Africa.
PORTFOLIO MANAGEMENT
ASIA BLUE CHIP FUND AND ASIA SMALL CAP FUND
Robert Conlon. Mr. Conlon joined Guinness Flight Hambro's Hong Kong investment
team in 1998 as a Fund Manager. Prior to joining the company, Mr. Conlon had
over 10 years of investment management experience with Ivory & Sime, including
the last four years as Senior Investment Manager in their Hong Kong office. At
Ivory & Sime, Mr. Conlon managed Asian portfolios as well as portfolios
investing in U.S. small cap stocks. He is co-manager of the Asia Blue Chip and
Asia Small Cap Funds and serves as chief investment officer for Investec
Guinness Flight Asia Limited.
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<PAGE>
Agnes Chow. Ms. Chow joined Hasbro Pacific Fund Management, now Investec
Guinness Flight, in 1995 as a Fund Manager. Prior to joining Guinness Flight
Hasbro, she worked as an Assistant Fund Manager at Dao Heng Fund Management from
November 1994 to August 1995 and as an Investment Analyst and Assistant Fund
Manager with Sun Hung Kai Securities from 1993 through 1994. Ms. Chow is
co-manager of the Asia Blue Chip and Asia Small Cap Funds.
CHINA & HONG KONG FUND
Edmund Harriss. Mr. Harriss joined Guinness Flight's London headquarters in July
1993 as a Marketing Executive and transferred to the Far East Desk in 1994. He
has assisted with the management of the China & Hong Kong Fund since November
1994. He was named a co-manager in early 1998. Previously, from 1991 to 1993, he
was the Assistant to the Managing Director at a computer software company, PP
Systems Ltd. of Salisbury, England. Mr. Harriss is an Associate Member of the
Institute of Management & Research.
Adrian Fu. Mr. Fu joined Hasbro Pacific Fund Management, now Investec Guinness
Flight, in 1996 as a member of the Hong Kong investment team. Prior to joining
the company, he was an Associate at Indo-Suez Asia Shipping Finance Services,
Ltd. from December 1994 to October 1996.
MAINLAND CHINA FUND
Robert Conlon. See biography under Asia Blue Chip Fund and Asia Small Cap Fund.
Adrian Fu. See biography under China & Hong Kong Fund.
WIRED INDEX(TM) 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. He currently manages four index funds available to
offshore investors as well as the Wired Index(TM) Fund and internet.com
Index(TM) Fund. He also manages Investec USA Equity Fund, Investec European
Equity Fund, Investec Japanese Equity Fund and Investec Index Fund. Prior to
joining Investec Asset Management, Mr. Blatch was a manager at Schitag Ernst &
Young GMBH (Berlin) from 1993 to 1995.
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<PAGE>
WIRELESS WORLD FUND(TM)
Nigel Dutson. Prior to joining Investec Asset Management in 1999, Mr. Dutson was
affiliated with Schroder Investment Management where he managed 23 institutional
accounts with a combined value of approximately ,2.2 billion. Mr. Dutson had
specific responsibility for U.K. equity stock selection. From 1988 to 1996 Mr.
Dutson was an Investment Analyst (U.S. Equities) and Investment Manager
(Continental European Equities) at Hill Samuel Asset Management where he had
specific responsibility for the Headline H.S. European Trust and offshore funds.
Seth Kirkham. Mr. Kirkham joined Investec Guinness Flight in April 2000 with
analytical responsibility for Pan-European telecommunications. Upon graduating
from Bristol University with a joint degree in Economics and Accounting, Mr.
Kirkham entered the Schroder Investment Management Graduate Program. He
subsequently entered Schroder's Pan-European research department, responsible
for telecommunications and Internet stocks. He has completed the Institute of
Investment Management and Research (IIMR) analyst exams, with an award in
Corporate Finance and Accounting.
Adrian Brass. Mr. Brass joined Investec Guinness Flight in April 2000. He has
analytical responsibility for Pan-European technology hardware and software
sectors. Mr. Brass received Joint Honors in Economics and Politics from the
University of Bristol in 1995. Upon graduation, he joined Schroder Investment
Management, first as an assistant fund manager, then as an analyst covering
technology hardware and industrial sectors. Mr. Brass headed the Pan-European
Industrials and Technology Hardware research team during his last year at
Schroder. He is a CFA and has completed the IMRO member exams.
THE INTERNET.COM INDEX(TM) FUND
Doug Blatch. See biography under Wired Index(TM) Fund above.
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<PAGE>
SHAREHOLDER GUIDE: YOUR ACCOUNT WITH GUINNESS FLIGHT INVESTMENT MINIMUMS
THE MINIMUM INITIAL INVESTMENTS ARE:
- --------------------------------------------------------------------------------
TYPE OF ACCOUNT
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.
- --------------------------------------------------------------------------------
OVERVIEW OF ACCOUNTS WE OFFER
REGULAR RETIREMENT
o Individual o Roth IRA
o Joint Tenant o Regular IRA
o UGMA/UTMA o Rollover IRA
o Trust o Roth Conversion
o Corporate o SEP IRA
o 401 (k)
o 403 (b)
PURCHASING, EXCHANGING & SELLING
HOW TO PURCHASE, EXCHANGE, AND SELL SHARES
The Transfer Agent is open from 8 a.m. to 6 p.m. Eastern Time for purchase,
redemption and exchange orders. Shares will be purchased, exchanged and redeemed
at NAV per share. For trades in the Wired Index(TM) Fund, Wireless World
Fund(TM) and internet.com Index(TM) FuND, 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. With respect to the Asia Blue Chip Fund, Asia Small Cap Fund, China & Hong
Kong Fund, and Mainland China Fund, this cut-off time is 9:30 a.m. Eastern Time,
meaning that purchase, exchange and redemption orders must be received by that
time to be processed that day. The phone number you should call for account
transaction requests is (800) 915-6566.
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<PAGE>
SSGA MONEY MARKET FUND
Guinness Flight does not operate a money market fund; however you may purchase
or exchange shares of the SSgA Money Market Fund through Guinness Flight. State
Street Bank & Trust Co. advises the SSgA Money Market Fund. Their address is 225
Franklin Street, Boston MA 02110. You may only purchase shares of SSgA Money
Market Fund if it is available to residents of the state in which you reside.
Please read the prospectus of the SSgA Money Market before you decide to invest.
You may request a SSgA Money Market prospectus by calling (800) 915-6566.
PURCHASING
HOW TO PURCHASE SHARES
You may purchase shares of any Guinness Flight Investment Fund or the SSgA Money
Market Fund by mail, wire or auto-buy. You may exchange shares of any Guinness
Flight Fund for shares of another Guinness Flight Fund or the SSgA Money Market
Fund by mail or phone. A broker may charge you a transaction fee for making a
purchase for you.
MAIL
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 stamped envelope:
Guinness Flight Investment Funds
P.O. Box 8166
Boston, MA 02266-8116
For an overnight package:
Boston Financial Data Services
ATTN: Guinness Flight Investment Funds
66 Brooks Drive
Braintree, MA 02184
WIRE
To purchase by wire, call the Transfer Agent at (800) 915-6566 between 8 a.m.
and 6 p.m. Eastern Time on a business day to get an account number and detailed
instructions. You must then provide the Transfer Agent with an original signed
application within 10 business days of the initial purchase. Instruct your bank
to send the wire to:
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<PAGE>
State Street Bank and Trust Company
ABA #0110 00028
Shareholder and Custody Services
DDA # 99050171
(Your Name)
ATTN: [Fund 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 Net Asset Value (NAV) per
share as of the date the debit is made.
Auto-Buy: You may purchase additional shares of a 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,
via the mail, 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 the Funds 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.
EXCHANGING AND REDEEMING
How to Exchange and Redeem Shares. You may exchange or redeem shares by mail or
telephone. When you exchange shares, you sell shares of one Guinness Flight Fund
and buy shares of another 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:
o Provide your name and account number;
o Specify the number of shares or dollar amount and the Fund name or
number;
o To exchange shares, specify the name of the Fund (either another
Guinness Flight Fund or the SSgA Money Market) you want to purchase;
o Sign the redemption or exchange request (the signature must be exactly
the same as the one on your account application). Make sure all
parties that are required by the account registration sign the
request.
o Send your request to the appropriate address as given under purchasing
by mail on page [___].
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<PAGE>
TELEPHONE:
You may redeem or exchange your shares of a Guinness Flight Fund 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 a.m. and 6 p.m. Eastern Time 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 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 a 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
o Redemption of an account where the proceeds are to be sent to an
address other than the record address.
ADDITIONAL EXCHANGE/REDEMPTION INFORMATION
Redemption Fee. You will be charged a redemption fee of 1% of the value of the
shares being redeemed if you redeem your shares of the Asia Blue Chip Fund, Asia
Small Cap Fund, Wireless World Fund(TM) or Wired Index(TM) Fund within 30 days
of purchase. You will be charGEd a redemption fee of 2% of the value of the
shares being redeemed if you redeem your shares of the China & Hong Kong Fund,
internet.com Index(TM) Fund and Mainland china fund within 30 daYS of purchase.
There will not be a redemption fee if the shares were acquired through
reinvestment of distributions. Redemptions are on a first-in, first-out basis.
The redemption fee will be waived if the fee is equal to or less than .10% of
the total value of the redemption.
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<PAGE>
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.
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.
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.
Credit Line. We may borrow cash temporarily from an established line of credit
with Deutsche Bank AG to satisfy redemption requests.
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 the Wired Index(TM) Fund, Wireless World
Fund(TM) and internet.com Index(TM) Fund are determined at the close of business
of the New York StoCK Exchange (generally 4:00 p.m. Eastern Time). The NAV per
share of the Asia Blue Chip Fund, Asia Small Cap Fund, China & Hong Kong Fund
and Mainland China Fund are determined as of 9:30 a.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 the
Funds' officers under methods authorized by the Board of Trustees.
Dividends and Capital Gains Distributions. All Funds distribute all or most of
their net investment income and net capital gains to shareholders. Dividends
(investment income) for all the Funds are normally declared and paid
semi-annually, in June and December. Net Capital Gains for all Funds are
normally distributed 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 the 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 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 or capital gains distribution.
Buying Before a Dividend. If you purchased shares of a Fund on or before the
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.
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<PAGE>
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 our Funds as well as for information on state and
local taxes which may apply. A statement that provides the Federal income tax
status of the Funds' 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, including dividends, foreign currency gains and
short-term capital gains. The second category of distribution is
capital gains distributions. Capital gains distributions are
distributions of a Fund's net 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 wash sale) a
deduction for the loss is generally disallowed.
o Foreign Source Income and Withholding Taxes. Some of the Funds'
investment income may be subject to foreign income taxes that are
withheld at the source. If the Funds meet certain legal requirements,
they may elect to "pass-through" these foreign taxes to shareholders.
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
such foreign taxes and would therefore be allowed to claim a foreign
tax credit or a foreign tax deduction for their share of foreign taxes
paid.
Distribution Plan. The Funds have adopted a Distribution Plan under Rule 12b-1
of the 1940 Act. Under this plan, no separate payments are authorized by a Fund.
We must use fee revenues or other resources to pay the expenses of shareholder
servicing and record keeping. We may also make payments from these sources to
third parties, including affiliates and independent contractors, for these types
of services.
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<PAGE>
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS FOR ASIA BLUE CHIP FUND
This financial highlights table is intended to help you understand the Asia Blue
Chip Fund's financial performance for the period since its inception on April
29, 1996. Certain information reflects financial results for a single share of
the Fund. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund assuming reinvestment of
all dividends and distributions. Ernst & Young LLP audited this information.
Ernst & Young's report along with further detail on the Fund's financial
statements are included in the annual report, which is available upon your
request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
For the April 29,
For the Year Year For the 1996*
Ended Ended Year Ended through
12/31/99 12/31/98 12/31/97 12/31/96
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period... $7.08 $8.08 $12.98 $12.50
----- ----- ------ ------
Income from investment operations:
Net investment income 0.02 0.05 0.02 ___
Net realized and unrealized gain (loss) on
investments......................... 4.31 (1.01) (4.91) 0.48
---- ----- ---- ----
Total from investment operations......... 4.33 (0.96) (4.89) 0.48
---- ------ ------ ----
Less distributions:
Dividends from net investment income.. _____ (0.04) (0.01) ___
------ ------
Distributions from taxable net capital
gains.................................... _____ _____ ______ ___
Total distributions...................... _____ (0.04) (0.01) ___
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
For the April 29,
Year For the Year For the Year 1996*
Ended Ended Ended through
12/31/99 12/31/98 12/31/97 12/31/96
----------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, end of period $11.41 $7.08 $8.08 $12.98
Total return 61.16% (11.78)% (37.68)% 3.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end $10,786 $7,849 $6,917 $3,687
of period (thousands)
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense
reimbursement 2.99% 3.85% 4.41% 9.14%+
After expense
reimbursement 1.98% 1.98% 1.98% 1.98%+
RATIO OF NET INVESTMENT INCOME (LOSS ) TO AVERAGE NET ASSETS:
Before expense
reimbursement (0.89)% (1.03)% (2.16)% (7.10)%+
After expense
reimbursement 0.12% 0.91% 0.28% 0.06%+
Portfolio turnover rate 82.34% 77.62% 34.69% 10.97%
BANK LOANS
Amount outstanding at end
of period (000) $___^ ___ ___ n/a
Average amount of bank
loans outstanding during
the period (monthly
average) (000) $___^ ___ $121 n/a
Average number of shares
outstanding during the
period (monthly
average) (000) ___^ ___ 479 n/a
Average amount of debt
per share during the period $___^ ___ $0.25 n/a
</TABLE>
- ----------
* Commencement of operations.
-47-
<PAGE>
FINANCIAL HIGHLIGHTS FOR ASIA SMALL CAP FUND
This financial highlights table is intended to help you understand the Asia
Small Cap Fund's financial performance for the period since its inception on
April 29, 1996. Certain information reflects financial results for a single
share of the Fund. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund assuming
reinvestment of all dividends and distributions. Ernst & Young LLP audited this
information. Ernst & Young's report along with further detail on the Fund's
financial statements are included in the annual report, which is available upon
your request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
For the April 29,
Year For the Year For the Year 1996*
Ended Ended Ended through
12/31/99 12/31/98 12/31/97 12/31/96
----------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, $6.73 $9.73 $14.10 $12.50
beginning of period
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.06 0.07 0.02
Net realized and unrealized
gain (loss) on investments 2.81 (3.06) (4.38) 1.61
Total from investment
operations 2.86 (3.00) (4.31) 1.63
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.08) ___ ___ (0.02)
Distributions from
taxable net capital gains ___ ___ (0.01) (0.01)
Return of Capital ___ ___ (0.05) ___
TOTAL DISTRIBUTIONS (0.08) ___ (0.06) (0.03)
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations.
-48-
<PAGE>
<TABLE>
<CAPTION>
For the April 29,
Year For the Year For the Year 1996*
Ended Ended Ended through
12/31/99 12/31/98 12/31/97 12/31/96
----------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, end of period $9.51 $6.73 $9.73 $14.10
Total return 42.43% (30.83)% (30.77)% 13.08++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end $37,674 $49,417 $108,478 $50,868
of period (thousands)
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense
reimbursement (recoupment) 2.39% 2.31% 1.76% 3.09%+
After expense
reimbursement (recoupment) 1.98% 1.98% 1.80% 1.98%+
RATIO OF NET INVESTMENT INCOME (LOSS ) TO AVERAGE NET ASSETS:
Before expense
reimbursement (recoupment) 0.07% 0.52% 0.53% (0.76)%+
After expense
reimbursement (reimbursement) 0.48% 0.85% 0.49% 0.36%+
Portfolio turnover rate 67.24% 48.95% 52.33% 21.91%++
BANK LOANS
Amount outstanding at end
of period (000) $___^ $810 N/A N/A
Average amount of bank
loans outstanding during
the period (monthly
average) (000) $654^ $67 N/A N/A
Average number of shares
outstanding during the
period (monthly
average) (000) 5,519^ 6,566 N/A N/A
Average amount of debt
per share during the period $0.12^ $0.01 N/A N/A
</TABLE>
* Commencement of operations.
* Commencement of operations.
^ The Fund's line of credit expired June 15, 1999.
+Annualized
++Not Annualized
-49-
<PAGE>
FINANCIAL HIGHLIGHTS FOR CHINA & HONG KONG FUND
This financial highlights table is intended to help you understand the China &
Hong Kong Fund's financial performance for the period since its inception on
June 30, 1994. Certain information reflects financial results for a single share
of the Fund. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund assuming reinvestment of
all dividends and distributions. Ernst & Young LLP audited this information.
Ernst & Young's report along with further detail on the Fund's financial
statements are included in the annual report, which is available upon your
request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
For the For the For the
Year For the Year For the Year Year Year
Ended Ended Ended Ended Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, $10.77 $12.91 $17.71 $13.64 $11.47
beginning of period
INCOME FROM INVESTMENT OPERATIONS:
Net investment 0.23 0.15 0.20 0.19 0.14
income
Net realized and
unrealized gain
(loss) on
investments 6.91 (2.14) (3.71) 4.43 2.20
Total from investment
operations 7.14 (1.99) (3.51) 4.62 2.34
LESS DISTRIBUTIONS:
Dividends from
net investment
income (0.26) (0.15) (0.20) (0.19) (0.14)
Distributions
from taxable
net capital gains ___ ___ (1.09) (0.36) (0.03)
Total
distributions (0.26) (0.15) (1.29) (0.55) (0.17)
Net asset value,
end of period $17.65 $10.77 $12.91 $17.71 $13.64
Total return 66.27% (15.27)% (20.34)% 34.38% 20.45%
</TABLE>
-50-
<PAGE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
<S> <C> <C> <C> <C> <C>
(thousands) $163,372 $146,810 $241,808 $311,521 $55,740
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before expense
reimbursement
(recoupment) 1.86% 1.89% 1.70% 1.78% 3.02%+
After expense
reimbursement
(recoupment) 1.86% 1.89% 1.70% 1.96% 1.98%
RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS:
Before expense
reimbursement
(recoupment) 1.45% 1.60% 1.18% 1.57% 0.49%
After expense
reimbursement
(recoupment) 1.45% 1.60% 1.18% 1.39% 1.52%
Portfolio
turnover rate 29.49% 86.59% 53.62% 30.40% 10.89%
BANK LOANS
Amount outstanding at end
or period (000) $____^ $4,274 ___ ___ N/A
Average amount
of bank loans outstanding
during the period
(monthly average) (000) $1,017^ $8,765 $2,305 $1,413 N/A
Average number of
shares outstanding
during the period
(monthly average)
(000) 12,041^ 18,533 16,944 11,419 N/A
Average amount of
debt per share
during the period $0.08^ $0.47 $0.14 $0.12 N/A
</TABLE>
+ Includes directly paid expenses. Excluding indirectly paid expenses for the
year ended December 31, 1995, the ratio of expenses to average net assets
before expense reimbursement would have been 3.0%.
^ The Fund's line of credit expired June 15, 1999.
-51-
<PAGE>
FINANCIAL HIGHLIGHTS FOR MAINLAND CHINA FUND
This financial highlights table is intended to help you understand the Mainland
China Fund's financial performance for the period since its inception on
November 3, 1997. Certain information reflects financial results for a single
share of the Fund. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund assuming
reinvestment of all dividends and distributions. Ernst & Young LLP audited this
information. Ernst & Young's report along with further detail on the Fund's
financial statements are included in the annual report, which is available upon
your request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
November 3,
For the Year For the Year 1997*
Ended Ended through
December 31, December 31, December 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period..... $8.74 $11.79 $12.50
Income from investment operations:
Net investment income................. 0.09 0.11 0.02
Net realized and unrealized gain (loss) on
investments......................... 2.72 (3.05) (0.71)
Total from investment operations......... 2.81 (2.94) (0.69)
Less distributions:
From net investment income............ (0.08) (0.11) (0.02)
Net asset value, end of period........... $11.47 $8.74 $11.79
Total return............................. 32.20% (24.96)% (5.50)%**
Ratios/supplemental data:
Net assets, end of period (thousands).... $12,852 $10,353 $16,402
Ratio of expenses to average net assets:
Before expense reimbursement.......... 3.33% 3.13% 2.69%+
After expense reimbursement........... 1.98% 1.98% 1.98%+
Ratio of net investment income to average
net assets:
Before expense reimbursement.......... (0.53)% (0.05)% 1.17%+
After expense reimbursement........... 0.82% 1.10% 1.88%+
Portfolio turnover rate.................. 99.39% 82.00% __**
BANK LOANS
Amount outstanding at end of period
(thousands) $__^ $115 N/A
Average amount of bank loans outstanding
during the period (monthly average)
(thousands) $16^ $10 N/A
Average number of shares outstanding during
the period (monthly average) (thousands) 1,164^ 1,403 N/A
Average amount of debt per share during the
period $0.01^ $0.01 N/A
</TABLE>
* Commencement of operations
** Not annualized.
+ Annualized
+ The Fund's line of credit expired June 15, 1999.
-52-
<PAGE>
FINANCIAL HIGHLIGHTS FOR WIRED INDEX(TM) FUND
This financial highlights table is intended to help you understand the Wired
Index(TM) Fund's financial performance for the period since its inception on
December 15, 1998. Certain information reflects financial results for a single
share of the Fund. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund assuming
reinvestment of all dividends and distributions. Ernst & Young LLP audited this
information. Ernst & Young's report along with further detail on the Fund's
financial statements are included in the annual report, which is available upon
your request. For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
December 15,
For the Year 1998*
Ended through
December 31, December 31,
1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period............ $13.95 $12.50
Income from investment operations:
Net investment income (loss)................ (0.12) 0.00+
Net realized and unrealized gain on investments 9.69 1.45
Total from investment operations................ 9.57 1.45
Less distribution:
From net investment income ................. 0.00+ --
Net asset value, end of period.................. $23.52 $13.95
Total return.................................... 68.68% 11.60%++
Ratios/supplemental data:
Net assets, end of period (thousands)........... $164,014 $9,433
Ratio of expenses to average net assets:
Before expense reimbursement................ 1.38% 1.97%+
After expense reimbursement................. 1.35% 1.35%+
Ratio of net investment income to average net assets:
Before expense reimbursement................ (0.92)% 0.02%+
After expense reimbursement................. (0.89)% 0.60%+
Portfolio turnover rate......................... 39.82% 0.11%++
</TABLE>
* Commencement of operations.
+ Amount represent less than $0.01 per share.
+ Annualized.
++ Not annualized.
-53-
<PAGE>
Financial Highlights For internet.com Index(TM) Fund
This financial highlights table is intended to help you understand the
Internet.Com Index(TM) Fund's financial performance for the period since its
inception on July 30, 1999. Certain information reflects financial results for a
single share of the Fund. The total returns in the table represent the rate that
an investor would have earned or lost on an investment in the Fund assuming
reinvestment of all dividends and distributions. Ernst & Young LLP audited this
information. Ernst & Young's report along with further detail on the Fund's
financial statements are included in the annual report, which is available upon
your request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
July 30, 1999*
through
December 31, 1999
- -----------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period........................ $ 12.50
Income from investment operations:
Net investment loss.................................... (0.04)
Net realized and unrealized gain on investments........ 10.30
Total from investment operations............................ 10.26
Net asset value, end of period.............................. $ 22.76
Total return................................................ 82.08 %++
Ratios/supplemental data:
Net assets, end of period (thousands)....................... $42,916
Ratio of expenses to average net assets:
Before expense reimbursement........................... 2.38 %+
After expense reimbursement............................ 1.34 %+
Ratio of net investment loss to average net assets:
Before expense reimbursement........................... (2.23) %+
After expense reimbursement............................ (1.19) %+
Portfolio turnover rate..................................... 13.30 %++
</TABLE>
* Commencement of operations.
+ Annualized.
++ Not Annualized.
-54-
<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. The annual and semi-annual reports to
shareholders contain additional information about each Fund's investments,
including 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. The Statement of Additional Information
and annual and semi-annual reports are available without charge upon your
request by calling Guinness Flight at (800) 915-6566 or by calling or writing a
broker-dealer or other financial intermediary that sells our Funds. This
information may be reviewed 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 or calling the Public Reference Room of the Securities and Exchange
Commission, Washington, D.C. 20549-6009, telephone (800) SEC-0330.
Investment Company Act file no. 811-0836047
-55-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GUINNESS FLIGHT INVESTMENT FUNDS
225 South Lake Avenue, Suite 777
Pasadena, California 91101
GUINNESS FLIGHT CHINA & HONG KONG FUND
GUINNESS FLIGHT ASIA BLUE CHIP FUND
GUINNESS FLIGHT ASIA SMALL CAP FUND
GUINNESS FLIGHT MAINLAND CHINA FUND
GUINNESS FLIGHT WIRED INDEX(TM) FUND
GUINNESS FLIGHT internet.com INDEX(TM) FUND
GUINNESS FLIGHT WIRELESS WORLD FUND(TM)
This Statement of Additional Information (the "SAI") is not a
prospectus, but should be read in conjunction with the current prospectus dated
April 28, 2000 (the "Prospectus"), 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 Wired Index(TM)1 Fund (the "Wired Index(TM) Fund"),
Guinness Flight internet.com Index(TM) Fund (the "internet.com Index(TM) Fund")
and Guinness Flight Wireless World Fund(TM) (the "Wireless World Fund(TM)") are
offered (each fund to which this SAI relates will be referred to as,
collectively, the "Funds"). Please retain this document for future reference.
For a free copy of the prospectus, please call the Funds at
1-800-915-6565
- ----------------------
1 "WIRED INDEX" is a service mark, and "WIRED" a registered trademark, of
Advance Magazine Publishers Inc. ("Advance"), used with permission of Advance.
Wired Magazine and Advance make no representation or warranty, express or
implied, to Guinness Flight 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 Guinness Flight or the Fund, and Wired Magazine has no obligation to take the
needs of Guinness Flight 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 GUINNESS FLIGHT, INVESTORS IN THE FUND, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE WIRED INDEX OR ANY DATA INCLUDED THEREIN CONNECTION
WITH THE FUND OR FOR ANY OTHER USE. ADVANCE MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES, OR 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.
<PAGE>
GENERAL INFORMATION AND HISTORY...............................................2
INVESTMENT OBJECTIVE AND POLICIES.............................................3
INVESTMENT STRATEGIES AND RISKS...............................................4
OTHER RISK FACTORS AND SPECIAL CONSIDERATIONS................................14
INVESTMENT RESTRICTIONS AND POLICIES.........................................18
PORTFOLIO TRANSACTIONS.......................................................19
COMPUTATION OF NET ASSET VALUE...............................................20
PERFORMANCE INFORMATION......................................................21
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................22
TAX MATTERS..................................................................23
MANAGEMENT OF THE FUNDS......................................................28
THE INVESTMENT ADVISER AND ADVISORY AGREEMENTS...............................30
THE ADMINISTRATOR............................................................32
ADMINISTRATION AGREEMENT, DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN.......32
DESCRIPTION OF THE FUNDS.....................................................33
SHAREHOLDER REPORTS..........................................................34
FINANCIAL STATEMENTS.........................................................35
GENERAL INFORMATION..........................................................35
APPENDIX A...................................................................36
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 seven 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 Wired Index(TM)
Fund, the internet.com Index(TM) Fund and the Wireless World Fund(TM), each of
which has unique investment objectives and strategies. Shares of the New Economy
Fund and another class of shares of the Wired Index(TM) Fund are not currently
offered for sale.
<PAGE>
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 Wired
Index(TM) Fund's investment objective is long-term capital appreciation
primarily through investments in the equity securities of companies that
comprise the Wired Index(TM). The internet.com Index(TM) Fund's investment
objective is long-term capital appreciation primarily through investments in
equity securities of companies that comprise the internet.com (TM)Index. The
Wireless World Funds'(TM) 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.
In addition to the primary investment strategies set forth in
the Prospectus dated April 28, 2000, each of the China & Hong Kong Fund, Asia
Blue Chip Fund, Asia Small Cap Fund and Mainland China 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.
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.
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, Wired Index(TM)Fund, internet.com Index(TM)Fund and
Wireless World Fund(TM)(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
3
<PAGE>
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 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.
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
4
<PAGE>
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
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a stated exercise price. As the writer of the call option, the Fund is obligated
to own the underlying securities subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges).
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
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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
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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.
13
<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.
14
<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.
15
<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.
16
<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.
17
<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.
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.
18
<PAGE>
Code of Ethics
Guinness Flight Investment Funds, Investec and the Distributor each
have adopted a code of ethics as required by applicable law, which is designed
to prevent affiliated persons of Guinness Flight Investment Funds, Investec and
the Distributor from engaging in deceptive, manipulative or fraudulent
activities in connection with securities held or to be acquired by a Fund (which
may also be held by persons subject to a code of ethics). There can be no
assurance that the codes of ethics will be effective in preventing such
activities.
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.
19
<PAGE>
<TABLE>
<CAPTION>
Brokerage commissions paid by the Funds were as follows:
Year China &
Ended Hong Kong Asia Blue Asia Small Mainland Wired Index(TM) internet.com
December 31, Fund Chip Fund Cap Fund China Fund Fund Index(TM)Fund +
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $316,299 $47,945 $308,693 $71,607 $120,825 $4,432
1998 $607,981 $53,232 $340,342 $88,875 $12,152(2)
1997 $714,450 $37,794 $1,271,036 $18,313(3)
</TABLE>
The high amount of brokerage commissions for the Asia Small Cap Fund in 1997 was
primarily due to volatile Asian equity markets in that year.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Wired Index(TM) Fund is determined
at 4:00 p.m. Eastern 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
net asset value of the internet.com Index(TM) Fund and the Wireless World
Fund(TM)are 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 net asset value of the Asia Blue Chip Fund, Asia Small Cap Fund,
China Hong Kong Fund and Mainland China Fund are determined as of 9:30 a.m.
Eastern Time on each day the New York Stock Exchange is open for business. 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.
- -----------------------
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.
20
<PAGE>
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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YIELD = 2[(ab +1)61]
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, 1999 and the average annual compounded rate of total
return from June 30, 1994 (inception) to December 31, 1999 for the China & Hong
Kong Fund was 66.27% and 9.83%. The annual compounded rate of total return for
the one year period ended December 31, 1999 and the average annual compounded
rate of total return from April 29, 1996 (inception) to December 31, 1999 for
the Asia Blue Chip Fund was 61.16% and -2.24%, respectively, and for the Asia
Small Cap Fund was 42.43% and -6.82%, respectively. The annual compounded rate
of total return for the one year period ended December 31, 1999 and the average
annual compounded rate of total return from November 3, 1997 (inception) to
December 31, 1999 for the Mainland China Fund was 32.20% and -2.95%,
respectively. The annual compounded rate of total return for the one year period
ended December 31, 1999 and the average compounded rate of total return from
December 15, 1998 (inception) to December 31, 1999 for the Wired (R)Index Fund
was 68.68% and 83.31% respectively. The average compounded rate of total return
from July 31, 1999 (inception) to December 31, 1999 for the internet.com
Index(TM) Fund was 82.08%.
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, 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 to the extent attributable to changes in foreign currency exchange
rates.
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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<PAGE>
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
expected return 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) under Treasury Regulations that have not
yet been promulgated the capitalized 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 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 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 may 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.
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 income 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 (including an exhchange of shares
of a fund for shares of another Fund) within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a Fund will be considered capital gain
or loss and will be long-term capital gain or loss if the shares were held for
longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) generally will apply in determining the holding period of
shares. 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, their
principal occupations for the past five years and ages are listed below. The
address of each Trustee is 225 South Lake Avenue, Suite 777, Pasadena,
California, 91101.
Timothy W.N. Guinness (52)-- 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* (53)-- 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* (60)-- 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* (42)-- 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.* (53)-- 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.
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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. (42)-- 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 (60)-- 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 (42)-- 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 (50)-- 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 (33)-- 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 (42)-- 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>
Aggregate Pension or Total Compensation
Compensation from Retirement Benefits Estimated Annual from Guinness Flight
Name of Person, Guinness Flight Accrued as Part of Benefits Upon Funds Paid to
Position 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.
29
<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 or defer all or a portion of
its fees payable under the Agreement.
30
<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 and Mainland China
Fund's average daily net assets. Investec will receive an annual fee of 0.90% of
the Wired Index(TM) 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(TM) 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 1.00% of the Wireless World Funds'(TM) average daily
net assets.
Advisory fees and expense reimbursements/(recoupments) were as follows:
<TABLE>
<CAPTION>
Gross Expenses
Advisory (Reimbursed)/
Fee Recouped
------------ --------------
Fiscal year ended December 31, 1999:
<S> <C> <C>
China & Hong Kong Fund $1,419,339 $0
Asia Blue Chip Fund $88,646 ($89,137)
Asia Small Cap Fund $371,860 ($152,568)
Mainland China Fund $114,272 ($154,800)
Wired(R)Index Fund $821,521 ($27,776)
internet.com Index(TM)Fund $59,986 ($69,971)
Gross Expenses
Advisory (Reimbursed)/
Fee Recouped
------------ ---------------
Fiscal year ended December 31, 1998:
Asia Blue Chip Fund $72,318 ($140,722)
Mainland China Fund $140,740 ($160,801)
Asia Small Cap Fund $549,616 ($181,002)
China & Hong Kong Fund $1,986,087 $0
Wired(R)Index Fund1 $1,771 ($1,214)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Gross Expenses
Advisory (Reimbursed)/
Fee Recouped
------------- --------------
Fiscal year ended December 31, 1997:
<S> <C> <C>
China & Hong Kong Fund $2,958,500 $0
Asia Blue Chip Fund $53,636 ($130,732)
Asia Small Cap Fund $1,692,574 $71,583
Mainland China Fund2 $15,705 $(11,487)
</TABLE>
- -------------------------
1 For the period 12/15/98 (commencement of operations) to 12/31/98.
2 For the period 11/3/97 (commencement of operations) to 12/31/97.
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 and Mainland China Fund.
Administration fees paid by the Funds were as follows:
<TABLE>
<CAPTION>
Year Ended China & Hong Asia Blue Asia Small Mainland Wired Index(TM) internet.com
December 31 Kong Fund Chip Fund Cap Fund China Fund Fund Index(TM)Fund
----------- --------- --------- -------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 $354,835 $22,161 $92,950 $28,561 $46,286 $8,332
1998 $496,522 $18,079 $137,404 $35,185 Waived(2) Waived(1)
1997 $739,625 $13,425 $424,336 $3,926(3)
</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.
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
32
<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.
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.
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.
33
<PAGE>
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 April 14, 2000, principal holders
owning 5% or more of the outstanding shares of the Fund as of record date are
set forth below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Fund Shareholder Name & Address % held as of April 14, 2000
- ---- -------------------------- ---------------------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
China & Hong Kong Fund Charles Schwab & Co. Inc. 27.08%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94101-4122
- ---------------------------------------------------------------------------------------------------------------------
Asia Blue Chip Fund Charles Schwab & Co. Inc. 34.74%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94101-4122
- ---------------------------------------------------------------------------------------------------------------------
Asia Small Cap Fund Charles Schwab & Co. Inc. 29.05%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94101-4122
- ---------------------------------------------------------------------------------------------------------------------
Mainland China Fund Charles Schwab & Co. Inc. 21.41%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94101-4122
- ---------------------------------------------------------------------------------------------------------------------
National Investors Services Corp 5.65%
Special Custody Account
The Exclusive Benefit of Customers
55 Water Street, 32nd Floor
New York, New York 10041-3299
- ---------------------------------------------------------------------------------------------------------------------
Wired Index(TM)Fund Charles Schwab & Co. Inc. 46.66%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94101-4122
- ---------------------------------------------------------------------------------------------------------------------
internet.com Index(TM)Fund Charles Schwab & Co. Inc. 41.07%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94101-4122
- ---------------------------------------------------------------------------------------------------------------------
Wireless World Fund(TM) Charles Schwab & Co. Inc. 25.68%
Special Custody Account
The Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94101-4122
- ---------------------------------------------------------------------------------------------------------------------
National Investors Services Corp 9.86%
Special Custody Account
The Exclusive Benefit of Customers
55 Water Street, 32nd Floor
New York, New York 10041-3299
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
FINANCIAL STATEMENTS
The audited statement of assets and liabilities and report
thereon for the Funds for the year ended December 31, 1999 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.
35
<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.
36
<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."
37
<PAGE>
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.(6)
(j)(2) Consent of Ernst & Young LLP, Independent Auditors for the
Registrant.(6)
(k) Annual Report for the year ended December 31, 1999 is incorporated by
reference from the Rule 30D filing made by the Registrant on March 6,
2000 (Accession number 0000912057-00-009773).
(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.
(p) Codes of Ethics.(6)
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
- ---------------------
(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 as an Exhibit to Post-Effective Amendment No. 24 to Registrant's
Registration Statement on Form N-1A filed electronically on December 23, 1999, ,
accession number 0000922423-99-001476 and incorporated herein by reference.
(6) Filed herewith.
C-2
<PAGE>
or otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion of
independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered
Person may now or hereafter be entitled, shall continue as to a person
who has ceased to be a Covered Person and shall inure to the benefit of
the heirs, executors and administrators of such a person. Nothing
contained herein shall affect any rights to indemnification to which
Trust personnel, other than Covered Persons, and other persons may be
entitled by contract or otherwise under law.
(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
C-3
<PAGE>
that a claim for indemnification against such liabilities (other than
the payment by Registrant of expenses incurred or paid by a trustee,
officer, or controlling person of Registrant in the successful defense
of any action, suit, or proceeding) is asserted by such trustee,
officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 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:
C-4
<PAGE>
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
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 certified that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York, on the 28th day of April, 2000.
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 April 28, 2000
Eric Banhazl
/s/ Dr. Gunter Dufey
- ----------------------------- Trustee April 28, 2000
Dr. Gunter Dufey
/s/ J. I. Fordwood
- ----------------------------- Trustee April 28, 2000
J. I. Fordwood
/s/ Timothy Guinness
- ----------------------------- Trustee April 28, 2000
Timothy Guinness
/s/ Bret A. Herscher
- ----------------------------- Trustee April 28, 2000
Bret A. Herscher
/s/ J. Brooks Reece, Jr.
- ----------------------------- Trustee April 28, 2000
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.p(a) Funds' Code of Ethics
EX-99.9(b) Distributors' Code of Ethics
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
April 28, 2000
Guinness Flight Investment Funds
225 South Lake Avenue
Suite 777
Pasadena, California 91101
Re: Guiness Flight Investment Funds
Post-Effective Amendment No. 25
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. 25 to Registration Statement No. 33-75340 on Form
N-1A.
Very truly yours,
/s/ Kramer Levin Naftalis & Frankel LLP
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Financial Statements", and "Independent Accountants" in
Post-Effective Amendment No. 25 under the Securities Act of 1933 and Amendment
No. 25 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 4, 2000, with respect to the
financial statements and financial highlights included in its Annual Report for
the year ended December 31, 1999 filed with the Securities and Exchange
Commission.
/s/ERNST & YOUNG LLP
Los Angeles, California
April 27, 2000
GUINNESS FLIGHT INVESTMENT FUNDS
Guinness Flight China & Hong Kong Fund
Guinness Flight Asia Blue Chip Fund
Guinness Flight Asia Small Cap Fund
Guinness Flight Global Government Bond 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 Wireless World Fund
Guinness Flight XXXXX New Economy Fund
CODE OF ETHICS
WHEREAS, GUINNESS FLIGHT INVESTMENT FUNDS (the "Trust") is a
registered investment company under the Investment Company Act of 1940, as
amended (the "ICA"); and
WHEREAS, Rule 17j-1 under the ICA requires the Trust to adopt
a Code of Ethics;
WHEREAS, the purpose of Rule 17j-1 is to prevent affiliated
persons of the Trust in connection with the purchase or sale of a security held
or to be acquired by the Trust from (i) employing any device, scheme or artifice
to defraud the Trust; (ii) making any untrue statements of material fact to the
Trust or omitting to state a material fact necessary in order to make the
statements made to the Trust, in light of the circumstances under which they are
made, not misleading; (iii) engaging in any act, practice or course of business
that operates or would operate as a fraud or deceit on the Trust; (iv) or
engaging in any manipulative practice with respect to the Trust;
NOW, THEREFORE, the Trust hereby adopts this Code of Ethics as
of this 31st day of January, 2000, superseding the Code of Ethics adopted by the
Trust as of the 18th day of August, 1998.
I. DEFINITIONS
For purposes of this Code of Ethics the following terms shall
have the meanings set forth below:
A. "Access Person" means any director(1), officer, or advisory
person of the Trust or of the Trust's Investment Adviser;
provided, however, that any persons who are
- -----------------
(1) This Code of Ethics in places refers to directors. The definition of
"director" in Section 2(a)(12) of the 1940 Act includes any director of a
corporation or any person performing similar functions, including "any natural
person who is a member of a board of trustees of a management company created as
a common-law trust". For convenience, in this memorandum
<PAGE>
access persons of any investment adviser of, administrator or
principal underwriter for the Trust and who reports his or her
securities and transactions to such investment adviser,
administrator or principal underwriter in accordance with Rule
17j-1 of the ICA, shall not be deemed an access person of the
Trust.
B. "Advisory Person" means
1. any employee of the Trust, its investment adviser or
administrator (or of any entity in a control relationship with
the Trust, its investment adviser or administrator, as defined
in Section I.E hereof) who, in connection with his or her
regular functions or duties, makes, participates in, or obtains
information (other than publicly available information)
regarding the purchase or sale of Covered Securities by the
Trust, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and
2. any natural person directly or indirectly owning,
controlling, or holding with power to vote, 25% or more of the
outstanding voting securities of the Trust or its investment
advisers who obtains information (other than publicly available
information) concerning recommendations made by the Trust or
its investment advisers with regard to the purchase or sale of
a security.
C. "Affiliated Persons" or "Affiliates" means
1. any employee or Access Person of the Trust, and any member
of the immediate family (defined as spouse, child, mother,
father, brother, sister, in-law or any other relative) of any
such person who lives in the same household as such person or
who is financially dependent upon such person;
2. any account for which any of the persons described above is
a custodian, trustee or otherwise acting in a fiduciary
capacity, or with respect to which any such person either has
the authority to make investment decisions or from time to time
gives investment advice; and
3. any partnership, corporation, joint venture, trust or other
entity in which any employee of the Trust or Access Person of
the Trust directly or indirectly, in the aggregate, has a 10%
or more beneficial interest or for which any such person is a
general partner or an executive officer.
D. "Beneficial ownership of a security" by any person includes
securities held by: (a) a spouse, minor children or relatives
who share the same home with such person; (b) an estate for
such person's benefit; (c) a trust, of which (i) such person is
a trustee or such person or members of such person's immediate
family have a vested interest in the income or corpus of the
trust, or (ii) such person owns a vested beneficial interest,
or (iii) such person is the settlor and such person has the
- --------------------
(continuation of footnote)
the term "director" also refers to "trustee", and the term "board of directors"
also refers to "board of trustees".
-2-
<PAGE>
power to revoke the trust without the consent of all the
beneficiaries; (d) a partnership in which such person is a
partner; (e) a corporation (other than with respect to treasury
shares of the corporation) of which such person is an officer,
director or 10% stockholder; (f) any other person if, by reason
of contract, understanding, relationship, agreement or other
arrangement, such person obtains therefrom benefits
substantially equivalent to those of ownership; or (g) such
person's spouse or minor children or any other person, if, even
though such person does not obtain therefrom the
above-mentioned benefits of ownership, such person can vest or
revest title in himself at once or at some future time. A
beneficial owner of a security also includes any person who,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting
power and/or investment power with respect to such security.
Voting power includes the power to vote, or to direct the
voting of such security, and investment power includes the
power to dispose, or to direct the disposition of such
security. A person is the beneficial owner of a security if he
has the right to acquire beneficial ownership of such security
at any time within sixty (60) days.
E. "Control" means the power to exercise a controlling influence
over the management or policies of a corporation. Any person
who owns beneficially, either directly or through one or more
controlled corporations, more than 25% of the voting securities
of a corporation shall be presumed to control such corporation.
F. "Covered Security" means any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or
participation in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or subscription,
transferable share, investment contract, voting trust
certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any
put, call, straddle, option or privilege on any security
(including a certificate of deposit) or on any group or index
of securities (including any interest therein or based on the
value thereof), or any put, call straddle, option or privilege
entered into on a national securities exchange relating to
foreign currency, or in general, any interest or instrument
commonly known as a "security", or any certificate of interest
or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to
or purchase, any of the foregoing; provided, however, that
"security" shall not mean securities issued or guaranteed by
the Government of the United States, its agencies or
instrumentalities, bankers' acceptances, bank certificates of
deposit, commercial paper and high quality short-term debt
instruments, including repurchase agreements, or shares of
registered open-end investment companies.
G. "Covered Security held or to be acquired" by the Trust means:
1. any security which, within the most recent fifteen (15)
days,
a) is or has been held by the Trust, or
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<PAGE>
b) is being or has been considered by the Trust for
purchase by the Trust; or
2. any option to purchase or sell, and any security convertible
into or exchangeable for, a Covered Security.
H. An "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933 [15 U.S.C. 77a],
the issuer of which, immediately before the registration, was
not subject to the reporting requirements of sections 13 or
15(d) of the Securities Exchange Act of 1934 [15 U.S.C. 78m or
78o(d)].
I. "Investment Adviser" means Investec Guinness Flight Global
Asset Management Limited and any successor entity.
J. A "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to
section 4(2) or section 4(6) [15 U.S.C. 77d(2) or 77d(6)] or
pursuant to rule 504, rule 505, or rule 506 [17 CFR 230.504,
230.505, or 230.506] under the Securities Act of 1933.
K. "Principal underwriter" of or for the Trust (unless the Trust
becomes a closed-end company), or of any security issued by the
Trust, means any underwriter who as principal purchases from
the Trust, or pursuant to contract has the right (whether
absolute or conditional) from time to time to purchase from the
Trust, any security issued by the Trust for distribution, or
who as agent for the Trust sells or has the right to sell any
security issued by the Trust to a dealer or to the public or
both, but does not include a dealer who purchases from the
Trust through a principal underwriter acting as agent for such
company.
L. "Purchase or sale of a Covered Security" includes the writing
of an option to purchase or sell a security.
II. COMPLIANCE WITH GOVERNING LAWS,
REGULATIONS AND PROCEDURES
A. All employees shall have and maintain knowledge of and shall
comply strictly with all applicable Federal and state laws and
all rules and regulations of any governmental agency or
self-regulatory organization governing his or her activities.
B. Each employee will be given a copy of the Code of Ethics at the
time of his or her employment and each Access Person is
required to submit a statement at least annually that he or she
has reviewed the Code of Ethics.
C. All employees shall comply strictly with procedures established
by the Trust to ensure compliance with applicable Federal and
state laws and regulations of governmental agencies and
self-regulatory organizations. The employees shall not
knowingly participate in, assist, or condone any acts in
violation of any statute
-4-
<PAGE>
or regulation governing securities matters, nor any act which
would violate any provision of this Code of Ethics, or any
rules adopted thereunder.
D. Each employee having supervisory responsibility shall exercise
reasonable supervision over employees subject to his or her
control, with a view to preventing any violation by such
persons of applicable statutes or regulations, the Trust
procedures or the provisions of this Code of Ethics or
procedures adopted in furtherance thereof.
E. Any employee encountering evidence that acts in violation of
applicable statutes or regulations or provisions of this Code
of Ethics or procedures adopted in furtherance thereof have
occurred shall report such evidence to the President of the
Trust who will report to the Board of Trustees of the Trust.
III. CONFIDENTIALITY OF TRANSACTIONS
A. Information relating to the Trust's portfolio and research and
studies activities is confidential until publicly available.
Whenever statistical information or research is supplied to or
requested by the Trust, such information must not be disclosed
to any persons other than persons designated by the President
or the Board of Trustees of the Trust. If the Trust is
considering a particular purchase or sale of a security, this
must not be disclosed except to such duly authorized persons.
B. Any employee authorized to place orders for the purchase or
sale of securities on behalf of the Trust shall take all steps
reasonably necessary to provide that all brokerage orders for
the purchase and sale of securities for the account of the
Trust will be so executed as to ensure that the nature of the
transactions shall be kept confidential until the information
is reported to the Securities and Exchange Commission or the
Trust's shareholders in the normal course of business.
C. If any employee of the Trust or Access Person should obtain
information concerning the Trust's portfolio (including, the
consideration by the Trust of acquiring, or recommending any
security for the Trust's portfolio), whether in the course of
such person's duties or otherwise, such person shall respect
the confidential nature of this information and shall not
divulge it to anyone unless it is properly part of such
person's services to the Trust to do so or such person is
specifically authorized to do so by the President of the Trust.
IV. ETHICAL STANDARDS
A. Every employee, in making any investment recommendation or
taking any investment action, shall exercise diligence and
thoroughness, and shall have a reasonable and adequate basis
for any such recommendations or action.
B. No employee shall undertake independent practice for
compensation in competition with the Trust.
-5-
<PAGE>
C. The employees of the Trust and Access Persons and their
respective affiliates, shall conduct themselves in a manner
consistent with the highest ethical standards. They shall avoid
any action, whether for personal profit or otherwise, that
results in an actual or potential conflict of interest, or the
appearance of a conflict of interest, with the Trust or which
may be otherwise detrimental to the interests of the Trust.
D. An employee having discretion as to the selection of
broker-dealers to execute securities transactions for the Trust
shall select broker-dealers solely on the basis of the services
provided directly or indirectly by such broker-dealers to the
Trust. An employee shall not, directly or indirectly, receive a
fee or commission from any source in connection with the sale
or purchase of any security for the Trust.
E. In addition, the Trust shall take all actions reasonably
calculated to ensure that they engage broker-dealers to
transact business with the Trust whose partners, officers and
employees, and their respective affiliates, will conduct
themselves in a manner consistent with the provisions of this
Section IV.
F. Conflicts of interest generally result from a situation in
which an individual has personal interests in a matter that is
or may be competitive with his responsibilities to another
person or entity (such as the Trust) or where an individual has
or may have competing obligations or responsibilities to two or
more persons or entities. In the case of the relationship
between the Trust on the one hand, and its employees and Access
Persons and their respective affiliates, on the other hand,
such conflicts may result from the purchase or sale of
securities for the account of the Trust and for the account of
any affiliated person or from the purchase or sale for the
account of the Trust of securities in which an Access Person or
employee of the Trust, or his or her affiliates, has an
interest. In these cases, all potential or actual conflicts
must be disclosed and the first preference and priority must be
to avoid such conflicts of interest wherever possible and,
where they unavoidably occur, to resolve them in a manner not
disadvantageous to the client.
V. ACTIVITIES AND TRANSACTIONS OF ACCESS PERSONS
A. No Access Person shall recommend to, or cause or attempt to
cause, the Trust to acquire, dispose of, or hold any security
(including, any option, warrant or other right or interest
relating to such security) which such Access Person or an
affiliate of such Access Person has direct or indirect
beneficial ownership unless the Access Person shall first
disclose in writing to the President of the Trust all facts
reasonably necessary to identify the nature of the ownership of
such Access Person or his or her affiliate in such security.
B. No Access Person or affiliate of such Access Person shall
engage in a purchase or sale of a security (including, any
option, warrant or other right or interest relating to such
security), other than on behalf of the Trust, with respect to
any security held or to be acquired by the Trust, unless such
transaction is: only remotely
-6-
<PAGE>
potentially harmful to the Trust because it would be unlikely
to affect trading in or the market value of the security; or
non-volitional on the part of the Access Person; or clearly not
related economically to the securities to be acquired, disposed
of or held by the Trust; or in light of all relevant facts and
circumstances, otherwise not disadvantageous to the Trust.]
C. No Access Person shall acquire direct or indirect beneficial
ownership of an unregistered security issued in a Limited
Offering without obtaining the prior written approval of the
President of the Trust.
D. No Access Person shall acquire direct or indirect beneficial
ownership of, or otherwise purchase, securities issued during
an Initial Public Offering.
E. If, as a result of fiduciary obligations to other persons or
entities, an Access Person believes that such person or an
affiliate of such person is unable to comply with certain
provisions of the Code, such Access Person shall so advise the
President of the Trust in writing, setting forth with
reasonable specificity the nature of such fiduciary obligations
and the reasons why such Access Person believes such person is
unable to comply with any such provisions. The President of the
Trust may, in his discretion, exempt such Access Person or an
affiliate of such person from any such provisions, if the
President of the Trust shall determine that the services of
such Access Person are valuable to the Trust and the failure to
grant such exemption is likely to cause such Access Person to
be unable to render services to the Trust. Any Access Person
granted an exemption (including, an exception for an affiliate
of such person), pursuant to this Section shall, within three
business days after engaging in a purchase or sale of a
security held or to be acquired by a client, furnish the
President of the Trust with a written report concerning such
transaction, setting forth the information specified in Section
hereof.
VI. REPORTING PROCEDURES
A. Except as provided by Section VI.E hereof, every Access Person
shall report to the President of the Trust the information
described in Sections VI.B and VI.C hereof with respect to
transactions in any security in which such Access Person has,
or by reason of such transaction acquires, any direct or
indirect beneficial ownership in the security (whether or not
such security is a security held or to be acquired by a
client); provided, however, that any such report may contain a
statement that the report shall not be construed as an
admission by the person making such report that he has any
direct or indirect beneficial ownership in the security to
which the report relates.
B. Initial Holdings Report. Each Access Person, within ten days of
becoming an Access Person, shall report to the Trust, the
following information, in the form of Appendix A hereto:
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<PAGE>
1. The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct or
indirect beneficial ownership when the person became an Access
Person;
2. The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held
for the direct or indirect benefit of the Access Person as of
the date the person became and Access Person; and
3. The date that the report is submitted by the Access Person.
C. Quarterly Transactions Report. Every report required to be made
pursuant to Section VI.A hereof shall be made not later than
ten days after the end of the calendar quarter in which the
transaction to which the report relates was effected, shall be
in the form of Appendix B hereto, and shall contain the
following information:
1. With Respect to Transactions During the Quarter In Covered
Securities:
a) The date of transaction, the title, the interest
rate and maturity date (if applicable), the
number of shares, and the principal amount of
each Covered Security involved;
b) The nature of the transaction (i.e., purchase,
sale or any other type of acquisition or
disposition);
c) The price at which the transaction was effected;
and
d) The name of the broker, dealer or bank with or
through which the transaction was effected.
e) The date that the report is submitted by the
Access Person.
2. With Respect to Accounts In Which Any Securities Were Held:
a) The name of the broker, dealer or bank with whom
the Access Person established the account;
b) The date the account was established; and
c) The date that the report is submitted by the
Access Person.
D. Annual Holdings Report. Access Persons must report the
following information to the Trust on an annual basis no later
than 20 calendar days after December 31 of each year:
1. The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct or
indirect beneficial interest;
-8-
<PAGE>
2. The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities are held
for the direct or indirect benefit of the Access Person; and
3. The date that the report is submitted by the Access Person.
In the event that no securities are held as of December 31,
the report should specify that securities were not held as of
such date. This report should include all securities and other
financial property , including book entry shares held at
companies, broker/dealers, investment advisers or other
institutions and physically issued certificates held in a safe
deposit box, at one's home, or in the trust department of a
bank or trust company.
E. Notwithstanding the provisions of Sections V.C, V.D, VI.A and
VI.C hereof,
1. No person shall be required to make a report with respect to
transactions effected for any account over which such person
does not have any direct or indirect influence or control;
2. A Trustee of the Trust who is not an interested person of
the Trust and who would be required to report solely by reason
of being a Trustee of the Trust is not required to make:
a) An Initial Holdings Report under Section VI.B or
an Annual Holdings Report under Section VI.D;
and
b) A Quarterly Transactions Report under Section
VI.C, unless the Trustee knew, or in the
ordinary course of fulfilling his or her
official duties as a Trustee of the Trust,
should have known that during the 15-day period
immediately before or after the Trustee's
transaction in a Covered Security, the Trust
purchased or sold the Covered Security, or the
Trust or its Investment Adviser considered
purchasing or selling the Covered Security.
3. A Trustee of the Trust who is not an interested person of
the Trust and who would be required to pre-clear transactions
solely by reason of being a Trustee of the Trust is not
required to obtain any such pre-clearance.
4. No report is required from an Access Person of an investment
company registered under the ICA if such investment company is
a money market fund or an investment company that does not
invest in Covered Securities.
5. No Quarterly Transactions Report is required from an Access
Person of the Trust if the report would duplicate information
contained in broker trade confirmations or account statements
received by the Trust, its Investment Adviser, Administrator or
its Principal Underwriter with respect to that Access Person,
if all of the information required to be contained in the
Quarterly Transactions
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<PAGE>
Report is contained in such broker trade confirmations or
account statements that are received within ten days after the
end of the calendar quarter.
VII. REVIEW PROCEDURES
A. The reports submitted by Access Persons pursuant to Section
VI.C hereof shall be reviewed at least quarterly by the
President of the Trust, or such other persons or committees as
shall be designated by the Board of Trustees, in order to
monitor compliance with this Code of Ethics. The President
shall report all failures to comply with this Code of Ethics to
the Board of Trustees.
B. If it is determined by the Board of Trustees that a violation
of this Code of Ethics has occurred and that the person
violating this Code of Ethics has purchased or sold a security
at a more advantageous price than that obtained by the Trust,
such person shall be required to offer to sell to or purchase
from the Trust, as the case may be, such security at the more
advantageous price. If this cannot be consummated, then the
Board of Trustees shall take such other course of action as it
may deem appropriate. With respect to any violation of this
Code of Ethics, the Board of Trustees may take any preventive,
remedial or other action which it may deem appropriate. In
determining whether or not there has been, or may be, a
conflict of interest between the Trust and any person subject
to this Code of Ethics, the Board of Trustees shall consider
all of the relevant facts and circumstances.
C. At least annually, the Trust shall furnish to the Board of
Trustees a written report that:
1. Describes any issues arising under this Code of Ethics or
procedures adopted in furtherance thereof, including but not
limited to, any information about material violations of this
Code of Ethics, procedures adopted in furtherance thereof, and
sanctions impose in response to such material violations; and
2. Certifies that the Trust has adopted procedures reasonably
necessary to prevent Access Persons from violating this Code of
Ethics.
D. The records created and maintained under this Code of Ethics
shall be maintained as follows:
1. A copy of each Code of Ethics for the Trust, its investment
adviser(s) and its principal underwriter in effect at any time
in the last five years must be maintained in an easily
accessible place.
2. A copy of any records of violations of the Code of Ethics or
any action taken as a result of a violation must be maintained
in an easily accessible place for five years after the end of
the fiscal year in which the violation occurs.
3. All Initial Holdings Reports, Quarterly Transactions Reports
and Annual Holdings Reports from Access Persons, and all
reports from the Trust, its
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<PAGE>
investment adviser(s) and its principal underwriter, shall be
maintained for at least five years after the end of the fiscal
year in which the report was made, the first two years in an
easily accessible place.
4. A record of all persons currently or within the past five
years who are or were required to make reports and persons
designated to review the reports required under this Code of
Ethics shall be maintained in an easily accessible place for at
least five years.
5. All approvals of the purchase of securities in an Initial
Public Offering or Limited Offering shall be maintained for at
least five years after the end of the fiscal year in which the
approval is granted.
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List of Access Persons Required to Report Under Code of Ethics
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<PAGE>
<TABLE>
<CAPTION>
GUINNESS FLIGHT INVESTMENT FUNDS
PERSONAL SECURITIES ACCOUNT NOTIFICATION FORM
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<S> <C> <C>
(1.)ACCESS PERSON'S NAME and TITLE DIRECT SUPERVISOR (if applicable)
TELEPHONE NUMBER
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(2.) NAME IN WHICH PERSONAL (3.) BROKER/INSTITUTION'S NAME AND (4.) ACCOUNT NUMBER (5.) TYPE OF ACCOUNT
SECURITIES ACCOUNT IS HELD MAILING ADDRESS
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</TABLE>
I CERTIFY THAT THE INFORMATION CONTAINED IN THIS STATEMENT IS ACCURATE AND THAT
LISTED ABOVE ARE ALL PERSONAL SECURITIES ACCOUNTS IN WHICH I HAVE BENEFICIAL
INTEREST OR OVER WHICH I EXERCISE INVESTMENT CONTROL.
(6.)SIGNATURE________________________________
(7.)DATE OF HIRE_____________________________
PLEASE RETURN YOUR COMPLETED FORM TO _________________________________
<PAGE>
INSTRUCTIONS: PERSONAL SECURITIES ACCOUNT NOTIFICATION FORM
Please type or print the information requested.
1. Name, telephone number, title, and direct supervisor, if applicable.
2. Name in which Personal Securities Account is Held: List your own
Securities Accounts as well as those accounts in which you have a
beneficial interest in or exercise investment control over.
3. Broker/Institution's Name and Mailing Address: List the name and
mailing address of each brokerage firm, investment adviser, bank, or
other financial institution maintaining the account.
4. Account Number: List the complete account number.
5. Type of Account: Indicate the type of account. For example, is the
account a brokerage account, a trust, a custodial account, etc.
6. Employee's Signature: Upon completion of the Personal Securities
Account Listing, sign the form. Your signature certifies that the
information contained in this document is accurate and that it contains
a listing of all of your personal securities accounts, all accounts in
which you have a beneficial interest and all accounts over which you
exercise investment control.
7. Date of Hire: Insert your date of hire or the date upon which you
became an Access Person as defined in the Code of Ethics.
NOTE: New Accounts and Changes in Statement of Personal Accounts must be
reported to __________________ immediately.
<PAGE>
Duplicate Copies of Confirmations and Statements
(1.) To:
(2.) From:_____________________________
Dear Sir or Madam:
I am an employee of Investec Guinness Flight Global Asset Management Limited,
investment adviser to Guinness Flight Investment Funds. Please arrange for
duplicate copies of statements and confirmations concerning my accounts to be
sent directly to:
Compliance Officer,
Investec Guinness Flight Global Asset Management Limited
[225 South Lake Avenue, Suite 777
Pasadena, CA 91101]
I maintain, have an interest in, or exercise investment control over, the
following accounts at your institution:
(3.)
------------------------------------------------------------------------
Account Title Account Number
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Dated: ____________
(4.) Employee Signature:______________________________
(5.) Name & Address:__________________________________
__________________________________
<PAGE>
INSTRUCTIONS: DUPLICATE COPIES OF CONFIRMATIONS AND STATEMENTS FORM
COMPLETE THIS FORM FOR EACH
BROKERAGE FIRM, INVESTMENT ADVISER, BANK OR OTHER FINANCIAL INSTITUTION
AT WHICH YOU
MAINTAIN AN ACCOUNT,
HAVE AN INTEREST IN AN ACCOUNT,
OR EXERCISE INVESTMENT CONTROL OVER AN ACCOUNT.
Please type or print the information requested.
1. Broker/Institution's Name and Mailing Address: List the name and
mailing address of each brokerage firm, investment adviser, bank, or
other financial institution maintaining the account.
2. Your name.
3. Account Title and Number: List the complete account title and number
for your own securities accounts as well as those accounts in which you
have a beneficial interest or over which you exercise investment
control.
4. Employee's Signature: Sign the form and mail it to the broker or other
financial institution.
5. Print your name and address.
Mail this completed form to the broker or other financial institution.
<PAGE>
Guinness Flight Investment Funds
CERTIFICATION
I hereby certify to Guinness Flight Investment Funds that I have read and
understand the Code of Ethics dated ______________, 2000, and will act in
accordance with the policies and procedures expressed therein.
________________ ____________________________
(Date) (Signature)
____________________________
(Printed Name)
<PAGE>
Guinness Flight Investment Funds
List of Persons Required to Report Under the Code of Ethics
INVESTMENT COMPANY ADMINISTRATION, LLC
FIRST FUND DISTRIBUTORS, INC.
This Code of Ethics (the "Code") has been adopted by Investment Company
Administration, LLC ("ICA")and First Fund Distributors, Inc.("FFD") in
accordance with Rule 17j-1 under the Investment Company Act of 1940 (the "1940
Act").
1. Legal Requirement
Rule 17j-1 makes it unlawful for certain persons, in connection with
the purchase or sale by such person of a security held or to be acquired by a
Fund:
(1) To employ any device, scheme, or artifice to defraud the Fund;
(2) To make to the Fund any untrue statement of a material fact or omit
to state to the Fund a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading;
(3) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon the Fund; or
(4) To engage in any manipulative practice with respect to the Fund.
II. Definitions
(a) "Fund" means any investment company registered under the 1940 Act,
or any series or class of shares of such an investment company, which has a
contractual relationship with ICA or FFD.
(b) "Access person" means any employee of ICA or FFD who, in connection
with his or her regular functions or duties, obtains information that a security
is held or to be acquired by a Fund.
(c) A security is "held or to be acquired" if within the most recent 15
days it (i) is or has been held by a Fund, or (ii) is being or has been
considered by the Fund or its investment adviser for purchase by a Fund. A
purchase or sale includes the writing of an option to purchase or sell.
(d) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated.
(e) "Beneficial ownership" shall be interpreted in the same manner as
it would be in determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an access person has or
<PAGE>
acquires.
(f) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act.
(g) "Security" shall have the meaning set forth in Section 2(a)(36) of
the 1940 Act, except that it shall not include securities issued by the
Government of the United States, bankers' acceptances, bank certificates of
deposit, commercial paper and shares of registered open-end investment
companies.
III. Exempted Transactions
The prohibitions of Section IV of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the access person has
no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for purchase or sale
by a Fund.
(c) Purchases or sales which are non-volitional on the part of either the access
person or the Fund.
(d) Purchases which are part of an automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer pro rata
to al lholders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired.
IV. Prohibited Purchases and Sales
(a) No access person shall knowingly purchase or sell, directly or indirectly,
any security held or to be acquired by a Fund until the first business day after
such Fund completes all of its intended trades in such security.
(b) In order to avoid making a prohibited purchase or sale of a security, no
access person shall purchase or sell any security except as indicated below,
without obtaining advance written clearance of such transaction from a person
designated by ICA and FFD to grant such advance clearance.
(c) Advance clearance is not required for the purchase or sale of 500 shares or
less (during a rolling 30 day period) of an equity security which (i) is listed
on the New York Stock Exchange or the NASDAQ National Market System, or (ii) has
a market capitalization of $1 billion or more at the time of purchase or sale.
(d) No access person may purchase a security in an initial public offering
without the prior written approval of the person designated by ICA and FFD to
grant such advance clearance.
<PAGE>
(e) No access person shall engage in any act, practice, or course of conduct
that would violate the provisions of Rule 17j-1 as set forth in Section I above.
V. Reporting
Every access person shall report to the Compliance Officer designated by ICA and
FFD the information described below with respect to transactions in any security
in which such access person has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership in the security, provided, however, that
an access person shall not be required to make a report with respect to
transactions effected for any account over which such person does not have any
direct or indirect influence.
(a) Initial Holdings Report. Within ten days of beginning employment,
each Access Person must report the following information:
(1) The title, number of shares and principal amount of each security
in which the Access Person had any direct or indirect beneficial
ownership when the person became an Access Person;
(1) The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held for the
direct or indirect benefit of the Access Person; and
(1) The date the report is submitted by the Access Person.
(b) Quarterly Transaction Reports. Within ten days of the end of each
calendar quarter, each Access Person must report the following information:
(1) With respect to any transaction during the quarter in a Security
in which the Access Person had any direct or indirect beneficial
ownership:
(i) The date of the transaction, the title, the interest
rate and maturity date (if applicable), the number of
shares and the principal amount of each security
involved;
(i) The nature of the transaction (i.e., purchase, sale);
(i) The price of the security at which the transaction was
effected;
(i) The name of the broker, dealer or bank with or through
which the transaction was effected; and
(i) The date that the report is submitted by the Access
Person.
<PAGE>
(C) Annual Holdings Reports. Each year, the Access Person must report
the following information:
(1) The title, number of shares and principal amount of each security
in which the Access Person had any direct or indirect beneficial
ownership;
(1) The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities were held for the
direct or indirect benefit of the Access Person; and
(1) The date the report is submitted by the Access Person.
VI. Sanctions
Upon discovering a violation of this Code, ICA or FFD may impose such sanctions
as it deems appropriate, including, inter alia, a letter of censure, suspension,
or termination of the employment of the violator, and/or a disgorging of any
profits made by the violator.
May 1, 2000
